Moneylife » Why NDTV did not disclose Rs450 crore tax notice to exchanges
Why NDTV did not disclose Rs450 crore tax notice to exchanges
| 30/05/2014 05:11 PM | 
NDTV has argued that the matter was “sub-judice” and that it has received a stay. Other listed companies, including Infosys, however, time and again have disclosed such information to the bourses
Prannoy Roy-led New Delhi Television Ltd (NDTV), was served a Rs450 crore demand notice by income tax (I-T) in February this year. However, NDTV did not inform the BSE or National Stock Exchange (NSE) about this, which it is a alleged violation of listingnorms. When BSE and NSE asked NDTV about this, the company argued that the demand notice was "without any basis or justification and contrary to provisions of Income Tax Act, 1961 and had resulted only due to erroneous and incorrect view taken by the tax department". Hence NDTV saw it fit not to disclose anything about it.
Although all listed companies are mandated to provide every piece of information relating with them through regulatory filings, NDTV says, "it was felt that the disclosure of theseevents in isolation, without any reference to the steps proposed to be taken by the Company, was not desirable. In the event of ongoing proceedings before Income Tax Appellate Tribunal (ITAT), where a stay has been granted by ITAT, the claim made by the tax department cannot be deemed as an enforceable tax demand against NDTV due and payable by it. The demand has resulted only due to erroneous and incorrect view taken by the tax department."
Earlier in February 2014, in a major crackdown against listed companies not complying with regulatory disclosure norms, NSE and BSE imposed fines or suspended trading in over 1,100 cases of non-compliance, involving nearly 600 companies. After finding hundreds of companies of not adhering to various provisions of listing agreement, market regulator Securities and Exchange Board of India (SEBI) had asked the stock exchanges to put a stronger mechanism in place to ensure compliance.
In March 2014, Vardhman Textiles Ltd, a listed company, also received a Rs97.64 crore demand notice from the I-T department and it conveyed the same to the bourses. Similarly, when Redington (India) Ltd received a Rs138 crore demand notice from I-T dept, it also informed the BSE.
Even, Infosys, the country's second largest IT company, was slapped with a Rs582 crore demand notice. This was in addition to the tax demands of Rs1,175 crore for FY2005 to FY2008, the company was contesting. Infosys in its regulatory filing informed the bourses about the tax notice and also its position to contest it.
The question then is why NDTV did not think it fit and proper to give the relevant information to the bourses? This non-disclosure of information prompted NSE and BSE to seek clarification from the company. While BSE has mentioned the notices it sent to NDTV, there are no details available at NSE. NSE just says that it sought clarification from NDTV based on a complaint.
When NDTV failed to provide specific response to its query, BSE again sent an email on 27th May to the company asking it to give point-wise reply. In its reply, NDTV said, "...we have clarified our position with respect to the queries of exchange on various disclosures under listing agreement vide Company's letters dated 16 May 2014 and 22 May 2014, wherein the company categorically explained the position as to how the company has not violated the provisions of clause 36 of the listing agreement."
Here are the specific queries sent by BSE and the replies provided by NDTV...
1) Non-Disclosure of the tax demand of Rs450 crore raised vide the Assessment order dated 21 February 2014 at the time the same was raised.
NDTV Response: As stated in our earlier submissions, the matter relates to tax demand of Rs450 crore raised vide the Assessment order dated 21 February 2014 issued by the tax department for the assessment year 2009-10 (Financial Year 2008-09). The aforesaid tax demand has resulted due to erroneous and incorrect view taken by the tax department that the transaction vide which an investment of $150 Million was made by NBC Universal Inc and Universal Studios International BV in an overseas subsidiary of NDTV, is a 'sham' transaction.
NDTV submits that the said transaction was indeed a bonafide and genuine transaction, where funds were transferred from Universal Studios International BV, which was a GE Company at that time, an organization of international prestige and repute, for subscription of shares in overseas subsidiary of NDTV. The funds were raised with the involvement of intermediaries like law firms and bankers on the end of both the parties. The funds were transferred through normal banking channels and all the required compliances made in respect thereof. Further, the documents and confirmations required by the tax department during the course of assessment and investigation proceedings were provided to the tax department, including an apostilled copy of the confirmation from Universal Studios International BV to the effect that the investment of $150 Million was made by Universal Studios International BV, for subscription of shares in overseas subsidiary of NDTV.
It has also been highlighted by the Company earlier that the complainant Mr Sanjay Dutt, of Quantum Securities Pvt Ltd, has raised various matters with the Stock Exchanges and the income tax department, which also include the demand made by the tax department against NDTV. This demand has resulted from an investment made by NBC Universal Inc (NBCU) and Universal Studios International BV in an overseas subsidiary of NDTV. It may be noted that at that time, Mr Dutt headed, negotiated and closed various activities for the aforesaid investment, including negotiations on behalf of NDTV with the management and officers of NBCU. Further, the company had made the required disclosures with the Stock Exchanges and in its financial statements, with respect to the aforesaid investment made by NBC Universal and Universal Studios International BV.
In view of the above, it was concluded that the said demand was without any basis or justification and contrary to provisions of Income Tax Act, 1961 and had resulted only due to erroneous and incorrect view taken by the tax department. Based on the advise from external counsels, the Company is confident of a favourable outcome in the proceedings before Income Tax Appellate Tribunal (ITAT) challenging the aforesaid Assessment order. The Company filed an appeal before the ITAT challenging the aforesaid Assessment Order. The understanding of the Company was affirmed when the ITAT passed a stay order on the said demand in favor of the Company. Further, it may be noted that the challenge of the said claim, made by NDTV, is pending final determination before the ITAT and is currently sub-judice.
Therefore, it was felt that the disclosure of these events in isolation, without any reference to the steps proposed to be taken by the Company, was not desirable. Such a disclosure would also be against the spirit of the Listing Agreement as an issue which is sub-judice, would lead to an incomplete representation of the matter to be made to the shareholders, before the relevant forum before whom the matter is pending has given its decision. Therefore, the Company was of the view that no disclosure was required in the matter, the same being sub-judice. It was deemed appropriate that a disclosure of the matter be made at a time when a decision has been taken by ITAT.
2) Non-Disclosure of Company payment of Rs5 crore to the Income Tax Authorities pursuant to tax demand of Rs450 crore raised vide the Assessment order dated 21 February 2014 at the time of payment thereof.
NDTV Response: It may be noted that the Company didn't make any payment when the tax demand notice of Rs450 crore raised vide the Assessment order dated 21 February 2014 was received. Instead, as mentioned earlier, the Company filed an appeal before ITAT against the aforesaid Assessment order vide which the demand was made. In the course of the proceedings before ITAT, a stay order was passed by the ITAT (order dated 26 March 2014 and 21 April 2014), vide which an interim stay has been granted on the demand made by the tax department. It may be noted that in the present case, ITAT allowed the demand to be stayed on payment of an amount of Rs5 crore only.
As highlighted earlier, the challenge of the said claim, made by NDTV, is pending final determination before the ITAT and is currently sub-judice.
Therefore, in our opinion there was no requirement of a disclosure in this case.
3) Non-Disclosure of Rs450 crore as a Contingent Liability pursuant to the income tax demand of Rs450 crore raised vide the Assessment order dated 21 February 2014 when the company submitted its Audited Financial Results for the year ended 31 March 2014.
NDTV Response: As already highlighted, the matter is presently sub-judice before the ITAT and based on the view of the external counsels, NDTV has a strong case on merits. In the event of ongoing proceedings before ITAT, where a stay has been granted by ITAT, the claim made by the tax department cannot be deemed as an enforceable tax demand against NDTV due and payable by it. The demand has resulted only due to erroneous and incorrect view taken by the tax department.
Further, according to a Senior counsel who has opined on the matter, the issues before the ITAT are presently pending final adjudication and NDTV has a strong arguable case, and in all likelihood the issues involved deserve to be decided in NDTV's favour.
Therefore no disclosure was applicable in this case.
In view of the foregoing submissions, the contention of the Complainant that a violation of clause 36 of the listing agreement has been committed by NDTV, is baseless and without merit as the demand was levied on erroneous and incorrect view taken by the tax department . Further, it is reiterated that no violation of provisions of the Listing Agreement has been committed by NDTV as alleged by the Complainant or at all.
In June 2013, Moneylife wrote how Sanjay Dutt, director of Quantum Securities, has levelled a series of allegations about wrong practices and poor governance at NDTV. He made these charges in writing to almost every regulatory authority in India – the Ministry of Corporate Affairs, the Securities & Exchange Board of India (SEBI), the Reserve Bank of India (RBI) and other institutional investors. See our report: Allegations of NDTV’s Many Shenanigans.
Following our article, on 27 June 2013, NDTV sent a legal notice to Quantum Securities, Sanjay Dutt and directors of the company, through its law firm Amarchand Mangaldas accusing him of making defamatory statements, writing to various regulators and ‘launching a tirade’ against NDTV because he bears a ‘grudge’ against the broadcaster. This is probably the first time that charges by a significant shareholder have been termed ‘defamatory’ by a company, mainly because he was a ‘remunerated consultant’ sometime in the past. Mr Dutt and his firm Quantum Securities hold a significant stake in NDTV.
