TMI Blog2019 (6) TMI 823X X X X Extracts X X X X X X X X Extracts X X X X ..... ent came into effect only from the year 2014, is factually not correct. Noticees entered into three loan agreements, one with ICICI and two with VCPL. These loan agreements contained material and price sensitive information, in as much as action/decision on many important matters pertaining to NDTV were made subject to prior written consent of the ostensible lender and without the knowledge of the minority shareholders of NDTV. Under the VCPL agreements and the two call option agreements executed as supplementary to the said loan agreements, beneficial interest in 30% shares of NDTV was effectively vested in VCPL. All these information were profoundly material and price sensitive information which would have influenced the investment decision of the investors in the shares of NDTV, had they been made aware of these information at that time. Terms of the loan agreements were devised to affect the interest of shareholders of NDTV. Although various clauses in the loan agreements deceitfully created a binding obligations on NDTV, Noticees have consented to such clauses behind the back of the shareholders of NDTV to further their own private interests. Having held the dominant positi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ket and are further prohibited from buying, selling or otherwise dealing in securities, directly or indirectly, or being associated with the securities market in any manner, whatsoever, for a period of two (2) years. It is also clarified that during the said period of restraint/prohibition, the existing holding, including units of mutual funds, of the Noticees shall remain frozen; (ii) Noticee no. 2 and 3 are restrained from holding or occupying position as Director or any Key Managerial personnel in NDTV for a period of two (2) years; and (iii) Noticee no. 2 and 3 are restrained from holding or occupying position as Director or any Key Managerial personnel in any other listed company for a period of one (1) year. - WTM/SKM/EFD-1- DRA-II/ 03/2019-20 - - - Dated:- 14-6-2019 - S. K. MOHANTY, WHOLE TIME MEMBER ORDER UNDER SECTIONS 11(1), 11(4) AND 11B OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 - IN THE MATTER OF NEW DELHI TELIVISION LIMITED (NDTV). 1. The Securities and Exchange Board of India (hereinafter referred to as SEBI ) received complaints dated August 26, 2017, December 26, 2017 and a repr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,63,05,404 (26.00) 1,63,05,404 (26.00) 1,88,13,928 (29.19%) Total Promoter shareholding 3,96,15,168 (63.17%) 3,96,15,168 (63.16%) 3,96,15,168 (63.16%) 3,96,15,168 (61.46%) * Includes Joint account holding also. ** Promoter shareholding has not changed since QE March 2010 3. Investigation revealed that a corporate rupee term loan facility agreement (hereinafter referred to as ICICI Loan Agreement ) was entered into between Noticee no. 1 and ICICI Bank Limited (hereinafter referred to as ICICI ) on October 14, 2008 and an amended agreement, for pre-payment of the aforementioned loan, was entered into between Noticees and ICICI on August 06, 2009. As per Schedule-III of the said loan agreement dated October 14, 2008, the Noticees had undertaken not to permit any merger, de-merger, consolidation, reorganization, scheme or arrangement or compromise with its creditors or shareholders or effect any sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Loan Agreement-1 was that the promoters of Noticee no.1, who are also promoters of NDTV (i.e. Noticee Nos. 2 and 3) shall transfer 1,15,63,683 shares of NDTV to Noticee no. 1 so that the total number of shares of NDTV held by Noticee no. 1 increases from 47,41,721 shares to 1,63,05,404 shares, constituting 26% of equity share capital of NDTV at the time of execution of VCPL Loan Agreement-1. In this regard, investigation further revealed that at the time of execution of VCPL Loan Agreement-1, Noticee no. 1 (RRPR) did not own any assets other than 47,41,721 shares of NDTV which were to be effectively placed under the control of VCPL by issuing convertible warrants to it as part of the consideration for the loan ,and the warrants were convertible into almost entire paid-up equity capital of the Noticee no. 1. 5. There were certain other pre-conditions in the VCPL Loan Agreement-1 viz: completion of due diligence by VCPL for inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 VCPL, as in the case of VCPL Loan Agreement 1. 8. Like the previous Laon Agreement with VCPL, it was observed that VCPL Loan Agreement-2 was also not disclosed by Noticees to the company till August 05, 2015, i.e. for about five and half years, which implied that the said information was allegedly concealed by the Noticees from the general public. As mentioned above, Noticee no. 2 and 3 continued to transfer/receive shares of NDTV to/from Noticee no. 1 through off-market transactions while having knowledge of the said agreements with all its clauses bearing materially significant implications on NDTV which were not known to the public shareholders of NDTV. In the absence of availability of material information relating to VCPL Loan Agreements 1 and 2 in the public domain, investors were not in a position to take any informed decision while dealing in the scrip of NDTV. Hen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 disclosures in respect of the loan agreements by the Noticees, therefore, there is no question of any concealment. c) That they have made requisite disclosures about the transfer of shares which happened between the Noticees inter-se, to the stock exchange under relevant provisions of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 and the SEBI (Prohibition of Insider Trading) Regulations, 1992. d) That it has been also stated that the Noticees acted in bonafide manner and the opinion of the Noticees that the disclosure is not required was also supported by the legal opinion dated April 18, 2012 given by a reputed law firm of India. 