In its reply to the Securities Appellate Tribunal (SAT), the Securities and Exchange Board of India (Sebi) said urgent action was warranted against the promoters of Zee Entertainment Enterprises Limited (ZEEL) in the alleged fund diversion case to safeguard the management and protect investors and other stakeholders.
It termed the applications made by Essel Group chairman Subhash Chandra and ZEEL managing director (MD) and chief executive officer (CEO) Punit Goenka as “completely false and misleading” in its response submitted to SAT on June 17.
“We have a situation before us where the chairman emeritus and the MD and CEO of this large listed company are involved in a myriad of different schemes and transactions through which vast amounts of public money belonging to listed companies are diverted to private entities owned and controlled by these persons.
"The appellant’s conduct is telling in this regard. Not only have there been violations but also the issuance of multiple false disclosures and submission of statements to cover up such wrongdoings,” Sebi said in a 197-page affidavit to SAT.
Sources said Chandra and Goenka are expected to submit their responses soon.
On June 15, SAT directed them to respond to Sebi’s submission on or before June 19, when the tribunal would take up the matter for final disposition.
Queries sent to ZEEL went unanswered until the time of going to press.
On June 15, SAT directed them to respond to Sebi’s submission on or before June 19, when the tribunal would take up the matter for final disposition.
In the interim order on June 12, Sebi barred both Chandra and Goenka from taking key positions at listed companies.
Both had moved SAT seeking a stay on the Sebi order, citing injustice.
Sebi also submitted that the appellants had not produced any material to indicate they had suffered any prejudice by not getting a personal hearing before the interim order was passed.
The regulator said it was willing to give an immediate hearing for the appellants “as early as required”.
Sebi alleged that promoters created a façade through sham entries to misrepresent investors and the regulator about the repayment of Rs 200 crore to ZEEL by seven related parties.
Sebi submitted that the present investigation was triggered after the rejection of the settlement application filed by ZEEL in Essel Group-company Shirpur Gold Refinery (Shirpur), on which the regulator had issued an interim order in April.
The capital markets regulator said it found overlapping entities involved in the siphoning of Shirpur’s funds and on whose account YES Bank had appropriated ZEEL’s fixed deposit (FD).
On further investigation into bank statements and following the money trail, Sebi found glaring irregularities.
Sebi was able to unearth the new findings only after ZEEL’s letter in the Shirpur matter.
Earlier in October 2019, independent auditors Deloitte Haskins & Sells red-flagged the transfer of Rs 200 crore as non-disclosure or a possible material misstatement.
Two independent directors — Subodh Kumar and Neharika Vohra — had also alleged weak corporate governance and appropriation of FD towards payment of promoter loans at the time of their resignation.
Meanwhile, the National Company Law Tribunal deferred its hearing on the potential merger of ZEEL with Sony Pictures Networks India to June 26. Goenka was to head the merged entity, but now faces debarment from Sebi.
The money trail
- It all started with a letter of comfort dated September 4, 2018, given by Subhash Chandra to YES Bank for appropriation of a fixed deposit (FD) held by ZEEL against a loan of Rs 200 crore given to associated entities in 2019
- The letter said that the Rs 200-crore FD available with YES Bank from any of the Essel Group companies, including ZEEL, could be taken to settle it
- YES Bank had adjusted the loans of seven associate entities with this money
- Later it came to light that these seven entities were owned/controlled by family members of Subhash Chandra and Punit Goenka
