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NDTV Frauds : String of Laundering


The media group is in question not because of its proximity to any particular ideology or its political inclination, but on account of facts which put highlight certain murky deals

Few days back there was a news highlighting the fact that RBI has rejected compounding  application of New Delhi Television Limited (NDTV). Subsequent to this, the Delhi High Court gave its ruling against NDTV and quashed the Income Tax Appellate Tribunal (ITAT) order which stayed the recovery of fine. Shares of NDTV are trading down after all these controversial rulings but more importantly there is a signal that the government is serious about white  collar crimes.

Though the RBI decision is based on the application filed by NDTV under the provisions of Foreign Exchange Management Act, 1999 (FEMA), it has its roots in an income tax matter which was decided in June 2016. The learned assessing officer in his penalty order dated June 15, 2016  had asked the company to explain the reasons why a penalty of Rs 525 crore should not be imposed on it. Earlier additions of more than Rs 900 crore to the income of NDTV were made in February 2015 while completing the assessment and significant part of these additions were on account of unexplained money. The assessment order clearly mentions that the assesse (i.e. NDTV) created a layer of subsidiaries in foreign countries and channelised the money through these shell entities. Even the then Group CEO of NDTV KVL Narayan Rao admitted under oath that the sole purpose of creating these companies outside India was to circumvent the restrictions imposed under Indian regulations.

NDTV filed an appeal with ITAT against the order of the department and secured stay order against the recovery. It may be noted that the ITAT is the final fact-finding authority and the matter decided by the tribunal will go to High Court or Supreme Court only when it involves a substantial question of law.

Let’s see how these transactions were routed and what the possible legal implications can be.

  1. Modus operandi of the transaction

Step 1 – Placement and Layering of Money outside India

NDTV Limited along with four of its subsidiaries [NDTV BV (a Netherland based entity, subsidiary of NDTV Limited); NDTV Networks BV (a Netherland based entity, subsidiary of NDTV Limited); NDTV Networks International Holdings BV “NNIH” (a Netherland based entity, subsidiary of NDTV Networks BV) and NDTV Networks Plc “NNPLC” (a UK based entity, subsidiary of NNIH)] entered into an agreement dated May 23, 2008 with NBC Universal Inc “NBC” and Universal Studios International BV “USBV”.

Subsequently USBV purchased 915,498 shares of NNIH @Rs 7015.05 per share while the face value of share was USD 1 (Rs 50). It is pertinent to note that no valuation was carried out for determining the share price. Stated objective of this transaction was to acquire 26 per cent shares in NNPLC but the fact that NNPLC had neither any business activity nor any employee (except Mr Vikramaditya Chandra who was CEO) makes this deal suspicious.

In the next financial year all the shares which were purchased by USBV for Rs 642.54 crore (YSD 150 million) were bought back by NDTV BV for Rs 58.08 crore at a price of Rs 915.498 per share. In other words control over the shares came back within the NDTV group and it gained Rs 584 crore without doing a single business activity (corresponding loss was claimed by USBV). NDTV officials explained to tax authorities that they sold a dream to investor and subsequently this dream didn’t realise (surprisingly within next few months it was concluded that the dream is not going to be realised). (Refer Chart 1 for transaction structuring)

Step 2 – Layering of Money outside India and final Integration in India

Next step was to bring this money in India and a cobweb structure was created to escape any scrutiny. NNIH paid dividend of Rs 643.35 crore to NDTV Networks BV out of the share capital of Rs 642.54 crore which it received from USBV. Surprisingly no dividend was paid to USBV which was also a shareholder of NNIH at that point of time and having 31.4 per cent stake. This further reinforces the doubt that USBV was a façade to launder the money. Now there were two branches in which this amount was finally transferred to NDTV Limited in India.

Trench 1

i) NDTV Networks BV invested Rs 389 crore in a Mauritius based entity named NDTV (Mauritius) Media Limited

ii) NDTV (Mauritius) Media Limited invested Rs 387.59 Crores in NDTV Studios Limited (an Indian company). NDTV Studios Limited merged with NDTV Limited on April 1, 2010.

iii) NDTV (Mauritius) Media Limited merged with NDTV One Holdings Limited (a Mauritius based entity) and the second entity ultimately merged with NDTV Limited on November 2, 2012.

Trench 2

i) NDTV Networks BV gave unsecured loan of Rs 254.75 crore to NNPLC.

ii) NNPLC merged with NDTV One Holdings Limited on September 30, 2011 and the second entity ultimately merged with NDTV Limited on November 2, 2012.

NDTV Limited managed to get the funds in India after structuring the transactions and the objective behind creating multiple layers outside India was to avoid the possible scrutiny of the taxmen as well as other regulators. Refer Chart 2 depicting multiple layers used for integration of the money.

  1. Investigation and proceedings

Income tax department has already slapped a huge penalty on the media group in this matter and various other matters also. Stock market regulator SEBI had levied a penalty of Rs 2 crore on the company for its failure to make mandatory disclosures. NDTV filed an appeal with Securities Appellate Tribunal (SAT) against SEBI’s order and now the company has written to stock exchange that it has filed application with SEBI for settlement of matter (letter dated March 6, 2017). Company’s directors are also charged with alleged irregularity in matters related to insider trading.

The real big issue is coming from FEMA and the provisions enacted in 2015 to curb the black money, empower the Enforcement Directorate (ED) to seize the property if the amount involved is more than Rs 1 crore (Section 37A of FEMA,1999 which came into effect from  September 15). Not only this but the penal provisions contained under section 13 of FEMA will also become applicable if the contravention is established by the RBI and the quantum of penalty may go up to three times of the amount involved. NDTV reached out to  the RBI for compounding of offences but the Central bank has rejected the application saying that the said applications cannot be entertained at this stage (RBI letter dated January 24, 2017).

Not only the above but if it is proved that the money in question is a proceeds of crime (which includes bribe/kick-backs also) then provisions of the Prevention of Money Laundering Act, 2002 (PMLA) will also get attracted and in that case punishment will include rigorous imprisonment as well. Enforcement Directorate is the investigating authority under both FEMA and PMLA.

Though the matter is related to earlier period, but the way RBI  rejected the compounding application and NDTV’s subsequent step to approach SEBI for settlement of disputes, raises certain questions over the genuineness of the transactions. This time the media group is in question not because of its proximity to any particular ideology or political inclination but on account of facts which highlight certain murky deals. It is the time when Mr Prannoy Roy should appear and explain the position to his shareholders and viewers.

Now there is a challenge to the government also to prove its commitment towards honesty and set an example by proving that legal provisions are meant to be  implemented. Section 37A of the FEMA, which was introduced in 2015 in the wake of crackdown on black money empowers the ED officials to take stringent action and bar the culprit fromenjoying the fruits of crime. The Finance Ministry should show its conviction to bring the guilty to books and appeals lying at various forums should be disposed on fast track.

By Shshank Saurav

(The writer is Chartered Accountant and Anti Money-Laundering Specialist)

Courtesy: Organiser


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