'Punit Goenka is not the company,' says Zee as NCLT adjourns Sony merger matter till July 10

The National Company Law Tribunal (NCLT) has adjourned the hearing in Zee-Sony merger matter till next week. The NCLT will now hear the case on July 10. 

The much-hyped merger between two stalwarts, Zee Entertainment Enterprises and Sony Group Corp, has been seeing delays due to various reasons. A definitive merger agreement between Zee and Sony was signed in December 2021.

On May 11, NCLT had directed the exchanges to reassess and validate the non-compete clause of the merger, which was approved by the market regulator Securities and Exchange Board of India (Sebi).

The NCLT instructed the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) to review their approval of the Zee-Sony merger. 

In June, markets regulator Sebi banned Subhash Chandra and Punit Goenka from holding the position of a director or key managerial personnel (KMP) in any listed company or its subsidiaries until further orders on alleged siphoning off funds from Zee Entertainment.

On Thursday, Zee's counsel told the tribunal that Punit Goenka is not the company; the scheme shouldn't be held up.

He added that the scheme is blessed by all the regulators. The objectors cannot sit in the judgment of regulators' decision.  

On February 22, the Mumbai bench of the National Company Law Tribunal directed to initiate CIRP against Zee and appointed an interim resolution professional suspending the board. However, this was immediately stayed by the NCLAT on February 24 over the plea moved by Goenka.

In June, the NCLAT again set aside the NCLT order, which directed leading bourses NSE and BSE to reconsider their approval for the Zee-Sony merger.

A lawyer representing Zee had told NCLAT that the Sony deal had received all necessary approvals but would be stalled because of the initiation of corporate insolvency proceedings.

The appellate tribunal has sent the matter back to the NCLT to decide afresh and pass an order after hearing both parties.

Essel Group chairman Chandra and Zee Entertainment Enterprises MD and CEO Goenka filed separate appeals against the market regulator's June 12 directive.

NCLAT disposes of IndusInd's appeal

On Monday, the National Company Law Appellate Tribunal (NCLAT) disposed of the appeal filed by promoters of Zee Entertainment after the media major reached a settlement with IndusInd Bank following payment of all dues to the financial creditor.

A joint application was moved by Goenka and IndusInd Bank bringing on record the settlement agreement dated March 29, 2023, reached between the financial creditor and the media and entertainment firm.

In February this year, IndusInd Bank moved the bankruptcy court (NCLT), seeking to start insolvency proceedings against Zee. This move could have threatened the merger by stopping all transactions, including asset transfers.

IndusInd Bank, in its plea, had claimed a default of Rs 83.08 crore against the media and entertainment company promoted by Essel Group chairman Chandra.

Goenka had told the media that the merger between ZEE Entertainment and Sony will go through. "The ZEE-Sony merger holds immense significance, regardless of my position as CEO. The resulting entity will be under Sony's control, and they have chosen to retain me as a promoter, MD, and CEO," he had said.

Zee settles regulatory probe

Zee Entertainment has also settled a regulatory probe related to a delay in disclosure of information regarding pledged shares. 

The media company was under the scanner of the Sebi for alleged delay in disclosing invocation of pledged shares during the period January 1, 2019 to December 26, 2019. 

The company has paid Rs 7 lakh to settle the proceedings under the Settlement Regulations, which allow entities to settle the matter without admitting or denying any wrongdoing. 

“SEBI in its examination report observed that Applicant (ZEEL) has made delayed disclosure (54 days in 3 instances and 27 days in 2 instances) to Exchanges w.r.t. to invocation of pledged shares. Therefore, it was alleged that applicant has violated regulation 7(2)(b) of the PIT Regulations. Accordingly, SEBI has initiated adjudication proceedings under section 15A(b) of the SEBI Act against the Applicant,” stated the Sebi order. 

Zee-Sony merger

As per the proposed deal, Sony Pictures Entertainment indirectly hold a 50.86 per cent stake in the new combined entity, where Zee founders will have a 3.99 per cent share. The rest (45.15 per cent) will be held by shareholders, including the public. A non-compete fee of Rs 1,100 crore will also be paid by Sony to the promoters of the Essel Group. 

After many hurdles and clashes with shareholders, the merger got the go-ahead from the Competition Commission of India (CCI) in 2022.

Kenichiro Yoshida, chairman, and chief executive officer, of Sony Corp, recently stated that the merger between Sony and Zee is likely to be completed by the first half of the current fiscal year ending March 31.

In a June 28 note, JM Financial said the Sony-Zee merger is not only critical for ZEE Entertainment, it is no less for Sony.

"With 7 per cent TV viewership – the least among major broadcasters – Sony’s market positioning is hardly envious. What makes it precarious is India’s shifting media landscape. Pay-TV households (HHs) appear to have peaked. TV viewership is trending down as digital consumption chips away at TV time. Urban HHs, Sony’s core TG, are taking to OTT/CTV in droves. Sony LIV, Sony’s OTT platform, has built a strong subscription base, but faces an uphill road ahead. JioCinema, with free IPL streaming and accelerated build-out of local and global content, threatens to upend the OTT pecking order. Besides, Sony LIV still has white spaces, especially around regional content," it noted.

JM Financial said that ZEE Entertainment complements Sony’s portfolio perfectly, both on the linear and OTT side. Together, merge-co will have the highest TV viewership share, one of the largest content libraries, access to global IPs and world class tech. Concerns on corporate governance will be put to rest with Sony nominated board taking over, it noted.

Shares of ZEE closed at Rs 191.15 apiece on BSE today (July 6) before NCLT pronounced its verdict.

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