TaxTMI 
TaxTMI 
2019 (6) TMI 823
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....urities and Exchange Board of India Act, 1992 (hereinafter referred to as "SEBI Act") and the rules and regulations made thereunder by omitting to disclose material information to the shareholders of NDTV about loan agreements entered into by them with Vishvapradhan Commercial Private Limited (hereinafter referred to as "VCPL"). 2. Based on the aforesaid complaints, an investigation was conducted by SEBI into the matter. The period of investigation was from October 14, 2008 to November 22, 2017. It was found that NDTV is a company incorporated in the year 1988 whose shares are listed on BSE and NSE. During the investigation period, Noticee no. 1 to 3 (hereinafter collectively referred to as "Noticees") were the three promoters of NDTV. The aggregate promoters' shareholding in NDTV was 63.17% at the end of quarter ending on June, 2009. The individual promoter shareholding during the period of investigation was, as under: S. No Name of Promoter QE June 2009 QE Sept 2009 QE Dec 2009 QE March 2010 ** 1 Prannoy Roy* 1,97,31,520 (31.46%) 1,39,49,678 (22.24%) 1,39,49,678 (22.24%) 1,02,76,991 (15.94%) 2 Radhika Roy 1,51,41,927 (24.14%) 93,....
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.... were alleged to have committed fraud on the minority public shareholders of the company. 4. Investigation further found that a loan of Rs. 350 crore was taken by the Noticee no. 1, (whose 100 % share capital are held by Noticee no. 2 & 3 and they are also directors of Noticee no. 1) from VCPL for which a loan agreement (hereinafter referred to as "VCPL Loan Agreement - 1") dated July 21, 2009 was entered into between Noticee no. 1 and VCPL. The said agreement was stated to be executed by Noticee no. 1 to obtain loan from VCPL so as to repay loan taken by Noticee no. 1 from ICICI vide loan agreement dated October 14, 2008, as referred to above. Accordingly, as mentioned earlier, Noticee no. 1 entered into an amended loan agreement on August 06, 2009 with ICICI to pre-pay their loan. It was noted during the investigation that the loan taken by Noticee no. 1 from VCPL did not carry any interest rate while the loan taken from ICICI carried an interest rate of 19.0% p.a. As per Clause 3 of VCPL Loan Agreement-1, Noticee no. 1 (RRPR) was required to issue warrants to VCPL which were convertible into equity shares aggregating to 99.99% of share capital of Noticee no. 1. Further, as pe....
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....market transactions while having knowledge of the said agreement and its covenants pertaining to NDTV. In the absence of material information relating to VCPL Loan Agreement-1 in public domain, investors were not in a position to take an informed decision with respect to dealing in the scrip of NDTV. Therefore, by concealing such material information from the public shareholders while the promoters themselves continued to deal in shares of the company in off market, Noticees were alleged to have committed fraud on the minority public shareholders of the company. 7. It also came to light that another loan agreement dated January 25, 2010 i.e. VCPL Loan Agreement-2 was entered into between Noticee no. 1 and VCPL for providing an additional loan of Rs. 53.85 crores by VCPL to Noticee no. 1. The major terms and conditions pertaining to the VCPL Loan Agreement -2 were same as applicable in case VCPL Loan Agreement -1, except for an additional stipulation whereby, the promoters of NDTV permitted VCPL to acquire indirectly 30% shares of NDTV through conversion of warrants into equity shares of Noticee-1 (RRPR). Further, the VCPL Loan Agreement -2 also did not allow any corporate action....
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....ith the Code of Conduct which required Board Members and senior management of NDTV to comply with all applicable laws, rules, regulations and engage in and promote honest and ethical conduct free from fraud or deception. 10. In response to the aforesaid SCNs, the Noticees, vide letter dated April 4, 2018, requested for inspection of documents and authorised Shri Pawan Sharma, Advocate to carry out the inspection. Noticees were given an opportunity for inspection of documents on April 18, 2018. The Noticees filed a common interim reply in the matter on July 11, 2018 stating therein as under: a) That the agreements were entered into by the Noticees for taking private loans wherein the Noticees agreed to exercise their shareholding rights in terms of the loan agreements. The shareholders rights are personal property and hence it did not affect NDTV or its operations in any manner. b) That in the Board meeting of NDTV held on August 5, 2015, Noticee-2, in order to allay the allegations made in certain news items about change in control of NDTV, clarified that there has been no change in control. It has been submitted that this shows the intention of the Noticees no....
