India: SEBI Opens Pandora's Box With NDTV Ruling

In a move that has created significant ambiguity, the Securities and Exchange Board of India ("SEBI") has recently ruled in the matter concerning NDTV Limited ("NDTV") that acquisition of warrants and call option rights is sufficient to trigger an open offer under certain circumstances.1 This decision comes as a major hindrance for structuring investments into listed companies, and also adversely impacts various promoter funding avenues.


NDTV is a company incorporated in New Delhi, with its securities listed on BSE and NSE. In 2008, RRPR Holding Private Limited ("RRPR"), Prannoy Roy and Radhika Roy (collectively, the "Promoters") initiated an open offer for purchase of NDTV shares. In order to fund this open offer, RRPR (on behalf of the Promoters) availed a loan of Rs. 450 crore from Indiabulls Financial Services Ltd. To repay this, the Promoters availed a loan Rs. 375 crore from ICICI Bank.

Finally, the Promoters repaid the loan from ICICI Bank by taking a loan of Rs. 350 crore from Vishvapradhan Commercial Private Limited ("VCPL"), pursuant to loan agreement dated July 21, 2009 ("Loan Agreement"). Simultaneous with the Loan Agreement, two other affiliates of VCPL, being Subhgami Trading Private Limited and Shyam Equities Private Limited, entered into call option agreements with RRPR which gave them the right to purchase 14.99% and 11.01% equity shares of NDTV from RRPR respectively at a fixed price of Rs. 214.65 per share ("Call Option Agreements").

SEBI, vide a show cause notice, alleged that the loan obtained by the Promoters from VCPL was not a normal investment transaction, and that VCPL's primary purpose was to acquire control over NDTV (through RRPR). To this effect, SEBI postulated that pursuant to the Loan Agreement and Call Option Agreements, VCPL acquired control over NDTV (i.e. through RRPR).

Some of the key terms of the Loan Agreement considered by SEBI in this regard were as follows:

  1. The loan was unsecured, carried no interest and was repayable on the 10th anniversary of the drawdown date.
  2. As consideration for the loan, RRPR issued warrants to VCPL, which were convertible at par into 99.99% equity shares of RRPR ("Conversion Option"). This option was exercisable by VCPL at its sole discretion, at any time during the tenure of the loan or thereafter.
  3. VCPL had the right to purchase all the equity shares of RRPR held by the Promoters at par value ("Purchase Option").
  4. RRPR increased its holding in NDTV to 26% as a condition precedent to availing the loan.
  5. VCPL had the right to nominate one member to the board of RRPR, whose presence was mandatory to constitute quorum. Further, VCPL had certain veto rights in both RRPR and NDTV (through RRPR), predominantly on matters relating to the share capital of RRPR and NDTV. VCPL was also mandated not to interfere with the editorial policies of NDTV.
  6. The Loan Agreement will be in force till the later of (a) the loan being repaid, and (b) exercise of the call option under the Call Option Agreements.
  7. The Promoters were required to exercise their voting rights in NDTV to give full effect to aforementioned terms.

Some of the key terms of the Call Option Agreements considered by SEBI in this regard were as follows:

  1. The consideration under each Call Option Agreement was Rs. 2 lakhs. The call option may be exercised by VCPL at any time.
  2. Any money paid to RRPR (upon exercise of the call option) will be used by RRPR for repayment of the loan to VCPL.
  3. VCPL had a right of first refusal against the Promoters (re: NDTV shares), and the Promoters were also bound by a non-compete during the tenure of the agreement.

Issue for determination

Whether the mere execution of the Loan Agreement and Call Option Agreements resulted in VCPL acquiring 'control'2 over NDTV as per SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 1997 ("Takeover Code 1997")?


While various legal concepts were examined by SEBI, the crux of the decision can be summarized in the following points:

1. Commercial terms of the loan. While the commercial terms of the loan were not 'market-standard' per se, VCPL provided the following justifications:

  1. this was an asset-recourse loan, backed by the underlying collateral of NDTV shares. The call option, Conversion Option and Purchase Option were all aimed at securing the same collateral in different ways;
  2. the commercial decision was that upon exercise of the call option, the arbitrage between the market price of NDTV's shares and the exercise price can be capitalized on; and
  3. irrespective of the nature of commercial terms, these terms per se cannot trigger any adverse implications under the Takeover Code 1997.

