The decision by SEBI to bar Prannoy Roy and Radhika Roy, founders of NDTV and their holding company RRPR Holdings, from exiting their equity and mutual fund holdings for two years, could thwart a direct takeover of the media company by Vishvapradhan Commercial Pvt Ltd (VCPL), a company now owned by Delhi-based Mahendra Nahata.
“The duo (Prannoy and Radhika) cannot exit any of their equity or mutual fund holdings during the period (for two years),” SEBI whole-time member SK Mohanty had said on Friday.
The Roys, through their holding company RRPR Holdings, had taken a loan of ₹350 crore from VCPL in July 2009 to repay a loan to ICICI Bank that they had taken in October 2008. SEBI findings show the loan by VCPL, unsecured and without any interest payment, was granted to RRPR for a period of 10 years that end next month in July 2019.
A further look into the fineprint of the loan agreement shows that NDTV’s ownership could have officially passed to VCPL if the company choose to exercise its rights in July 2019 after its agreement with NDTV expires and if Roys failed to pay back the loan to VCPL.
According to June 2018 findings of Gurumoorthy Mahalingam, Whole-time Member, SEBI, “The takeover exercise has been conveniently couched as a loan agreement with the predominant intention of VCPL being to acquire control over NDTV without contemplating any repayment of the loan, whatsoever, from the promoters or borrowers (Roys).” “The transaction documents admittedly confer “conversion option, purchase option and call option, and if the voting right is to give full effect to the transaction documents, it would straight away mean that 52 per cent of the voting rights of NDTV have to be exercised by the promoters (the Roys) as per the dictates of the lender (VCPL) and the same may traverse the specified veto rights,” Mahalingam said in his order. Legal experts said that going by Mahalingam’s 2018 findings, VCPL was officially in a position to gain control over NDTV after July 2019 if Roys do not re-pay the loan by then. But SEBI’s order on Friday could make it difficult for VCPL to officially take over NDTV. Sometime between 2013 and 2017, the ownership of VCPL came to Nahata.
RRPR belongs to Roys and it issued convertible warrants to VCPL, aggregating to 99.99 per cent of fully diluted equity share capital to RRPR at the time of conversion, “convertible at anytime during the tenure of the loan or thereafter”.
Questions sent to Prannoy Roy and Nahata via email did not elicit any response.
‘Not in holders’ interest’
Meanwhile, on Tuesday, Prannoy Roy approached SAT against SEBI’s Friday verdict. The Securities Appellate Tribunal granted interim stay on part of SEBI’s order till the next hearing.
SAT, in its order, observed that the impugned order has been passed restraining the appellants (Roys) 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 NDTV or for that matter the investors at this stage,” SAT said.
However, “the appellants shall not alienate or create any encumbrance on their shareholding in NDTV till further orders,” SAT said.
Contradiction in notices
Experts are also pointing out contradictions in two show-cause notices (SCNs) by SEBI on the same matter involving its agreement with VCPL. While one SCN mentions the non-disclosure as ‘fraud’, there is no mention of any fraud in the 2018 SCN.