An intense battle raged at the Securities Appellate Tribunal (SAT). In the one corner were Subhash Chandra, promoter of Zee Entertainment Enterprises Ltd (ZEEL), and his son Punit Goenka, MD and CEO of ZEEL, and on the other, the capital markets regulator Securities and Exchange Board of India (Sebi). At issue was Sebi’s interim order barring Goenka and Chandra from holding directorships in any listed entity for allegedly abusing their positions in the company and siphoning off funds for their own benefit.
A lengthy hearing took place on June 19, but at the day’s end there was no respite for the father-son duo as SAT decided to post the matter for further hearing on June 26 and refused to provide them interim relief.
Sebi’s interim order barring the duo was based on an investigation into allegations related to appropriation of certain fixed deposits (FDs) of ZEEL by YES Bank for squaring off loans of related entities of Essel Group.
According to Sebi, Chandra, the then chairman of ZEEL and Essel Group, had provided a ‘Letter of Comfort’ (LoC) towards credit facilities availed by certain group companies from YES Bank in September 2018. This LoC was known only to a few persons in the management and even ZEEL’s board was unaware, Sebi stated in the order.
“This is with regard to the Rs 200-crore loan outstanding in Essel Green Mobility Ltd from YES Bank. We will ensure that a fixed deposit of at least Rs 200 crore is available with YES Bank from any one of Essel Group of companies (including Zee Entertainment Enterprises Ltd) at all times whilst the said facility remains due and outstanding and that in the event of default under the said facility, you may appropriate the fixed deposit towards repayment of the said facility,” stated the LoC.
Based on this LoC, YES Bank adjusted ZEEL’s Rs 200-crore FD against payment obligations of seven entities—Pan India Infraprojects, Essel Green Mobility, Essel Corporate Resources, Essel Utilities Distribution Company, Essel Business Excellence Services, Pan India Network Infravest, and Living Entertainment Enterprises.
These entities were either owned or controlled by family members of Chandra or Goenka—ZEEL’s annual report for financial year 2019-20 (FY20) mentioned that the seven entities were companies controlled by key management personnel (KMP) and their relatives. The KMPs included Chandra and Goenka.
However, detailed analysis of bank statements showed that the money repaid to ZEEL actually originated from the company itself or other listed firms of Essel Group, Sebi said in its interim order.
According to Sebi, at least Rs 143.90 crore had been transferred from ZEEL or other listed companies of Essel Group to falsely portray repayment of due amounts to ZEEL from the seven entities.
Incidentally, this is not the first time that Goenka has been under the regulatory scanner. Only in April, Goenka settled investigations against him by paying Rs 50.7 lakh. That matter related to a probe for alleged failure to put in place adequate internal controls within the company to identify unpublished price sensitive information (UPSI) and identify certain information as UPSI. It started in September 2020, when ZEEL announced the launch of ZEEPLEX, a pay-per-view service to watch movies.
Since the announcement came during the Covid-19 lockdown, it was viewed in a positive light for the company, and as a material development per Sebi, hence qualifying it to be UPSI. The company, however, failed to identify the development as UPSI, which led Sebi to initiate investigations under the Sebi (Prohibition of Insider Trading) Regulations, 2015.
The insider trading regulations state that top officials like MDs or CEOs, among others, have to put in place internal control systems to ensure compliance with the regulations to prevent insider trading.
Goenka, Chandra’s eldest son, was the MD and CEO of the company when the ZEEPLEX announcement was made. Hence, he was issued a show-cause notice on December 22, 2022.
The current developments at the SAT assume significance also because Zee is in the midst of a high-profile merger with Sony Pictures Networks India and any adverse regulatory order could hamper this.
@ashishrukhaiyar
