Promoters of New Delhi Television Ltd (NDTV) resisted the Adani Group’s takeover bid, claiming a regulatory order prevents them from transferring effective ownership of part of the company’s shares.
The television broadcaster said in a stock exchange filing that Visvapradhan Commercial Pvt. Ltd, which Adani Group controls, must first secure approval from the Securities and Exchange Board of India (Sebi) before acquiring shares in NDTV’s promoter entity, RRPR Holding Pvt. Ltd. RRPR is owned by NDTV founder-promoters Radhika and Prannoy Roy, holding 29.18% of NDTV.
In November 2020, Sebi prohibited NDTV’s promoters from the securities market for two years, a ban that ends on 26 November. NDTV’s Thursday disclosure pointed to the Sebi order that barred “the founder-promoters Dr. Prannoy Roy and Mrs. Radhika Roy from accessing the securities market, and further prohibiting 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.”
A person aware of the matter said on condition of anonymity that if NDTV does not transfer shares to VCPL by the end of Thursday, the Adani Group will approach the competent jurisdiction. A spokesperson for Adani Group did not respond to an email seeking comment till press time.
“The right forum to approach would be National Company Law Tribunal (NCLT) since this pertains to a contractual fight. Sebi would not interfere in contractual issues, which limits its jurisdiction,” said a lawyer, who did not want to be identified because he works with one of the parties involved.
“The shares need to be allotted to the lender, or any person nominated by the lender, as specified, on notice of two business days. If not done, it’s a breach of contract,” the lawyer added, citing the clause that lays how shares should be allotted.
On 23 August, Adani Group firms said they had acquired the stake in NDTV indirectly by buying VCPL, which owned convertible debentures (warrants that provide for the conversion of debt to equity) in RRPR, that in turn owns 29.18% of NDTV. Visvapradhan acquired the debentures in 2009-10 against a ₹404 crore loan extended to the promoter holding firm. Following this, Adani and Visvapradhan announced an open offer for NDTV at ₹294 per share based on Sebi’s takeover guidelines, a 28% discount to NDTV’s Tuesday closing price of ₹376.
NDTV protested the move, saying “this exercise of rights by Visvapradhan was executed without any input from, conversation with, or consent of NDTV founders.”
Sebi investigated two separate cases against promoters of NDTV in 2019 and 2020. The first pertained to the loan taken by its promoters from Visvapradhan, and the second was a case of insider trading. In both cases, Sebi banned NDTV promoters from markets for two years. On 20 July, the Securities Appellate Tribunal overruled the ban in the Visvapradhan case, stating the findings and directions were not sustainable. SAT is yet to rule on the insider trading case.
Sebi’s order said Roys indulged in insider trading in NDTV shares between 1 September 2006 and 30 June 2008, when NDTV underwent a reorganization to unlock shareholder value and promote focused growth.
The Sebi order on insider trading said the Roys bought 4.84 million shares of NDTV on 26 December 2007 for ₹19.34 crore. By dealing in shares of NDTV while possessing unpublished price-sensitive information, the Roys violated the provisions of insider trading rules, the market regulator said in its order on 26 November 2020. Legal experts say the question now is whether the Sebi ban on share transfer would extend to pledged shares. Are the Roys selling or disposing of their shares if they were already pledged under a loan agreement?
“The bar in law qua the Roys or their inability to transfer their shares due to any injunction may pertain only to their willing/voluntary participation in the securities markets. An action by a pledgee does not mean the Roys have voluntarily transferred their shares and have hence dealt in the securities market. The pledgee has to notify the depository about the invocation, and the shares will be transferred to them. If they face any hurdles, they may approach a court of competent jurisdiction to protect their rights as a pledgee,” said Chirag Shah, a securities lawyer.
According to Sumit Agrawal, founding partner of Regstreet Law Advisors, in one case of pledged shares of Parsvnath Developers Ltd, Sebi allowed the release of the pledge of shares in favour of the borrower by lender (which had been restrained by Sebi from buying, selling or dealing in securities).
