TaxTMI 
TaxTMI 
TaxTMI 
2019 (6) TMI 823
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...., 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%) 93,60,086 (14.92%) 93,60,086 (14.92%) 1,05,24,249 (16.33%) 3 ....
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....estigation 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 per Clause 9 of the said agreement, one of the pre-conditions set out during the execution of VCPL Lo....
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..... 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 such as merger, amalgamation, buyback etc. in the scrip of NDTV without the prior written consent of ....
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....plicable 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 not to hide any fact in respect of VCPL loan agreements. At the relevant time, there was no requirement to make disclos....
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....ovember 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 provisions cannot be invoked in the instant case for alleged non-disclosure of certain agreements which were entered into almost a decade ago. d) That....
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..... 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 shareholder has no such obligation imposed on him because shareholder's vote is a right of property, and prima facie may be exercised by a shareholder as he thinks fit in his own interest. In this connection, reliance ....
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....om 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. Terms such as "concealment", "device" or "contrivance" have implicit mens rea. Existence of victim is implicit in fraud. As the act of concealing necessarily implies that concealment must be from another person, as a corollary to it in the absence....
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....nitiating 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 grounds or details of recording of such grounds of belief, is not tenable for the reason that investigation is only a fact finding exercise. As held by the Hon'ble SAT in Bhorukha Financial Services Ltd. Vs. SEBI (order dated May 10, 2006 in SAT Appeal No. 18 of 2006 ), "Investigatio....
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....ctions 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 been initiated to assert that he should be made aware of the reasons as to why a particular enforcement action has been selected for initiation against him as because, this is neither the requirement of law nor of the principles of natural justice. The course of action available to a noti....
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....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 delay in the matter, the date when the violation came to the notice of the SEBI would be the relevant point and not the date of violation. Whether a delay in a particular case is justified or not depends on the facts and circumstances of each case. Even in the case relied on by Noticees i.....
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....ew 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 since their request for inspection of entire records and file noting has been denied. In this regard, I note that subsequent to issuance of SCN, Noticees were provided with opportunity of personal hearing. Subsequently, Noticees have filed a Writ Petition (civil) No 9114 of 2018 before the Hon'bl....
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....stinguishable 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 contract itself as a penalty to be imposed in case of breach of terms of contract, whereas, in the present matter provisions of law under which directions are contemplated to be issued, confer discretion to SEBI to take such measure as it thinks fit in the interest of investors and securities market. Keeping i....
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....ing 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 dicta. In any circumstance, Gorkha Security case is factually distinguishable as observed above. Accordingly, the said contention raised by the Noticees is untenable both on facts and on law. 24. Before examining the issues as framed for determination at para 14 above, it is necessary to refer to the ....
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....act; (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 construed accordingly; Nothing contained in this clause shall apply to any general comments made in good faith in regard to- (a) the economic policy of the government; (b) the economic situation of the country; (c) trends in the securities market; (d) any other matter of a like nature. whether such comments are made in public or in private; .............. ............. Regulation 3. Prohibition of certain dealings in securities No....
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.... 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 or in part without any penal interest. d. Noticee no. 1 was liable to procure and deliver to ICICI, irrevocable and unconditional guarantees from Noticee no. 2 and Noticee no. 3 for the due repayment of the loan. Further, Noticee no. 1 was liable to ensure that Noticee no. 2 and 3 observe all the covenants, terms, conditions, restrictions and prohibitions. e. Notably, the facility of loan so granted by ICICI was subject the compliance with the special conditions set out in Schedule III of the agreement, including inter alia the following: i. Noticees shall not permit any merger, de-merger, consolidation, reorganisation, ....
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....he 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 repayable to VCPL on a distant maturity date i.e. the date falling at the end of 10 years from the draw-down date (the date on which loan is disbursed). c. The Noticee no. 1 (RRPR), was required to issue warrants convertible into the equity shares aggregating to 99.99% of the fully diluted Equity Share Capital of the Noticee no. 1, immediately upon the execution of the agreement. These warrants could be converted any time during the tenure of the loan or thereafter, without requiring any further act or deed on the part of VCPL. d. VCPL got a right to purchase from Noticee no. 2 and 3 all the shares of Noticee no. 1 held by them at par value. e. Noticee no. 2 and 3 we....
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....n 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, 2009. STPL and SEPL were associates of VCPL's shareholders at the relevant time. The call option agreements with STPL, gave STPL the right to purchase from Noticee no. 1 (RRPR), equity shares of NDTV, representing up to 14.99% of the equity share capital of NDTV. Similarly, call option agreements with SEPL, gave SEPL the right to purchase from Noticee no. 1 (RRPR), equity shares of NDTV, representing up to 11.01% of the equity share capital of NDTV. Both the call option agreements provided for a fixed price of Rs. 214.65 per share at which STPL and SEPL would exercise their right anytime to purchase the NDTV shares. 30. VCPL Loan Agreement - 2 dated January 25, 2010 was entered into between VCPL and the Noticees for giving an additional loan o....
