2019 (6) TMI 823 - Board - SEBI

Fraud, Non-Disclosure, Violations: Impact on Market Integrity and Investor Protection

In Re : NEW DELHI TELIVISION LIMITED (NDTV), RRPR Holdings Pvt. Ltd., Mr Prannoy Roy And Ms. Radhika Roy

The case involved issues of non-disclosure of loan agreements, violation of SEBI Act and PFUTP Regulations, compliance with the Listing Agreement, ... Non disclosure of material information to the shareholders of NDTV about loan agreements entered into by promoters as well as directors of NDTV with Vishvapradhan Commercial Private Limited ( “VCPL”) - RRPR Holdings Pvt. Ltd. (“RRPR/Noticee no. 1”) which is one of the promoters of NDTV, Dr. Prannoy Roy ( “Noticee no. 2”) and Ms. Radhika Roy (“Noticee no. 3”), who are promoters as well as directors of NDTV, have violated the provisions of “SEBI Act” - irregular and fraudulent conduct of the promoters - HELD THAT:- As Noticees have contended that Clause 49(I)(D) of the Equity Listing Agreement came into effect only from the year 2014, therefore, in the year 2009, there was no requirement of making disclosures in respect of the loan agreements made earlier to that year. It is noted that Clause 49 of the Listing Agreement was first introduced through Circular dated February 21, 2000 and was thereafter amended from time to time. Therefore, the contention of the Noticees that Clause 49(I)(D) of Equity Listing Agreement came into effect only from the year 2014, is factually not correct. Noticees entered into three loan agreements, one with ICICI and two with VCPL. These loan agreements contained material and price sensitive information, in as much as action/decision on many important matters pertaining to NDTV were made subject to prior written consent of the ostensible lender and without the knowledge of the minority shareholders of NDTV. Under the VCPL agreements and the two call option agreements executed as supplementary to the said loan agreements, beneficial interest in 30% shares of NDTV was effectively vested in VCPL. All these information were profoundly material and price sensitive information which would have influenced the investment decision of the investors in the shares of NDTV, had they been made aware of these information at that time. Terms of the loan agreements were devised to affect the interest of shareholders of NDTV. Although various clauses in the loan agreements deceitfully created a binding obligations on NDTV, Noticees have consented to such clauses behind the back of the shareholders of NDTV to further their own private interests. Having held the dominant position and being majority shareholders of NDTV, Noticees have manifestly assured VCPL to ensure swift compliance of such clauses of the loan agreements pertaining to NDTV, thereby taking all other shareholders for granted and also compromising the interest of shareholders of NDTV. In order to conceal the said information from the investors so that the investors continue to trade in the shares of NDTV blissfully ignorant of the fact that the promoters of the company have already vested their voting rights to the extent of 30% in favour of a third external party, Noticee no. 2 and 3 have chosen to act in flagrant breach of Code of Conduct of NDTV. If the said information regarding loan agreements had been disclosed by the Noticee no. 2 and 3 to the Board of Directors of NDTV, then the company was bound to intimate the same to the stock exchanges which in turn, would have disseminated such information on their websites for information of general public. The loan agreements were unmistakably structured as a scheme to defraud the investors by camouflaging the information about the adversarial terms and conditions impinging upon the interest of NDTV’s shareholders, thereby inducing innocent investors to continue to trade in the shares of NDTV oblivious to such adversarial developments in the shareholding of NDTV. Noticees i.e. the promoters and Directors of NDTV have been found to have indulged in fraudulent acts wherein they have bartered away the interests of NDTV by making them subject to prior written consent of ICICI/VCPL without disclosing the same to the company (NDTV). Noticee no. 2 and 3 have also opted to violate the Code of Conduct of NDTV which they were supposed to abide by, being the Chairman and Managing Director of the company. Noticee No. 2 and Noticee No. 3 have consciously taken such a position under the loan agreements which was directly inconsistent with their role as Chairman and Managing Director. Noticee No.1, Noticee No.2 and Noticee No.3 are grossly in violation of the provisions of Section 12A (a), (b), (c) of SEBI Act read with Regulations 3 (a), (b), (c), (d) and 4 (1) PFUTP Regulations. Further, as pointed out above, Noticee no. 2 and 3 are also in violation