Zee writes to SEBI: 'Continuous and repetitive' investigations can impact merger with Sony

Days after the Securities and Exchange Board of India (SEBI) barred Zee Entertainment Enterprises Ltd's (ZEEL) Subhash Chandra and Punit Goenka from holding any directorial or key managerial position in listed companies or their subsidiaries, Zee has written to the markets regulator saying its 'continuous and repetitive' investigations on the same cause can potentially impact its merger with Sony.

Zee is currently in the process of a merger with Sony Pictures Networks India Pvt Ltd (Sony) for which a No Objection Certificate (NOC) has been obtained from SEBI. "Please note that the said merger is at an advanced stage post receipt approvals from various regulators (including SEBI, Stock Exchanges and CCI etc.) and the scheme is also approved by 99.9 per cent of the equity shareholders of ZEEL," Zee said in a letter to SEBI.

Also read: SEBI bars ZEE's Subhash Chandra, Punit Goenka from holding directorial position

The firm also said that the transactions in the present matter pertain to the year 2019 and a detailed explanation has already been provided to Stock Exchanges and SEBI. "It is beyond our comprehension as to why the present matter is being re-investigating/re-examining, when the cause of action pertaining to the matter is around 4 years old," Zee stated.

"We were never privy to the loan arrangements between Borrower Entities and Yes Bank or the loan amount involved. There was no privity of contract between the Yes Bank, ZEEL, and the Borrowing entities. The misappropriation of ZEEL's FD was the result of the unilateral action of YBL without any action on part of the ZEEL," Zee said, adding that the company happens to itself be a victim of the misappropriation by Yes Bank.

Also read: Sebi ban: Here’s what regulator held Subhash Chandra and Punit Goenka guilty o

"Therefore, pursuant to the misappropriation, ZEEL has taken every step to ensure that money is recovered and no loss is caused to the shareholders, thereby acting in the interest of the shareholders," the company said.

Earlier this week, Business Today reported that SEBI's move to bar Subhash Chandra and Punit Goenka from holding any directorial position may affect the proposed mega-merger between Zee and Sony.

Ashish Kumar Singh, Managing Partner, Capstone Legal, said it was important to understand that with only a 4 per cent holding in ZEEL, the promoters enjoyed the confidence of the board and in running the affairs of the company. "Besides, the shareholders have reposed confidence in the proposed merger with Sony." 

Investment bankers told BT that many issues would have been laid out by both parties at the time of the merger discussions. "This too would have come up then," said one tracking the sector.

SEBI's move to bar Chandra and Goenka came on the back of a probe into charges related to the appropriation of certain FDs of ZEEL by Yes Bank for squaring off loans of related entities of Essel Group. 

The regulator found that Chandra, the then chairman of ZEEL/Essel Group, had provided a 'Letter of Comfort' (LoC) towards credit facilities availed by certain group companies from Yes Bank. The LoC was known only to a few persons in the management and even the board of ZEEL was not aware of the letter, stated the SEBI order.

In its order, SEBI said: "...facts make out a prima facie case of Mr. Subhash Chandra and Mr. Punit Goenka having abused their position as directors/KMPs of a listed company for siphoning off funds for their own benefit."

As per the probe, on the basis of the LoC, Yes Bank adjusted a fixed deposit of Rs 200 crore of ZEEL for meeting the obligations of seven entities – associate entities, as per SEBI order -- which, in turn, were found to be owned/controlled by family members of Chandra and Goenka.

Also read: SAT to hear Zee promoters' appeal against SEBI ban on Monday

Meanwhile, Chandra and Goenka have moved the Securities Appellate Tribunal (SAT) against the SEBI's order. SAT will hear the case and decide on Monday and will not pass an interim order on Thursday.