9911796707
TMI Blog2018 (6) TMI 1837X X X X Extracts X X X X X X X X Extracts X X X X ..... the nature of a loan. Instead, it appears that the loan agreement and call option agreements were used to shroud the true nature of the transaction which was acquisition of beneficial interest in NDTV Ltd. The elaborate mechanism adopted by the noticee and its associates appear to be solely to deflect attention from this acquisition and thus covetously overcome the obligations imposed by the Takeover Regulations. In effect, the transaction is not to secure the loan but to acquire control over all the affairs of the Target Company leaving only the right to control the editorial policies of NDTV to the Promoters and Borrowers, right from the day of execution of the loan agreement. Thus in our view, the takeover exercise has been conveniently couched as a loan agreement with the predominant intention of the Noticee being to acquire control over NDTV without contemplating any repayment of the loan, whatsoever, from the Promoters or Borrowers. The transaction documents admittedly confer Conversion Option, Purchase Option and the Call option, and if the voting rights is to give full effect to the Transaction Documents, it would straightaway mean that the 52% of the voting rights ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce with the provisions of the SAST Regulations, 1997, within a period of 45 days from the date of this order; b) The noticee shall along with the offer price, pay interest at the rate of 10% per annum from the date when they incurred the liability to make the public announcement till the date of payment of consideration, to the share-holders who were holding shares in the target company on the date of violation and whose shares are accepted in the open offer, after adjustment of dividend paid, if any. - G. Mahalingam Whole Time Member ORDER Under Sections 11(1), and 11B of Securities and Exchange Board of India Act, 1992 and Regulations 44 and 45 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 read with Regulations 32 and 35 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, in the matter of NDTV Ltd. in respect of Vishvapradhan Commercial Private Ltd. (VCPL) 1. M/s. New Delhi Television Ltd., (hereinafter referred to as Target Company / NDTV / Target company ) is a company having its registered office at 207, Okhla Industrial Es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) Issue or agreement to issue any equity securities in RRPR. (b) Buyback of equity securities, reduction or alteration of share capital of RRPR. (c) Borrowing or raising money or issue of any debenture or assumption of debt. (d) Amending the charter documents of RRPR (e) Merger, amalgamation or consolidation of RRPR with any other entity or any entity with RRPR. (f) Set up any subsidiary. (g) Cause RRPR to take any steps towards bankruptcy, insolvency or reorganization, arrangement, adjustment, winding up, liquidation, dissolution, composition or other relief with respect to it or its debts or seeking appointment of a receiver, trustee, custodian or other similar official for it or all or any substantial part of its property. (h) Sell or otherwise dispose of any asset of RRPR or transfer any equity securities of NDTV or create any encumbrance on the equity securities of NDTV. (i) Sell, transfer or create any encumbrance on the equity securities of RRPR. (j) Take any action to issue any equity securities or enter into any agreement as a result of which the promoters cease to be in sole control of RRPR. xiii. The following matters relating to NDTV would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e alleged violations referred to hereinabove. 4. Post issuance of the SCN, the Noticee had sought for several documents while exercising its right of inspection of documents relevant to the issuance of the SCN. Relevant documents were provided during the inspection carried out by the Noticee on February 14, 2017 and February 22, 2017. Vide letter dated March 16, 1017, VCPL sought further additional documents for inspection. In reply, SEBI vide email dated June 13 and June 22, 2017 inter alia conveyed to VCPL that all the documents relied upon have been provided during the inspection and thus inspection of documents stood concluded. Not being satisfied with the stance of SEBI that the inspection had been concluded VCPL preferred Appeal no. 144 of 2017 before the Hon ble SAT. The relief sought by VCPL before the Hon ble SAT was to set aside the communications received by it from SEBI vide emails dated 13/06/2017 and 22/06/2017 inasmuch as SEBI contended that the inspection was complete and the reply on merits ought to be filed by VCPL. VCPL further sought directions of the Appellate Tribunal to be granted a complete inspection of all records as sought by them vide their letter dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing the merits of the allegations, especially in a case where all relevant documents have been provided and for the rejection of certain documents, elaborate reasons have been furnished. (ii) Once an order is passed or a letter is sent communicating the decision of the Competent Authority, then the same would again be agitated by the parties before the Appellate Tribunal disputing the reasons provided for such rejection. (iii) In the chain of litigations that can potentially be employed by resourceful noticee, the quasi-judicial proceedings initiated against the entity continue to remain pending before various authorities (WTMs or AOs) without reaching any conclusion for a prolonged period. (iv) Right of inspection of documents is a right of the noticee to understand the facts and circumstances that has led to the allegations in the SCN. Seeking documents or opinions/decisions of the regulator in factually different and distinct matters or making roving enquiries traverses beyond the reasonable bounds of the right to inspection. (v) Normally, as a matter of practice, the issues of the nature raised by the Noticee including inspection, cross-examination and such other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eing the