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....s seeking stay on the present proceedings. The aforesaid SLP was subsequently dismissed by Hon'ble Supreme Court vide order dated November 22, 2018. 13. The Noticees were subsequently, granted an opportunity of hearing on November 29, 2018 and December 10, 2018. The Noticees later filed certain additional documents vide letter dated December 7, 2018 and also filed written submissions vide letter dated January 25, 2019. The written submissions of the Noticees have been carefully perused and the arguments advanced by them, both oral and written, have also been considered. The main contentions of the Noticees are as under: a) That present proceedings are without jurisdiction as no belief as required to be recorded prior to initiating an investigation under Section 11C of the SEBI Act, 1992, has been shown to Noticees. b) That present proceedings are without jurisdiction as no document recording the reasons for initiating the present proceedings under Sections 11(1), 11(4) and 11B of the SEBI Act, 1992, has been shown to Noticees. c) That provisions of Sections 11(1), 11(4) and 11B of the SEBI Act, 1992 are preventive/remedial in nature hence, the said pro....
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....In this connection the counsel has relied upon several judgments of Hon'ble Supreme Court, Hon'ble High Court of Bombay and Hon'ble Securities Appellate Tribunal. Some of these judgments are State of AP v. N Radhakrishnan (1998) 4 SCC 154; P V Mahadevan v. MD. T N Housing Road (2005) 6 SCC 636; Bhagwandas S Tolani v. B C Agarwal and Ors. 1982 SCC OnLine Bom 453; Cambata Industries Pvt. Ltd. v. Additional Director of Enforcement, Mumbai and Anr. (2010) 2 Mah LJ 628; Subhkam Securities Pvt. Ltd. v. SEBI (SAT Appeal No. 73/2012); HB Stockholdings Ltd. v. SEBI (2013) SAT 44 and Libord Finance Ltd. v. SEBI, etc. m) That the Noticee No. 2 & 3 were acting in two capacities, i.e. one as shareholders of NDTV and second as directors of NDTV, therefore their actions must be measured accordingly in line with the laws governing a shareholder's rights and a director's duties. It has been submitted that a director is duty bound to check if the decision /action is in the interest of the company, while a shareholder may take decisions which serve his purpose but are contrary to the interest of the company. A director is legally bound by fiduciary duty owed to the company while the sharehol....
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....this Schedule, Item 5 stipulates that shareholder agreements, joint venture agreements and family arrangements, which are not in the normal course of business but are binding, must be disclosed. This requirement came in with effect from September 2, 2015, i.e., date of notification of LODR Regulations. Part B of Schedule III, which requires disclosures based on application of materiality guidelines, deals with disclosure of loan agreement by the company only if they are binding and not in the normal course of business. r) That the allegations relating to fraud by 'concealment' is untenable as the meaning of the word implicitly indicate that there should be an affirmative action on the part of the Noticees. In this connection reliance has been placed upon the Judgement of Hon'ble Supreme Court in K C Builder and Anr. Vs. Assistant Commissioner of Income Tax (2004) 2 SCC 731 and Dilip N Shroff Vs. Joint Commissioner of Income Tax (2007) 6 SCC 329 and the Judgement of Hon'ble Allahabad High Court in Mohd. Ibrahim Azimulla Vs. Commissioner of Income Tax, (1981) 131 ITR 680). s) That expressions used to identify the fraud implicitly indicate to an affirmative action. T....
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....irst deal with certain preliminary technical/legal issues raised by the Noticees, in their submissions. The first such preliminary contention is that the present proceedings are entirely without jurisdiction as the "reasonable grounds to believe", as required to be recorded prior to initiating investigation under Section 11C of the SEBI Act, 1992, has not been demonstrated to the Noticees. In this regard, I find that in terms of Section 11C of the SEBI Act, if the Board has reasonable grounds to believe inter alia that transaction in securities are being dealt in a manner detrimental to the investors or the securities market, it may, at any time by order in writing, direct investigation into those transactions. I agree that existence of such reasonable grounds acts as a triggering point for the Board to initiate investigation. However, it is not anywhere mandated in the SEBI Act that existence of reasonable grounds for initiating an investigation must be first demonstrated to the person against whom any action is initiated pursuant to completion of such investigation. Therefore, to argue that a noticee in an enforcement action initiated by SEBI, is lawfully entitled to ask for such....
