The Securities Appellate Tribunal has quashed the capital market regulator's earlier decision that Reliance Industries Ltd (RIL) did not violate its listing agreement by not disclosing the acquisition of Network 18 Media & Investments by Independent Media Trust (IMT) — set up by the company — to the stock exchanges.
The tribunal, a quasi-judicial body which hears pleas of entities aggrieved by Securities and Exchange Board of India, said that Reliance Industries acquired indirect control over Network 18 Media & Investments through Independent Media Trust (IMT) and directed the regulator to examine the 'control' issue. SAT, in its order, was critical of Sebi's decision to dispose of — that is not entertain— the complaint against RIL on the ground that IMT was not its subsidiary.
A complaint had been filed before Sebi by Victor Fernandes and Sangeeta Fernandes , alleging that Reliance Industries had failed to disclose that it had acquired indirect control over Network 18 Media & Investments Ltd (NW18) and TV18 Broadcast Ltd(TV18) through Independent Media Trust (IMT), a trust established on November 22, 2011. Sebi rejected the complaint, prompting the appeal to SAT.
"…..while setting aside the impugned decision of SEBI dated 9/1/2017, we deem it proper to direct SEBI to decide afresh the question as to whether RIL violated Clause 36 of the Listing Agreement by failing to disclose that it had acquired indirect control over NW18 through IMT,"said SAT said in its order on Friday. Clause 36 of the listing agreement requires a listed entity to disclose developments related to the company to the stock exchanges for the benefit of public shareholders.
Sebi last year in January had disposed of the complaint saying IMT was not a subsidiary of RIL and therefore the company was not required to make disclosures to the stock exchanges.
"…..the impugned decision which is patently erroneous and contrary to the spirit of clause 36 of the listing agreement,is quashed and set aside," the order said.
"In our opinion,clause 36 of the listing agreement mandates that when a listed company acquires indirect control over another listed company either through a Trust or through any other entity, then,such acquisition has to be disclosed to the stock exchanges," SAT said. " In the ordinary course, we would have set aside the impugned decision which is not only erroneous and detrimental to the interests of investors in the securities market but also in effect defeats the object with which the disclosure obligations were mandated under clause 36 of the listing agreement and restore the issue for fresh decision on merits and in accordance with law."
The tribunal said sustaining "such patently erroneous decision of SEBI" would be detrimental to the interests of investors in the securities market and would encourage listed companies to acquire indirect control over other companies through a Trust or some other entity without making disclosures under Clause 36 of the Listing Agreement.
SAT has asked Sebi to reconsider the issue independently without being influenced by the prima facie observations made by it on the matter.
SAT's order also referred to an order of the Competition Commission of India, which on May 28,2012 had held that subscribing to the zero coupon,optionally & fully convertible debentures (ZOCDs) by IMT amounted to acquiring indirect control over NW18 & TV18.
"If Sebi,is not agreeable to the view taken by the Competition Commission of India on 28/5/2012 that by subscribing to the ZOCDs under the ZOCD Agreement dated 27/2/2012, IMT acquired indirect control over NW18, then,Sebi shall record its reasons for taking a contrary view,"SAT said.
Network 18 is a media organization which runs many channels and digital properties. Some of these compete with channels and digital properties of Bennett Coleman &Co (BCCL) which publishes this paper.