NDTV got listed on May 2004. Its first trade was at Rs100, a substantial premium over its issue price of Rs70 for its initial public offering (IPO). At that time, the NDTV IPO was oversubscribed within 15 minutes of opening the books. After hitting an all time high of Rs511.75 in 2008, NDTV shares are trading below its IPO price 2011 onwards. In fact, during 2011, NDTV recorded its all time low of Rs24.75 on the BSE.
In August 2011, Moneylife wrote: “NDTV got listed in 2004 and was trading below its listed price after seven years. It had given a negative return of 19% compounded in the past five years and a total shareholder return (TSR) of negative 66% for the same period. Its viewership claims, like those of all TV channels, are impossible to verify. Its credibility is at a nadir (after the phone-tapping controversy) and its finances are in a mess. NDTV has rarely made money from operations. For the past few years, its consolidated operations have been making cash losses and it has been running on money made by selling loss-making subsidiaries to strategic investors.”
We further pointed out how marquee institutional investors always line up to acquire this loss-making company’s bits and pieces and exit at a loss at regular intervals, only to make way for other big name investors! The latest was DE Shaw, which provided an exit to Goldman Sachs in 2011 by acquiring a 14.2% stake. After this, NDTV acquired a significant investor—Abhay Oswal, who owns nearly 15% of its equity but seems to have no presence on NDTV’s board of directors. Mr Oswal happens to be the father-in-law of Navin Jindal, an industrialist and Congress Member of Parliament.
In all these years, no investor has complained, or uttered a word of public criticism, about the losses and operations of this strange company. Then last year in June, Mr Dutt, in an email to Moneylife, made some startling allegations about NDTV’s capital structure. He alleged that chairman Prannoy Roy received irregular promoter funding to the tune of a massive Rs375 crore by pledging NDTV shares which, according to him, is against the Reserve Bank of India (RBI) rules. The loan was made to a company called RRPR Holdings Private Limited in October 2008 against the pledge of NDTV shares. (Read moreAllegations of NDTV’s Many Shenanigans)
As per the listing agreement, companies are required to submit documents like annual reports, shareholding pattern data, quarterly and full-year financial results, as also corporate governance compliance reports within stipulated time periods. The question is now, will NSE and BSE, the first line of regulators would initiate any action against NDTV, similar to the one the bourses took on several companies for failing to disclose the information on tax notice? In addition, will market regulator SEBI also probe NDTV and its apparent violation of listing norms?
Allegations of NDTV’s Many Shenanigans
| 24/06/2013 11:13 AM |
Sanjay Dutt, director of Quantum Securities and a long-term shareholder of NDTV has alleged that chairman Prannoy Roy received irregular promoter funding of Rs375 crore by pledging NDTV shares which, according to him, is against the RBI rules
In August 2011, Moneylife wrote: “NDTV got listed in 2004 and is trading below its listedprice after seven years. It has given a negative return of 19% compounded in the past five years and a total shareholder return (TSR) of negative 66% for the same period. Its viewership claims, like those of all TV channels, are impossible to verify. Its credibility is at a nadir (after the recent phone-tapping controversy) and its finances are in a mess. NDTV has rarely made money from operations. For the past few years, its consolidated operations have been making cash losses and it has been running on money made by selling loss-making subsidiaries to strategic investors.”
We further pointed out how marquee institutional investors always line up to acquire this loss-making company’s bits and pieces and exit at a loss at regular intervals, only to make way for other big name investors! The latest was DE Shaw which provided an exit to Goldman Sachs in 2011 by acquiring a 14.2% stake. After this, NDTV acquired a significant investor—Abhay Oswal, who owns nearly 15% of its equity but seems to have no presence on NDTV’s board of directors. Mr Oswal happens to be the father-in-law of Navin Jindal, an industrialist and Congress Member of Parliament.
In all these years, no investor has complained, or uttered a word of public criticism, about the losses and operations of this strange company. But, a few weeks ago, Moneylife received an email from Sanjay Dutt, director of Quantum Securities P Ltd, a name familiar to all those who watch the business TV regularly. Mr Dutt said that his firm is a long-term shareholder of NDTV and holds over 1% of its equity capital. He also disclosed that he had worked as a consultant with the group from 2006 to 2008 and has been a personal friend of the current CEO for over 15 years. But, more about that later. Mr Dutt was writing to make some startling allegations about NDTV’s capital structure.