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....Sections 11(1), 11(4) and 11B of the SEBI Act, 1992, has been shown to the Noticees. In my view, Noticees have a very narrow and short sighted interpretation of the provisions of SEBI Act. SEBI Act prescribes different enforcement powers like, issuance of regulatory directions under Sections 11(1), 11(4) and 11B against any person, initiation of disciplinary proceedings under Section 12(3) against registered entities, initiation of adjudication proceedings for imposition of monetary penalty under relevant provisions of Chapter VI A against any person and filing of complaint under Section 26 for prosecution for offences contemplated under Section 24 etc. It is trite law that all these enforcement actions are concurrently available to SEBI under the SEBI Act and SEBI can initiate all or any of the enforcement action in a given case. The aforesaid enforcement powers are not mutually exclusive from each other. The provisions of SEBI Act do not make any mutually exclusive rigid classification specifying as to which enforcement action is to be initiated against a delinquent exactly on which grounds/reasons. It is not open for a noticee against whom a particular enforcement action has bee....
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....nces of a case and just because the alleged violation was committed in a distant past cannot provide a shield against initiation of proceedings under a specific provisions of the Act which is appropriately applicable to the said violation. Moreover, in this case the SCN makes a serious allegation of fraud under the PFUTP Regulations and although the alleged commission of fraud emanates from an agreement executed a decade ago, yet alleged fraudulent act continues even till date, as the said agreements are still in force and are being honoured by the Noticees. Hence, I find no merit in the contentions of the Noticees in this regard. 18. The Noticees have also raised another objection stating that there has been inordinate delay and latches in initiating proceedings against them which has rendered the proceedings incapable of being defended. In this regard, Noticees have also cited various decisions of Hon'ble Supreme Court, High Courts and SAT on the question of delay. At the outset, I note that there is no provision in the SEBI Act which lays down any limitation period for initiating any action under the Act. This argument is misconceived. For ascertaining whether there is any de....
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.... and set aside. There is no merit in this contention, because, this Tribunal while setting aside the decision of SEBI on merits has clearly held in para 20 of the order, that delay itself may not be fatal in each and every case. Moreover, the Apex Court in case of Collector of Central Excise, New Delhi vs. Bhagsons Paint Industry (India) reported in 2003 (158) ELT 129 (S.C) has held that if there no statutory bar for adjudicating the matter beyond a particular date, the Tribunal cannot set aside the adjudication order merely on the ground that the adjudication order is passed after a lapse of several years from the date of issuing notice.................." 20. In the present case, it is noted that the first complaint was received by SEBI on August 26, 2017. After conducting the requisite investigation in the matter, the SCNs have been issued to the Noticees on March 14, 2018. Therefore, there is no delay in dealing with the matter as action has been initiated as soon as the complaint was received. Hence, the contention raised by the Noticees, regarding delay lacks merit. 21. Noticees have also contended that instant proceedings are in violation of principle of nature justice ....
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....Security Services Vs. Govt. of NCT of Delhi & Ors. (2014) 9 SCC 105 and the order passed by Hon'ble SAT in Royal Twinkle Star Club Pvt. Ltd. vs. SEBI (SAT Appeal No. 436 of 2015 decided on February 3, 2016). On a perusal of the said judgment of the Hon'ble Apex Court, I find that the same is factually distinguishable and not applicable to the present proceedings. This is for the reasons that in Gorkha Security case, the matter pertained to blacklisting of a contractor by a government agency, which resulted in depriving the contractor from entering into any public contracts with government, thereby violating the fundamental rights of equality of opportunity in the matter of public contract of such person. Further, in Gorkha Security case, the contractor was blacklisted for breaching the terms of the contract. On the other hand, the present SCN has been issued for breach of provisions of law. In Gorkha Security case, blacklisting was imposed by way of penalty, whereas in the instant proceedings, the purpose of issuing directions, if found necessary, would be preventive and remedial in nature. In Gorkha Security Case, blacklisting of the contractor was provided in the governing contra....
