While promising to complete its investigation into Zee Entertainment Enterprises (ZEEL), market regulator Securities and Exchange Board of India (SEBI) barred Subhash Chandra and his son Punit Goenka, founder and promoters of the ZEE group, from holding any directorship or key managerial positions in four group companies. This includes ZEEL, Zee Media Corp Ltd, Zee Studios Ltd (a subsidiary of ZEEL), and Zee Akash News Pvt Ltd (a subsidiary of Zee Media). Further, SEBI says it will complete the investigation into the matter within eight months.
In an order, Madhabi Puri Buch, chairperson of SEBI, says, "...while it is not in dispute that as on date, Mr Chandra does not hold any director or key managerial position (KMP) position and is only chairman emeritus of ZEEL, one cannot lose sight of the fact that in the instant case, it is the letter of comfort (LoC) issued (on 4 September 2018) by him (for Rs 200crore loan outstanding in Essel Green Mobility Ltd), which is the original or root cause of the entire scheme, which has, prima facie, been orchestrated. In the absence of the LoC, neither Yes Bank Ltd (YBL) would have appropriated the fixed deposit (FD) of ZEEL towards the loans of associate entities, nor would any loss have been caused to ZEEL and other listed companies, nor the entities would have needed to design the whole scheme to conceal the said loss."
Commenting on if Mr Goenka would be the managing director (MD) of the entity post-merger of ZEEL and Culver Max Entertainment Pvt Ltd (Sony), the SEBI chairperson says, "...I note that the conduct of Mr Goenka as the MD and chief executive officer (MD&CEO) of ZEEL has been found to be prima facie in violation of provisions of PFUTP Regulations and LODR Regulations. His actions were in direct conflict with the interests of 96% of public shareholders of ZEEL, necessitating the imposition of temporary restraint on him...That very role in ZEEL is under question and therefore, till the final outcome of the proceedings in the instant matter, it would be appropriate that he is not part of the management of ZEEL or any corporate avatar of it."
In June this year, in its interim order, SEBI has barred Mr Chandra and Mr Goenka from holding any directorship or key managerial positions in the listed entities. In a detailed finding, SEBI had charged them with the diversion of funds from the listed entity.
The SAT bench of justice Tarun Agarwala and Meera Swaroop (member) granted two weeks to Mr Chandra and Mr Goenka to present their defence to the market regulator once again. It also instructed SEBI to issue a ruling within one week following such a hearing.
During the hearing, Ms Puri Buch, the SEBI chief, noted that based on the LoC, on 24 July 2019, Yes Bank adjusted the FD of Rs200 crore for meeting obligations of seven group companies of ZEEL, including Pan India Infraprojects Pvt Ltd, Essel Green Mobility, Essel Corporate Resources Pvt Ltd, Essel Utilities Distribution Co Ltd, Essel Business Excellence Services Pvt Ltd, Pan India Network Infravest Ltd and Living Entertainment Enterprises Pvt Ltd.
ZEEL submitted that these seven companies repaid the Rs200 crore liquidated by Yes Bank and there was no loss to the company.
However, after examining the bank statements of ZEEL, its associate entities and other entities, the market regulator noted that a significant portion of the Rs200 crore inflow in ZEEL originated from ZEEL itself or listed companies of Essel group or their subsidiaries which, after passing through several layers, reached the accounts of those seven companies from where it ultimately went to ZEEL.
"Thus, the funds had followed a circular route where funds originated from ZEEL or listed companies of Essel group and their subsidiaries, passed through various entities including those owned or controlled by the promoter family and ultimately reached ZEEL," it added.
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the June 2023 order, Ashwani Bhatia, whole-time member (WTM) of SEBI, noted that Mr Chandra and Mr Goenka had abused their position as directors and KMPs (key managerial personnel) 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 the 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.
In its latest order, the SEBI chief says that while Mr Chandra and Mr Goenka may argue that even the limited restraint will be excessive and disproportionate. "...it is emphasised that the imminent effect of permitting them to be in a position of influence is that the ongoing investigation can not be fair and complete...the interests of Mr Chandra and Mr Goenka are factually in direct conflict with the interests of the public shareholders and the Company."
"As prima facie found, they have actively tried to conceal the very acts which have led to the loss of at least Rs143.9 crore to the public listed companies including ZEEL," she says while barring Mr Chandra and Mr Goenka from holding any position in four group companies or any company formed following a merger, amalgamation or demerger of these companies.
"I note that a detailed investigation in the matter is in progress which may bring out additional acts of omission or commission of Mr Chandra and Mr Goenka, if any, in detail, depending on the material and after considering the facts and veracity of their submissions. The investigation in the matter by SEBI shall be completed in a time-bound manner and in any event, within a period of eight months from the date of this order," the SEBI chief says in the order.
