Roy ceding NDTV’s control to Ambani aide is SEBI’s imagination, says SAT

Does Mukesh Ambani’s close associate Mahendra Nahata control the new channel NDTV? The Securities and Appellate Tribunal (SAT) has thrashed such a notion of market regulator SEBI that Vishva Pradhan Commercial (VPCL), a company belonging to Nahata, controls NDTV. Nahata is a long-standing Ambani aide and a board member of a few Reliance group companies. In 2019, SEBI’s Whole Time Member (WTM), G Mahalingam, said he had laid bare the “true nature of the transaction (between VPCL and Radhika and Pranoy Roy, NDTV founder promoters), which was the acquisition of a beneficial interest in NDTV , shrouded in loan and call option agreements”. But SAT says it is all a figment of SEBI’s imagination.

VPCL gave a loan of nearly ₹350 crore to the Roys a few years ago, and the agreement had several clauses, which, as per a complaint, violated SEBI norms. In 2019, SEBI concluded that “under the garb of a loan agreement, NDTV was being sold to VPCL, which amounted to commissions of a fraud upon the shareholders”.

SAT said “through these documents, VCPL had acquired control over 52 per cent of NDTV shares is nothing but a figment of its (SEBI’s) imagination and against the material evidence on record. Through these loan agreement/ call option agreements can only acquire 26 percent equity shares of NDTV by VCPL and the finding that VCPL has acquired 52 per cent of NDTV shares is not based on any cogent evidence nor does this transaction allow VCPL to acquire directly or indirectly control over NDTV,” said SAT.

SEBI had shown that the loan, unsecured and without any interest payment, was granted to the Roys for a period of 10 years that end in July 2019. A company RRPR belongs to the Roys and it issued convertible warrants to VPCL, aggregating 99.99 per cent of fully diluted equity share capital to RRPR at the time of conversion, ‘convertible at any time during the tenure of the loan or thereafter.’ The agreement also gave the right to VPCL to purchase from promoters all the equity shares of RRPR at par value. This apart, there were two ‘call option’ agreements that were contemporaneously entered into between associate companies of then VPCL shareholders and RRPR. According to the SEBI, the Roys’ vide letter dated March 25, 2016, had stated the “source for the loan as borrowing from Reliance Strategic Investment Limited, a wholly owned subsidiary of Reliance Industries Limited.”

SEBI concluded that it transferred a substantial stake in NDTV from the Roys at a pre-negotiated price as consideration and that the promoters gave up 30 per cent of their voting rights, which was material price sensitive information. In SEBI’s view, the agreement was concealed from the minority shareholders and kept them in the dark about the de facto control over NDTV by VCPL. However, SAT said: “Loan agreement did not in any manner transfer control of NDTV to VCPL either directly or indirectly. SEBI’s findings do not survive.

According to SAT, there is a commercial rationale behind the entire arrangement and the Roys required money to pay the loan availed from ICICI Bank. SAT observed that if the share price of NDTV exceeded ₹214.65 per equity share, then VCPL could exercise any of the following options and acquire 26 per cent of NDTV shares at a fixed price of ₹214.65 per share. Further, option was of warrant conversion, under which 99.99 percent equity shares of RRPR could be acquired resulting in indirect acquisition of 26 percent shares of NDTV. The same would also result when VCPL exercises the purchase option to purchase all the equity shares of RRPR held by the Roy’s at par value for a nominal amount of ₹1 lakh. In addition, VCPL through its affiliates STPL and SEPL could directly purchase 26 percent of NDTV shares at a price of ₹214.65 by paying a consolidated amount of ₹350 crores to RRPR (namely, the loan amount) which amount would be utilized by RRPR to repay the loan to VCPL. SAT said that if VCPL was interested in the media business of NDTV, it could have acquired 26 percent equity of NDTV at ₹214.65 per share irrespective of the then prevailing market price. The SAT order notes that ‘control’ is a proactive and not a reactive power. “It is a power by which an acquirer can command the target company to do what he wants it to do. Control really means creating or controlling a situation by taking the initiative. Power by which an acquirer can only prevent a company from doing what the latter wants to do is by itself not control. In that event, the acquirer is only reacting rather than taking the initiative. It is a positive power and not a negative power. In a board managed company, it is the board of directors that is in control,” SAT said. SAT said that SEBI’s submission is patently erroneous and cannot be accepted since the definition of “control” has been held to be an inclusive one and not exhaustive in (case of) Shubhkam, which was approved by the Supreme Court (SC) in Arcelormittal India Private Limited. “The extent of the expression “control” as given in Shubhkam, namely, positive and not negative has been approved by the Supreme Court in Arcelormittal India Private Limited meaning positive control. In short, the SC has concluded that the expression “control” means effective control,” SAT said.

Published on

July 24, 2022

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