Network18 case: Sebi says no open offer needed on investments involving IMT

Markets regulator Sebi on Friday said that no open offer needs to be made due to various agreements involving investment by Independent Media Trust (IMT) of funds received from a Reliance entity into Network 18 companies.

It was alleged Reliance Industries Ltd (RIL) in the guise of executing investment agreement or so called Zero Coupon, Optionally & Fully Convertible Debentures (ZOCDs) agreement, indirectly acquired control over Network 18 without following the procedure prescribed under the Takeover Regulations.

In February 2012, ZOCD agreement was entered into by and between six private limited companies (together termed as holding companies) owned and controlled by IMT, Raghav Bahl and his wife in their individual capacity.

Under the ZOCD agreement, IMT was to invest funds received from Reliance Industrial Investments and Holdings Limited by subscribing to the ZOCDs of the holding companies and these holding companies were obliged to utilise ZOCD subscription amount for subscribing to the rights issue of NW18 & TV18.

Further, in November 2011, a pact called Single Unit Agreement (SUA) was entered between Bahl group of entities and IMT to act as largest Indian shareholders of NW18. Meanwhile, the share purchase agreement between the parties was inked in May 2014.

In an order passed on Friday, Sebi said, "The ZOCD agreement read independently or combined with the SUA, it does not trigger an open offer. The trust deed does not confer the powers of a trustee to RIL."

The regulator also noted that appellant -- Victor Fernandes and Sangeeta -- made mutually contradictory claims with regards to these agreements, which reveals that "the appellant's sole aim is to make an ambiguous case for obtaining higher gains by way of the open offer price. This is therefore not the claim of a genuinely aggrieved or disadvantaged investor".

The ruling comes following a directive by the Securities Appellate Tribunal (SAT)that asked Sebi to pass an order by the end of November in the matter after the two Fernandes sought further direction from the tribunal.

In 2015, RIL had completed the open offer for Network 18 group companies. RIL's unit IMT made an offer to acquire 21.96 per cent of voting capital in Network18, IMT also made an open offer for a 26 per cent stake in TV18 Broadcast Ltd.