quarter ending December 2017, RRPR, Dr Prannoy Roy and Mrs Radhika Roy have continued to be the promoters of NDTV. Admittedly, even during the course of the long drawn denial of inspection of the record to VCPL, SEBI has not even considered that the filings made by NDTV were allegedly wrong by depiction of a wrong promoter. (v)Under Clause 6.1 read with schedule I of the Loan Agreement VCPL is entitled to warrants of RRPR. These warrants are convertible at par from time to time (in tranches) at VCPL s option into equity shares aggregating upto 99.99%. Upon such conversions, if and when the Conversion Option were to be fully exercised, VCPL would then come to own RRPR which in turn holds shares of NDTV (vi)Under clause 6.2 of the Loan Agreement, VCPL has the option to purchase all equity shares of RRPR at par from Dr Prannoy Roy and Mrs. Radhika Roy ( Purchase Option ). If and when such purchase is effected, VCPL would then own RRPR which in turn holds shares of NDTV. There are two call option agreements which were contemporaneously entered into between Subhgami Trading Private Limited and RRPR, and Shyam Equities Private Limited and RRPR, respectively, on 21 July 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der of the borrower RRPR which in turn holds the collateralised asset, that is, shares of NDTV, a listed company. Once the collateral was available, it was vital that all necessary protective measures be taken to ensure that the security for the loan does not get diluted due to actions of RRPR or of its promoters. That is the reason for VCPL having the rights contained in Schedule 3 of the Loan Agreement. (ix)In Victor Fernandes Anr. Vs SEBI Ors, the Hon'ble Securities Appellate Tribunal in its order dated 13 April 2016 referred to certain clauses of a ZOCD agreement and made a prima facie observation that such clauses might have resulted in acquisition of control and asked SEBI to investigate the same and arrive at a specific finding and report to the Hon'ble Securities Appellate Tribunal. SEBI did so vide its Investigation Report dated 10 October 2016. In it, SEBI has clearly conducted a clause-wise analysis, and concluded that those clauses do not result in control acquisition. Some of those clauses are similar to the clauses in the Loan Agreement. (x)VCPL, has no positive rights to cause any decision whatsoever to be taken, whether it relates to day to day b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... editorial policies of NDTV which, for a broadcaster lies at the heart of control. (xiii) The loan provided by VCPL was an asset-recourse loan with the entitlement to have the outstanding loan amount returned to it on the Maturity Date. As a matter of right, the entitlement to have the outstanding loan amount repaid on Maturity Date was enshrined in the Loan Agreement. (xiv) The main objective in VCPL stipulating that RRPR should acquire 26 percent holding in NDTV was to ensure there is enough collateral and would also entitle VCPL to special resolution rights under the Companies Act. (xv) The Call Option is an additional collateral - in addition to the Conversion Option and the Purchase Option. All these options complement each other such that the net result of all or any of them fully would lead to VCPL acquiring directly or indirectly 26% shares in NDTV. The call option agreements do not refer to a specific outer limit. A Call Option maybe exercised at any time and the proceeds thereof are to be used by RRPR to repay the loan amount. However if, the Conversion Option or Purchase Option were exercised in full, the Call Options would naturally lapse. This is because once ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for taking ownership at its option of a bulk quantity of a listed company's shares (namely 26% shares of NDTV). The value of the collateral (the NDTV shares) at the time of giving the loan and making the investment does not have any bearing at all in a matter involving the question of whether VCPL has triggered an open offer. At the time of giving the loan, however, the difference between the market value and the loan cum investment amount was obviously not so large so as to have been a deterrent for such a decision. A potential would have been seen for the company's value increasing. Whether or not the value would decrease or increase is ultimately a commercial assessment made at the time of giving the loan / making the investment. (xix) Just because this is the only transaction done by VCPL, it would not follow that the Takeover Regulations would get triggered. (xx) One must not lose sight of the other element of the transaction in question, namely, that VCPL also acquired the right to acquire, if it so desired, in future, an interest in one of the largest media companies in the country. If and when, and as and when, such acquisition in fact occurs, whether such ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rights in a company, no acquirer shall acquire control over the target company, unless such person makes a public announcement to acquire shares and acquires such shares in accordance with the regulations: Provided that nothing contained herein shall apply to any change in control which takes place in pursuance to a special resolution passed by the shareholders in a general meeting: Provided further that for passing of the special resolution facility of voting through postal ballot as specified under the Companies (Passing of the Resolutions by Postal Ballot) Rules, 2001 shall also be provided. Explanation. For the purposes of this regulation, acquisition shall include direct or indirect acquisition of control of target company by virtue of acquisition of companies, whether listed or unlisted and whether in India or abroad. Regulation 14(3) - Timing of the public announcement of offer 14. (3) The public announcement referred to in regulation 12 shall be made by the merchant banker not later than four working days after any such change or changes are decided to be made as would result in the acquisition of control over the target company by the acquirer. