India's capital market regulator SEBI barred Subhash Chandra, the chairman of the Essel Group, and his son Punit Goenka, MD and CEO of Zee Entertainment Enterprises (ZEEL), from holding any directorial or senior managerial positions in any listed company.
SEBI's interim order issued late on Monday, was the result of an inquiry that revealed that the two had abused their board seats at Zee, syphoning off funds for their own benefit.
The regulator has given Zee seven days to present this order to its board. SEBI has also given Subhash Chandra and Punit Goenka 21 days to file their reply/objections.
This development comes at a time when Zee is seeking regulatory approvals to merge with Sony's India arm, Sony Pictures Network. SEBI's order is likely to be extremely damaging to this deal.
The background of SEBI's order
Following the resignation of two independent Zee Entertainment directors Sunil Kumar and Neharika Vohra in November 2019, an investigation into both parties, Subhash Chandra Goenka and Punit Goenka began.
Among the concerns raised by Vohra and Kumar was about a ₹200 crore fixed deposit of Zee's which was adjusted by Yes Bank to settle a loan taken by certain related entities. However, the loan guarantees were granted without the Zee board's consent.
Chandra had provided a “Letter of Comfort” or LoC dated September 4, 2018, that was towards a Rs 200 crore loan outstanding Essel Group Mobility. The letter said that the Rs 200 crore FD available with Yes Bank from any of the Essel Group companies, including ZEEL, could be taken to settle it.
With this ₹200 crore from Zee, Yes Bank paid off the loans of seven affiliated enterprises. It later turned out that these seven entities were owned by Subhash Chandra and Punit Goenka's family members.
Zee Entertainment stated in its response to SEBI that the money was fully reimbursed between September 26, 2019, and October 10, 2019.
Further investigation by SEBI revealed that Zee owned the money that was returned. To demonstrate that money was being returned by affiliated businesses, it was routed through a number of other businesses.
“The funds had followed a circuitous route where funds originated from ZEEL/listed companies of Essel Group, passed through various entities owned or controlled by Promoter Family and ultimately ended up with ZEEL,” SEBI said in its order.