5 Dec 2010
Is NDTV Taking its Shareholders for a Ride?
Editor's Note: A damaging investigation into the financial dealing of New Delhi Television Limited by The Sunday Guardian (TSG) - Weekly Sunday Newspaper simultaneously published from Delhi and London - promoted by noted journalist and columnist, M J Akbar, has lead to war of words between the two media companies. 

The nature of allegations, prima facie, against New Delhi Television Limited, seem to be serious in nature. The shareholders of New Delhi Television Limited may have reasons to worry. In public interest, response by NDTV to 09 questions asked by The Sunday Guardian is published. The Sunday Guardian has responded to NDTV with strong rebuttals. 

KashmirTelegraph.com, at this stage, is not taking any position - into the merits or demerits of the story - and shall leave its for the readers and public to draw its own conclusions. However, given the serious nature of charges, it is imperative, suitable investigation be conducted by an appropriate competent authority. NDTV, in our opinion, instead of being belligerent in tone and tenor, should clear the air with relevant specifics and details, in the interest of their shareholders. Notwithstanding the nature of allegations, at this point in time, it will be foolhardy to believe NDTV may not be overboard. But, the onus, indeed, lies on New Delhi Television Limited

Q1. TSG: At a time when NDTV is publicising NDTV Networks PLC as a subsidiary of NDTV, why isn't it attaching the accounts of this subsidiary or of its other foreign subsidiaries with its accounts?

A1. NDTV: NDTV Limited has been exempted by the Ministry of Corporate Affairs from attaching the accounts of its subsidiaries with its balance sheet. A statement of accounts of its subsidiaries is, however, attached with the annual report. More importantly, NDTV Limited as a matter of policy (stated very clearly in its annual reports) allows any investor who would like to see detailed financial statements of the subsidiaries to either demand them from NDTV or to inspect them at its registered office. Lastly, the detailed financial statements of the overseas subsidiaries are also available as per the respective laws of their jurisdictions. For example, the financial statements of NDTV Networks plc are easily available on the website of Company House, UK.

R1. TSG: Details of profit and loss of one overseas, indirect subsidiary, NDTV Networks PLC, show huge losses in the last two years: were these losses reported in India along with NDTV's balance sheet? Such data would have impacted the NDTV share price in India. This P&L, obtained by The Sunday Guardian from UK government records, is published alongside in a box. Accounts of the principal subsidiary, NDTV Networks BV, are published in Dutch since it is based out of Netherlands, which is all the more reason that there should be clarity in English and published along with NDTV accounts in India.

Q2. TSG: Specifically, why were the accounts of NDTV's subsidiary companies not attached with NDTV's balance sheet/annual report of 2006-07?

A2. NDTV: The accounts of NDTV's subsidiaries were not attached to the 2006-2007 balance sheet/annual report of NDTV Limited because NDTV Limited was not required to do so, on account of the aforesaid exemption.

R2. TSG: This is largely a repetition of the first answer. There is nothing in law called retrospective exemption. They should in fact have been penalised by Company Affairs.

Q3. TSG: The company applied to the Ministry of Corporate Affairs on 24 May 2007 for exemption in relation to nine subsidiaries, including overseas subsidiaries. The balance sheet was signed on 22 May 2007. So exemption was not available to NDTV on the date of signing the annual report/balance sheet on 22 May 2007. Isn't this a punishable offence?

A3. NDTV: The government has exempted NDTV from attaching the financial statements of its subsidiaries with its annual report for each of the financial years since 2006-2007. The government grants this exemption for specific years and the date when the balance sheet is signed by the directors is totally irrelevant. What is relevant is the date on which the annual report is sent to the shareholders. In NDTV's case, the annual report was sent to the shareholders only after receipt of the central government's approval. The irrelevance of the date on which the balance sheet is signed is further demonstrated by the fact that the government granted this exemption for the financial year 2006-2007 even though the application was made after the signing of the balance sheet/ annual report. This is exactly as required by law.

In any event, we do not understand why a routine exemption, which all large companies generally seek and receive, is considered noteworthy by you. Please consider the following

The accounts of NDTV Limited are compiled and disclosed on a consolidated basis. Therefore all relevant information relating to its subsidiaries is anyway contained in NDTV Limited's own financial statements.

This exemption is sought and received by all large corporate groups (including Infosys, Bharti Airtel, Tata Steel, Aditya Birla Nuvo, TVS Motors Co Ltd and Tata Motors) simply because attaching the balance sheet, P&L, Directors Report and other statements for each subsidiary makes the annual report of the parent company extremely unwieldy.

R3 TSG: This is largely a repetition of the first answer. There is nothing in law called retrospective exemption. They should in fact have been penalised by Company Affairs.

Q4. TSG: If the foreign companies are admittedly subsidiaries of NDTV why are the names of the shareholders, directors and the shares held by each and the remuneration paid to directors/employees not being disclosed to regulatory authorities in India?

A4. NDTV: It is absurd to suggest that the names of NDTV Limited's subsidiaries or other information have been suppressed. Their names, NDTV's shareholding (direct or indirect) in them, names of directors who have received any remuneration from any subsidiary and the remuneration paid to NDTV's directors by any subsidiary are all disclosed in NDTV's annual reports to the fullest extent required by law.

R4 TSG: NDTV has chosen a clever route to prevent full dissemination and disclosure of detailed accounts of its foreign subsidiaries and their financial dealings by making them subsidiaries of a subsidiary. An "indirect subsidiary" is not recognized by law in India and has to be treated as a normal subsidiary. Therefore all accounts of the NDTV BV as well as its subsidiaries in London should have been published along with NDTV's balance sheet. Clearly the exemption was also sought because NDTV had something to hide.

