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2022 (7) TMI 1443 - AT - SEBIViolation of Regulation 11(1) of the SAST Regulations - Non issue of open offer - whether loan agreement did not in any manner transfer control of NDTV to VCPL either directly or indirectly? - As argued essential ingredients to constitute control are right to appoint majority of the directors, holding majority voting rights and/ or control over management and policy decisions of the company which in the instant case is non-existent nor any evidence has come on record to show that VCPL has control over NDTV through any of the aforesaid ingredients as per Regulation 2(1)(c) of the SAST Regulations. HELD THAT - This Tribunal in Shubhkam held 2010 (1) TMI 1260 - SECURITIES APPELLATE TRIBUNAL, MUMBAI that the word control is a proactive and not a reactive power. That is to say, it is a positive power and not a negative power. The test of control was whether the acquirer was in the driving seat and whether the driver controlled the steering, accelerator, the gears and the brakes and, if the answer to these questions was in the affirmative, then alone would he be in control of the company. The Supreme Court 2011 (11) TMI 878 - SUPREME COURT while affirming the decision of this Tribunal in Shubhkam held that the expression control denotes only positive control and further the word control as contrasted with management means de facto control of actual management or de facto control of policy decisions. Needless to say here, that the definition of the term control in the IBC 2016 is the same/ identical as defined under Section 2(27) of the Companies Act, 2013 and Regulation 2(1)(c) of the SAST Regulations, 1997. In the present case various clauses are meant to protect the interest of VCPL and the investment made by it. The transaction in the agreement is an amalgamation of rights. It is a loan transaction with an option to acquire 26% equity shares of NDTV as consideration for the provision of the loan. However, the transaction does not justify as being a control transaction. The transaction does not acquire direct or indirect control of NDTV. The intent and language of the loan agreement and call option agreements read with the SAST Regulations makes it clear that there is no direct or indirect control of NDTV by VCPL. The transaction structure does not lead to a conclusion that VCPL has acquired direct or indirect control over NDTV. Thus the impugned order does not establish how each of the rights, either individually or collectively have led VCPL to acquire indirect control over NDTV. No evidence has come to light to indicate that VCPL is exercising control over the management or policies of NDTV. In the absence of any evidence, the impugned order passed by the WTM cannot be sustained. In our view, the combined reading of the agreement, call option agreements, warrant conversion option and the purchase option does not in any way lead to a conclusion of VCPL acquiring indirect control over NDTV. Thus the direction to VCPL to make an open offer in terms of Regulation 44 of SAST Regulations, 1997 and Regulation 32 of SAST Regulations, 2011 does not arise. Whether the appellants failed to disclose the loan agreement under Clause 49 of the listing agreement? - Considering the violation of the Code of Conduct, the order of the WTM restraining them from accessing the securities market or from accepting any position of a Director is totally out of context and does not commensurate with the alleged violation especially when no fraud has been committed nor does the loan agreement defraud the investors. The imposition of penalty of Rs. 25 crores by the AO is also high, excessive and disproportionate to the alleged violation. We find that the AO while considering the factors under Section 25J has noted that the quantifiable gain or unfair advantage accrued to NDTV or extent of loss suffered by the investors as a result of the default cannot be computed. In the absence of any quantification, we are of the opinion, that in the absence of any concealment or causing fraud to the investors or to the minority shareholders, the violation of Clause 49 of the listing agreement only invites a penalty. Considering the factors brought on record, we reduce the penalty from Rs. 25 Crores to Rs. 5 Crores. Further penalty reduced - As considering the factors involved under Section 23J of the SCRA is concerned, we find that the AO himself has held that the quantifiable gain or unfair advantage accrued to NDTV or extent of loss suffered by the investors as a result of the default cannot be computed. Consequently, the penalty for mere violation of non-disclosure under Clause 36 of the listing agreement cannot be penalized to the maximum amount quoted in the provision. Considering the facts and circumstances, we are of the opinion that the penalty of Rs. 5 Crores is reduced to Rs. 10 lakhs under Section 23A(a) of the SCRA.
Issues Involved:
1. Whether the loan agreement and call option agreements between VCPL and RRPR resulted in indirect control over NDTV, triggering an open offer under the SAST Regulations. 2. Whether the appellants failed to disclose material information regarding the loan agreements, constituting a violation of SEBI Act, PFUTP Regulations, and Clause 49 of the Listing Agreement. 3. Whether NDTV violated Clause 36 of the Listing Agreement by not disclosing the loan agreement details. Issue-wise Detailed Analysis: 1. Indirect Control and Open Offer under SAST Regulations: The primary issue was whether the loan agreement and call option agreements between VCPL and RRPR resulted in indirect control over NDTV, necessitating an open offer under the SAST Regulations. The Tribunal held that the loan agreement did not result in VCPL acquiring control over NDTV. The Tribunal emphasized that the agreements were structured with commercial rationale, and the options (warrant conversion, purchase option, and call option) did not entail an acquisition of shares or control over NDTV unless exercised. The Tribunal referred to the precedent set in the Victor Fernandes case, where similar clauses were deemed protective and did not confer control. The Tribunal concluded that VCPL did not acquire direct or indirect control over NDTV, and thus, the direction to make an open offer was unwarranted. 2. Non-disclosure of Material Information: The Tribunal examined whether the appellants failed to disclose the loan agreements, constituting a violation of SEBI Act, PFUTP Regulations, and Clause 49 of the Listing Agreement. The Tribunal found that the loan agreements were not material price-sensitive information as they did not transfer control of NDTV to VCPL. However, the Tribunal noted that under Clause 49(I)(D) of the Listing Agreement, the appellants were required to disclose the loan agreements as they were investments that could create a conflict of interest. The Tribunal held that the non-disclosure was a violation of the Code of Conduct under Clause 49 but did not amount to fraud or unfair trade practice. Consequently, the penalties imposed by the WTM and AO were deemed excessive and were reduced. 3. Violation of Clause 36 of the Listing Agreement by NDTV: The Tribunal addressed whether NDTV violated Clause 36 of the Listing Agreement by not disclosing the loan agreement details. The Tribunal held that the loan agreement did not transfer control of NDTV to VCPL, and thus, the finding that the agreement was price-sensitive information was incorrect. However, the Tribunal noted that the peculiar structure of the loan agreement and its potential impact on NDTV's performance warranted disclosure under Clause 36. The Tribunal cited the ICICI Bank case, emphasizing that when in doubt, disclosure should be made to avoid violations. Consequently, the Tribunal upheld the violation of Clause 36 but reduced the penalty imposed on NDTV. Conclusion: The Tribunal quashed the order directing VCPL to make an open offer, upheld the violation of Clause 49(I)(D) by the appellants but reduced the penalties, and affirmed the violation of Clause 36 by NDTV, reducing the penalty accordingly. The Tribunal emphasized the importance of protective rights and commercial rationale in interpreting the agreements and highlighted the need for disclosure to ensure transparency and protect investor interests.
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