In August 2011, Moneylife wrote: “NDTV got listed in 2004 and is trading below its listedprice after seven years. It has given a negative return of 19% compounded in the past five years and a total shareholder return (TSR) of negative 66% for the same period. Its viewership claims, like those of all TV channels, are impossible to verify. Its credibility is at a nadir (after the recent phone-tapping controversy) and its finances are in a mess. NDTV has rarely made money from operations. For the past few years, its consolidated operations have been making cash losses and it has been running on money made by selling loss-making subsidiaries to strategic investors.”
We further pointed out how marquee institutional investors always line up to acquire this loss-making company’s bits and pieces and exit at a loss at regular intervals, only to make way for other big name investors! The latest was DE Shaw which provided an exit to Goldman Sachs in 2011 by acquiring a 14.2% stake. After this, NDTV acquired a significant investor—Abhay Oswal, who owns nearly 15% of its equity but seems to have no presence on NDTV’s board of directors. Mr Oswal happens to be the father-in-law of Navin Jindal, an industrialist and Congress Member of Parliament.
In all these years, no investor has complained, or uttered a word of public criticism, about the losses and operations of this strange company. But, a few weeks ago, Moneylife received an email from Sanjay Dutt, director of Quantum Securities P Ltd, a name familiar to all those who watch the business TV regularly. Mr Dutt said that his firm is a long-term shareholder of NDTV and holds over 1% of its equity capital. He also disclosed that he had worked as a consultant with the group from 2006 to 2008 and has been a personal friend of the current CEO for over 15 years. But, more about that later. Mr Dutt was writing to make some startling allegations about NDTV’s capital structure.
He alleges that chairman Prannoy Roy received irregular promoter funding to the tune of a massive Rs375 crore by pledging NDTV shares which, according to him, is against the Reserve Bank of India (RBI) rules. The loan was made to a company called RRPR Holdings Private Limited in October 2008 against the pledge of NDTV shares.
RRPR Holdings has a capital of only Rs1 lakh and is 100% owned by Prannoy and Radhika Roy, says Mr Dutt in a letter to Dr KC Chakrabarty, RBI deputy governor, in April 2013. RRPR Holdings’ only asset and business is the 29% equity holding of NDTV. He further alleges that the loan to RRPR Holdings was made without even a mandatory haircut and, at times, in excess of the company’s market value. Of course, the loan was backed by the personal guarantee of a director.
Mr Dutt has obtained certified information from the Registrar of Companies (ROC) to back his allegation and written a formal complaint to RBI’s department of banking supervision at the end of April, with copies of his findings. All these documents are also available with Moneylife. Mr Dutt further alleges that the pledge of promoter holding has not been made public, as mandated by the listing agreement of stock exchanges.
I wrote to NDTV’s CEO, Vikram Chandra, seeking a response to Mr Dutt’s allegations. Within a couple of hours, I received a 1,600-word response from KVL Narayan Rao, executive vice chairperson of the NDTV group. Curiously, the letter did not answer Mr Dutt’s simple allegation about promoter funding in violation of RBI norms. Mr Rao wanted a couple of days to respond to those. Instead, he wrote about how Quantum Securities, a brokerage firm, was an active trader in NDTV shares. Mr Rao called Sanjay Dutt a ‘stock market manipulator’ who had settled charges with the Securities & Exchange Board of India (SEBI) by paying Rs53.41 lakh under a consent order.
According to Mr Rao, the company had yet to receive a response from Mr Dutt about whether he had indulged in similar trading in NDTV shares. The SEBI order of January
2013, which is on the regulator’s website, shows that Quantum Securities was accused of synchronised and circular trading in GHCL shares and paid Rs33.41 lakh in a consent deal, while Sanjay Dutt and Prenita Dutt, together, paid Rs15 lakh to settle charges against them.
Mr Rao then goes on to tell us that Sanjay Dutt was aconsultant with NDTV and that he was paid a hefty Rs2.6 crore for his services over less than two years. This included several foreign trips to structure overseas subsidiaries for its foray into ‘non-news areas’. He was also given some shares in subsidiary companies which he had to forfeit when he left the company in 2008, allegedly because he could not get along with people.
Mr Rao says that Mr Dutt holds a ‘grudge’ against NDTV and has ‘misused’ and ‘distorted’ confidential information obtained as a consultant to level charges against the company in letters to various regulators as well as to NDTV’s board of directors.
In fact, according to him, Sanjay Dutt’s actions do not fall in the realm of ‘shareholder activism’ but are ‘blackmail, extortion and defamation’ which ‘amount to criminal offences under Indian Penal Code’.
