Contractual terms of warrants will be crucial in Adani group's hostile bid for NDTV: Legal experts

With Adani group launching a hostile takeover bid for NDTV, legal experts on Wednesday opined that the terms on which the convertible warrants were issued back in 2009-10 will be crucial and any dispute will get decided on the contractual terms. On Tuesday, Adani group announced it has acquired 29.18 per cent shareholding in NDTV and will launch an open offer to buy an additional 26 per cent stake in the company.
The key element behind the takeover bid is an unpaid loan that NDTV's promoter entity RRPR Holding Pvt Ltd had availed from Vishvapradhan Commercial Pvt Ltd (VCPL). The entity had taken a loan of Rs 403.85 crore in 2009-10 and against this amount, warrants were issued by RRPR. With the warrants, VCPL had the right to convert them into a 99.9 per cent stake in RRPR in case the loan was not repaid.

Adani group firm first acquired VCPL from its new owner and exercised the option to convert unpaid debt into a 29.18 per cent stake in the news channel company. Thereafter, it made a Rs 493 crore open offer to buy an additional 26 per cent stake from the public in line with the country's takeover norms.

According to some of the legal experts, the terms on which the warrants were issued would be crucial since the promoters of New Delhi Television Ltd (NDTV) have claimed that they were completely unaware of the takeover until Tuesday, and that it was done without their consent or any discussion.

Ravi Kumar, Partner at IndusLaw, said that typically, clauses for conversion of warrants do not require any prior intimation or consents from the issuing company. "If such things are part of the commercial understanding, those need to be clearly set out as part of the terms for conversion of the warrants."

"So it really depends on the contract there. And any dispute will get decided based on what the terms are," he noted.

He noted that for any remedies that NDTV founders Prannoy Roy and Radhika Roy might seek, they will have to convince courts that the exercise of the warrants was not done on the basis of the terms.

"... this could also get into grounds of whether or not warrant conversion would require prior approval of the Ministry of information and Broadcasting," he said.

According to the legal experts, Adani group's public announcement and open offer are well within the confines of the law. However, if the same is challenged by NDTV promoters, there is a possibility of a long legal battle.

Praveen Raju, Partner at Spice Route Legal, said the latest development is a classic repeat of the hostile takeover of Network 18 by Reliance in 2014.

"If the warrants issued by RRPR Holdings Pvt Ltd to VCPL are convertible into equity at the option of VCPL, the public announcement and open offer by VCPL are well within confines of the law," he said.

The requirement of any consultation with or consent of the promoters would only arise if there is a contractual requirement to do so in the loan agreements with VCPL, the legal experts said.

Shoubhik Dasgupta, Partner at Pioneer Legal, said Adani group's mechanism for the buyout has clearly been well thought out. "The terms of such warrants would dictate whether the conversion is permissible".

He also said that if challenged, there could be a long legal battle.

Khushbu Jain, an advocate at the Supreme Court and partner of law firm Ark Legal, said the question of consent does not arise as it is the execution of a previously existing contract.