Supreme Court asks SAT to hear NDTV promoters' plea against SEBI order without deposit

Supreme Court asks SAT to hear NDTV promoters' plea against SEBI order without deposit

NDTV promoters Prannoy Roy and Radhika Roy were accused of inside trading when the company went public in 2008 and asked to disgorge ₹16.97 crore as penalty

In a major relief to the NDTV promoters Prannoy Roy and Radhika Roy, the Supreme Court (SC) has directed the Securities Appellate Tribunal (SAT) to hear their appeals against ₹16.97 crore penalty without taking any deposit.

Roys had moved to the SAT in an appeal against the Securities and Exchange Board of India (SEBI) order of imposing a penalty on them for indulging in inside trading in April 2008 when the NDTV had gone public.

An SC bench headed by the Chief Justice of India SA Bobde on 15 January 2021 ordered that "no amount shall be coercively recovered from the appellants (Prannoy Roy and Radhika Roy) for hearing the case". Justices AS Bopanna and V Ramasubramanian were other members on the bench.

SEBI had directed Roys on 27 November 2020 to disgorge the amount of wrongful gain of ₹16.97 crore along with interest at the rate of six per cent per annum from April 17, 2008, till the date of actual payment, within 45 days.

SEBI had held them guilty of making wrongful gains by dealing in company shares in April 2008, while being in possession of Unpublished Price Sensitive Information (UPSI) pertaining to the proposed reorganization of the company.

The market regulator had also banned Roys 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 years.

Unhappy with the SEBI order, Roys approached SAT which on 4 January 2021 refused a complete stay and directed them to deposit 50 per cent of the penalty within four weeks, forcing them to file an appeal before the Apex Court.

Solicitor General Tushar Mehta, appearing on behalf of the SEVBI raised apprehension that such an order was likely to be used in other similar pending cases, the bench clarified that the order "will not be treated as a precedent".

Senior Advocate Mukul Rohatgi representing the NDTV promoters had earlier told the SC on 28 January 2021 that Roys were willing to offer their shares in NDTV as security for the penalty of ₹16.97 crore as they hold nearly 50 lakh shares, which were trading at ₹37 per share, and therefore the share value was more than the penalty amount.

Solicitor General Mehta opposed the proposal to offer shares as securities when the matter was taken up again before the SC on 15 February. He informed the bench that the shares of the appellants were frozen by another order of the SEBI and that they are restrained from creating encumbrances on the shares.

"This is a deposit in Court. Not an encumbrance or a pledge. There is a difference," CJI Bobde observed.

The SG informed the bench that their appeals were listed before the SAT on 6 March for hearing, and submitted that the deposit was not a pre-condition for hearing the appeals. The deposit, he said, was only a condition for a stay on the SEBI order and the only consequence of non-deposit will be that the appellants will not be able to enter the share-market, the SG added.

Disagreeing with the SG, Rohatgi said that if there is no stay, the appellants' properties will be attached and sold.

The bench then decided to direct the SAT to hear the appeals without deposit and put a halt on the recovery proceedings against them.

The SEBI had noted that the discussions about reorganization of the Company started on 7 September 2007 and the disclosure was made to the public post-trading hours on 16 April 2008. Hence, the UPSI period was from 7 September 2007 to 16 April 2008 and the trading window was required to be closed up to 17 April 2008 (till 24 hours after the UPSI was made public).

SEBI had noted that Prannoy Roy as the Chairman and whole-time Director and Radhika Roy as the Managing Director of the NDTV at the said time and were a part of the decision-making chain that had led to the crystallization of the UPSI. The two promoters being in possession of the UPSI sold company shares on 17 April 2008, when the trading window for them was closed and made a profit of ₹16,97,38,335.

Roys defence that none of the leading law firms advising them on their transactions ever alerted them on possible infraction of the Prevention of Insider Trading Regulations, 1992, in respect of any of these transactions failed to impress the market regulator. They further defended their action by stating that they did so with an intention to avert a hostile takeover of the Company.

SEBI held them guilty saying the NDTV promoters had contravened Regulation 3(i) and 4 of the Prohibition of Insider Trading (PIT) Regulations, 1992 r/w Regulation 12 of the SEBI (Prohibition of Insider Trading) Regulations, 2015 and Section 12A(d) and (e) of the SEBI Act, 1992.

"Considering that the Noticees held top management positions in the Company and were being actively assisted by legal advisors/professionals, the explanations offered by them to justify such acts are far from satisfactory," SEBI had said.

Inter alia, SEBI barred seven individuals and entities from accessing the market for a period varying from one to two years, for indulging in insider trading. Some of them have also been asked to disgorge the illegal gains.