of Clause 49 (1)(D) of Equity Listing Agreement read with Section 21 of SCRA. Directions: (i) Noticee no. 1, 2 and 3 are restrained from accessing the securities market and are further prohibited from buying, selling or otherwise dealing in securities, directly or indirectly, or being associated with the securities market in any manner, whatsoever, for a period of two (2) years. It is also clarified that during the said period of restraint/prohibition, the existing holding, including units of mutual funds, of the Noticees shall remain frozen; (ii) Noticee no. 2 and 3 are restrained from holding or occupying position as Director or any Key Managerial personnel in NDTV for a period of two (2) years; and (iii) Noticee no. 2 and 3 are restrained from holding or occupying position as Director or any Key Managerial personnel in any other listed company for a period of one (1) year. Issues Involved:1. Non-disclosure of loan agreements.2. Violation of SEBI Act and PFUTP Regulations.3. Compliance with Clause 49(I)(D) of the Listing Agreement.4. Jurisdiction and procedural fairness.5. Delay in initiating proceedings.Detailed Analysis:1. Non-disclosure of Loan Agreements:The Securities and Exchange Board of India (SEBI) received complaints alleging that the promoters of NDTV, including RRPR Holdings Pvt. Ltd. (Noticee no. 1), Dr. Prannoy Roy (Noticee no. 2), and Ms. Radhika Roy (Noticee no. 3), failed to disclose material information about loan agreements with ICICI Bank and Vishvapradhan Commercial Private Limited (VCPL). The ICICI Loan Agreement and two VCPL Loan Agreements contained clauses impacting NDTV’s business, which were not disclosed to the company or its shareholders. The ICICI Loan Agreement required NDTV to obtain ICICI’s approval for any corporate restructuring, while the VCPL Loan Agreements mandated the transfer of NDTV shares and imposed conditions on NDTV’s operations, affecting the interests of its shareholders.2. Violation of SEBI Act and PFUTP Regulations:The investigation revealed that the loan agreements were not mere loan transactions but were structured to transfer substantial stakes in NDTV to VCPL. The agreements contained clauses that allowed VCPL to convert warrants into equity shares of RRPR, effectively giving VCPL control over 30% of NDTV’s shares. This transfer of control was concealed from the public shareholders, depriving them of informed participation in the securities market. The conduct of the Noticees was found to be in violation of Section 12A(a), (b), (c) of the SEBI Act and Regulations 3(a), (b), (c), (d), and 4(1) of the PFUTP Regulations, as they employed a scheme to defraud the investors by not disclosing material information.3. Compliance with Clause 49(I)(D) of the Listing Agreement:The Code of Conduct of NDTV required Board members and senior management to comply with all applicable laws and disclose any conflicts of interest. Noticee no. 2 and 3, as Chairman and Managing Director of NDTV, respectively, failed to disclose the loan agreements, which created a conflict of interest. Their affirmation of compliance with the Code of Conduct in the Annual Reports of NDTV for the financial years 2009-10 and 2010-11 was found to be false, violating Clause 49(I)(D) of the Listing Agreement read with Section 21 of the Securities Contracts (Regulation) Act, 1956.4. Jurisdiction and Procedural Fairness:The Noticees contended that the proceedings were without jurisdiction as no reasonable grounds for initiating an investigation were demonstrated to them. However, it was held that the SEBI Act does not mandate the demonstration of such grounds to the noticee, and the investigation is a fact-finding exercise. The Noticees were provided with opportunities for inspection of documents and personal hearings, complying with the principles of natural justice.5. Delay in Initiating Proceedings:The Noticees argued that there was an inordinate delay in initiating proceedings, rendering them incapable of defense. The first complaint was received by SEBI on August 26, 2017, and the show cause notices were issued on March 14, 2018, indicating no delay in dealing with the matter. The contention of delay was found to lack merit.Conclusion:The Noticees, by entering into the loan agreements and not disclosing them, committed fraud on the minority shareholders of NDTV. They violated provisions of the SEBI Act and PFUTP Regulations and failed to comply with the Code of Conduct of NDTV, thereby misleading the investors. The directions issued include restraining the Noticees from accessing the securities market and holding positions as Directors or Key Managerial Personnel in NDTV and any other listed company for specified periods. These directions aim to protect the interests of investors and maintain market integrity.