Market regulator Sebi in its reply to the Securities and Appellate Tribunal (SAT) on the Zee Entertainment Enterprises Ltd's plea has called for urgent action against the promoters in the alleged fund diversion case to safeguard the management, investors and other stakeholders. In its affidavit, the Securities and Exchange Board of India (Sebi) pointed out that the applications made by Chairman Emeritus Subhash Chandra and Managing Director and CEO Punit Goenka on July 6, 2022, that "there was no urgency and that the same issue is the subject matter of the show cause notice dated July 6, 2022, is completely false and misleading." Sebi further stated that "not only have there been violations but also the issuance of multiple false disclosures and submission of statements to cover up such wrongdoings."
"In the instant case, we have a situation before us where the Chairman Emeritus and the Managing Director 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," Sebi said affidavit to SAT. On June 15, SAT had 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 Essel Group chairman Subhash Chandra and Zee Entertainment Enterprises Ltd (ZEEL) MD and CEO Punit Goenka from holding the position of a director or key managerial personnel in any listed company for siphoning off funds of the media firm. Both Chandra and Goenka 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”. In the affidavit, 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) case, on which the regulator had issued an interim order in April.
"In Shirpur, we have also seen that the promoter group timed its offloading of shares in the open market to avoid bearing the brunt of the fall in the market value of Shirpur's shares. It is ultimately the small retail investors who endured the downfall in share price," the market regulator stated. Sebi said that Shirpur's case reflects a contrived scheme with a set of sham transactions meant to mislead and facilitate a circuitous movement of funds. Sebi initiated the process of obtaining bank statements from the various banks involved and tracing the source of money used by the related party to 'repay' ZEEL.
Upon investigating the transactions featured in the bank statements along with the counterparties to such transactions, SEBI found some glaring irregularities. "While ZEEL claimed to have received repayment of money from the related parties on account of the adjustment by Yes Bank, SEBI found that such money originated from ZEEL itself and /or group companies of the Essel Group (which includes ZEEL). Therefore, effectively, ZEEL funded its own repayment," the regulator said. In fact, Sebi said, a large number of entities that were used as a conduit for the layering and passing-through of the funds overlap with the entities involved in the Shirpur investigation as well.
"These entities are part of the Essel group, either through commonality in shareholding, control, directorship, or group name. Further, these entities appear to be beneficially owned by the Appellants and their family members," it added. In November 2019, two independent directors, Subodh Kumar and Neharika Vohra, resigned citing alleged weak corporate governance and appropriation of FD towards payment of promoter loans reasons behind 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.
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