Shares of Zee Entertainment Enterprises Ltd tumbled about 10% amidst reports about inspection of its books by the ministry of corporate affairs (MCA). Both, Bombay Stock Exchange (BSE) and National Stock Exchange (NSE), have sought clarification from Zee Entertainment Enterprises Ltd ((ZEEL)) on a news published by Moneycontrol.com quoting "MCA orders inspection of Zee Entertainment's books."

 

Quoting a source, a report from Moneycontrol.com says, "MCA has ordered an inspection of the financials of Zee Entertainment following allegations of corporate governance lapses and after some its independent directors quit recently."

 

"The inspection has been ordered under Section 206 (5) of The Companies Act. The MCA’s western regional director will carry out the probe into the company’s books and will record the statements of the company management," the report added.

 

In its clarification, Zee Entertainment accepted that it has received a letter on 21 January 2020 from the MCA seeking certain information and inspection under Section 206(5) of the Companies Act, 2013. 

 

In a regulatory filing, the company says, "the information sought by MCA is already available in the public domain. However, we are collating all the desired information and will be providing the same to MCA with an intent to fully cooperate with their inspection. You may note that no conclusion or adverse inference has been drawn by any authority against the company."

 

Last year in November, two independent directors Niharika Vohra and Sunil Sharma had resigned from ZEEL. While Ms Vohra had alleged poor corporate governance, Mr Sharma had resigned to make way for new institutional investors. 

 

In her letter, Ms Vohra had mentioned, "In the 17 October 2019 meeting it was clear that commensurate action by the operating team of ZEEL has not been taken against a bank for squaring off loans of related companies of the group against a matured fixed deposit (FD) of ZEEL. Subsequent action suggested to further protect deposits of ZEEL in other banks has not been taken (as per my knowledge). At the same meeting it was brought to light via a letter received by the board from the concerned bank that guarantees have been given to a subsidiary without approval from the board. The operating team treated the issue very casually."

 

"Laxity in spending approved CSR funds reflects poor governance. Advances given for film acquisition and aggregation in the financial year 2018-2019 were highly unusual and presented another instance of poor controls," Ms Vohra had stated in her resignation letter of 22 November 2019.

 

Commenting on the resignation of its independent directors and price movement, Zee Entertainment says, "The press reports seem to speculate that this inquiry was triggered by the resignation of independent directors few months ago, and we cannot fathom any reason for this dated fact (and subsequent full disclosures on all material issues arising out of such resignations made by the company) to have caused such price movement in the company's share price."

 

"On the contrary, we have been writing letters to SEBI that some persons have been trying to manipulate our stocks and have been spreading false rumours which have adversely impacted the share price of the company," it added.

 

During the trading, Zee Entertainment reached an intra-day low of Rs220.25.

Zee Entertainment closed Wednesday 7.49% down at Rs226.70 on the BSE, while the 30-share Sensex ended the day marginally up at 41,142.