Supreme Court Stays Recovery of Rs. 27 cr Penalty on NDTV Imposed By SEBI

Supreme Court Stays Recovery of Rs. 27 cr Penalty on NDTV Imposed By SEBI

The Supreme Court (SC) on 25 March 2021, granted relief to Prannoy Roy and Radhika Roy, the promoters of NDTV, by putting a stay on the recovery of Rs 27 crore penalty imposed by markets regulator the Securities and Exchange Board of India (SEBI).

The SC bench comprising Justices Dr. D.Y. Chandrachud and M.R. Shah while granting relief also directed Roys to fully cooperate in the expeditious disposal of appeals wherein the SEBI's order was challenged before the Securities Appellate Tribunal (SAT) and the said matter is listed on 6 April 2021 before the Appellate Tribunal.

The litigation background of the case is that the SEBI had imposed a penalty on 24 December 2020, on Roys and NTDV for allegedly violating various securities norms by concealing information from shareholders regarding certain loan agreements.

On 15 February 2021, the Appellate Tribunal had directed that if Roys deposit 50 percent of the amount minus interest within four weeks, the balance amount shall not be recovered during the pendency of the appeal. The said order of the SAT was challenged before the Top Court.

In the instant matter, the dispute was regarding a loan amounting to Rs 350 crore that was taken by RRPR Holding from ICICI Bank Ltd, at an interest rate of 19 percent per annum. It was required to be repaid within a stipulated period. Finding it difficult to repay the interest and principal amount RRPR Holding took two loans from Vishva Pradhan Commercial Pvt. Ltd. (VCPL) amounting to approx. Rs 400 crore in July 2009 and January 2010. RRPR Holding held shares of NDTV which is a listed company.

The Roys had taken a loan of Rs 375 crore from the ICICI Bank in 2008 and it was paid by another entity, VCPL, for which another loan was taken in 2009.

The SEBI stated in its order that the loan agreements contained clauses and conditions that significantly affected the functioning of NDTV. It added that according to one of the terms of loan agreements allowed VCPL to indirectly acquire 30 percent shareholding of NDTV through conversion of warrants into equity shares of RRPR Holding.

Roys have entered into loan agreements which created a conflict of their personal interest with the interest of NDTV, without disclosing the required information as provided under the company's code of conduct. Hence, their act was in violation of the code of conduct of NDTV and provisions of the equity listing agreement.

Considering the aforesaid act a fine of Rs 25 crore had been imposed on Roys and RRPR Holding, which needs to be paid jointly and severally. A penalty of Rs 1 crore was also imposed on Prannoy Roy and Radhika Roy.

The SEBI considered the loan agreement in detail and found out that it was a sham agreement stating that no prudent person or entity would enter into such an agreement giving a loan without any interest.

It further found out that the transfer of money was to control the listed company NDTV and that the transfer of 9 percent of the individual shares of Prannoy Roy and Radhika Roy to RRPR Holding amounted to non-disclosure of transfer of shares inviting violations of disclosure obligations.

On 28 January 2021, the NDTV promoters had informed the SC that it is facing financial hardship due to limited resources. The promoters submitted this during an appeal before the SC while challenging the SAT's order that directed the Roys to deposit 50 percent of the alleged unlawful gains.

The SC had asked the Appellate Tribunal last month to hear Roys' appeal challenging the SEBI orders in other matters without the pre-condition of depositing 50 percent of the fine of Rs 16.97 crore.