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.... directions as it may deem fit, in the interest of securities market which cannot be anticipated before-hand without considering the explanations of the Noticees. Therefore, it is incorrect to contend that the SCN should specify the exact nature of direction that may be issued to the Noticees without taking into the consideration the explanation and evidence that may be produced by the Noticees to prove their innocence. This would be wholly premature, presumptive and conjectural in nature. I have also perused the order passed by the Hon'ble SAT in Royal Twinkle case (supra) and I find that Hon'ble Tribunal in the said case has examined the Gorkha Security case extensively. However, the ultimate decision arrived at is not based on the understanding of Hon'ble Tribunal of the Gorkha Security case, as it emerged from the said examination. On the contrary, it has been specifically recorded in the order that "However, applicability of the judgment of Hon'ble Supreme Court in the case of Gorkha to the facts of present case need not be gone into..........". Thus, the observation regarding Gorkha Security matter in the order passed by Hon'ble Tribunal in Royal Twinkle matter is only obiter....
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....not there is any wrongful gain or avoidance of any loss, and shall also include- (1) a knowing misrepresentation of the truth or concealment of material fact in order that another person may act to his detriment; (2) a suggestion as to a fact which is not true by one who does not believe it to be true; (3) an active concealment of a fact by a person having knowledge or belief of the fact; (4) a promise made without any intention of performing it; (5) a representation made in a reckless and careless manner whether it be true or false; (6) any such act or omission as any other law specifically declares to be fraudulent, (7) deceptive behaviour by a person depriving another of informed consent or full participation, (8) a false statement made without reasonable ground for believing it to be true. (9) the act of an issuer of securities giving out misinformation that affects the market price of the security, resulting in investors being effectively misled even though they did not rely on the statement itself or anything derived from it other than the market price. And "fraudulent" shall be construe....
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....sonnel shall affirm compliance with the code on an annual basis. The Annual Report of the company shall contain a declaration to this effect signed by the CEO. Explanation: For this purpose, the term "senior management" shall mean personnel of the company who are members of its core management team excluding Board of Directors.. Normally, this would comprise all members of management one level below the executive directors, including all functional heads." 25. In the present case, it is an admitted position that the Noticee No. 1 (RRPR) had entered into a loan agreement with ICICI on October 14, 2008, whereby ICICI agreed to lend a rupee term loan not exceeding Rs. 375 crore. Some of the notable features of the ICICI loan agreement are as under: a. The interest rate for the said loan, as on the date of the agreement, was 19 % per annum which was subsequently reduced to 9.65% per annum from August 06, 2009 with retrospective effect from October 14, 2008. b. The Noticee no. 1 was obliged to repay the loan amount in full to ICICI at the end of 3 years from the date of disbursement of the first tranche. c. The loan could be pre-paid either in full....
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....ugh NDTV was not a party to the said loan agreement. It is true that the said agreement was a loan agreement between the parties and the conditions stipulated therein were contingent only on default in repayment of the loan amount. Yet, it is also a fact that at the time of availing of the loan from ICICI, the Noticees, who had controlling interest in NDTV, undertook and gave guarantee to comply with the said conditions imposed on them by ICICI, which had significant implications on the interest of NDTV and was therefore, a material and price sensitive information. Had these information been disclosed to the public, they would have undoubtedly influenced the investment decisions of the shareholders and prospective investors of NDTV. 28. Moving on to the VCPL Loan Agreement - 1, it is necessary here to examine the salient features of this agreement, which are as under: a. The loan amount availed by the Noticees was Rs. 350 crore. Loan amount was meant to be utilised in full, only for their repayment of the loan earlier availed by the Noticee no. 1 from ICICI, vide loan agreement dated October 14, 2008. b. This loan did not carry any interest. The loan is repayab....