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....ment 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. Kanaiyalal Baldev Bhai Patel (2018) 13 SCC 753 and SEBI Vs. Rakhi Trading Private Ltd. (2018) 13 SCC 753. 33. Further, in the case of N. Narayanan Vs. Adjudicating Officer, SEBI (2013) 12 SCC 152, with respect to the objective of SEBI Act and specifically the provisions of Section 12A and Regulations 3 and 4 of PFUTP Regulations, Hon'ble Supreme Court have observed as under: ".................35. Prevention of market abuse and preservation of market integrity is the hallmark of Securities Law. Section 12A read with Regulations 3 and 4 of the Regulations 2003 essentially intended to preserve 'market integrity' and to prevent 'Market abuse'. The object of the SEBI Act is to protect the interest of investors in securities and to promote the development and to regulate the se....
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....rated 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 (Noticee no.1) by converting the warrants, at any time either during the tenure of the loan or even thereafter. Thus, it is left to the absolute discretion of VCPL to decide when to take the entire share capital of Noticee no. 1 and thereby to take control over the entire shareholding of Noticee no. 1 in NDTV to the extent of 26% which was subsequently increased to 30% vide the VCPL Loan Agreement - 2. b) Clause 11 of the VCPL Loan Agreements provide for appointment of at least one director (out of 3) nominated by VCPL on the Board of RRPR, whose presence was mandatory to constitute the quorum for any meeting of the Board. c) Clause 13 provides that in case of any breach of the terms of the Loan Agreements or related agreements by the Noticees, the same would result in the loan a....
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....ature 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 prejudice of the borrowers. It creates a situation whereby during the period when the loan agreements are in force i.e. the period when the Noticees are under the obligation to repay the loan after a period of 10 years, the lender can freely assign all its rights in the said loan agreements to any other party thereby rendering the loan agreement freely transferrable from lender's side. Additionally, there is one more unique provision observed in the loan agreement at clause 19 which states that "over the next 3 to 5 years, the Borrower and the Lender will look for a 'stable' and 'reliable' buyer of RRPR, who will maintain the brand and the credibility of NDTV". From the same, it is clearly discernable that the Noticees have gone far beyond the normal commercial ambits of a simple loan transaction, only for the reason....
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....t 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 consideration for 30% shares of NDTV, by way of transferring the ownership of Noticee no. 1 to VCPL irrespective of the market value of the shares of NDTV at the relevant point of time. The alleged collateral securities thus offered by the Noticees under the aforesaid loan agreements were disproportionately inadequate vis a vis the amount received as loan. In a general loan transaction where shares are offered as collaterals, the lender demands substantial haircuts in collateral value and also insist on pledge invocation in case of adverse movement of share price if additional security is not provided. However, in this case, instead of demanding haircuts in the value of collaterals, the so called loan was generously given by the lender to the Noticees with inadequate number of shares as collaterals and without even creating any charg....
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....is 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 intents of Noticees of effecting transfer of substantial stake in NDTV to the Lender under the garb of a loan agreement. Thus, the terms and conditions of the loan agreement unambiguously indicate that the objective and intent behind the execution of loan agreement was nothing but to transfer beneficial interest in the shares of NDTV. l) The deploying of the words "balance is outstanding" in clause 7 of the VCPL Loan Agreement is intriguing and lacks any rationale, given the fact that there was no contractual obligation fastened upon the borrower to make any repayment at all, during the tenure of the loan agreement and the entire loan amount would always stand as outstanding at any point of time during the life of the agreement. Therefore, the question of having any 'balance is outstanding" during the tenure of the agreement does not arise. Su....
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....und 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% shares of NDTV. As discussed at para 34(d) earlier, pursuant to execution of VCPL Loan Agreement -1, Noticee no. 2 and 3 were required to transfer 11,563,683 shares of NDTV to RRPR (Noticee no. 1). Similarly, in terms of VCPL Loan Agreement - -2, Noticee no. 2 and 3 were mandated to transfer an additional number of 25,08,524 shares of NDTV to Noticee no. 1. In this regard, it is necessary to look at the off market transfers of shares of NDTV that took place inter se amongst Noticee no. 2, Noticee no. 3 and Noticee no. 1, in compliance with the loan agreements. These share transactions are presented as under: Table I: Transfers of shares after VCPL Loan Agreement - 1 dated July 21, 2009: Date Description No. of Shares Cost Per Share (INR) Total consideration (INR) 03-Aug-09 RRPR purchased NDTV shares from Mr. Prannoy Roy 5,781,842 4.00 23,127,3....
