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No coercive action against NDTV promoters Prannoy Roy, Radhika Roy for insider trading: Supreme Court to SEBI

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The Supreme Court on Friday asked the Securities and Exchange Board of India (SEBI) not to take coercive steps against the promoters of NDTV, Prannoy and Radhika Roy, who are under the scanner for insider trading.

The Bench, led by Chief Justice N. V. Ramana, took up the plea. Solicitor General of India Tushar Mehta informed the Court that it was consented to by NDTV that the same be taken up next week, on September 3. The Court then said in that case, coercive steps may not be taken against the Roy’s.

Senior Advocate Mukul Rohatgi also urged for the same.

The promoters of NDTV had filed appeal against an interim order of the Securities Appellate Tribunal on January 4, 2021, directing the channel to deposit 50 percent of the fine imposed earlier by SEBI.

Earlier, the Supreme Court had stayed the recovery of penalty of Rs 27 crore imposed by SEBI on NDTV promoters Prannoy Roy and Radhika Roy as well as their holding company RRPR Holding Pvt Ltd, for allegedly violating various securities norms by concealing information from shareholders regarding certain loan agreements.

The bench of Justices D. Y. Chandrachud and M. R. Shah also directed the appellants to cooperate in the expeditious disposal of the appeals against the SEBI order by the SAT, which was listed for final disposal on April 6. On February 15, the SAT had directed that if the appellant deposits 50 percent of the amount minus interest within four weeks, the balance amount shall not be recovered during the pendency of the appeal. It was this order of December 24, 2020, which had been challenged in the top court.

Senior Advocate Mukul Rohatgi, appearing for the appellants, said, “The running of a TV channel is a very difficult proposition. A lot of money is needed, and the revenue is not good. That is why so many TV channels have been boarded up. It is only Times of India and the other big channels which are functioning because they have a big network.

“NDTV is run by husband and wife- Prannoy and Radhika Roy. They had taken a loan from the ICICI Bank in 2008 of Rs 375 crore. It was repaid by another entity VCPL, from which another loan was taken in 2009. They took over the loan and the loan to them is still continuing, on which no interest is payable. Because no interest is payable, they think it to be a sham for the transfer of control of NDTV to the VCPL and have penalised me. I have not transferred my shares or my wife’s shares or those of my holding company to VCPL.

“They said it is a sham transaction and that I have transferred control. How can I transfer control without any transfer of shares? I have all the shares! They asked why have you taken a loan from a private entity to repay ICICI Bank? There seems to be some prejudice because of this! It was impossible for us to service the ICICI Bank loan! Who have I cheated? Why is there a penalty of Rs 25 crore and an individual penalty of Rs 1-1 crore? This amounts to closing down the channel! We have no money.”

“So the allegation is only of taking over of an outstanding loan?” asked Justice Chandrachud.

“It is not an allegation… There is 100 page decision of SEBI. Every time, the argument is that it is NDTV, Prannoy Roy, Radhika Roy. They are not a separate class, who deserve a separate treatment. The violations are of very serious nature. They are saying that they have not transferred the shares! Their shares are worthless! There is a reasoned and speaking judgement! There is a direction by a statutory regulatory body that penalty has to be paid!

The Tribunal says that it is not a pre-deposit, but one cannot challenge a money decree without some deposit. This is that ‘some deposit’…This has been a practice in the tribunal!

I would be guilty of not opposing the present appellants when I have opposed others!,” argued Solicitor General Tushar Mehta.

On February 15, 2021, the SAT had directed the NDTV promoters to deposit 50% of the disgorged amount before SEBI. The Tribunal also mentioned that if the Roys deposit 50% of the amount minus interest within four weeks, the balance amount should not be recovered during the pendency of the appeal.

SEBI has imposed a fine of Rs 25 crore on the Roys and RRPR Holding, which needed to be paid jointly and severally for allegedly violating various securities norms by concealing information from shareholders regarding certain loan agreements. Besides, a penalty of Rs 1 crore each was levied on Prannoy Roy and Radhika Roy.

The market regulator had imposed this penalty in view of alleged violation of various securities norms, where information was concealed from shareholders in connection with certain loan agreements. The SAT had also noted that if NDTV were to deposit the amount, the balance would not be recovered during the pendency of the appeal before the Tribunal.

On January 28, 2021, the NDTV promoters had informed the Supreme Court that the news channel is facing financial hardship due to limited resources. The submissions were made during the hearing of their appeal challenging the SAT order directing the Roys to deposit 50% of the alleged unlawful gains, which market regulator SEBI said they made.

Last month, the apex court had asked SAT to hear the appeal of NDTV and the Roys against the orders of SEBI in other matter without the pre-condition of depositing 50% of the fine of Rs16.97 crore.

As observed by the SAT in its June 2019 order, RRPR Holding took a loan of Rs 350 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 Vishva Pradhan Commercial Pvt Ltd (VCPL) totalling about Rs 400 crore in July 2009 and January 2010.

RRPR Holding held shares of NDTV which is a listed company.

Read Also: Seeking transfer of criminal trial at the drop of a hat not recognised by any tenet of law: Allahabad High Court

SAT says, “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 Rs 214.65 per share. It was stated that, at the time the loan agreement was executed, the price of the NDTV share was Rs 130 per share. It was also stated that the price of Rs 214.65 per share was fixed in order to cover the loan amount of Rs 403.85 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.

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