2021 (9) TMI 1504 - AT - SEBI

Tribunal upholds SEBI's decision on ZOCD Agreement, deems disclosure unnecessary

Mr. Victor Fernandes, Ms. Sangeeta Fernandes Versus Securities & Exchange Board of India, National Stock Exchange of India Ltd., Reliance Industries Ltd. Through its Chairman and Managing Director, Mr. Mukesh D. Ambani, Mumbai.

The Tribunal dismissed the appeal, concurring with SEBI's findings that the ZOCD Agreement did not lead to an indirect control acquisition necessitating ... Violation of Regulation 11(1) of the SAST Regulations - Non issue of open offer - inflated price of the shares - HELD THAT:- The impugned order of the learned WTM would show that he has gone through the terms and conditions of the ZOCD Agreement, and considered the plea of the respondent as to why ZOCD Agreement and SUA were required to be executed in view of the up linking guidelines of Ministry of Information and Broadcasting. The said guidelines required that at least 51% of the total equity share capital of such a media company was required to be held by largest Indian shareholders. All those terms are put in the order. Upon going through the terms and conditions of ZOCD Agreement, the learned WTM found that Mr. Raghav Bahl continued to be in control of TV 18, NW18 etc. on behalf of the holding companies. IMT and RIL did not had any say in the management affairs of TV 18, NW18 under the said ZOCD Agreement. The underlying existing shareholding continued to be in the hands of Mr. Raghav Bahl and the holding entities. It was found that ZOCD Agreement did not carry any voting rights. The voting rights of Mr. Raghav Bahl entities were not stifled by the said agreement. Thus, there was not any effective change in control of NW18 as a result of the execution of the ZOCD Agreement. CCI had observed that in view of the conversion option contained in ZOCD Agreement to receive equity shares of the target company, the said amounted to the indirect acquisition of shares of the target company. The learned WTM considered the same. ZOCDs were in the nature of convertible into equity shares at any time, and only upon conversion of the same IMT would have been able to hold more than 99.99% shares of the diluted equity of the promoter company of NW18 etc. This option however was not exercised at any time before making the public announcement, thus, the ZOCD Agreement itself did not entail into any indirect control of IMT or RIL in NW18 and, therefore, no disclosure was required to be made. In our view, the reasoning of the learned WTM cannot be faulted with. The ZOCD Agreement was in the nature of investment by IMT in the holding companies of TV18, NW18. Said ZOCD Agreement had given right to IMT, the subscriber of the ZOCDs to convert ZOCDs into equity in a given period. The control of TV18 and NW18, continued with Mr. Raghav Bahl and his entities. IT had no say in the voting rights etc. and, therefore, the conclusion of the learned WTM cannot be faulted with. While claiming cost from the appellants, the respondents blamed the appellants for indulging into speculative litigation - As detailed earlier, Mr. Dwarkadas even pointed out the observations of the Hon’ble Supreme Court of India in the earlier round of litigation made against the present appellants. We however find that in so far as the present round is concerned the appellants’ case was strengthened by the observation of the CCI as well as the, prima-facie, observation made by this Tribunal earlier. In the circumstances, we do not find that the present litigation is also a speculative litigation. Issues Involved:1. Indirect control acquisition by RIL over NW18 and TV18 through IMT.2. Compliance with Clause 36 of the Listing Agreement.3. Validity of the open offer price for NW18 shares.4. Speculative litigation by the appellants.Issue-wise Detailed Analysis:1. Indirect control acquisition by RIL over NW18 and TV18 through IMT:The appellants contended that the ZOCD Agreement and SUA indicated that control over TV18 and NW18 was indirectly acquired by IMT, with RIL as the sole beneficiary. The CCI had observed that the ZOCD Agreement amounted to indirect control. However, SEBI's Whole Time Member (WTM) concluded that the ZOCD Agreement did not result in any change in control of NW18, as the control remained with Mr. Raghav Bahl and his entities. The WTM noted that the ZOCDs did not carry voting rights and the existing shareholding remained unchanged.2. Compliance with Clause 36 of the Listing Agreement:The appellants argued that RIL failed to disclose the indirect control acquisition as required under Clause 36 of the Listing Agreement. SEBI, however, found that since IMT was not a subsidiary of RIL and there was no effective change in control due to the ZOCD Agreement, no disclosure was necessary. The Tribunal upheld SEBI's view, noting that the ZOCD Agreement was an investment and did not confer control or voting rights to IMT or RIL.3. Validity of the open offer price for NW18 shares:The appellants challenged the open offer price of Rs. 41.04 per share, arguing it should be revised to Rs. 5,68,430.32 per share. SEBI approved the acquisition at the offered price, and the Tribunal dismissed the appeal regarding the open offer price. The Tribunal had earlier directed SEBI to reinvestigate the issue, but SEBI reaffirmed its stance that the ZOCD Agreement did not trigger an open offer obligation or require a higher offer price.4. Speculative litigation by the appellants:The respondents accused the appellants of engaging in speculative litigation to seek an inflated share price. The Supreme Court had previously dismissed a related appeal and warned the appellants. However, the Tribunal did not find the current litigation speculative, noting that the appellants' case was supported by CCI's observations and the Tribunal's prima facie view. Consequently, the appeal was dismissed without costs.Conclusion:The Tribunal dismissed the appeal, agreeing with SEBI's findings that the ZOCD Agreement did not result in an indirect control acquisition requiring disclosure or a higher open offer price. The Tribunal also noted that the litigation was not speculative given the supporting observations from CCI and previous Tribunal directions. The order was issued digitally due to the Covid-19 pandemic.