The Securities and Exchange Board of India (SEBI) stated in its response to the Securities and Appellate Tribunal (SAT) in the matter of Zee Enterprises that Chairman Emeritus Subhash Chandra and Managing Director and CEO Punit Goenka of this large listed company diverted public money to private entities.

“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,” IANS quoted SEBI as saying in its reply to SAT.

Meanwhile, Zee Entertainment Enterprises (ZEE) has written also to SEBI that “continuous and repetitive” investigations on the same cause of action create prejudice for the Company and Shareholders, and can potentially impact the merger process.

SEBI has given a No Objection Certificate (‘NOC’) to the Composite Scheme of Merger in the matter of ZEEL and Sony Pictures Networks India Pvt. Ltd. (‘Sony’), which is one of the largest integrations of industry majors in the media industry and entails an incoming foreign direct investment of USD 1.7 bn into India.

In a letter to SEBI, Zee said, “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 percent of the equity shareholders of ZEEL.”

Zee said, “It may also be noted 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 about the matter is around 4 years old,” the company said.

“It is submitted that 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 the part of ZEEL.

“It is submitted that ZEEL happens to itself be a victim of the misappropriation by Yes Bank. Therefore, under 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.

Subhash Chandra and Punit Goenka have moved SAT against the SEBI order barring them from holding director positions or key management personnel in any listed company on alleged siphoning of funds from Zee Enterprises.

“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. 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,” SEBI added.

ZEEL is one of the top 200 largest listed companies in India today having a large number of public shareholders and retail investors and therefore, occupies a prominent position in the Indian securities market. 

SEBI said as noted in the impugned order that the Appellants created a facade through sham entries to misrepresent to the investors as well as the regulator that the money had been returned by Seven Related Companies, whereas in reality, it was ZEEL’s funds which rotated through multiple layers to finally end in ZEEL’s account. These facts reasonably warrant urgent action on the part of the Respondent to safeguard the management of such companies and protect their investors and other stakeholders.

If during a preliminary examination, it is found prima facie that the person is indulging in manipulation of the securities market, SEBI is obliged to pass an ex-parte ad interim order to safeguard the interest of investors and protect the integrity of the securities market.

It is undoubtedly evident from how monies flowed from one promoter company to another that the monies of ZEEL and other listed companies have been used by the promoters to give the false impression that the Seven Related Parties have repaid the amount of Rs 200 cr to ZEEL.

An analysis of the transactions evinces that the transfers occurred between the conduit (middlemen) entities on the same date or consecutive days in a sequential fashion and at very quick intervals (within seconds and minutes), indicating that these transactions are not bonafide but that these transfers were only for funneling money to the Seven Related Parties so that they could make payment to ZEEL of the amounts appropriated by Yes Bank, SEBI said.