While staying an order passed by the market regulator, the Securities Appellate Tribunal (SAT) rapped Securities and Exchange Board of India (SEBI) for not following due process, like providing copies of orders to parties involved in a the case.
Coming down heavily on SEBI, the order passed by SAT
, says, "In the instant case, we find that the whole world knows about the impugned order except the appellants. Till date they have not been supplied a copy of the impugned order in spite of the oral direction given by this Tribunal on Monday."
"We are constrained to observe that the system undertaken by SEBI needs a revisit. Their liability and their onerous duty does not end the moment they upload the order on their website. The first duty is to supply a copy of the impugned order to the aggrieved party which in the instant case has not been done till date," the Tribunal said.
On Tuesday, the Tribunal had stayed SEBI's order barring NDTV promoters—Prannoy Roy and Radhika Roy—from holding any key managerial positions in the board or the management of the news channel.
Market regulator SEBI is required to provide copy of orders passed to parties involved in the case. In the NDTV case, SEBI had initiated adjudication process by issuing a show-cause notice. Thus, SAT observed, the appellants (the Roys) have the first right to be supplied a copy of the impugned order from SEBI and it is the onerous duty of SEBI to supply a copy of the impugned order to them so that the directions are made effective.
"We accordingly, direct the appellants to apply for a certified copy of the impugned order. If such an application is made, the SEBI will provide a certified copy of the impugned order within five working days," the Tribunal added.
The matter would be listed for admission and for final disposal on 16 September 2019, it said.
On 14th June, the market regulator debarred the Roys from holding any key managerial positions in the Board or the management of the news channel company for being "involved in fraudulent acts". Additionally, along with RRPR Holding Pvt Ltd, the Roys were debarred from accessing the stock markets or selling their holdings in the news channel. The Roys were also found to be in violation of NDTV's code of conduct, SEBI said in an order.
In its order, the SAT bench of Justice Tarun Agarwala, Dr CKG Nair and Justice MT Joshi, stated, “…we are of the opinion that whether the loan agreement was a sham transaction or not and whether the loan agreement, in fact, wrested control of NDTV to Vishva Pradhan Commercial is a question which is required to be considered in detail. Whether call option gives an unfettered right of controlling the company without exercising the right of call option is also required to be considered. Upon the interpretation of the loan agreement at this stage, we are of the opinion that these agreements have remained in existence for the past 10 years.
"The loan agreements were executed in the year 2009 and 2010. Whether there was a violation of the SEBI laws including the SEBI Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market (PFUTP) Regulations are all required to be considered. At this stage, prime-facie, we are of the opinion that a listed company, which is managed by the appellants holding more than 61% of the total shares cannot remain headless.”
The order came after the SEBI carried out an investigation into allegations against the Roys and RRPR Holdings for not disclosing material information to the shareholders of NDTV about loan agreements entered into by them with VCPL.
As observed by the SAT in its order, RRPR Holding took a loan of Rs350 crore from ICICI Bank Ltd, at an interest rate of 19% per annum. This loan was required to be repaid within a stipulated period. Finding it difficult to repay the interest and principal amount RRPR Holding then took two loans from VCPL totalling about Rs400 crore in July 2009 and January 2010.
RRPR Holding held shares of NDTV which is a listed company. "Based on the loan taken from VCPL it was alleged that the loan of ICICI Bank was liquidated.
While taking a loan from VCPL certain agreements were entered, namely, that VCPL will give interest free loan for a period of 10 years on the condition that the principal amount would be paid within 10 years and that the VCPL will have a right of first refusal on 50% of the shares in the event the said shares are sold in the market. Further, a call option agreement was made whereby an option was given to two associates of VCPL for transfer of 30% of the shareholding of RRPR Holdings to it at the price of Rs214.65 per share. It was stated that, at the time the loan agreement was executed, the price of the NDTV share was Rs130 per share. It was also stated that the price of Rs214.65 per share was fixed in order to cover the loan amount of Rs403.85 crore. The agreement further stipulated that RRPR Holding would have the sole control and will not sell the shares without the right of the first refusal by the lender, namely, VCPL.
After considering the loan agreement in detail, SEBI in its findings stated that the said loan agreement was nothing else but a sham agreement and that no prudent person or entity would enter into such an agreement giving a loan without any interest. In fact, SEBI further found that the transfer of money, was to control the listed company NDTV. SEBI further found that the transfer of 9% individual shares of Prannoy Roy and Radhika Roy to its holding company, namely, RRPR Holding amounted to a non-disclosure of transfer of shares inviting violations of disclosure obligations, the SAT order noted.
Last year in June, G Mahalingam, whole-time member of SEBI, in an order,
had observed that “…VCPL did indirectly acquire control in NDTV, by entering into the loan agreement and the call option agreements on 21 July 2009, thereby obligating it to make a public announcement of an open offer under Regulation 12 read with regulation 14(3) of SEBI (SAST) Regulations, as alleged in the show cause notice (SCN).”