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....ogether with affiliates were obliged to exercise their voting rights attached to the equity shares held by them in NDTV and NDTV Group to give full and complete effect to the provisions of the Transaction Documents including but not limited to give effect to the provisions contained in Schedule 3 read with Clause 12. i. The Noticee no. 2 and 3 together with their affiliates were obliged to amend the Charter Documents of the Noticee no. 1 to give full effect to the provisions of the transaction documents. For this purpose transaction documents of the loan Agreement meant (i) the Loan Agreement (ii) the Call Option agreements and (iii) all other documents and agreements relating to the above and or designated as such by the lender in relation to the Loan, as such documents may be amended or supplemented from time to time. 29. In this connection, it is also noted that the two call options agreements, as mentioned above, which have been described as integral part of VCPL Loan Agreement - 1, were entered into between the Noticees and Subhgami Trading Private Limited (for short "STPL") and Shyam Equities Private Limited (for short "SEPL") respectively on July 21, 200....
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.... down the guiding principle for understanding and interpreting the provisions of SEBI Act and the regulations made thereunder in the following words: "...........21. The SEBI Act and the Regulations framed there under are intended to protect the interests of investors in the Securities Market which has seen substantial growth in tune with the parallel developments in the economy. Investors' confidence in the Capital/Securities Market is a reflection of the effectiveness of the regulatory mechanism in force. All such measures are intended to preempt manipulative trading and check all kinds of impermissible conduct in order to boost the investors' confidence in the Capital market. The primary purpose of the statutory enactments is to provide an environment conductive to increased participation and investment in the securities market which is vital to the growth and development of the economy. The provisions of the SEBI Act and the Regulations will, therefore, have to be understood and interpreted in the above light......." The aforesaid guiding principle has been endorsed in the subsequent judgments of the Hon'ble Supreme Court in in the case of SEBI Vs. Kanaiyala....
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....more particularly the two VCPL Loan Agreements are mere loan agreement simpliciter or whether under the garb of the these agreements the acts of the Noticees amount to commission of fraud upon the shareholders of NDTV. For this purpose, it is essential to examine the implications of various clauses of the said agreements to ascertain the real intent of the Noticees behind consenting to such clauses, which render the agreements, prima facie, loaded against the Noticees and in favour of the Lenders. One submission of the Noticees is that the agreements were mere loan transaction entered into between two independent parties. However, upon a deeper scrutiny of the clauses and the conditions set out and agreed upon by the Noticees, so as to ascertain as to whether they were incorporated mainly for availing the facility of loan or contained clauses which are detrimental to the interest of shareholders of NDTV that can be labelled as material and price sensitive, my observations are as under: a) Schedule I(a) of the VCPL Loan Agreement - 1 entitles absolute and sole discretion to the VCPL to Equity Shares aggregating to 99.99% of the fully diluted Equity Share Capital of RRPR (No....
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....quity, was not dependent on the repayment of the loan by the Noticees. VCPL is having independent power to convert the warrants into shares of Noticee no. 1 at any time during the loan agreement or even thereafter (emphasis supplied). f) As stated above, VCPL's right to convert the warrants is absolute without being in any way connected to repayment of loan by the Noticees. Thus, it is not a loan transaction simpliciter. It appears an outright transfer of 30% stake and voting rights in NDTV by the Noticees masquerading as a loan agreement which did not even possess the basic attributes of a normal secured loan transaction. In my view, the VCPL Loan Agreements -1 and 2 are sham loan transactions executed by the Noticees only with a motive to sell their substantial stake in NDTV. g) Another peculiar feature noted from the VCPL Loan Agreements is that the lender has been conferred with the rights to assign the agreement, the loan and the rights therein qua Noticee no. 1 to third party even during the currency of the tenure of the aforesaid loan agreements. However, similar right of assignment is not available to Noticees. It creates a disadvantageous situation to the....
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....tion of Loan Agreements, it was observed that transfer of shares of NDTV by Noticee no. 2 and Noticee no. 3 to Noticee no. 1 as part of the precondition stipulated in the loan agreements was not proportionately correlated with the loan amount as per then prevailing market price of the shares of NDTV. It is observed from the information available in public domain that average price of shares of NDTV on BSE, as on the date of the execution of VCPL Loan Agreement - 1 i.e. on July 21, 2009 was Rs. 127.20/- per share and as on the date of VCPL Loan Agreement - 2 i.e. on January 25, 2010 was Rs. 138.70/- per share. In contrast, as discernable from the loan agreements, the valuation of the equity shares of NDTV for the purpose of advancing loan has been adopted at Rs. 214.65/- per share for both the loan agreements. Thus, it appears that Noticees and the lender i.e. VCPL have deliberately overvalued the shares of NDTV for factoring in a premium of Rs. 87-76 per share respectively. It also exhibits that the said loan transaction defies and ignores all prudent commercial norms of lending and apparently, a substantially higher amount was predetermined to be received by the Noticees as a cons....
