Listed Company cannot remain headless: SAT stays SEBI order against Radhika Roy, Prannoy Roy

The Securities Appellate Tribunal (SAT) has stayed the order passed by Securities and Exchange Board of India (SEBI), which had barred NDTV promoters Radhika Roy and Prannoy Roy from occupying the position of Director or any Key Managerial position in NDTV for a period of two years..The SAT stated that such an order would not be in the interest of NDTV shareholders or investors at this stage. A listed company cannot remain headless, SAT said..“At this stage, prime-facie, we are of the opinion that a listed company which is managed by the appellants holding more than 61% of the total shares cannot remain headless. The impugned order has been passed restraining the appellants, Dr. Prannoy Roy and Ms. Radhika Roy 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 the NDTV or for that matter the investors at this stage.”.The SAT, therefore, stayed the operation of SEBI order of June 14. However, it also laid down the condition that Roys shall not alienate or create any encumbrance on their shareholding in NDTV till further orders..“Even though the prayer for an interim stay was strongly opposed by the learned senior counsel for the respondent, considering the aforesaid, we stay the effect and operation of the impugned order dated June 14, 2019 till the next date of hearing. However, the appellants shall not alienate or create any encumbrance on their shareholding in NDTV till further orders.”.The SEBI had on June 14 held that Roys acted fraudulently in a manner detrimental to the interests of NDTV and its shareholders by omitting to disclose material information to the shareholders about loan agreements entered into by them with Vishvapradhan Commercial Private Limited (VCPL) and ICICI..The loan agreements entered into by them were not plain vanilla secured inter-corporate loan agreements. Instead, the agreements were extremely biased in favour of the VCPL and ICICI as it agreed to a host of conditions pertaining to the capital structuring of NDTV, which were unwarranted and had no bearing whatsoever with the loan, SEBI had held..VCPL Loan Agreements were very material and price sensitive information as they effectively involved passing of controlling stake of 30 percent share capital of NDTV and stipulated various conditions binding the promoters of NDTV with respect to their dealing in the shares, capital restructuring of the company etc..The minority shareholders of the company and general investors of securities market were entitled to know such crucial transactions carried out by the promoters which involved transferring the rights over a substantial stake by the promoters to a third party, SEBI had ruled..By not disclosing the same to the shareholders, SEBI concluded that Roys bartered away the interests of NDTV by making them subject to the prior written consent of ICICI/VCPL without disclosing the same to the company..SEB had, therefore, concluded that the conduct of Prannoy Roy and Radhika Roy failed to confirm to the fair and transparent principles of trades in the securities market. The way loan agreements were used to deceitfully transfer shares of NDTV upto 30 percent to VCPL without the knowledge of Board or its shareholders, amounted to unfair trade practice and was in stark violation of Regulation 4(1) of PFUTP Regulations..The SEBI had, therefore, barred Prannoy Roy and Radhika Roy from accessing securities market for two years and from buying, selling or otherwise dealing in securities..It had also restrained them from holding or occupying position of Director or any Key Managerial personnel in NDTV for a period of two years..Prannoy Roy and Radhika Roy had appealed to the SAT against the order of SEBI..The SAT noted in its order yesterday that the whether the loan agreements entered into between NDTV and Vishvapradhan Commercial Private Limited (VCPL) were sham transactions as held by SEBI will have to be considered in detail..Further, whether call option gives an unfettered right of controlling the company without exercising the right of call option is also required to be considered, the SAT held..Upon the interpretation of the loan agreement at this stage, the SAT said that it was of the opinion that the said agreements have remained in existence for the past 10 years. The loan agreements were executed in the year 2009 and 2010. Whether there was a violation of the SEBI laws including the PFUTP Regulations are all required to be considered..The SAT has now given six weeks time to the respondents to file their reply and three weeks thereafter for the petitioners to file their rejoinder. The case will now be heard on September 16..Interestingly, the SAT also had some strong words for SEBI for failing to supply a copy of its order to Roys..The whole world knows about the impugned order except the appellants. They have not been supplied a copy of the same till date, SAT noted..SAT also said that it was constrained to note that the system adopted by SEBI needs a revisit and SEBI’s duty does not end the moment the order is uploaded on its website..“The first duty is to supply a copy of the impugned order to the aggrieved party which in the instant case has not been done till date.”.It, therefore, ordered SEBI to supply a copy of its order within five working days if an application to that effect is made by the appellants..Senior Advocate Janak Dwarkadas along with DMD Advocates Partner Fereshte Sethna and advocates Adhiraj Malhotra, Sagar Sarin, Lokesh Aidasani and Divya Hirawa appeared for Prannoy Roy, Radhika Roy and RRPR Holding Pvt. Ltd.Senior Advocate Shyam Mehta along with advocate Mihir Mody, Sushant Yadav and Tabish Mooman instructed by K Ashar & Co. appeared for the SEBI..[Read Order].Bar & Bench is available on WhatsApp. For real-time updates on stories, Click here to subscribe to our WhatsApp.