SEBI bars ZEE's Punit Goenka, Subhash Chandra from holding directorial positions

The Securities and Exchange Board of India (SEBI) on June 12, 2023 has banned Essel Group chairman Subhash Chandra and chief executive officer (CEO) of Zee Entertainment Enterprises (ZEEL) Punit Goenka from holding any key managerial position in any of its listed companies or subsidiaries until further notice.

The interim order against the individuals were passed following investigations, which revealed that Chandra and Punit Goenka abused their position as directors of Zee Entertainment in 2019 by siphoning off funds for their own benefit, mentions a report by ET.

In its interim order, SEBI mentioned that Chandra and Goenka alienated the assets of ZEEL and other listed companies of Essel Group for the benefit of associate entities, which are owned and controlled by them.

SEBI said that 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 also pointed out that the share price of ZEEL came down from a high of close to Rs 600 per share to the current price of less than Rs 200 per share during the period FY 2018-19 to FY 2022-23.

Although the promoter family holds just a 3.99% stake in Zee Entertainment, Chandra and Goenka continue to be at the helm of affairs of the company.

Meanwhile, Zee management will file an appeal with SAT (Securities Appellate Tribunal), to fight against the SEBI order.

Adding to this, Karan Taurani, senior vice president, research analyst (Media, Consumer Discretionary & Internet), Elara Capital says, "This may have a negative impact in terms of delayed timelines for the merger process, which was to move at a faster pace after NCLAT dismissed appeal of NCLT to reassess exchange approval and asked the latter to hear Zee arguments."

He adds, "On the flip side, there may also emerge a scenario wherein Zee management loses the case in SAT and the merger goes through without them. This may eventually happen as Zee has a mere 4% stake; it may require a shareholder approval again and the scheme of merger may change to appoint a new CEO/MD for the merged Co. However, this is a far fetched scenario."

In November 2019, two independent directors of Zee Entertainment – Sunil Kumar and Neharika Vohra – had resigned from their posts after raising several issues, including appropriation of certain fixed deposits of the company by YES Bank for squaring off loans of related entities of the Essel Group.

Vohra in her resignation letter alleged that guarantees were given to a subsidiary without approval from the board.

Following this, the market regulator conducted an examination of the matter, which revealed that Chandra, the then chairman of Zee Entertainment, provided a ‘Letter of Comfort’ towards credit facilities availed by certain group companies from Yes Bank.

During the probe, SEBI found that Chandra and Goenka were signing comfort letters on behalf of Zee Entertainment without informing, consulting, or taking approval of the board, thereby violating the disclosure norms.