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....agreement titled "Prior Consents", which imposes restriction in the form of obligations on Noticees to obtain prior consent of the Lender, in case of any proposal for the changes in capital structure, constitution or re-structuring of NDTV is concerned. k) It is also noted that the loan agreements did not contain any closure clause providing for termination upon repayment. Clause 7 of the loan agreement provides for payment upon maturity, which is 10 years after the drawdown of the release of the payment. In contrast to the aforesaid liberal and lenient stipulation regarding repayment of loan that too, without any interest thereon, Schedule I(a) of the loan agreements provided that the terms of the agreement can be invoked not only during the tenure of the loan but surprisingly even after the expiry of the tenure of the loan (emphasis supplied). Such a stipulation defies all commercial prudence and rationale since the terms of the agreements can only be invoked during the tenure of loan and on the occurrence a default and cannot ordinarily under any circumstances be invoked after the tenure of the loan. The provision of such covenants further manifest the clandestine inten....
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....n for call option , a conscious effort has been made to determine the valuation of NDTV shares at the rate of Rs. 214.65/- per share and the same has been linked to the quantum of the loan advanced. It again reinforces the point, made out earlier, that the VCPL Loan Agreements were only for namesake loan agreements, while in substance the amount advanced as loan had a direct nexus with the cost of the purchase of 30% shares of NDTV to be transferred by the Noticees. n) The loan agreements also do not contain any termination on default of repayment. No explanation has been forwarded as to why the covenant was so heavily construed in favour of VCPL providing unbridled power to them to invoke/get the conversion of warrants at any time even during the subsistence of the agreement without there being any default. o) There is yet another irrefutable ground to observe that the ostensible loan agreements entered into by the Noticees with VCPL were not loan agreements per se, but were transactions for transferring beneficial interest in 26% shares of NDTV to VCPL under VCPL Loan Agreement - 1 and another 4% shares under VCPL Loan Agreement - 2, cumulatively amounting to 30....
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....greement, Noticee no. 1 was holding only 47,41,721 (7.56%) shares of NDTV. Consequently, as can be noted from Table I above, to raise shareholding of Noticee no. 1 in NDTV to 26%, Noticee no. 2 transferred 57,81,842 (9.22%) shares and Noticee no. 3 transferred 57,81,842 (9.22%) shares, aggregating to 18.44% shares of NDTV to Noticee no.1 at a nominal price of Rs. 4/- per shares. The loan amount of Rs. 350 crore [16,305,405 (26%) * 214.65], so received by the Noticees, was used to repay the loan of ICICI. One of the pre-condition under the VCPL Loan Agreement - 2 was that Noticee no. 1 must hold 30% (1,88,13,928) shares of NDTV. At that time, Noticee no. 1 was holding only 26% (16,305,405) shares of NDTV. Therefore, to raise the holding of Noticee no. 1 in NDTV to 30%, Noticee no. 2 and 3 were required to transfer further 4% (25,08,524) shares of NDTV to Noticee no. 1. However, as can be noted from Table II above that instead of transferring 25,08,524 shares of NDTV straight way to Noticee no. 1, in one transaction, Noticee no. 2 and 3 sold 48,36,850 number of shares of NDTV to Noticee no. 1 at a price of Rs. 140/- per share, from their joint demat account. In another trans....