SEBI Analysis. While SEBI did not conclude that 'control' was acquired merely because of the non-market terms, SEBI placed significant emphasis on the following aspects in arriving at its decision:

  1. The exercise price of the call option was far in excess of the market price (at the time of entering into the Call Option Agreements). Typically, collateral is undervalued, and not overvalued. Further, despite the constant value erosion of NDTV's shares, VCPL never took efforts to enforce its collateral;
  2. NDTV's share price history does not lend credence to the argument that any price arbitrage could be achieved (between market price and exercise price); and
  3. VCPL's admission that the loan was provided on the premise of value appreciation of NDTV shares is sufficient to suggest that the principal purpose of the loan was to acquire beneficial interest in the shares of NDTV rather than receive financial returns from the loan.

2. Voting Rights. According to VCPL, the provision of the Loan Agreement which required the Promoters to exercise their voting rights in NDTV to give effect to the terms of the Loan Agreement is merely a cooperation/ assurance clause. This does not result in VCPL acquiring the voting rights of the NDTV shares held by RRPR in all respects.

SEBI Analysis. This clause has the effect of the Promoters ceding their voting rights in favor of VCPL, at least to the extent of 26% shares of NDTV held by RRPR and the 26% shares of NDTV covered under the Call Option Agreements.3 Hence, VCPL has acquired positive decision making rights over NDTV.

3. Exercise of warrants/ call option. It was argued by VCPL that despite the agreements permitting exercise of call options/ warrants at any point (even after repayment of loan), legally, this should not impact the analysis of whether 'control' has been acquired or not. This is because as per the Takeover Code 1997, 'control' is not acquired by subscribing to convertible instruments/ entering into optionality arrangements till such time the actual conversion right/ option is exercised.

SEBI Analysis. The right to exercise the warrants/ call option is so open-ended and uncircumscribed by any pre-requisite that it is as good as having control over the shares in one's hands without any further act

4. Veto Rights. As per SEBI, the aspect of 'veto rights' amounting to 'control' was not relevant to be examined since 'control' was acquired purely by entering into the Loan Agreement and Call Option Agreements.

Based on the above, SEBI concluded that the Loan Agreement and Call Option Agreements resulted in VCPL acquiring 'control' over NDTV, and ordered VCPL to make an open offer as per Takeover Code 1997.


On a rather unfortunate note, this order by SEBI has disturbed a settled position of law without any cogent reason for the same. While we admit that the overall transaction between VCPL and RRPR is not standard in nature, it is well settled that in case of call option arrangements, 'control' is not acquired until the call option is actually exercised. In addition, SEBI's analysis that mere execution of open ended call option agreements results in deemed exercise of the call option is devoid of any legal backing.

Further, SEBI seems to have alluded that certain standard practices followed by most lenders in the market can result in acquisition of control. For instance, it is standard for lenders to have certain protective rights against the borrower and its assets, and also standard to insist that borrowers vote their shares (in the underlying portfolio company) in a manner that does not prejudice the lender's interests. SEBI however seems to suggest that such voting assurance clauses will automatically result in the borrower ceding all the voting rights associated with such shares in favor of the lender. This effectively alters the very perspective with which protective covenants are viewed in the context of lending transactions (both at the listed company level and the promoter level), and also dilutes certain key protections typically sought by lenders.

Net-net, this decision by SEBI seems to be a clear case of overreach. It will be interesting to see how SAT views this matter (if appealed) – and to what extent SEBI's position will stand vindicated.


1 In the matter of NDTV Ltd., in respect of Vishvapradhan Commercial Private Limited (WTM/ GM/ EFD/ 31/ 2018-19)

2 'Control' includes the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner.

3 It is not entirely clear why SEBI considers RRPR to hold 52% equity shares in NDTV. This conclusion is not supported by the facts mentioned in the order.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Shreyas Bhushan
In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions