SAT to take up Zee Ent promoter plea against Sebi order on June 15

'Principles of natural justice' not followed, say legal representatives

The Securities Appellate Tribunal (SAT) will take up the application filed by the promoters of Zee Entertainment Enterprises Limited (ZEEL) on June 15 against the interim order by the capital markets regulator.

Essel Group Chairman Subhash Chandra and ZEEL Managing Director and Chief Executive Officer Punit Goenka approached the tribunal on Tuesday, seeking a stay on the interim order banning both from taking key positions in listed companies.

The order issued by the Securities and Exchange Board of India (Sebi) on Monday alleged the diversion of funds and assets from ZEEL and Essel Group companies by promoters.

Senior counsel representing the promoters said the order did not follow the ‘principles of natural justice’, adding no show cause notice had been issued by Sebi before the order. They claimed that the Sebi order did not indicate any urgency in implementing a ban on them.

The stock prices of ZEEL recovered from the intraday low of Rs 182.6 to Rs 194, with about 0.5 per cent fall by closing.

Legal experts believe the Sebi order could emerge as a roadblock to the company’s merger with Sony Pictures Networks India — the joint entity of which was to be headed by Goenka.

“Until the order is stayed, Chandra and Goenka cannot act as directors or managerial personnel in any listed company or subsidiary. Given the merger is pending before National Company Law Tribunal (NCLT) and is facing opposition from lenders, the Sebi order will likely cause further delay in the matter. But the precise impact will be known in the weeks to come when the NCLT has had a chance to consider this aspect if raised by any party,” said Sangeeta Jhunjhunwala, partner, Khaitan Legal Associates.

The matter on the merger is scheduled for hearing in the NCLT on June 16.

Earlier in a statement, ZEEL Chairman R Gopalan said the board was reviewing the order. He added that the company’s board recognises the significant contribution of Chandra as founder of the company and the growth and value generation-centric leadership showcased by Goenka.

In the order, the markets watchdog has directed ZEEL to place the order before the board of directors within seven days while Chandra and Goenka have been provided a 21-day window to submit their objections or replies to the allegations before Sebi.

Sebi initiated the probe following resignation of two independent directors from the company in November 2019. One of the directors had alleged that the squaring off of loans was done without board approval.

Highlighting their role in the alleged fund diversion, Sebi observed that the funds followed a circuitous route: funds first originated from ZEEL or listed companies of Essel Group, passed through several entities owned or controlled by the promoter family, and finally ended up with ZEEL.