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....res of NDTV to VCPL. Though the said shares of NDTV nominally remained with Noticee no. 1 (RRPR), the existence of warrants with VCPL, convertible at any time during the tenure of the loan or thereafter without requiring any further act or deed on the part of the VCPL, into 99.99% equity shares of Noticee no. 1, (along with the right of VCPL to purchase the shares of Noticee no. 2 and 3 in Noticee no. 1), clearly establishes that 30% shares of NDTV were put at the absolute disposal of VCPL by virtue of the said loan agreements. Moreover, Noticees also agreed that prior written consent of VCPL shall be obtained inter alia with respect to issue of any equity shares of NDTV which could result in the aggregate valuation of NDTV falling below Rs. 1346 crores which supports my earlier observation that the ostensible loan amount was determined on the basis of prevailing market valuation of NDTV . This further strengthens my view that the VCPL Loan Agreements were very material and price sensitive information as they effectively involved passing of controlling stake of 30% share capital of NDTV and stipulated various conditions binding the promoters of NDTV (i.e. the three Noticees) with r....
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....of "fraud" as given under Regulation 2(1) (c) of PFUTP Regulations, 2003 and held as under: Per Hon'ble Justice N. V. Ramanna - "............26. There is no dispute as to the fact that fraud is jurisprudentially very difficult to define or cloth it with particular ingredients. A generalized meaning may be difficult to be attributed, as human ingenuity would invent ways to bypass such behaviour. It is to be noted that fraud is extensively used in various regulatory framework which mandates me to take notice of the conceptual and definitional problem it brings along. Fraud is among the most serious, costly, stigmatizing, and punitive forms of liability imposed in modern corporations and financial markets. Usually, the antifraud provisions of the security laws are not coextensive with common-law doctrines of fraud as common-law fraud doctrines are too restrictive to deal with the complexities involved in the security market, which is also portrayed by the changes brought in through the 2003 regulation to the 1995 regulation. 27. On a comparative analysis of the definition of "fraud" as existing in the 1995 regulation and the subsequent amendments in the 2003 regulati....
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.... that substantially affected the functioning of NDTV. The VCPL Loan Agreements, in addition to having clauses substantively affecting the interest of NDTV, also warranted transfer of shares of NDTV by the Noticees, which they carried out off market by way of various inter se bulk transactions, in compliance with the loan agreements. Consequently, information about these agreements and the consequent off-market share transfers amongst the Noticees that were going to take place in compliance with the agreements, were essentially material and price sensitive and it would have influenced the decision of investors about trading in the shares of NDTV, had these information were not concealed from the shareholders of NDTV and public at large. Non-availability of information about these agreements with investors unjustifiably deprived them of informed participation while dealing with the shares of NDTV. 39. The contention raised by Noticees that these agreements were merely agreements for taking loans wherein the Noticees agreed to exercise their shareholding rights which are their "personal property", and hence, it did not affect NDTV or its operations in any manner, is entirely mispla....
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....s unenforceable if it is in violation of statutory fiduciary duty of Noticee no. 2 and 3 as Directors of NDTV. In my view, the question of enforceability of an agreement by the Courts would arise only in case of breach of agreement by any of the parties. However, if the parties to an agreement decide to honour the undertakings and covenants provided for in such agreement out of their own volition, such agreements can always be performed by the parties, provided agreement is not prohibited by law. In the present case, the VCPL loan Agreements, even though are prejudicial to the interest of NDTV and are creating conflict for Noticee No.2 and Noticee No.3 in discharge of their fiduciary duties on the Board of NDTV, these agreements have been dutifully complied by the Noticees, till date. Therefore, the contention of Noticees based on the said judgment is not tenable. Noticees have also contended that there is no provision in the loan agreements providing that the obligations of the Noticee no. 2 and 3 will operate in derogation of their fiduciary duty as director. This contention is belied by the terms of the loans agreements themselves as extracted & discussed at length above wherein....
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....anaging Director, respectively, of NDTV. The dominant positions enjoyed by the Noticee no. 2 and 3 enabled them to make promises to ICICI/VCPL thereby significantly impacting the interests of NDTV. The Noticees' position in NDTV coupled with Noticee no. 2 and 3's position in the Noticee no. 1 enabled them to effectively enter into the loan agreements as a group acting in concert and also to conceal them from the knowledge of shareholders. In other words, the loan agreements were structured in a manner that clauses on various matters pertaining to NDTV, which were material and price sensitive information, were concealed from the minority shareholders, thereby inducing the investors to trade in the shares of NDTV in ignorance about such shift in de-facto control over NDTV and deprived them of informed participation in the securities market. Clearly, such an arrangement and scheme deployed by the Noticees to transfer their substantial stake in NDTV was fraudulent, surreptitious and was in violation of Section 12A (a) to (b) of SEBI Act read with the Regulation 3(a) to (d) of the PFUTP Regulations. 42. The Noticees have also contended that a Director is legally bound by fiduciary du....
