Penalties on Prannoy Roy, Radhika Roy for concealing price sensitive information from NDTV shareholders excessive: SAT

The Securities Appellate Tribunal (SAT) held on Wednesday that the penalties imposed by the Securities and Exchange Board of India (SEBI) on Prannoy Roy, Radhika Roy and others for non-disclosure of material information to NDTV shareholders were excessive and not commensurate with the alleged violations [Vishvapradhan Commercial Pvt Ltd v. SEBI]..Thus, the penalty of ₹25 crore imposed on the Roys and their company RRPR Holding for not disclosing a loan agreement they entered into with Vishvapradhan Commercial Private Limited (VCPL) was reduced to ₹5 crore.Additionally, the order restraining them from accessing the securities market or from accepting any position of Director was found to be totally out of context and not commensurate with the alleged violation.Further, the non-inclusion of the agreement loan agreement in the minutes of a Board of Directors meeting was found to be violative of the listing agreement. However, the SAT opined that the penalty of ₹5 crore imposed was excessive and therefore, reduced it to ₹10 lakh..The order was made by Presiding Member Justice Tarun Agarwala and Technical Member Meera Swarup.“Admittedly, the loan agreement is nothing else but an investment which was required to be disclosed under the Code of Conduct. Such non-disclosure, however, in our opinion is neither fraudulent nor found to be an unfair trade practice,” the order read..The issue in the case arose from a complaint by an NDTV shareholder alleging that the Roys and RRPR failed to disclose material information regarding the loan agreement with ICICI Bank and VCPL to shareholders, and consequently, violated provisions of the SEBI Act, Rules and Regulations..The Whole Time Member (WTM) of the SEBI had held in December 2020 that the loan agreements were not plain vanilla secured inter-corporate loan agreements.Instead, they 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.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, the order under challenged had stated..However, these findings did not survive in appeal, since the SAT found that the loan agreement did not in any manner transfer control of NDTV to VCPL either directly or indirectly.Since there was lack of control on VCPL’s part, the conclusion that the loan agreements were material and price sensitive information was also defeated..Therefore, the only question that remained was whether Roys failed to disclose the information in line with the Code of Conduct. This was answered in the affirmative.“We are satisfied that the appellants were required to disclose the loan agreement under the Code of Conduct in terms of Clause 49(I)(D) of the listing agreement especially when PR and RR were the Chairman and Managing Director of NDTV respectively.”.However, it was said that in the absence of any concealment or causing fraud to the investors or to the minority shareholders, the violation of Clause 49 of the listing agreement only invites a penalty, and thus, the penalty was reduced from ₹25 crore to ₹5 crore..Further, with regard to the non-disclosure of the loan agreement in a board meeting, it was found that NDTV violated the listing agreement.“Such disclosure would enable the shareholders and the public to take a informed decision on the investment or disinvestment in the securities of NDTV.”However, it was found that the penalty for mere violation of a clause under the listing agreement could not be penalized to the maximum amount quoted in the provision. Therefore, the ₹5 crore penalty for the same was reduced to ₹10 lakh..Advocates Fereshte Sethna, Abhishek Tilak and Ameya Pant of DMD Advocates appeared for the RoysSenior Advocate Shyam Mehta appeared for SEBI. He was briefed by a team from K Ashar & Co led by Advocates Mihir Mody, Arnav Misra and Mayur Jaisingh.VCPL was reprsented by Senior Advocate Janak Dwarkadas and Advocate Somasekhar Sundaresan, who where briefed by a team from Khaitan & Co led by Rahul Dutt and Zarnaab Aswaad..[Read Order]