Q5. TSG: Specifically, why hasn't NDTV made public any information about NDTV BV, about its directors, the source of its finances, etc? Or about the sources of the money raised by NDTV Network Plc?

A5. NDTV: All information about NDTV BV and NDTV Networks plc, which NDTV is required to disclose under Indian law, has been duly disclosed. Its relationship to NDTV, sources of funds, NDTV's shareholding in it and its key financials are all disclosed in the annual reports of NDTV.

R5. TSG: NDTV has chosen a clever route to prevent full dissemination and disclosure of detailed accounts of its foreign subsidiaries and their financial dealings by making them subsidiaries of a subsidiary. An "indirect subsidiary" is not recognized by law in India and has to be treated as a normal subsidiary. Therefore all accounts of the NDTV BV as well as its subsidiaries in London should have been published along with NDTV's balance sheet. Clearly the exemption was also sought because NDTV had something to hide.

Q6. TSG: According to the annual report of the NDTV group for 2008-09, NDTV Network Plc invested over Rs 400 cr in its subsidiaries: Rs 383.43 cr in NDTV Imagine, Rs 14.64 cr in NDTV Convergence and Rs 29 cr in NDTV Lifestyle. Why is nothing known about how this money was raised?

A6. NDTV: You have asked us why nothing is known about the manner in which funds have been raised for infusion into its subsidiaries. This information is so widely known and so easily accessible that the only reason why it is not known to you can be that your researchers have not done their jobs well.

The following were the ways in which funds were raised for the non-news businesses carried out by these subsidiaries. Each of the following were widely publicised, were duly disclosed to the stock exchanges and have been explained in meticulous detail in the annual reports of NDTV.

In 2007, USD 20 million were raised by issuing preference shares to private equity investors.

In 2007, USD 100 million were raised by the issuance of convertible bonds.

In 2008, USD 150 million were raised by issuing shares to NBCU group companies.

These funds were infused into companies like NDTV Imagine, NDTV Lifestyle and NDTV Convergence, among others, from time to time, as required under their approved business plans. Prior permission of all relevant regulatory authorities including the FIPB, Ministry of I and B, RBI and others as required, was obtained before such funding.

R6. TSG: NDTV's answer only substantiates our investigation: NDTV and its indirect subsidiaries have been on a fund-raising binge but the resultant losses are not being bridged. Secondly, their borrowings are being guaranteed by NDTV, as our investigation proves by quoting NDTV itself. Did NDTV obtain RBI and Ministry of Finance approval for such corporate guarantees of at least Rs 400 crores? Could this corporate guarantee result in contingent liability in the NDTV balance sheet in India at a time when NDTV was making huge losses?7. Are stakes being sold and repurchased to boost the share price of NDTV? Please refer to the buyback in October 2009 of the 26% shares held by NBCU in NDTV Plc.

Q7. TSG: Are stakes being sold and repurchased to boost the share price of NDTV? Please refer to the buyback in October 2009 of the 26% shares held by NBCU in NDTV Plc.

A7. NDTV: Your seventh question, and the manner in which it has been framed, raises serious doubts about the integrity of your intentions. Typically, we would not have dignified such questions (which are really accusations and not genuine inquiries) with a response. However, we are inclined to extend you the benefit of doubt.

Firstly, there was never any stake sale in the NBCU transaction. In May 2008, NBCU subscribed to fresh shares of an NDTV subsidiary. These shares were purchased by a subsidiary of NDTV. Therefore, there was never any instance of sale and repurchase. Both these transactions were consummated at an arm's length and were fully disclosed. There is no question of having done anything to "boost" the value of NDTV's shares although shareholder interests are always protected within the framework of the law.

R7. TSG: While we will not respond to gratuitous and snide allusions, which show little maturity, we are happy to believe that NDTV has confirmed what was said in regard to the sale and purchase of shares by NDTV PLC of its subsidiaries [note, specific admission in second paragraph of their response] albeit you have chosen slightly different language in your confirmation.

Q8. TSG: What is the tax treatment meted out to repeated acquisition and alienation of assets of foreign subsidiaries? Do repeated foreign transactions have RBI and regulatory approvals?

A8. NDTV: NDTV's overseas subsidiaries are complying with all tax compliance requirements. Whenever any approval was required from any regulatory authority it has been sought and received. In fact, the overseas investments were themselves made only after obtaining an FIPB approval.

R8. TSG: We would request Mr Rao to read the investigation, in which we have pointed out several areas which deserve immediate investigation by the relevant and competent government agency for violations of fiscal and regulatory laws.

Q9. TSG: Shouldn't NDTV be questioned by the authorities for the amount of tax evaded on offshore transactions and the service tax evaded on consultancy activities of companies listed abroad? Aren't these companies a conduit for funds-flow to the Indian company?

A9. NDTV: We are shocked at the suggestion that NDTV has evaded tax. As mentioned previously, NDTV's overseas subsidiaries are complying with all tax compliance requirements. All applicable laws have been duly complied. Therefore, it is preposterous to say that the overseas operations are a "conduit for funds flow into India."

We place on record that NDTV will vigorously prosecute its rights under civil and criminal law – both against your publication and against any individuals in your organization who may be involved with any act of defamation against NDTV. Specifically, we intend to file cases of criminal defamation and pursue these to their conclusion against any individual or organization that makes insinuations of wrong-doing without stating concrete facts clearly and accurately.

R9. TSG: Share sales and purchases abroad through indirect subsidiaries would have invited tax liability on any share premium. For instance, NDTV Imagine sold a share with a face value of Rs 10 at Rs 776.

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