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....n confronted with their own interest arising out of the above mentioned loan agreements. 43. As stated earlier, the amount received from the VCPL Loan Agreement-2 was meant for investment purpose only. However, neither the agreement has specified nor the Noticees have submitted any details about the investment for which a second loan had to be availed. Further, it is beyond one's comprehension as to why the VCPL agreed to provide interest free loan amounting to Rs. 403.85 crore to Noticees for investment, without having proper security, more particularly when the shares of NDTV transferred by the Noticee no. 2 and 3 to Noticee no. 1 were not commensurate with amount lent to Noticees, as explained earlier in this order. By all commercial prudence, VCPL loan agreements are grossly abnormal transactions, wherein the lender of more than Rs. 400.00 crore has decided to sacrifice interest on its principal amount for as many as 10 years. 44. Regulation 4(1) of the PFUTP Regulations, 2003, as quoted above, provides that no person shall indulge in a fraudulent or an unfair trade practice in securities. The prohibition contained is without prejudice to the prohibition contained in Regu....
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.... the dealings in the stock exchange are governed by the principles of fair play and transparency, one does not have to labour much on the meaning of unfair trade practices in securities. Contextually and in simple words, it means a practice which does not conform to the fair and transparent principles of trades in the stock market........" 47. In the present case, from the facts narrated above, it can be said that the conduct of the Noticees fails to conform to the fair and transparent principles of trades in the securities market. The way loan agreements have been used to deceitfully transfers shares of NDTV upto 30% of NDTV to VCPL without the knowledge of NDTV Board or its shareholders, it can be held that the acts of the Noticees are also in stark violation of Regulation 4(1) of PFUTP Regulations, being unfair trade practices. 48. SCN has also alleged the violation of Clause 49(I)(D) of the Listing Agreement. A perusal of the aforesaid Clause 49(I)(D), as quoted earlier at para 24 above, shows that it requires the Board of every listed company to lay down a Code of Conduct for compliance by all the Board Members and senior management of the company. Further, all the Board....
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....it can be deduced that Noticee no. 2 and 3 have failed to comply with all applicable laws and have also engaged in a conduct which is not honest and ethical and not free from fraud or deception, as required under the Code of Conduct of the NDTV. Similarly, Noticee no. 2 and 3 have entered into the afore-discussed loan agreements which created conflict of their personal interest with the interest of the NDTV, without making disclosure as required by their own Code of Conduct. Therefore, the conduct of Noticee no. 2 and 3 was not in compliance with the Code of Conduct of NDTV and consequently, the affirmation given by Noticee no. 2 and 3 to NDTV, as required in terms of Clause 49(I)(D) (ii) of the Listing Agreement were blatantly incorrect. As a result of this, declaration in the Annual Report of NDTV to this effect, signed by the CEO of the company for the financial years 2009-10 and 2010-11 is held to be false and it amounted to suppression of facts from the shareholders of NDTV. 50. 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 ....
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.... along with Noticee no. 1. These loan agreements contained demanding provisions requiring prior written consent of the lender to be obtained by the Noticees before taking a number of important actions pertaining to NDTV. Therefore, entering into these loan agreements undoubtedly created a situation of conflict of interest for the Noticee no.1 and Noticee no. 2. The fact that there existed a conflict of interest has also been implicitly admitted by the Noticees in their reply, where it has been submitted that a director is duty bound to check if the decisions/action is in the interest of the company, while a shareholder may take decision which serves his purpose but could be contrary to the interest of the company. Thus, in terms of Code of Conduct of NDTV, full facts and circumstances pertaining to these loan agreements were required to be disclosed to the NDTV by the Noticee no. 2 and 3, and in turn, the company was required to disclose it to the stock exchanges. There cannot be two views about this. Hence, contention to the contrary by the Noticees is liable to be rejected. 52. The Noticees have contended that they have been erroneously accused of having failed to disclose the....
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.... 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. 54. Before parting,....