The development could delay Zee’s proposed merger with Sony Pictures Networks India (SPNI), now known as Culver Max Entertainment, experts said.
The Securities and Exchange Board of India (Sebi) order followed an investigation which found the two had abused their board positions in Zee by “siphoning off funds for their own benefit,” the regulator said. The regulator has directed Zee to place the order before its board within seven days. The Goenkas have 21 days to respond to Sebi’s order.
“This is an interim order, which can always be modified at a later date if it is found that suitable clarifications have been given by the erring individuals,” said Ashisk K Singh, managing partner of law firm Capstone Legal.
Lawyers said the Sebi order also means Goenka may not be able to hold a senior role in the Zee-Sony merged entity.
“The main reason why both of them have been debarred from holding positions is to ensure that the investigation by Sebi is conducted fairly and without hindrance,” said Singh. “The final decision with respect to the merger rests with shareholders. However, even if the merger is approved by the NCLT (National Company Law Tribunal), it would mean that Punit Goenka would not be a KMP (key managerial personnel) or director in the newly-merged entity.”
Subhash Chandra, then chairman of Zee/Essel Group, had provided a letter of comfort (LoC) dated September 4, 2018, toward credit facilities availed of by certain group companies from Yes Bank, Sebi said in its order.Zee declined to comment.
Sebi’s investigation came in the wake of the resignation of two independent directors at Zee – Sunil Kumar and Neharika Vohra – in November 2019, raising concerns over several issues, including the appropriation of certain fixed deposits of Zee by Yes Bank for squaring off loans of related entities of Essel Group. From Vohra’s resignation letter, Sebi observed that the LoC was known only to a few persons in the management; even the board of Zee was not aware of it.
Sebi also noticed misrepresentations in Zee’s annual report regarding receipt of funds. It said that Zee made false submissions to it that the company had received funds from associate entities.
“Subhash Chandra and Punit Goenka were the direct beneficiaries of the… fund diversion, since the associate entities which benefited from liquidation of fixed deposits of Zee by Yes Bank were controlled by them,” read Sebi’s interim order.
The regulator alleged that the Goenkas had alienated the assets of Zee and other listed companies of Essel Group for the benefit of associate entities. “The siphoning of funds appears to be a well-planned scheme since, in some instances, the layering of transactions involved using as many as 13 entities as pass-through entities within a short period of two days only,” Sebi stated.