How Prannoy Roy cheated shareholders and investors of NDTV

Were the NDTV shareholders taken for a ride? Share transfers at throwaway prices?

Were the NDTV shareholders taken for a ride? Share transfers at throwaway prices?
Were the NDTV shareholders taken for a ride?

[dropcap color=”#008040″ boxed=”yes” boxed_radius=”8px” class=”” id=””]F[/dropcap]or more than a year, the Enforcement Directorate(ED), Income Tax, Delhi Police Economic Offences Wing (EOW) have been working on unearthing Prannoy Roy’s sham financial transactions, money laundering in the operation of New Delhi Television (NDTV). Being a Stock Exchange Listed company, the controlling shareholders – Prannoy Roy and wife Radhika Roy – literally hoodwinked and fooled the Securities Exchange Board of India (SEBI) and several minority shareholders. The investigating agencies’ findings are blocked by coveted politicians in Delhi to protect the Lutyen’s channel NDTV’s management for the past one year.

The agencies found that NDTV Promoters (Mr. & Mrs. Roy) have cheated and committed breach of trust on the shareholders and investors of NDTV…

ED officer’s report to convert the existing FEMA case to Prevention of Money Laundering Act (PMLA) provisions are blocked by some powerful persons in Delhi. FEMA only allows to fine for violations, while PMLA is enforced the minimum jail term is for three years.

The agencies found that NDTV Promoters (Mr. & Mrs. Roy) have cheated and committed breach of trust on the shareholders and investors of NDTV that requires immediate action under PMLA, SFIO and SEBI Act etc. The Promoters of NDTV entered into a clandestine arrangement and sold 26% ownership/control of NDTV in the form of a “clothed/ smoke screen loan agreement” that was actually transfer of control by them to a third party, namely a “Khoka/ Shell” Company by the name of Vishwapradhan Commercial Private Limited.  Income Tax Department in its finding has clearly held from the agreement (submitted by NDTV Promoters), and a copy in exclusive possession of PGurus that on July 7, 2009, the Promoters through a ‘colorable’ / sham / bogus transaction ceded effective control of NDTV to a third party. The Tax Department in its report clearly says that this shell company belongs to Mukesh Ambani’s Reliance Group. Niira Radia tapes describe how she arranged this deal for NDTV.

As per the Income Tax Department, it is established that control was transferred to a third-party acquirer without the knowledge of its shareholders at a substantial premium to the then market price of NDTV shares. Further, a SEBI affidavit also states that it has received a response from the “acquirer” in March 2016 and is examining the same.

[dropcap color=”#008040″ boxed=”yes” boxed_radius=”8px” class=”” id=””]T[/dropcap]he substance of the matter is primarily that prior to August 3, 2009, RRPR holding Private Limited (“RRPR”, a privately-owned company of Prannoy Roy and Radhika Roy, 50% each) was having only 7.56% stake in NDTV.  On July 7, 2009, RRPR entered into an agreement with Vishwapradhan Commercial Private Limited (VCPL), which was titled as a “Loan Agreement” between VCPL and RRPR and Prannoy Roy and Radhika Roy.

…VCPL acquired the option to convert the loan into such number of equity shares at par aggregating to 99.99% of the fully diluted share capital of RRPR at any time.

This secretly kept Agreement of 45 pages for more than five years is published at the end of this report. The contents of the agreement submitted to the Tax Department by RRPR reveal that (Rs. 350 crores ($52 million) consideration passed is an interest free amount) and further:

  1. Under this agreement, VCPL acquired the option to convert the loan into such number of equity shares at par aggregating to 99.99% of the fully diluted share capital of RRPR at any time. Thus, by this clause, VCPL became the owner of RRPR and thus the owner of 26% of NDTV Ltd. along with many other covenants as stated in the attached agreement below.

  2. VCPL also acquired the right to purchase from the promoters all the equity shares of RRPR held by the promoter at par value irrespective of the loan being repaid or not.

  3. The option available with VCPL regarding conversion of loan into 99.99% of the fully diluted share capital of RRPR at any time also extends to the period after repayment of such loan.

  4. The agreement stipulates that RRPR shall hold and shall continue to hold 26% shares of NDTV always. However, it is pertinent to mention that in March 2010 this ownership was further increased to over 29% of shares of NDTV. In fact, on Aug 8, 2009, Prannoy Roy and Radhika Roy did transfer a total of 1,15,63,683 shares of NDTV at a mere Rs. 4 ($0.06) when market price was over Rs. 130 ($1.93) to comply with this condition precedent. Thus, on the date RRPR received Rs. 350 crores ($52 million) from VCPL, RRPR did own 26% in NDTV as stipulated in the agreement. (copy of agreement Clause 9.2(e) below).

