2019 (6) TMI 968 - AT - SEBI

Sham loan transaction - violation of the SEBI laws - whether the loan agreement, in fact, wrested control of NDTV to VCPL? - Whether call option gives an unfettered right of controlling the company without exercising the right of call option? - HELD THAT - Upon the interpretation of the loan agreement at this stage, we are of the opinion that these agreements have remained in existence for the past 10 years. The loan agreements were executed in the year 2009 and 2010. Whether there was a violation of the SEBI laws including the PFUTP Regulations are all required to be considered. At this stage, prime-facie , we are of the opinion that a listed company which is managed by the appellants holding more than 61% of the total shares cannot remain headless. The impugned order has been passed restraining the appellants, Dr. Prannoy Roy and Ms. Radhika Roy from occupying a position as a Director or in any Key Managerial personnel in NDTV for a period of two years. Such orders prima facie would not be in the interest of the shareholders of the NDTV or for that matter the investors at this stage. We accordingly, grant the respondent six weeks time to file a reply from today. Three weeks thereafter to the appellants to file a rejoinder. The matter would be listed for admission and for final disposal on September 16, 2019. Even though the prayer for an interim stay was strongly opposed by the learned senior counsel for the respondent, considering the aforesaid, we stay the effect and operation of the impugned order dated June 14, 2019 till the next date of hearing. However, the appellants shall not alienate or create any encumbrance on their shareholding in NDTV till further orders. It is essential for SEBI to supply a copy of the impugned order to the aggrieved party, namely, the appellants. An adjudication proceeding had been initiated by SEBI by issuance of the show cause notice. The appellants thus have the first right to be supplied a copy of the impugned order from SEBI.

Summary

Issues involved:
Appeals against SEBI order, violation of SEBI Act and PFUTP Regulations, violation of Equity Listing Agreement, validity of loan agreement, control of listed company, violation of SEBI laws, restraint on appellants, interim stay of SEBI order, duty of SEBI to supply copy of order to appellants.

Analysis:
1. Appeals against SEBI order:
Three appeals filed against a common order by WTM of SEBI. Appellants directed to clear defects within six weeks due to urgency.

2. Violation of SEBI Act and PFUTP Regulations:
SEBI found appellants violated SEBI Act and PFUTP Regulations, leading to directions restraining access to securities market for two years and holding positions in NDTV and other listed companies.

3. Violation of Equity Listing Agreement:
Appellants found to violate Clause 49(1)(D) of Equity Listing Agreement, leading to regulatory actions by SEBI.

4. Validity of loan agreement:
Loan agreement between RRPR Holding Pvt. Ltd. and VCPL scrutinized, deemed a sham agreement by SEBI, raising questions on control of NDTV and non-disclosure of share transfers.

5. Control of listed company:
SEBI concluded that the loan agreement aimed to control NDTV, with transfer of shares to RRPR Holding Pvt. Ltd. constituting non-disclosure and violating disclosure obligations.

6. Violation of SEBI laws:
SEBI raised concerns over potential violations of SEBI laws, including PFUTP Regulations, in the context of the loan agreement and control of NDTV.

7. Restraint on appellants:
WTM's order restrained appellants from holding positions in NDTV, raising concerns about the impact on shareholders and investors, prompting further review of the situation.

8. Interim stay of SEBI order:
Appellants' request for interim stay granted by the Tribunal to suspend the SEBI order's effects until the next hearing, with restrictions on shareholding transactions.

9. Duty of SEBI to supply copy of order to appellants:
SEBI directed to provide a copy of the impugned order to the appellants promptly, emphasizing SEBI's responsibility to ensure effective communication with the concerned parties.

This detailed analysis covers the key issues addressed in the judgment, highlighting the legal complexities and implications of the case.