11. It was also stated in the interim reply that Noticees may be provided with copy of complete investigation report and all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thout 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 Noticees have not been given inspection of entire records and file notings, hence, the present proceedings are being conducted in violation of principles of natural justice. e) That the loan agreements were entered into by the Noticees purely for taking loans, wherein the Noticees had agreed to exercise their shareholding rights which are their personal property, under the terms of the Loan Agreements signed by them and it did not affect NDTV or its operations in any manner.. f) That there were at least 6-8 directors on the Board of NDTV at the relevant time out of which 3-4 were Independent Directors. Thus Noticee no. 2 and 3 could not have done/stopped anything ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 has been placed upon the judgment of Hon ble Supreme Court in Shrimati Jain vs. Delhi Flour Mills Co. Ltd. Ors. (1973 SCC Online Del 137) and the decision of Hon ble Bombay High Court in Rolta India Ltd. vs. Venire Industries Ltd. (2000(3) Mh. L.J.700). n) That item 2 of Schedule III read with clause 12 of the VCPL loan agreements, which list out five points, deals with actions which may disrupt and adversely affect the interest of NDTV, because of which the exercise of power by the Noticees as shareholders were subject to the lenders prior writt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 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 of a victim or another person there cannot be any allegation of fraud. t) That the act of fraud requires inducement of another person. In the present case, such inducement has neither taken place nor been shown. The inducement has to be of a counter party. In the present case, both the buyer and seller were not aware of the said agreements. They were neutral to this information. Therefore, no one has defrauded anyone or induced anyone. u) Tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 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 ), Investigation by itself does not adversely affect any person or intermediary and no civil consequences flow from such an order. Investigation report contains the facts which constitute the basis of charges levelled against a person in the show cause notice. Non-furnishing of such facts/findings recorded in the investigation report to the noticee which con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 noticee in this regard is to respond with supporting facts/evidences to rebut the charges levelled against him which led to initiation of a particular enforcement action, instead of dissenting to a particular enforcement action and/or supporting another alternative enforcement action which the Noticee thinks should be initiated agains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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. e. State of AP Vs. N. Radhakrishnan (1998) 4 SCC 154 , regarding delay, Hon ble Supreme Court has held that it is not possible to lay down any pre-determined principles applicable to all cases and in all situations where there is delay in concluding the disciplinary proceedings. Whether on that ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ble High Court of Delhi, praying inter alia, direction to SEBI to provide inspection of documents. The Hon ble High Court has vide order dated 29.08.2018 directed SEBI to provide inspection. The relevant extract of the said order dated 29.08.2018 is as under; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ractor 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 in view the above points that clearly distinguishes the facts and circumstances of Gorkha Security case from the facts of the present proceedings, reliance placed by Noticees on Gorkha Security matter is misplaced. In this regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 relevant provisions of law which the Noticees are alleged to have violated as per the SCN served on them. They are reproduced hereunder: Provisions of SEBI Act: Section 12A - Prohibiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge or belief of the fact; (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; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this effect signed by the CEO. Explanation : For this purpose, the term senior management shall mean personnel of the company who are members of its core management team excluding Board of Directors.. Normally, this would comprise all members of management one level below the executive directors, including all functional heads. 