The tussle for control of New Delhi Television (NDTV) has turned acrimonious, as the media company is trying to take cover under a 2020 order that barred promoters Prannoy and Radhika Roy from selling stakes in the company. However, the 2009 loan agreement that the Roys had signed to borrow Rs 403 crore from a private lender called Vishvapradhan Commercial Pvt Ltd (VCPL) hardly leaves room for legal recourse against the hostile takeover bid of the news channel bouquet by the Adani group.

RRPR Holdings, a company the Roys own, issued warrants constituting a 99.99% equity stake to VCPL against the loan in 2009. The principal clause of the agreement was that VCPL had the sole option to convert warrants into an equal number of equity shares (99.99%) at par "any time during or after the loan tenure without any further act or deed on the part of the lender".

The loan agreement also holds that the Roys should allot to the lender — or any person nominated by the lender — equity shares as specified on a short notice of just two business days. Further, the warrants can be exercised and converted into equity shares in one or more tranches until they have been fully converted into shares aggregating to 99.99% of RRPR. "The above three clauses are part of 'Schedule I — Terms of Warrants' and they simply mean that the Roys have to adhere to the demand from VCPL to convert the warrants of RRPR Holdings into equity whenever it is made, just at the notice of two days without much-ado and to whomsoever nominated by VCPL," said a legal source.

Now, VCPL, a subsidiary of the Adani group, is acquiring the warrants in concert with the Adani group. Once 99.99% of warrants of RRPR Holdings are fully converted, the Adani group will have full control over RRPR Holdings. It is to be noted here that unlisted company RRPR holds a 29.18% stake in NDTV, due to which Adani will own the same amount of stake in NDTV.

Legal experts say that Roys may not have much legal recourse left due to this structure of the loan agreement. Clause no 6.1 in the agreement has tied the hands of the relatives of communist couple Brinda Karat and Prakash Karat. It says terms and conditions set out in Schedule 1 should be followed on the conversion of the warrants.

The Roys can now take support only in clause 6.3 — which says the lender cannot have over 26% stake in NDTV without the consent of the parties. Hence, it is likely that Adani may restrict itself to holding a 25.99% stake via VCPL. Still, there is no bar on the open offer from Adani, which was already announced, a former regulatory official said.

What Sebi can do when approached against takeover by Adani

NDTV has told the Adani group that the latter would need the approval of market regulator Sebi to acquire the 29.18% stake due to an earlier bar on current promoters from selling stakes. That constraint is dated November 2020 and is applicable for two years. 

NDTV has told stock exchanges that since Sebi in November 2020 had barred the Roys from dealing in stock markets or buying and selling their stake in NDTV till November 2022, the Adani group now requires Sebi permission to acquire their NDTV stake. A law firm said on behalf of the Roys, "Given RRPRH’s shareholding in NDTV and accompanying voting rights, it needs to ensure acquisition by VPCL does not constitute an indirect transfer by the Roys of 29% of NDTV, since that would violate the Sebi restrictions, which cover both direct and indirect transfers of any sort. RRPRH will meet all its contractual obligations based on explicit and not implicit provisions and without assuming authority on matters that are dealt with by Sebi or other authorities. It is up to the Sebi to confirm that this transfer doesn’t violate its own order and, if it does, to grant an exemption."

However, experts also aver that the regulator’s order is not retrospective since the Roys had transferred 29.18% of their NDTV stake to RRPR Holdings for availing the loan in 2009. "The claim by Roys that Sebi order prohibits them to convert warrants of RRPR into shares is only a delaying tactic. Sebi cannot overturn a pre-existing contract. The onus of getting Sebi approval for RRPR also lies with the Roys. In any event, now or eventually in November, VCPL will have to issue RRPR shares. Sebi order does not apply to unlisted shares and warrant conversion of RRPR is a fait accompli," the founder and director of InGovern, a proxy advisory, Shriram Subramaniam, said.