Market regulator Securities and Exchange Board of India (SEBI) barred Essel group chairman Subhash Chandra and Zee Entertainment Enterprises Ltd (ZEEL)'s chief executive officer (CEO) of Punit Goenka from holding directorial or key managerial positions (KMP) in any listed company or its subsidiaries.
In the interim order, Ashwani Bhatia, whole-time member (WTM) of SEBI, noted that Mr Chandra and Mr Goenka had abused their position as directors and KMPs of a listed company for siphoning off funds for their own benefit and alienated the assets of ZEEL and other listed companies of the Essel group for the benefit of associate entities owned and controlled by them.
"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 two days only. The fact that some of the entities used in these layers are common to the ones used for fund diversion in Shirpur Gold Refinery Ltd case only strengthens the prima facie finding in this case that funds have been diverted from ZEEL, which needs to be investigated thoroughly," SEBI says in the order.
Between financial year (FY)18-19 and FY22-23, the share price of ZEEL came down to the current price of less than Rs200 per share from a high of close to Rs600 per share.
SEBI says, "This erosion of wealth, despite the company being so profitable and generating profit after tax consistently, would lead to a conclusion that all was not well with the company. During this period, the promoter shareholding dropped from 41.62% to the current level of 3.99%."
According to the market regulator, Mr Chandra and Mr Goenka created a façade through sham entries to misrepresent to the investors as well as SEBI that associate entities had returned the money, whereas, in reality, it was ZEEL's own funds that were rotated through multiple layers to end in ZEEL's account finally.
"The noticees have attempted to ride piggyback on the success of ZEEL, the flagship company of Essel group, to bankroll the associate entities, which are owned and controlled by them," it says.
In November 2019, ZEEL's two independent directors Sunil Kumar and Neharika Vohra, resigned after raising concerns over several issues, including the appropriation of certain fixed deposits (FD) of ZEEL by Yes Bank for squaring off loans of related entities of Essel group. SEBI then started an investigation into the matter.
SEBI investigation revealed that on 4 September 2018, Mr Chandra, the then chairman of ZEEL and Essel group, provided a letter of comfort (LoC) for credit facilities availed by certain group companies from Yes Bank.
In her resignation letter, Ms Vohra stated that the LoC issued by Mr Chandra was known only to a few persons in the management and even the board of ZEEL was unaware.
Based on the LoC, Yes Bank adjusted an FD of Rs200 crore of ZEEL for meeting the obligations of the seven associate entities owned and controlled by family members of Mr Chandra and Mr Goenka.
In response to SEBI's query, ZEEL contended that Rs200 crore, equivalent to FD encashed by Yes Bank for the dues from associate entities owned by the promoter family, was subsequently received back from those associate entities in September-October 2019.
An analysis of the bank statements showed that although ZEEL had claimed to have received Rs200 crore from the seven associate entities of the promoters, the major portion of the funds had originated from either ZEEL itself or listed companies of the Essel group, which after passing through several layers, reached the accounts of the associate entities from where it ultimately landed in ZEEL's account, SEBI says.
Meanwhile, the board of ZEEL says it is reviewing the detailed order, and appropriate legal advice is being sought to take the next steps as required.
In a statement, R Gopalan, chairman of ZEEL, says, "With a singular focus on enhancing the shareholder value year after year, the board of the company has continued to guide the management towards its strategic goals and priorities for the future. All the appropriate steps will be actioned as necessary in order to ensure that the interest of the Company and all its valuable shareholders is kept at the forefront."
Earlier in March, SEBI, in an interim order-cum-show-cause notice, barred Essel group company, Shirpur Gold Refinery, its promoter Amit Goenka, who is the son of the group chairman Mr Chandra and six others, from selling, disposing of or diluting their shareholding in the company, for misrepresenting the company's financial statements and diverting its funds.
SEBI had received a complaint alleging that the loans taken by Shirpur Gold from banks and financial institutions had not been used for the operations of the company but, instead, were siphoned off to companies under the control of Subhash Chandra and his family. It was also alleged that Shirpur Gold was not informing public shareholders about its operations.
In an order, Mr Bhatia had said, "What has been observed during the investigation of Shirpur Gold is a set of dodgy transactions that are meant to mislead. We have a curious case of one promoter-connected entity taking another entity from the same arrangement into bankruptcy, effectively taking it to the gallows or cleaners to take benefit of bankruptcy provisions. It is unusual to see a corporate sibling taking one of its own down this path. Shirpur Gold shot itself in the foot and self–destructed through its own well–orchestrated machinations. It is also noted that many of the companies within the Essel group are the subject matter of disputes as per publicly available information." (
Read: SEBI Interimly Bars Essel Group's Amit Goenka, Others for Diverting Shirpur Gold Refinery Funds)
