The Securities and Exchange Board of India has rushed into an interim order barring Zee Entertainment Enterprises Ltd.’s Subhash Chandra and Punit Goenka from directorial positions, Senior Advocate Janak Dwarkadas said on Monday.
Arguing for Goenka before the Securities Appellate Tribunal, Dwarkadas said SEBI jumped to conclusions by merely relying on the bank statements provided by the associate entities.
It did not even provide Chandra and Goenka with an opportunity to be heard. There is no material besides bank account details to prove the alleged siphoning of funds, according to Dwarkadas.
There is also no urgency to pass such an order as there is no market manipulation involved, Dwarkadas said.
According to a June 12 interim order of the market regulator, both Chandra and Goenka misused their positions as directors or key managerial personnel in a listed company for their own benefit.
Through a letter of comfort issued by Chandra, they misappropriated a Rs 200-crore fixed deposit of Zee Entertainment for the benefit of promoter group companies. This was done without the company board’s approval, which was in violation of various SEBI listing regulations. They also made false claims that the associate companies had repaid Zee. But in reality, the funds originated from Zee itself, according to the regulator’s order.
Chandra and Goenka appealed the order on June 13. In the last hearing, the SAT refused to grant any interim relief to Chandra and Goenka. It had directed SEBI to file its reply to the allegations that the principle of natural justice was violated in this case.
Responding to SEBI’s submissions on Monday, Dwarkadas argued that there are deficiencies in the manner in which the investigation was conducted and the order was passed.
According to Dwarkadas, SEBI already knew about the alleged misappropriation of the fixed deposit and took no action. The information regarding the diversion of Rs 200 crore in FDs with Yes Bank Ltd. was already made public in 2019. This was also reported to SEBI through an affidavit. After SEBI issued an advisory on the subject in 2021, Grant Thornton LLP submitted a report of an audit it had conducted to the regulator.
SEBI took no action for almost a year and came up with a show-cause notice in July 2022, penalising Goenka and Chandra, Dwarkadas said.
To him, the investigation in question didn’t start until April 2023, after SEBI issued an order against Shirpur Gold Refinery Ltd. After the order, SEBI requested information about Zee’s related parties, which it received by May 9. After an investigation from May 9 to June 7, an order was passed on June 12 barring Goenka and Chandra from the boards.
SEBI has done in two working days what was not done in four years. They reached the conclusion that they siphoned company funds without calling for further information, save for bank statements.
Senior Advocate Janak Dwarkadas, Counsel for Goenka
SEBI has presumed that the repayment transactions were bogus. It has been presumed that every transaction entered into by Zee with a related entity is without consideration, he said. “These conclusions are unwarranted, unjustified, and purely based on conjecture.”
Zee has had business relationships with these entities since 2018. He argued that it would have been understandable if the entities were merely paper companies.
Dwarkadas accused SEBI of applying different yardsticks in the Shirpur Gold Refinery order and in this interim order. According to him, SEBI accepted that the violation in Shirpur’s case is as grave as in the present case and even accepted that the modus operandi is the same.
Yet, the interim order in Shirpur is to merely restrain the promoters from trading in the shares, while in the present case, it directly resulted in getting kicked out of the boards. This can’t be dismissed as a mere coincidence, he said.
Dwarkadas concluded his arguments by discussing the impact of SEBI’s interim order on the proposed Zee-Sony merger. An important clause of the scheme is that Goenka would head the merged entity. This is now pending before the National Company Law Tribunal. An order such as this could adversely impact the approval of mergers sanctioned by all regulatory authorities, including SEBI, he said.
The matter is posted for further hearing on June 26. Bloomberg Quint