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....f 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 transaction, Noticee no. 2 and Noticee No.3, each purchased 34,78,925 shares of NDTV from Noticee no. 1, at a nominal rate of Rs. 4/- per share. Again, through another transaction, Noticee no. 2 and Noticee no. 3 each sold 23,14,762 number of shares of NDTV to Notice no. 1, at the rate of Rs. 140/- per share. Thus, in aggregate, Noticee no. 2 and Noticee no. 3 have sold 94,66,374 shares of NDTV to Noticee no.1 at a price of Rs. 140/- per share whereas, 69,57,850 shares of NDTV were purchased simultaneously from Noticee no. 1 at a price of Rs. 4/- only per share. Thus, at the end of the aforesaid series of transactions, presented in Table no. II above, Noticee no. 2 and Noticee no. 3 have made a net sale of 25,08,524 shares of NDTV to Noticee no. 1 in compliance with the VCPL Loan Agreement - 2 so as to ensure that the total holding of NDTV shares by Noticee no. 1 goes upto 30%. The Table no. II also shows that Noticee no. 2 and Noticee no. ....
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....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 respect to their dealing in the shares of NDTV, capital restructuring of NDTV etc. The minority shareholder of NDTV and general investors of securities market were entitled to know such crucial transactions carried out by the promoters which involved transferring the rights over a substantial stake by the promoters to a third party. However, Noticees apparently did not want the general investors to know about the transfer of their 30% shares of NDTV and other associated rights to VCPL. These transactions were deliberately structured by the Noticees as loan transactions so as to conceal the said sale of 30% stake in NDTV. Accordingly, the transaction was devised in a way to avoid the said information getting known to the investors, and to ensure that investors continue to trade in the shares of NDTV unaware of these material and price sensitive developments. Further, as mentioned earlier inter se transaction of shares of NDTV between the ....
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.... 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 regulations, it can be seen that the original definition of "fraud" under the FUTP regulation, 1995 adopts the definition of "fraud" from the Indian Contract Act, 1872 whereas the subsequent definition in the 2003 regulation is a variation of the same and does not adopt the strict definition of "fraud" as present under the Indian Contract Act. It includes many situations which may not be a "fraud" under the Contract Act or the 1995 regulation, but nevertheless amounts to a "fraud" under the 2003 regulation. 28. The definition of 'fraud' under clause (c) of regulation 2 has two parts; first part may be termed as catch all provision while the second part includes specific instances which are also included as part and parcel of the term "fraud"...................." Per Hon'ble Justice Ranjan Gogoi - "..............5. If Regulation 2(c) of the 2003 was to be dissected and analyzed it is clear that any act, expression, omission or concealment committed, whethe....
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....rely 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 misplaced and erroneous. The Noticees' contention is that in the Board of NDTV, consisting of 6-8 Directors with 3-4 Independent Directors, Noticee no. 2 and 3 could not have done/stopped anything at Board level. This contention is not tenable in view of the fact that Noticee no. 2 is not only the director of NDTV but is the Chairman of Board of the Company. Secondly, Noticee no. 2 and 3 were not only the Chairman and Managing Director, respectively, but along with Noticee no. 1, which is a private limited company of Noticee no. 2 and 3, were also the promoters and majority shareholders, holding majority voting rights in NDTV. Therefore, it is inconceivable that Noticee no. 2 and 3 were incapable of ensuring compliance with the conditions to which they had agreed under the loan agreements with respect to the affairs of NDTV. As discussed earlier, neither the ICICI Loan Agreement nor the VCPL Loan Agreements were having the attributes of plain vanilla secured inter corpor....
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....ations 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, decision on vital matters pertaining to NDTV have been made subject to prior written consent of VCPL/ ICICI. All these loan agreements make it clear that the Chairman and Managing Director of NDTV (i.e. Noticee no. 2 and 3), who happen to be the promoters with majority stake in NDTV have put themselves under contractual obligation to take prior consent of VCPL/ICICI in execution of key decisions pertaining to the company i.e. NDTV. Thus all such decisions have become contingent on the affirmative consent of the lenders i.e. ICICI/VCPL and in a given case, consent could have been or may be refused by the ICICI/VCPL, therefore, imperilling the functioning of the listed company (NDTV). It certainly amounts to acting in derogation of the fiduciary duty, by the Noticee no. 2 and 3. The contention of the Noticees exhibits internal inconsistency and contradiction in their arguments. On the one hand, it is contended that Noticees have not acted against their statutory fid....
