Sebi issues show-cause notice to Vishvapradhan Commercial in NDTV case

Informs complainant of proceedings into alleged change in control violation

The Securities and Exchange Board of India (Sebi) has issued a show-cause notice to Vishvapradhan Commercial (VCPL) for not making public announcement and open offer after acquiring control over substantial promoter holding in New Delhi Television (NDTV). Sebi has said this in a letter issued to the complainant, Quantum Securities, a minority shareholder of the broadcaster, in connection with a writ petition pending before the Delhi High Court.

In the letter dated July 21, an official in Sebi’s corporation finance department said that the regulator had filed a reply to the court regarding alleged disclosure violations and “Change in Control of NDTV violation” on July 15, 2017.

The letter further added that “with regard to change in control of NDTV, it may be noted that proceedings against Vishvapradhan Commercial” under relevant provisions of the Sebi Act and the takeover regulations “have been initiated for failure to make public announcement pursuant to change in control in NDTV Ltd as required under Regulation 12 read with Regulation 14 of SAST Regulations for which the show-cause notice was issued on December 20, 2016”.

A show cause notice is not an indictment, but it requires the recipient to explain why action should not be taken. Sebi did not give further details on the course taken by proceedings in the letter. An email seeking comments sent to the Sebi spokesperson and subsequent reminders remained unanswered.

Senior NDTV executives also did not respond to emails seeking comments. Separately, in an exchange notification, NDTV informed on Friday that “the counsel for Sebi informed the SAT that Sebi has rejected the settlement application filed by the company and its then key managerial personnel”. This pertained to some other alleged disclosure violations. “However, till now the company has not received any such communication from Sebi rejecting the said applications. If and when any such communication is received, the company will obtain appropriate legal advice thereon,” the notification added.

VCPL did not respond to questions on whether it has responded to the notice from Sebi.

The transaction under the Sebi probe concerns a loan agreement of July 21, 2009. Under this, Rs 403.85 crore was lent interest-free to RRPR Holding, a promoter group entity of NDTV. RRPR, fully owned by senior journalists Prannoy Roy and Radhika Roy, has a 29.18 per cent stake in NDTV and is its largest shareholder.

Under the terms, Vishvapradhan had the option to convert the debentures issued as part of the loan agreement into equity shares, amounting to 99.99 per cent of the fully divested equity share capital of RRPR Holdings. Vishvapradhan, which was Mumbai-based when the transaction took place, is now based in Gurgaon.

Last April, responding to Business Standard for a report on an income tax notice of transactions, including the Vishvapradhan loan, an RRPR representative had said, “The transactions carried out by RRPR, both with VCPL and its shareholders, are valid and legal transactions, entered into within the four corners of the law. Further, the promoters of NDTV continue to exercise control over the affairs of NDTV, which they have been exercising independently and without interference by any third party, in the best interests of all the stakeholders of NDTV.”

Incorporated in February 2008, the ownership of Vishvapradhan has changed several times since the transaction. According to the annual return of August 2009, Ashwin Khasgiwala and Atul Tandon were directors of this company. Till March 2009, most of the shares were held in the name of Khasgiwala, an executive of the Reliance group.

In March, Khasgiwala sold his 99.99 per cent holdings in Vishvapradhan to two other companies.

Subhgami Trading and Visvamukh Trading, two companies based in the Shreeram Mills office in Worli, Mumbai, where Vishvapradhan was also based then, held 50 per cent each in Vishvapradhan, as on the date of the loan agreement.

Subhgami and Vishvamukh were in turn controlled by a web of seven companies in a two-tier structure — Avalanche Fuels, Jubilant Fuels Trading, Steadfast Fuel Trading, Agni Fuels, Bhadraksh Commercial, Ikshu Trading and Oorjit Commercial. Oorjit Commercial’s shareholding was held by other six companies with each holding around 16 per cent. Similarly, the remaining six including Oorjit owned the shares of Ikshu. Oorjit and Ikshu in turn owned 50 per cent shares each in Vishvamukh and Subhgami.

On July 18, 2009, three days before the loan agreement with NDTV promoters was inked, Oorjit and Ikshu transferred their ownership of Subhgami to Shinano Retail and Teesta Retail, both based in Dhobi Talao, Mumbai, thus bringing Vishvapradhan into the Reliance Group fold (See chart). On August 29, 2009, Subhgami and Vishvamukh sold their Vishvapradhan shares to Shinano Retail and Teesta Retail, making the structure slightly simpler.

Shinano Retail is a Reliance Group firm and was named as one of persons acting in concert during the group’s acquisition of Network 18. It was a 100 per cent subsidiary of Reliance Industries Investment and Holdings (RIIH), as per open offer documents. Teesta Retail, also an arm of RIIH, is one of the promoter group shareholders in both Network 18 and TV18 Broadcast, as of June 2017. RIIH is owned by Reliance Industries. An email sent to Reliance Industries spokesperson on Wednesday and a reminder sent on Friday remained unanswered.