25. In the present case, it is an admitted position that the Noticee No. 1 (RRPR) had entered into a loan agreement with ICICI on October 14, 2008, whereby ICICI agreed to lend a rupee term loan not exceeding ₹ 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. Notic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany, although NDTV was not a party to the said loan agreement. It is true that the said agreement was a loan agreement between the parties and the conditions stipulated therein were contingent only on default in repayment of the loan amount. Yet, it is also a fact that at the time of availing of the loan from ICICI, the Noticees, who had controlling interest in NDTV, undertook and gave guarantee to comply with the said conditions imposed on them by ICICI, which had significant implications on the interest of NDTV and was therefore, a material and price sensitive information. Had these information been disclosed to the public, they would have undoubtedly influenced the 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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts including but not limited to give effect to the provisions contained in Schedule 3 read with Clause 12. h. Similarly, Noticees together with affiliates were obliged to exercise their voting rights attached to the equity shares held by them in NDTV and NDTV Group to give full and complete effect to the provisions of the Transaction Documents including but not limited to give effect to the provisions contained in Schedule 3 read with Clause 12. i. The Noticee no. 2 and 3 together with their affiliates were obliged to amend the Charter Documents of the Noticee no. 1 to give full effect to the provisions of the transaction documents. For this purpose transaction documents of the loan Agreement meant (i) the Loan Agreement (ii) the Call Option agreements and (iii) all other documents and agreements relating to the above and or designated as such by the lender in 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mental principles which ought to be borne in mind while dealing with or applying the said legal provisions. In this regard, reference may be made to the case of SEBI Kishore Vs. R Ajmera, 5 (2016) 6 SCC 368, wherein Hon ble Supreme Court have laid down the guiding principle for understanding and interpreting the provisions of SEBI Act and the regulations made thereunder in the following words: ..21. The SEBI Act and the Regulations framed there under are intended to protect the interests of investors in the Securities Market which has seen substantial growth in tune with the parallel developments in the economy. Investors' confidence in the Capital/Securities Market is a reflection of the effectiveness of the regulatory mechanism in force. All such measures are intended to preempt manipulative trading and check all kinds of impermissible conduct in order to boost the investors' confidence in the Capital market. The primary purpose of the statutory enactments is to provide an environment 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Hon ble Supreme Court in Kanaiyalal case (supra) and Rakhi Trading case (supra). 34. Having due regard to the law enunciated by the Hon ble Supreme Court in the aforesaid cases, in the present case, I proceed to examine whether the agreements executed by Noticees, more particularly the two VCPL Loan Agreements are mere loan agreement simpliciter or whether under the garb of the these agreements the acts of the Noticees amount to commission of fraud upon the shareholders of NDTV. For this purpose, it is essential to examine the implications of various clauses of the said agreements to ascertain the real intent of the Noticees behind consenting to such clauses, which render the agreements, prima facie, loaded against the Noticees and in favour of the Lenders. One submission of the Noticees is that the agreements were mere loan transaction entered into between two independent parties. However, upon a deeper scrutiny of the clauses and the conditions set out and agreed upon by the Noticees, so as to ascertain as to whether they were incorporated mainly for availing the facility of loan or contained clauses which are detrimental to the interest of shareholders of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etion to VCPL to convert the warrants entitling it to have 99.99 % of equity share capital of Noticee no. 1. It shows the intention of Noticees to transfer their stake in NDTV to VCPL. Further, conversion of warrants into shares of Noticee no. 1, at any point of time by VCPL thereby enabling it to acquire indirectly 30% of NDTV s equity, was not dependent on the repayment of the loan by the Noticees. VCPL is having independent power to convert the warrants into shares of Noticee no. 1 at any time during the loan agreement or even thereafter (emphasis supplied). f) As stated above, VCPL s right to convert the warrants is absolute without being in any way connected to repayment of loan by the Noticees. Thus, it is not a loan transaction simpliciter. It appears an outright transfer of 30% stake and voting rights in NDTV by the Noticees masquerading as a loan agreement which did not even possess the basic attributes of a normal secured loan transaction. In my view, the VCPL Loan Agreements -1 and 2 are sham loan transactions executed by the Noticees only with a motive to