RRPR Holdings has a capital of only Rs1 lakh and is 100% owned by Prannoy and Radhika Roy, says Mr Dutt in a letter to Dr KC Chakrabarty, RBI deputy governor, in April 2013. RRPR Holdings’ only asset and business is the 29% equity holding of NDTV. He further alleges that the loan to RRPR Holdings was made without even a mandatory haircut and, at times, in excess of the company’s market value. Of course, the loan was backed by the personal guarantee of a director.
Mr Dutt has obtained certified information from the Registrar of Companies (ROC) to back his allegation and written a formal complaint to RBI’s department of banking supervision at the end of April, with copies of his findings. All these documents are also available with Moneylife. Mr Dutt further alleges that the pledge of promoter holding has not been made public, as mandated by the listing agreement of stock exchanges.
I wrote to NDTV’s CEO, Vikram Chandra, seeking a response to Mr Dutt’s allegations. Within a couple of hours, I received a 1,600-word response from KVL Narayan Rao, executive vice chairperson of the NDTV group. Curiously, the letter did not answer Mr Dutt’s simple allegation about promoter funding in violation of RBI norms. Mr Rao wanted a couple of days to respond to those. Instead, he wrote about how Quantum Securities, a brokerage firm, was an active trader in NDTV shares. Mr Rao called Sanjay Dutt a ‘stock market manipulator’ who had settled charges with the Securities & Exchange Board of India (SEBI) by paying Rs53.41 lakh under a consent order.
According to Mr Rao, the company had yet to receive a response from Mr Dutt about whether he had indulged in similar trading in NDTV shares. The SEBI order of January
2013, which is on the regulator’s website, shows that Quantum Securities was accused of synchronised and circular trading in GHCL shares and paid Rs33.41 lakh in a consent deal, while Sanjay Dutt and Prenita Dutt, together, paid Rs15 lakh to settle charges against them.Mr Rao then goes on to tell us that Sanjay Dutt was aconsultant with NDTV and that he was paid a hefty Rs2.6 crore for his services over less than two years. This included several foreign trips to structure overseas subsidiaries for its foray into ‘non-news areas’. He was also given some shares in subsidiary companies which he had to forfeit when he left the company in 2008, allegedly because he could not get along with people.
Mr Rao says that Mr Dutt holds a ‘grudge’ against NDTV and has ‘misused’ and ‘distorted’ confidential information obtained as a consultant to level charges against the company in letters to various regulators as well as to NDTV’s board of directors.
In fact, according to him, Sanjay Dutt’s actions do not fall in the realm of ‘shareholder activism’ but are ‘blackmail, extortion and defamation’ which ‘amount to criminal offences under Indian Penal Code’.
This then raises another question. Why has NDTV not initiated action against Mr Dutt so far? Clearly, neither side is telling us the whole truth. Mr Dutt is clearly not your usual activist investor; but it is also hard to imagine that a mere ‘grudge’ would motivate him to start a war against an extremely powerful media house like NDTV. As a person who has been in the organisation, Mr Dutt is also fully aware of NDTV’s phenomenal reach and connections in the Congress government.
On the other hand, what is holding NDTV back? Why has it not initiated action against Mr Dutt, if it is fully aware of his allegedly ‘defamatory’ letters to multiple regulators? Is it far more convenient for NDTV to simply use its clout to silence the regulators? Have any of them asked NDTV raised these issues about the frequent changes in its equity capital and Mr Dutt’s allegations?
Since Mr Rao says that Sanjay Dutt has written to NDTV’s board of directors, have the independent directors raised these issues? Surely, all of NDTV is not scared of what Narayan Rao calls Mr Dutt’s ‘bouts of uncontrollable rage and anger’?
Incidentally, Mr Dutt studied at the Doon School, is a chartered accountant, like Prannoy Roy, and is an IIM-Ahmedabad alumnus. The Quantum Securities’ website says that he was with the firm since 1994, but does not mention why he gave it up to act as a consultantto NDTV for the two peak years of the most ferocious bull market that India has seen.
An earlier version of the website listed the economist Dr Surjit Bhalla as a third member of the Quantum Securities management team. Dr Bhalla’s Oxus Fund Management was adivision of Quantum. Dr Bhalla is on several SEBI and government committees and used to be close to NDTV, but is now independent.
Ironically, Quantum’s website, at one time, had listed among its ‘prominent’ clients Dr Prannoy Roy. Is there more to this unravelling story than meets the eye so
far?
Here is the detailed letter we received from Mr Rao, after sending this article for printing...
And here is the response from Mr Dutt on Mr Rao's letter...
Sucheta Dalal is the managing editor of Moneylife. She was awarded the Padma Shri in 2006 for her outstanding contribution to journalism. She can be reached atsucheta@moneylife.in
No comments:
Post a Comment