The income-tax department has blown away one of two defences that the Roys of NDTV had cited in public to stall the takeover bid by the Adanis.
The income-tax authorities have said there is no bar on RRPR Holdings Pvt Ltd — the entity that holds a 29.18 per cent voting interest in the television news channel — from converting the warrants it issued in 2009 to Vishvapradhan Commercial Pvt Ltd (VCPL) into shares.
The Roys had said they could not convert the warrants — issued to VCPL in 2009 against a Rs 350-crore loan — into shares of RRPR Holdings because of an IT directive issued in 2017 that provisionally barred them from selling any part of their holdings, pending a reassessment of their taxes.
The Roys had contended that they “may individually require independent approval, under section 281 of the Income Tax Act, from the Income Tax Authorities, to deal with any assets, including indirect shareholding in NDTV”.
Last month, the media arm of the Adani group acquired VCPL — and immediately pressed for the conversion of the warrants that RRPRH had issued to the latter against the interest-free loan that the entity had provided to the Roys.
The erstwhile owners of VCPL — believed to be promoted by former telecom tycoon Mahendra Nahata — had never pressed for the conversion of the warrants.
In a late-evening regulatory filing on Friday, NDTV said it had received a notification from VCPL intimating the company about the IT department’s decision.
VCPL said it had written to the tax department on September 7 asking it to clarify whether its approval was required for the conversion of the RRPRH warrants.
In response, the additional commissioner of income tax, New Delhi, has said there are no restrictions on RRPRH.
As a consequence, VCPL could exercise its option to convert its warrants and gain control of 99.50 per cent equity shares of the holding firm -– which, in turn, will give the Adanis a 29.18 per cent stake in the media channel.
VCPL said the letter from the income-tax authority stated that “the prohibition under the orders under section 281B during the period of their operation is on RRPR Holding Pvt Ltd for selling or transfer of its shareholding in New Delhi Television Ltd and from creating/ causing any charge thereon only, irrespective of the shareholding pattern of RRPR Holding Pvt Ltd and who exercises control thereon, and not on the issuance of shares of RRPR Holding Pvt Ltd.”
This hair-splitting is critical to the determination of control over RRPHL.
The Roys had referred to an order issued by the Securities Appellate Tribunal (SAT) on July 22 this year which said: “The intent and language of the loan agreement and call option agreements… 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.”
The Roys can still cling to some hope because of this SAT order – but the IT department’s decision has enfeebled its argument.
In its letter to NDTV, the Adani-owned VCPL said there was no need for “any prior approval from the Assessing Officer” for the conversion of the warrants into shares.
It added that the IT order issued in 2017 had been issued “against RRPRH only and for the purpose of securing RRPR’s continued ownership over the NDTV shares and that the orders have not been issued against the Roys individually, even as they also do not relate to their equity ownership in RRPRH.”
Second defence
The Roys have a second line of defence against an Adani takeover of NDTV.
They have said a Securities and Exchange Board of India (Sebi) order issued on November 27, 2020, barred them from buying or selling shares in India’s securities market for two years.
This restriction ends on November 26.
Both the Roys and VCPL have approached the to rule on the validity of this restriction. The regulator has yet to respond to these letters.