sell their substantial stake in NDTV. g) Another peculiar feature noted from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-payment has inexplicably not been triggered, which further strengthens my belief that the so called loan was never intended to be repaid and implies that the amount was received by the Noticees as consideration for sale of their substantive stake in NDTV to VCPL. i) Considering the market price of shares of NDTV as it prevailed on the day of execution of Loan Agreements, it was observed that transfer of shares of NDTV by Noticee no. 2 and Noticee no. 3 to Noticee no. 1 as part of the precondition stipulated in the loan agreements was not proportionately correlated with the loan amount as per then prevailing market price of the shares of NDTV. It is observed from the information available in public domain that average price of shares of NDTV on BSE, as on the date of the execution of VCPL Loan Agreement 1 i.e. on July 21, 2009 was ₹ 127.20/- per share and as on the date of VCPL Loan Agreement 2 i.e. on January 25, 2010 was ₹ 138.70/- per share. In contrast, as discernable from the loan agreements, the valuation of the equity shares of NDTV for the purpose of advancing loan has been adopted at ₹ 214.65/- per share for both the loan agreements ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven up the 30 % of their voting rights in furtherance of the terms of loan agreements, which were never disclosed to the public as they ought to have been. Hence there is no merit in the averment of the Noticees that the loan agreements were executed in exercise of their private property rights not impinging at all on the interest of NDTV. This is further supported by schedule 3 of the loan agreement titled Prior Consents , which imposes restriction in the form of obligations on Noticees to obtain prior consent of the Lender, in case of any proposal for the changes in capital structure, constitution or re-structuring of NDTV is concerned. k) It is also noted that the loan agreements did not contain any closure clause providing for termination upon repayment. Clause 7 of the loan agreement provides for payment upon maturity, which is 10 years after the drawdown of the release of the payment. In contrast to the aforesaid liberal and lenient stipulation regarding repayment of loan that too, without any interest thereon, Schedule I(a) of the loan agreements provided that the terms of the agreement can be invoked not only during the tenure of the loan but surprisingly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 214.65/- per share. Similarly, under the VCPL Loan Agreement - 2, when the loan of ₹ 53.85 crore advanced to Noticees is divided by number of shares (2508524) required to be additionally transferred by Noticee no. 2 and 3 to Noticee no. 1( so as to take RRPR s stake in NDTV to 30%), the amount per share advanced as loan, again comes to ₹ 214.65/- per share. It shows that in the entire loan transaction including the provision for call option , a conscious effort has been made to determine the valuation of NDTV shares at the rate of ₹ 214.65/- per share and the same has been linked to the quantum of the loan advanced. It again reinforces the point, made out earlier, that the VCPL Loan Agreements were only for namesake loan agreements, while in substance the amount advanced as loan had a direct nexus with the cost of the purchase of 30% shares of NDTV to be transferred by the Noticees. n) The loan agreements also do not contain any termination on default of repayment. No explanation has been forwarded as to why the covenant was so heavily construed in favour of VCPL providing unbridled power to them to invoke/get the conversion of warrants at any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RRPR purchase NDTV shares from Mr. Prannoy Roy Ms. Radhika Roy (Jointly) 4,836,850 140.00 677,159,000.00 08-Mar-10 RRPR sold shares of NDTV to Mr. Prannoy Roy 3,478,925 4.00 13,915,700.00 08-Mar-10 RRPR purchased shares of NDTV from Mr. Prannoy Roy 2,314,762 140.00 324,066,680.00 09-Mar-10 RRPR sold shares of NDTV to Ms. Radhika Roy 3,478,925 4.00 13,915,700.00 09-Mar-10 RRPR purchase shares of NDTV from Ms. Radhika Roy 2,314,762 140.00 324,066,680.00 Net transfer of Shares by Noticee no. 2 and Noticee no. 3 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usly from Noticee no. 1 at a price of ₹ 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. 3 have received a net amount of ₹ 129,74,60,960/- in exchange of the above stated 25,08,524 shares of NDTV from Noticee no.1. The aforesaid transactions in NDTV shares and the consideration received by Noticee no. 2 and Noticee no. 3 clearly suggest that the amount of ₹ 53.85 crore received from VCPL by Noticee no. 1 under the VCPL Loan Agreement - -2 was actually meant to be paid to the Noticee no. 2 and Noticee no. 3 by Noticee no. 1. It is also observed from the records that Noticee no. 2 and Noticee no. 3 were having debit balances of ₹ 2.9 crore (approx..) and ₹ 70.9 crore (approx..), respectively, in the books of Noticee no. 1 and after necessary adjustments of the debit balances pursuant to the conclusion of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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 Noticees were taking place in off market in furtherance of the VCPL Loan Agreements, behind the back of the