‘To safeguard stakeholders’: Sebi justifies urgent action in Zee matter

The Securities and Exchange Board of India (Sebi) in its reply to the Securities Appellate Tribunal (SAT) has said urgent action was warranted against the promoters of Zee Entertainment Enterprises (ZEEL) in the alleged fund diversion case to safeguard the management and to protect investors and other stakeholders.

Terming the applications made by Essel Group chairman Subhash Chandra and ZEEL Managing Director & Chief Executive Officer (MD &CEO) Punit Goenka that there was no urgency needed while passing the interim order on June 12 as “completely false and misleading”.

“We have a situation before us where the Chairman Emeritus and the MD & 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. 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,” Sebi has said in a 197-page affidavit to SAT.

Sources said Chandra and Goenka too are expected to submit their responses soon.

On June 15, SAT directed them to respond to Sebi’s submission on or before June 19, when the tribunal will take up the matter for final disposal.

In an interim order on June 12, Sebi debarred both Chandra and Goenka from taking key positions at listed companies. Both have moved SAT seeking a stay on Sebi’s order citing injustice.

Sebi has also submitted that the appellants had not produced any material to indicate that they have suffered any prejudice by not getting a personal hearing before the interim order was passed. The regulator has said it is willing to give an immediate hearing to the appellants “as early as required.”

Sebi has alleged that promoters created a façade through sham entries to misrepresent investors and the regulator about the repayment of Rs 200 crore to ZEEL by seven related parties.

Sebi has submitted that the present investigation was triggered after the rejection of the settlement application filed by ZEEL in Essel group-company Shipur Gold Refinery on which the regulator had issued an interim order in April.

The markets regulator said that it found overlapping entities involved in the siphoning of Shirpur’s funds and that on whose account Yes Bank had appropriated ZEEL’s Fixed Deposit. On further investigation into bank statements and tracing of the source of the money, Sebi found glaring irregularities.

It added that Sebi was able to unearth the new findings only after ZEEL’s letter in the Shirpur matter.

Earlier in October 2019, independent auditors Deloitte Haskins and Sells had red-flagged the transfer of Rs 200 crore as non-disclosure or a possible material misstatement. Two independent directors—Subodh Kumar and Neharika Vohra—had also alleged poor corporate governance and appropriation of FD towards payment of promoter loans at the time of their resignations.