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2018 (6) TMI 1837 - SECURITIES APPELLATE TRIBUNAL MUMBAIViolation of SAST Regulations - takeover exercise couched as a loan agreement - secured loan advanced by VCPL to RRPR - scope of conversion option and the purchase option (outlined in the loan agreement) and call option - No public announcement to acquire shares of the target company made - whether execution of the set of agreements (i.e the Loan Agreement between VCPL and RRPR along with the Call Option agreements through VCPL’s affiliates binding the Promoters of NDTV) partakes of the structure of a loan transaction or an arrangement entered into by the parties to acquire “control” over NDTV under Regulation 12 read with regulation 14(3) of SEBI (SAST) Regulations, 1997? - HELD THAT:- All the concerns attached to the manner in which the loan agreements and call option agreements were entered into and the subsequent conduct of the noticee do not substantiate its argument that the transaction was only in 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 of NDTV have to be exercised by the Promoters as per the dictates of the Lender and the same may traverse the specified Veto rights under Schedule 3. What is certain is the idea of the Noticee to start exercising control through the Promoters by keeping a tight hold on 52% of the shares of NDTV, through the threefold 'Options' conveyed by the Promoters, by helping them to meet the loan repayment that was pending to ICICI Bank. The related issue as to whether veto rights confer any rights of control in favour of the noticee is not relevant for consideration in the instant case as 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. A close look at the structure of the transaction revolving around the conversion option and the purchase option (outlined in the loan agreement) on the one hand and a call option on the other clearly reveals that the transaction structure is unusual and peculiar to say the least. The absence of an explicit clause in the Loan Agreement rendering the conversion option void on repayment of loan is strikingly abnormal and it clearly lays out an unfettered path for the noticee to stake its access to NDTV, albeit through the medium of RRPR. The call option construct is also strangely devoid of any time limitations and it endows the noticee (and its affiliates) the right to acquire 26% of NDTV shares from RRPR, at any time with no linkage to the loan. The strike price of the call option has been set so high (at a premium of 51% to the then average market price by noticee's own admission in its reply dated May 21, 2018) that it renders the whole exercise of collateralization of the loan a non-starter. Given the price history of NDTV shares, the argument of the noticee about the call option serving as a collateral seems very hollow. Thus the noticee i.e. VCPL did indirectly acquire control in NDTV Ltd., by entering into the Loan agreement and the Call Option agreements on 21st July, 2009, thereby obligating it to make a public announcement of an open offer under Regulation 12 read with regulation 14(3) of SEBI (SAST) Regulations, 1997, as alleged in the SCN. Order: a) The noticee shall make a public announcement to acquire shares of the target company in accordance 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.
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