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FEMA violation charges are flimsy and we are being targeted, says NDTV
MUMBAI: Hitting back at the authorities, including the Income Tax department and the Enforcement Directorate (ED) for making a case against it, news broadcaster NDTV Ltd has come out with an explanation of its stance.
NDTV said that the I-T department’s contention that the NBC Universal–NDTV transaction was ‘bogus’ and ‘sham’ does not make any sense. “The assessing officer argued that NDTV had not established the creditworthiness of the investor. This made little sense, because GE was one of the largest companies in the world,” NDTV said.
In a pointed Q&A-style rebuttal, the company wondered why its transaction with one of the world’s most respected companies was being questioned.
The company agreed that it received money from abroad in late 2000, but those were “bona-fide investments made by reputed investors” and were fully disclosed to the authorities.
“All the transactions were in the public domain and were reported to the stock exchanges that NDTV is listed with. This was foreign direct investment, of the sort that governments have been encouraging foreign investors to make,” the company stated. “All of NDTV’s affairs have been above board, and as per the relevant laws.”
NDTV said that it was in 2005–06 that the company had started looking at expansion outside news, including an entertainment business (NDTV Imagine), a lifestyle business (NDTV Good Times), a digital business (NDTV.com), and so on.
The company further added that these businesses—and especially the entertainment channel—required a lot of capital and funding, thus external investors were required. “But instead of seeking funding in each separate business, they were all clubbed together under one Holding Company called NDTV Networks.”
In a bull market at that time, with investors having considerable interest in India, the company decided to get funding from abroad. “It was felt that the funds should be raised from abroad—such as by listing these businesses at the AIM stock exchange in London. This also fitted in well with another NDTV objective, which was to try and become India’s first global media company,” the newscaster added.
Incidentally, NDTV Networks first raised a pre-IPO funding of $20 million from a venture fund and then $100 million in convertible bonds from a range of funds.
This was followed by a strategic investment of $150 million by the American media giant NBC Universal.
NDTV added that while the total investment was to the tune of $270 million, different figures were being floated because the authorities counted it double. “If NBCU invested $150 million in NDTV Networks, which later put $50 million into NDTV Imagine, it’s the same money we are talking about! It doesn’t become $200 million of investment by NBCU. We have been patiently trying to explain this point for several years now,” NDTV said.
Then when recession happened and the financial markets fell after the Lehman crisis of 2008, NDTV had to defer the IPO for NDTV Networks. “At the same time, the performance of NDTV Imagine was not up to expectations and losses began to mount. It was a period of crisis, and something drastic had to be done,” the company said.
“At this time, GE decided to sell NBCU to Comcast, and wanted to streamline their operations before doing so. After several months of negotiations, they agreed to sell back their stake in NDTV Networks at a big discount. The bondholders, who were under pressure because of the financial crisis, also exited at a discount,” NDTV said.
The company added that this was very common at that period. Finally, after recognising that the entertainment business would require cash that was not easily forthcoming, NDTV sold Imagine, putting an end to the whole chapter.
However, the company’s problems with the I-T and ED did not end there. Essentially, the I-T department took the stance that the NBCU transaction was a ‘bogus’ and ‘sham’ transaction. The assessing officer argued that NDTV had not established the creditworthiness of the investor, which the company finds makes little sense.
“Then it was argued that perhaps it was NDTV’s own money that had been ’round tripped’ back to NDTV Networks. This made even less sense,” the company said.
It further gave reasons, establishing that:
- There are thousands of pages of documentary evidence about the deal—shareholder agreements, share subscription agreements, compliance documents, hundreds of emails and so on.
- The money came in via banking channels, after securing FIPB and MIB permission.
- Full details of this transaction have been stated in the GE Annual Report and placed by them before the SEC in the USA. Their top executives have spoken about it in press conferences, as anyone can ascertain by a simple Google search.
- Neither GE nor NBCU has ever denied that they were the source of this investment.
Taking a dig at the authorities, which it said could easily check whether the money did come in a bona-fide manner from NBCU, NDTV said that it is ‘preposterous’ to suggest that a highly respected company like GE would be engaged in ‘dubious transactions’ that would have ‘devastating consequences’ for them.
“Even making a suggestion like this may well dent the government’s efforts to prove to the world that India is a friendly destination for foreign investors. After all, investors will worry if deals can be questioned despite securing all possible permissions and providing all possible documentation,” NDTV retaliated.
It added that the company has appealed against the I-T order and that the matter is before the Income Tax Appellate Tribunal (ITAT), which has stayed the demand pending a full hearing.
“Unfortunately, the tax department has pressed for one adjournment after the other, with the result that the hearing is yet to take place even 18 months after NDTV approached the tribunal. We have been strongly pleading for an early hearing, because we are confident this is an open and shut matter,” the company said.
On the complicated overseas structure, the company agreed that there was a complex structure, but that this was as per expert advice in keeping with NDTV’s ambitious global plans at that stage. “It is important to note that there was nothing wrong in the structure, which was worked out by the top advisory firms in the world such as KPMG and PwC. Everything was cleared by authorities and was in compliance with applicable law. Corporate structures like this were also the norm in those days for any company with global ambitions,” NDTV clarified.
It added that after the collapse of the financial markets and the sale of NDTV Imagine, the global plans were shelved and NDTV decided to shut down the overseas subsidiaries.
Talking about the company’s response to the ED show-cause notice, NDTV said, “We don’t completely understand the notice. It seeks to question how the money raised in NDTV Networks was invested back in subsidiaries in India. In actual fact, this process is governed by FIPB, and NDTV obtained FIPB approval for this transaction! So we fail to understand what else we were supposed to do.”
It added that the company is studying the show-cause notice and will respond in due course. “But our lawyers have assured us that the main grounds are not legally tenable.”
NDTV has also ‘speculated’ that while all the charges are flimsy, it is being targeted as it has its share of enemies, and some of them have been running a concerted campaign against the company for several years now.
“The charges levelled by them have repeatedly been rejected by the authorities and by the courts, and frankly we would welcome the opportunity to put an end to them once and for all,” the company said.
NDTV has said that the whole episode has been ‘somewhat Kafka-esque’, and shows that even the most straightforward of deals can become the subject of months and years of harassment, something that is not the best advertisement for ‘ease of business’.
“There is always the danger that repetition of wild charges, no matter how baseless, could lead to some of the mud sticking. However, NDTV has done absolutely nothing wrong, and so eventually all of this is bound to be resolved in our favour.”
The company also stated that it has full faith in the authorities, including the ITAT and the ED, and has no doubt that once they have heard its appeal, and it has responded to the show cause notice, respectively, they will also be fully convinced that there has been no wrongdoing.
“We are putting out this FAQ to help people understand that the charges against NDTV are completely baseless. If necessary, we will keep providing any further information,” the company maintained.
Investments by NBCU
- GE Annual Report 2007
- NDTV’s communication to Stock Exchanges on MOA signed with NBCU
- Stock Exchanges releases by NDTV for bonds and on NBCU, Scripps and Turner
Click here for the FIPB approval to NDTV Networks Plc. for investment
Click here for order of Court dismissing SK Srivastava’s charges