On last Friday, SEBI passed an order barring 3 NDTV promoters, Prannoy Roy / Radhika Roy and a group investment company from the capital markets for a period of 2 years. During this 2 year period, both Prannoy and Radhika will not be permitted to hold any board or top management role in the company. Both the promoters have also been barred from holding any director level position in any other Indian company for a period of 1 year. The promoters of NDTV have affirmed that they planned to appeal against the order.

There is an interesting history to the NDTV case which goes back to the 2008 period when NDTV was struggling for liquidity. During this period, NDTV had secured a loan from ICICI Bank for Rs.350 crore which carried interest at the rate of 19%.

However, NDTV had subsequently taken another loan of Rs.350 crore from a little known trading company based out of Delhi called Vishwapradhan Commercial Private Ltd. This loan came at zero percent interest and was used to repay the loan taken from ICICI Bank. The problem was not with the loan, but a clause in the loan which virtually mortgaged the stake of the holding promotes in NDTV. The stake held by the holding company RRPR Private Ltd. (Radhika Roy, Prannoy Roy). There was a clause in the agreement with RRPR which permitting the lender VCPL to take a 30% stake in NDTV through the conversion of warrants if the loan was not repaid.

That is exactly where the problem arose. According to SEBI, the NDTV promoters had concealed such material information from minority shareholders. Ideally, the details of the clause wherein the warrants could be converted into a 30% stake must have been disclosed to the shareholders but that was not done. According to SEBI, since the action and lack of disclosure amounted to defrauding the shareholders, it was unhealthy for the capital markets. That is the reason SEBI has taken this decision to bar the promoters of NDTV from the capital markets for a period of 2 years.