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will increase their holding in the aggregate to more than 26% of the paid up Equity Share Capital of NDTV without the consent of the Borrowers and Promoters. In addition to this, the Repayment clause 7 ensures repayment by separately invoking the call option rights under the agreements. Clause 13 provides that any breach of the terms of the Loan Agreement or related agreements, by the promoters of NDTV or by RRPR, would lead to the loan becoming immediately payable. Clause 14 provides that the Agreement shall not be capable of being assigned by the Promoters and the Borrower but the Noticee shall have the right to assign the Agreement, the Loan and the rights therein. Clause 19 of the Loan Agreement provides that both 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. Clause 20 reads as Further Assurances ; The promoters together with their Affiliates shall exercise their voting rights attached to the Equity Shares held by them in the Borrower and the Promoters together with its Affiliates and the borrower shall exercise the voting rights attached to the equity shares held by them in NDTV ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om a perusal of clause 6, it is observed that even without exercising the conversion option of Equity Share capital of RRPR, the Noticee had a right to purchase the shares of RRPR at par value (see Clause 6.2); (iii) The terms of Warrant in Schedule I(a) of the Loan Agreement reads as At the sole option of the Lender, the Warrant may be converted into such number of Equity Shares at par aggregating to 99.99% of the fully diluted Equity Share Capital at the time of conversion of the Borrower at any time during the tenure of the Loan or thereafter without requiring any further act or deed on the part of the Lender. From this term, it can be seen that the exercise of the right to convert warrants into shares of RRPR thereby indirectly acquiring 26% of NDTVs equity is not dependant on the repayment of the loan. Whether or not the loan is repaid, the noticee i.e. VCPL could validly seek conversion of the warrants it held with RRPR thereby being indirect shareholders of 26% of NDTVs equity, this right explicitly extending beyond the tenure of the Loan Agreement by the words during the tenure of the Loan or thereafter . (iv) To summarise, the lenders' rights under (i), (ii) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of the Transaction Documents including but not limited to the Veto rights as claimed by the Noticee in Schedule 3 to the Loan Agreement. An explicit power to vote in consonance with the Transaction Documents on issues outside Schedule 3 of the Loan Agreement has been certainly acquired by the Noticee, through Clause 20. In view of the above the contention that the noticee has no positive rights to cause any decision whatsoever to be taken with respect to NDTV does not hold merit. (viii) Besides the above, Schedule 3 of the Loan Agreement titled Prior Consents cast obligations on the Promoters, to obtain the Lender s prior consent as far as the changes in capital structure or the constitution of the holding company and NDTV is concerned. 15. Therefore the clauses in the loan agreement and the contention of the noticee is that the transaction was in the nature of a secured loan advanced by VCPL to RRPR appear only to be a fa ade for a loan transaction. Moreover the loan agreement did not have a clause of termination upon repayment and this was raised to the Noticee during the hearing proceedings. The query and reply are extracted hereunder: Query : Wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ICICI but that in itself would not change the nature of the financial transaction VCPL entered into with RRPR. As often, the borrower s need cannot define the motive of the person who is ready to lend amounts, on the basis of a right of conversion which would ultimately result in acquisition of 26% NDTV shares. The noticee's contention for not charging interest on the loan is predicated upon the unlikely event of call option yielding a substantial return through the price of NDTV shares spurting beyond the strike price. The price history of NDTV shares or the matrix of performance by NDTV do not bear out this argument and hence to collateralize the loans keeping an abnormally high strike price of underlying NDTV shares looks like an exercise of self deprivation of a commercially reasonable return (in the absence of interest) from the call option structure. This naturally casts a doubt on the very requirement to have a call option in the context of an under collateralised loan that was dependant on the valuation of shares of NDTV. 17. An examination of the covenants in the Call Option Agreement also becomes relevant to ascertain the true intention of the parties. The crux of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its nominated Affiliate/third person to purchase all or part of the Call Shares at any time, at the sole discretion of the Purchaser, in consideration of Two lakh rupees paid to RRPR. The Call Shares under both the agreements together amounted to 26% of NDTVs equity capital. Upon exercise of the option, the Agreement mandated that another agreement must be entered into declaring that the Option Holders (STPL/SEPL) would act along with the Promoters of NDTV as a single block for purposes of the Information and Broadcasting Ministry's Guidelines. The right to exercise the purchase option over the Call shares is not dependant on any contingency nor does it cease within a defined time and the Agreement records that the Option Holder (STPL/SEPL) will acquire a valid and marketable title to the Call Exercise Shares. From the submissions of the noticee, I note that STPL was struck off from the register of the Registrar of Companies and that SEPL had merged with Shinano Retail Pvt. Ltd. vide orders of the Hon'ble Bombay High Court dated September 28, 2012 and Hon'ble Karnataka High Court dated March 09, 2013. I also note that in terms of the Call Option Contracts (clause 2(a)) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated provisions of Clause 8 of the Loan Agreement among other provisions of the agreements. Infact the Loan Agreement would continue to be in force even after loan repayment till call options are exercised. 