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BW Businessworld

A New Headache For Raghav Bahl

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Investor activism is casting a shadow on the Network18-Reliance Industries (RIL) deal. In a complaint filed on 7 February before the Securities and Exchange Board of India (Sebi), it has been alleged that Raghav Bahl, promoter of Network18 Media and Investments, has breached the objectives and promoters' covenants of a Network18 subsidiary — — by denying the latter's share- holders business opportunities such as the RIL investment in Network18. The complaint — filed by the original promoter and CEO of, Victor Fernandes — has urged Sebi to investigate the decade-long history of acquisitions and restructuring by Bahl. In the interim, it has prayed for a stay on the Rs 4,000-crore rights issues of the two Bahl-promoted companies.

Fernandes had sold his company and the web portal in 2000 to the Bahl-promoted in a swap deal for a 7.5 per cent stake in e-18. The complaint points to a subscription-cum-shareholders agreement of 12 September 2000 (also incorporated in the Articles of Association) where it was agreed that "Each promoter severally undertakes to the company and to the VC investors that any expansion, development or evolution of the activities of the company and the group entities or any opportunity to the promoters shall only be pursued or taken up through the Company (e-18) or a wholly-owned subsidiary of the company".

In violation of the shareholders agreement, Bahl acquired SGA Finance & Management (later renamed Network18) in 2002 and launched a string of other ventures, including DEN Networks, SGA News and SRH Broadcast News Holdings outside the e-18 ambit.

"The promoters have abused fiduciary responsibilities towards shareholders." VICTOR FERNANDES IN HIS COMPLAINT TO SEBI
(BW pic by Tribhuwan Sharma)

Bahl did not respond to BW's questions. However, in a reply filed in 2009 in a derivative action suit filed in the Bombay High Court by several e-18 shareholders, he had said the shareholders agreement that made e-18 the sole vehicle of expansion had been terminated in 2003. He had also produced a letter of May 2006 from ICICI Ventures, an erstwhile 7 per cent shareholder in e-18, stating that the shareholders agreement was dead. This is disputed by the minority shareholders who say no process of annulment was ever initiated by Bahl.

The complaint attacks the RIL investment for inadequate disclosure. It says Network18 has publicly admitted market capitalisation of less than Rs 600 crore. Given the promoters' stake of 58.54 per cent, the market value of this stake is Rs 350 crore. RIL, however, is investing about Rs 1,700 crore for the promoter's holdings, with Raghav Bahl all the while claiming to retain a 51 per cent stake as well as management control.

An RIL spokesperson had earlier told BW that it was not known how the optional convertible debentures (OCDs) worked or when they would and how they would be converted into equity. At an analysts' conference call, Bahl had said: "The detail best stays in the private domain."

(This story was published in Businessworld Issue Dated 05-03-2012)