A war of letters and claims and counter-claims has erupted between NDTV founders Prannoy and Radhika Roy and the Adani Group which has launched a hostile bid for the company.

In a letter to the National Stock Exchange, the Roys say that the warrants bought by the Adanis cannot be converted into NDTV shares because the income tax department has the first claim on them.

The Roys note that in 2017 the income tax department “provisionally attached” the warrants of the holding company RRPR Holding Pvt Ltd until a tax dispute was resolved. Therefore, they argue, the warrants cannot be converted into NDTV shares as the group has demanded.

The ports-to-power Adani conglomerate led by India's richest man, Gautam Adani, last week announced plans to acquire the news network. The announcement triggered dismay among critics who said they were worried that such a takeover could signal the end of the channel as an independent media voice.

Responding to the Roys, the Adanis have countered that the income tax department order does not apply to the warrants they have bought and only to other “shares of NDTV held by RRPR”.

Therefore, the group asserts, the warrants should immediately be converted into NDTV shares, which would give them a 29.1 per cent stake in the company.

The conglomerate accused the Roys of seeking to “further inordinately delay” the deal.

NDTV shares shoot up

As the wrangling continues, NDTV's shares have shot to their highest level in 14 years.

The Adani letter says: “the RRPR Letter lacks bona fides and has no merit or basis either in law or in fact and is misconceived”. Therefore, the Adani Group say the IT order, “in no manner restrict RRPR from completing the formalities in relation to allotment of equity shares to VCPL on exercise of the warrants.”

The background to the current dispute for control, dates back to 2009 when the Roys’ holding company RRPR Holdings received a Rs 350-crore loan from another holding company, Vishvapradhan Commercial Private Ltd (VCPL), said to be linked to industrialist Mukesh Ambani.

In exchange for the loan, the Roys via RRPR issued warrants equivalent to 29.18 per cent of NDTV. These have now been sold to the Adani Group which has sent the warrants to NDTV and demanded that they be converted into shares.

Stock exchange rules

By seeking to convert the warrants into a 29.1 per cent shareholding in NDTV, the Adani Group said it has triggered stock exchange rules mandating it to make a tender offer to NDTV’s shareholders to gain a majority stake.

Under Sebi rules anyone who purchases more than 25 per cent of a company has to make an open offer to buy at least 26 per cent of the company’s shares.

The income tax department stepped into the picture some years ago arguing that by issuing warrants worth Rs 403 crore, the Roys, had in effect, given control of the media company to VCPL. Therefore, it argued tax had to be paid on the transaction which the department estimated would amount to Rs 175 crore. This, said the department, would be a “tax on capital gains arising on sale of controlling interest in NDTV to VCPL” on RRPRH.

Appellate tribunal ruling

An additional twist to the story comes because the Securities Appellate Tribunal (SAT) ruled on July 20 against the income tax department, saying that taking the loan did not amount to a sale to VCPL.

It said: “The intent and language of the loan agreement and call option agreements read with the SAST Regulations makes it clear that there is no direct or indirect control of NDTV by VCPL. The transaction structure does not lead to a conclusion that VCPL has acquired direct or indirect control over NDTV”.

However, the Roys point out that the SAT order does not mention whether the “provisional attachment will continue to operate on RRPRH equity shares held in NDTV”.

No clearance required

The Adani Group argues that the Roys do not need clearance from the “the Assessing Officer”, to convert the VCPL warrants into shares.

In addition to that, the Roys argue that they may also need individual clearance from the income tax department, “to deal with any assets, including indirect shareholding in NDTV, arising from sub judice (impugned) orders”.

The Adani Group says this argument is totally misconceived and that, “The IT Orders have not been issued against Mr Prannoy Roy and Mrs Radhika Roy individually and do not relate to their equity ownership in RRPR.” Therefore, say the Adanis: “the suggestion that Mr. Prannoy Roy and Mrs Radhika Roy will need prior approval of the Assessing Officer under Section 281 of the Income Tax Act, 1961 is wholly misconceived and has no basis.”

Cash-strapped Roys

Back more than a decade ago, the perennially cash-strapped Roys borrowed Rs 4 billion from a little known company VCPL. Now Adani has acquired VCPL.

Separately, both the Roys and the Adani Group have asked the market regulator to rule on whether the company’s founders even have any right to sell a big stake in the conglomerate due to an insider trading case against them.

The Roys, who say the Advani takeover bid was launched without their knowledge or consent, point to a 2020 order from SEBI, which they say prohibits them from dealing in India's securities market. According to NDTV, that means the Roys' entity can't transfer the shares Adani was trying to secure.

Can Roy's hold out?

Can the Roys hold out against the Adani juggernaut? Group Chairman Gautam Adani is either the third or fourth richest man in the world. He’s also very close to the ruling establishment. Any battle between the two sides will be an unequal one. But it might be best to not yet place any bets on the winner.