20. From the replies, it is noted that (i) call option agreements do not have a specific outer time limit, within which it can be exercised and (ii) the option is not linked to any contingent event which will trigger its exercise. The exercise of the option is so open- ended and uncircumscribed by any pre-requisite that it is as good as having control over the shares in one s hands without any further act. In other words, at all times from the point of execution of the Call Option Agreement, the Promoters were supposed to earmark the said 26% of NDTV shares to meet the call option requirement as and when the lender exercises his option. This requirement along with the mandate of clause 20 of the Loan Agreement, as discussed in the foregoing paragraphs, would indicate that the control over the 26% of NDTV shares has effectively passed on to the lender and that the borrowers are only acting to the dictates of the lender. Moreover, the agreements do not provide that upon repay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two, by way of acquisition of a freely exercisable call option to buy 26% shares of NDTV and in both the limbs of the transaction ensuring that the takeover code does not appear to be triggered; either for want of conversion of warrants or for want of exercise of option. In effect, the promoters having agreed to the covenants of both the agreements, have to that extent ceded their rights of control over NDTV. The call option covenants are definitely independent of the Loan agreement and are freely and separately exercisable and the same seen in the context of the fact that there was no separate consideration for the same, besides a nominal sum of Rs. 4 lakhs, confirms the clear intent on the side of the Noticee to clandestinely exercise control over NDTV, without going for an open offer before such acquisition of control . The clauses such as ROFR and Non-Compete are akin to those normally seen in Share Purchase Agreements or Share Holders Agreements. These clauses are out of place in connection with a lending transaction, as sought to be portrayed by the Noticee. 21. The Loan agreement also provides that in the event the call option was exercised by the associates of the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch lending activity. As per the MoA of the noticee, VCPL s main objective was wholesale trading and related business activities. The financial statements in the annual reports paint a very odd picture of the noticee and the two associate companies who had entered into the impugned transaction with the promoters of NDTV Ltd. In the year ending March 2017, VCPL is shown to have a revenue of only Rs 60,000/- but on its asset side had more than 400 crore in long term loans and advances. These reports as provided by the noticee question the motive of the noticee in entering into the transaction with the promoters of NDTV Ltd. A company or financial institution in the general practice of lending may be expected to have such exceptional clauses in loan agreements. Instead, in the current set of facts and circumstances, it is clear that the noticee and its associate companies had neither the history of advancing such loans nor do they appear to have had the financial wherewithal to advance loans on such liberal terms. Further, assuming the shares of NDTV did form the collateral for the loan, despite the loan being substantially under-collateralised, the lender/noticee has not sought any re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s attached to NDTV to give full and complete effect to the obligations under the Agreements executed and not limited to the veto rights specified in Schedule 3 of the Loan Agreement. In other words, the veto rights in Schedule 3 are eclipsed by the operative provision in Clause 20 of the Loan Agreement and are not significant enough for an independent consideration from the 'control' angle. 26. The noticee has strenuously contended that the Zero interest Loan provided in terms of the Loan Agreement is similar to the Zero Coupon Convertible Bonds which have been issued by several other companies and have not been subject to proven allegations of acquisition of control by the subscriber to such instruments. I do not find merit in noticee's attempt to rely on past precedents of financial instruments issued by other companies. The exact facts and circumstances surrounding such issuances are not before me for a detailed comparison. As such, any comparison with normal ZOCD kind of convertibles, can in this case be only applicable to the part of convertibles of RRPR held by the Noticee and not to the extent of 26% of NDTV shares covered under the call option agreement. It i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'control'; ii. that specific action proposed has not been disclosed in the SCN; and iii. that by efflux of time the proceedings would cause unfair and irreparable prejudice. I do not find merit in these preliminary objections. Firstly, it is not a matter of necessity that every enforcement action initiated must necessarily be preceded by a formal investigation particularly when examination of the agreements in question and the submissions made by the parties concerned are sufficient to draw conclusions. Investigation is resorted to only when complex questions of fact and/or detailed evaluation of facts and circumstances are required to come to a decision regarding enforcement action. When apparent violations are noted, it is not necessary for it to be followed up with detailed investigation. Secondly, in cases of acquisition of shares beyond defined thresholds or acquisition of control in a listed company, it is a settled position of law that the first and foremost responsibility of the regulator is to ensure that shareholders get an exit opportunity in accordance with the provisions of the Takeover Regulations. However this does not preclude SEBI from passing addi ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