shareholders of NDTV. 36. Section 12A of the SEBI Act inter alia mandates that no person shall directly or indirectly employ any device, scheme or artifice to defraud in connection with issue or dealing in securities which are listed or proposed to be listed on a recognised stock exchange. Similar prohibition is contained in Regulation 3(b) of the PFUTP Regulations. Besides, Regulation 3(a) of the PFUTP Regulations also prohibits buying selling or dealing in securities in a fraudulent manner. Regulation 4(1) of the PFUTP Regulations, as quoted above, provides that no person shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 95 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, whether in a deceitful manner or not, by any person while dealing in securities to induce another person to deal in securities would amount to a fraudulent act. The emphasis in the definition in Regulation 2(c) of the 2003 Regulations is not, therefore, of whether the act, expression, omission or concealment has been committed in a deceitful manner but whether such act, expression, omission or concealment has/had the effect of inducing another person to deal in securities. 6. The definition of 'fraud', which is an inclusive definition and, therefore, has to be understood to be broad and expansive, contemplates even an action or omission, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly 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 corporate loan agreement. Instead, the promoters of NDTV made the agreements extremely biased in favour of the VCPL ( and also in favour of ICICI )by agreeing to a host of conditions pertaining to the capital structuring of NDTV, which were unwarranted and had no bearing whatsoever with the loan. Thus, by agreeing to transfer a substantial controlling stake in NDTV to the VCPL behind the back of the shareholders of NDTV, Noticees - promoters cannot claim that the loan agreement merely involved their personal property and did not involve the interest of NDTV in any manner whatsoever. 40. Noticees hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 fiduciary duty, while on the other hand, it is contended that the agreements are private in nature and they have all the right at their disposal to enter into such agreements. The Noticees being fully aware and conscious about their pivotal role and positions in NDTV, still agreed/consented and executed agreements containing clauses which have adversarial effect on the shareholders of NDTV. It restricts NDTV from raising fresh capital, making any restructuring, going for a merger, etc., without the prior written consent of ICICI/VCPL. 41. Another contention which has been vociferous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, 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 order to deal with such situation of conflict of interest of Board Members and senior management, provides that any such transaction creating conflict of interest must be disclosed. However, for reasons best known to Noticees and oblivious of the interest of investors of NDTV, Noticee no. 2 and 3 avoided disclosure of the above discussed conditions built into the loan agreements which was required to be made under the Code of Conduct of NDTV. Therefore, the above stated contentions of the Noticees are untenable. The contentions of Noticees further fails to impress du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 an act or practice is unfair is to be determined by all the facts and circumstances surrounding the transaction. In the context of this regulation a trade practice may be unfair, if the conduct undermines the good faith dealings involved in the transaction. Moreover the concept of unfairness appears to be broader than and includes the concept of deception or fraud .. Per Hon ble Justice Ranjan Gogoi 12. Coupled with the above, is the fact, the said conduct can also be construe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty 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 compliance. Prevent Conflicts of Interest Officers should not make any investment, accept any position or benefits, participate in any transaction or business arrangement or otherwise act in a manner that creates or appears to create a conflict of interest unless they makes full disclosure of all facts and circumstances. A conflict of interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cular 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 purpose, the term senior management shall mean personnel of the company who are members of its core management team excluding Board of Directors.. Normally, this would comprise all members of management one level below the executive d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting 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 entered into three loan agreements, one with ICICI and two with VCPL. These loan agreements contained material and price sensitive information, in as much as action/decision on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riginal 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 company (NDTV). Noticee no. 2 and 3 have also opted to violate the Code of Conduct of NDTV which they were supposed to abide by, being the Chairman and Managing Dire ..... X X X X Extracts X X X X X X X X Extracts X X X X
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