  5. For the agreement and payment to Roys, valuation of NDTV has been carried out and figure of Rs. 1346 Crores ($200 million) has been assigned as the value of NDTV. It is shocking to note that this amount was at a substantial premium as then the value (market cap) of NDTV on BSE was less than 800 crores and thus Roys took a premium (control) for selling this stake.

  6. The amount of Rs. 350 crores ($52 million) recorded in the loan agreement is exactly 26% of the valuation of NDTV thus making it clear that the amount was only classified as a “bogus” loan whereas it was a stake sale of NDTV.

  7. The loan is contingent upon the completion of due diligence of investment of US $85 million by NDTV Four Holdings Limited, Mauritius in NDTV Studios Private Limited and further upon the ability of RRPR to transfer to NDTV and utilize US $85 million either by merger of NDTV Studios Private Limited with NDTV or by any other method. This clause obviously is the most damaging and violates all laws of India i.e. PMLA, FEMA, Companies Act etc. It is strange that the promotes while entering a clandestine sale agreement for their own shareholding, they bound NDTV (listed entity) to bring NDTV money lying outside India and when one reads the subsequent Annual Reports and Income Tax Department orders, one finds that by evading taxes and through a circuitous and illegal route this money did come into India after July 2009 (date of the agreement).

[dropcap color=”#008040″ boxed=”yes” boxed_radius=”8px” class=”” id=””]T[/dropcap]he Income Tax Department has thus concluded that the above agreement although titled as Loan Agreement is actually Sale Agreement for transfer of controlling rights over NDTV by RRPR (equally owned by Radhika Roy and Prannoy Roy) to VCPL for a sale consideration of Rs. 403.85 crores ($60 million)  (in two tranches of Rs. 350 crores in Aug 2009 and balance in March 2010). This transaction is thus a colourable device designed to evade tax, which is prohibited as held in the decision of Hon’ble Supreme Court in the case of McDowell & co. Ltd. vs CTO 154 ITR 148 (SC).

Mr and Mrs. Roy need to explain as to why income of Rs.94.63 crores ($14 million) may not be charged to tax in their hands for AY 2010-11.

Further, the Income Tax Department has held that on March 8, 2010, RRPR sold 34, 78, 925 shares each of NDTV to its directors and shareholders, namely Dr. Prannoy Roy and Mrs. Radhika Roy at Rs.4 ($0.06) per share, for a total sum of Rs. 139 crores ($20.6 million). The listed price of shares of NDTV on that date was in the range of Rs. 129.95 to Rs. 134.70 per share. Further on the same day and at the same time, RRPR had itself purchased shares of NDTV from these same two persons at Rs.140 ($2.08) per share. Thus, RRPR passed on funds amounting to Rs.94.63 crores ($14 million) to its two shareholders through colorable transactions, which are prohibited as held in the decision of Hon’ble Supreme Court in the case of McDowell & co. Ltd. vs CTO 154 ITR 148 (SC).

Mr and Mrs. Roy need to explain as to why income of Rs.94.63 crores ($14 million) may not be charged to tax in their hands for AY 2010-11. In addition to the Income Tax Act, this transaction also violates various provisions of Money Laundering (under FEMA and PMLA) and provision of Fraudulent Transactions (FUTP Regulations) under the SEBI Act, 1992. As was earlier reported by PGurus, Delhi HC has already issued a Notice to SEBI to respond to these complaints by a shareholder who had filed a Writ Petition in November 2016.

Further, with this evidence, the big question on the continuance / legitimacy of NDTV’s broadcasting license also arises and requires a probe by Ministry of Information and Broadcasting, Government of India.

Here is a copy of the agreement between NDTV and VCPL:

Ndtv Agreement and Backup Papers by PGurus on Scribd



Note:
1. The conversion rate used in this article is 1 USD = 67.40 Rupees.
2. Text in Blue points to additional data on the topic.

4 COMMENTS

  1. One wonders as to how this channel continues to operate in India. The embedded link from moneylife.in says that NDTV has to repay a loan borrowed from another bank barred from trading. I feel the bank should be named for people to understand the nefarious designs of this channel.

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