In probably the first such action in India, NDTV, through its law firm Amarchand Mangaldas has sent a legal notice to Sanjay Dutt, who holds a 1% stake in the broadcasting company for raising questions about its corporate policies and practices

In June, Moneylife wrote how Sanjay Dutt, director of Quantum Securities, has levelled a series of allegations about wrong practices and poor governance at NDTV Ltd. He made these charges in writing to almost every regulatory authority in India – the Ministry of Corporate Affairs, the Securities & Exchange Board of India (SEBI), the Reserve Bank of India (RBI) and other institutional investors. See our report Allegations of NDTV’s Many Shenanigans. Following our article, on 27^th June 2013, NDTV Ltd sent a legal notice to Quantum Securities, Sanjay Dutt and directors of the company,  (27^th June 2013) through its law firm Amarchand Mangaldas accusing him of making defamatory statements, writing to various regulators and ‘launching a tirade’ against NDTV because he bears a ‘grudge’ against the broadcaster. This is probably the first time that charges by a significant shareholder have been termed ‘defamatory’ by a company, mainly because he was a ‘remunerated consultant’ sometime in the past. Mr Dutt and his firm Quantum Securities hold a significant stake in NDTV.
 

Essentially, the legal notice enumerates all the allegations that it has made in the letters attached to the article above. It also asks Sanjay Dutt to tender an unconditional apology to NDTV and withdraw all the letters, emails and complaints that he has sent to various authorities.  Moneylife learns that far from apologising, Mr Dutt sent another letter to SEBI seeking the regulator’s intervention to help a ‘minority shareholder’.  What is unique is that none of the regulators have responded to Mr Dutt, not even to dismiss his charges as false. Yet, the same SEBI has now been armed by the government with powers of search, seizure and attachment.
 

It is just short of a month since NDTV sent the notice, but it has apparently not translated this to actual litigation as yet.  Therefore, it is time to revisit what Mr Dutt has to say. We also emailed NDTV’s executive vice chairman Narayana Rao asking if the litigation is filed.
 

• •Mr Dutt’s primary allegation is that chairman Prannoy Roy and his wife Radhika Roy have received irregular promoter funding of Rs375 crore through RRPR Holdings P limited, which is against Reserve Bank rules. RRPR Holdings  (which stands for the initials of the two promoters) has a paid up capital of just Rs one lakh and holds a 29% stake in NDTV. The funds were made available to the company against the pledge of this substantial shareholding.  While the bulk of the loan was eventually repaid to the bank, a tiny sum of Rs4.40 crore remains outstanding, but, strangely enough, the bank continues to hold a charge on the entire shareholding worth Rs375 crore (as per the latest, certified ROC records obtained by Mr Dutt). This suggests that the funding has not shifted to another source, against the charge of the same shares.
   
• •He also argues that his campaign is against the “systematic destruction of shareholder value” by NDTV and is not motivated by personal issues. He points to buy-back transactions by the promoters, with institutional investors like General Atlantic, at a pre-decided price, which are portrayed to the stock exchanges as an “open offer”.  In response to a Moneylife query, NDTV had told us that in December 2007, NDTV’s promoters “acquired 48,35,850 (7.73%) shares of NDTV from GA Global Investments Limited, who had decided to sell the said shares, as a result of which their shareholding crossed the 55% threshold”. The open offer, they say, was as mandated by the takeover code and Mr Sanjay Dutt was a principal advisor at NDTV at that time and has advised them on the compliances in this regard.
   
• •Mr Dutt  also argues that while public shareholders have made no money, the promoters and directors pay themselves lavishly. As recently as 12 July 2013, the company has sought central government permission under Sec 640B for enhanced remuneration to directors, even though there are no profits from operations nor taxes paid to the government for many years.
   
• •Mr Dutt further says that NDTV’s executive management, a small group close to the promoters, which include editors, law firms, tax advisers and consultants have enjoyed first class business travel, hefty remuneration, ex-gratia bonuses etc adding up to a massive Rs320 crore over four years (plus ESOPS), even as the company has made losses, failed to pay dividends and not paid taxes.
   

The NDTV promoters together hold over 61% of the equity as per public records. In response to Moneylife’s queries, its executive vice chairman KVL Narayan Rao confirmed the serving of the legal notice and the sequence of events leading up to it.  But, nearly a month after its legal notice and our first article, there is no sign of NDTV actually filing defamation charges against Mr Dutt.

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