The best thing that Subhash Chandra, Chairman Emeritus of Zee Entertainment Enterprises Limited (ZEEL), and Punit Goenka, MD & CEO, could have hoped for was a stay by the Securities Appellate Tribunal (SAT) on a hugely damaging interim order from the Securities and Exchange Board of India (Sebi)—that has barred them from holding directorships in listed entities. The markets regulator has charged them with having abused their board positions at ZEEL to siphon off funds from the company and violating various Sebi norms.
The tribunal, however, stated that it did not find any reason “to interfere in the impugned order at this stage” apart from pointing out that the contention made by the promoters—that there was no basis for Sebi passing the order—was erroneous. A statement from Zee put out on July 17 said, “Since the order restricts Punit Goenka from holding the position as director or key managerial position in a listed company, the board of the company has constituted an interim committee of senior executives to ensure smooth operations of the company. This will be under the supervision of the board and seek its guidance on all matters pertaining to the company.”
The tribunal asked the promoters to prove that the funds ZEEL gave to related entities were for valid considerations and there was no round-tripping; it has given them two weeks to file objections to the Sebi order.
This comes at a time when ZEEL and Sony Pictures Network India (now Culver Max Entertainment) are heading for a merger. But the deal’s fate could be hanging by a thread, as Sony issued a statement that it was monitoring all the developments that may affect the deal.
Consequently, all eyes are on the promoters’ next move since they have the option of approaching the higher courts. Ashish Kumar Singh, Managing Partner at law firm Capstone Legal, maintains that appellate tribunals are generally reluctant to interfere with interim orders. “It may have been a reason for SAT passing the order. That said, no stay being granted on the interim order in itself is a major setback.”
As things stand, with SAT refusing any relief, Chandra and Goenka may first have to get the response to Sebi out of the way. “Now, it is completely between the regulator, Subhash Chandra and Punit Goenka. Approaching the high court or Supreme Court is unlikely, as complex issues related to facts are involved,” Kumar says.
ZEEL’s functioning may not be affected. As for the merger, it has already received approvals from the stock exchanges, Competition Commission of India and Sebi, while the National Company Law Tribunal
(NCLT) has reserved its order. “The proposed Zee-Sony merger is an independent transaction and NCLT reserving its order is a regular practice since more detailed judgements can be passed,” explains Kumar.
The issue now boils down to what the promoters decide and how they proceed. In that, nothing is more important than the flow of time.
@krishnagopalan