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....ptitious 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 duty owed to the Company, while a shareholder has no such obligation imposed on him because shareholder's vote is a right to property, and prima facie may be exercised by a shareholder as he thinks fit in his own interest. There is no quarrel to the above proposition that a shareholder is free to exercise his voting rights in the manner he wishes to. However, it is to be understood that the case against the Noticees is not that they could not have entered into such loan agreements or exercised their voting rights the way they desired to, but the case against the Noticees is that they have entered into certain transactions with a third party whereby they have agreed to comply with certain conditions which bind NDTV and the interest of its shareholders too. In other words, by entering into such transaction, Noticees have brought their personal interest in conflict with the interest of NDTV. The extant Code of Conduct of NDTV which was binding on the Noticee no. 2 and 3 in....
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....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 Regulation 3 of the PFUTP Regulations which broadly prohibits fraudulent dealing in securities. 45. In the case of Kanaiyalal Case (Supra), two Hon'ble Judges of Hon'ble Supreme Court, dealt with the expression "unfair trade practice" as used in Regulation 4(1) of the said Regulations in the following words: Per Hon'ble Justice N. V. Ramanna - ".........29. Although unfair trade practice has not been defined under the regulation, various other legislations in India have defined the concept of unfair trade practice in different contexts. A clear cut generalized definition of the 'unfair trade practice' may not be possible to be culled out from the aforesaid definitions. Broadly trade practice is unfair if the conduct undermines the ethical standards and good faith dealings between parties engaged in business transactions. It is to be noted that unfair trade practices are not subject to a single definition; rather it requires adjudication on case to case basis. Whether a....
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....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 Members and senior management of the company are required to affirm compliance with the Code on an annual basis. I find that NDTV had its Code of Conduct in place during the relevant period, the relevant extract of the said Code of Conduct is as under: "Applicability This Code of Conduct applies to the following (hereinafter referred to as "officers") * All the members of the Board of NDTV and its subsidiaries * Chief Finance Officer and Company Secretary * Members of Senior Management Compliance With Laws, Rules and Regulations Ethical business conduct is critical to our business. Officers are expected to comply with all applicable laws, rules and regulations including all laws prohibiting insider trading, engage in and promote honest and ethical conduct and abide by the policies and procedures that govern the conduct of the Company's business. Officer's responsibilities include helping to create and maintain culture of high ethical standards and commitment to complian....
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....isting 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. Vide Circular dated October 29, 2004, Clause 49 was introduced which read as follows: "Clause 49 - Corporate Governance The company agrees to comply with the following provisions: I. Board of Directors (A) Composition of Board................... (B) Non executive directors' compensation and disclosures............. (C) Other provisions as to Board and Committees................ (D) Code of Conduct (i) The Board shall lay down a Code of Conduct for all Board members and senior management of the company. The Code of Conduct shall be posted on the website of the company. (ii) All Board members and senior management personnel 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 purpos....
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....t they have been erroneously accused of having failed to disclose the loan agreements to NDTV, the company of which they are promoters. According to them all references to provisions relating to disclosures are flowing from the provisions of the Listing Agreement, which did not bind the promoters but the company. Therefore, there was no requirement for promoters of NDTV to make disclosure under the Listing Agreement or even otherwise, about the loan agreements executed by the promoters of NDTV in their personal capacity. I have already dealt with the requirement of disclosure on the part of the Directors of the Board of NDTV in terms of the Code of Conduct framed by NDTV in compliance with Clause 49 of Listing Agreement, in the earlier paragraphs 48-51 of this order. I have already observed that the obligation of the Noticee no. 2 and Noticee no. 3 to disclose about the contents of the VCPL Loan Agreements to the Company (NDTV) was mandated to them as Directors of NDTV under the company's Code of Conduct itself which have postulated inter alia, that the directors have to disclose any transaction involving their conflict of interest to the company. 53. To sum up, the Noticees ente....
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....ial developments in the shareholding of NDTV. 54. Before parting, I would like to highlight the point that in the instant case, Noticee no. 2 and 3 are the original promoters and majority shareholders of NDTV. The disclosures made by the NDTV in the public domain, including the prospectus issued for the Initial Public Offer of NDTV, suggest that the Noticee no. 2 and 3 have been the face of the company and the prime movers of all its activities. Moreover, as the Chairman and the Managing Director, respectively, Noticee no. 2 and 3 were also actively running the day to day management of NDTV. Under the circumstances, the Noticee no. 2 and 3 had this avowed duty to act in a fair and transparent manner to protect the interest of their minority shareholders and not to indulge in any fraudulent activity or any activity detrimental to the interest of the shareholders of NDTV. However, contrary to the same, in the present case, the 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 compan....