Markets regulator SEBI has banned Essel Groups Subhash Chandra and Zee Entertainment CEO Punit Goenka from holding position of a director or a key managerial personnel in any listed company or its subsidiaries until further orders on alleged siphoning off funds from Zee Entertainment.

SEBI in its order said, “It is apparent that the issuance of LoC to Yes Bank by Mr. Subhash Chandra in support of Associate Entities, the default by associate entities leading to appropriation of ZEEL’s FD by Yes Bank, the circuitous transactions through connected entities to show receipt of funds by ZEEL from the associate entities, the subsequent disclosure by ZEEL in its annual report about receipt of funds and the false submissions made to SEBI were part of an elaborate scheme orchestrated by the promoter family of ZEEL to divert assets of ZEEL and other listed companies of Essel Group to the promoters.”

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“It is observed that Subhash Chandra was the Chairman of Essel Group, including ZEEL at the relevant time when the concerned LoC was issued by him to Yes Bank.

“Since he had issued the concerned LoC without the knowledge or approval of the Board of Directors of ZEEL, he had a direct role in the diversion of funds of ZEEL and other listed companies of Essel Group, as mentioned above.

“Mr. Punit Goenka was the MD and CEO of ZEEL at the time when the funds were moved out of ZEEL for being routed again to ZEEL through layered and circuitous transactions, for falsely portraying that ZEEL had received the dues from Associate Entities.

“Pushing these transactions would not have been possible without the active involvement of Mr. Subhash Chandra, as Chairman, and Mr. Punit Goenka, as MD and CEO of ZEEL. 36. Further, it is noted that Mr. Subhash Chandra and Mr. Punit Goenka (hereinafter together referred to as “the Noticees”) were the direct beneficiaries of the aforesaid fund diversion, since the Associate Entities which benefitted from liquidation of FD of ZEEL by Yes Bank were owned or controlled by the Promoter Family, which included Mr. Subhash Chandra and Mr. Punit Goenka,” the order said.

The abovementioned diversion of funds from ZEEL and other listed companies and the misrepresentation in the Annual Report of ZEEL and false submission to SEBI that it had received the funds from Associate Entities prima facie amount to fraudulent and unfair trade practices, the SEBI order said.

In view of the above, it is prima facie found that Mr Subhash Chandra and Mr Punit Goenka have violated the provisions of 4(1) and 4(2)(f) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003.

Further, in view of the misrepresentation the in Annual Report and false submissions to SEBI and also their failure to discharge their duties as directors of ZEEL for their personal benefit, Mr. Subhash Chandra and Mr. Punit Goenka have also prima facie violated provisions of Regulations 4(2)(f) of LODR Regulations, 2015, it added.

“The above facts make out a prima facie case of Mr. Subhash Chandra and Mr. Punit Goenka having abused their position as directors/KMPs of a listed company for siphoning off funds for their own benefit. Further, although the Promoter Family is only holding 3.99% shares in ZEEL, Mr. Subhash Chandra and Mr. Punit Goenka continue to be at the helm of affairs of ZEEL. Considering the above, I am of the opinion that, while the investigation is still underway, their continuation as a director/Key Managerial Personnel in any listed company or its subsidiaries is likely to be prejudicial to the interest of those companies, particularly its investors”, the SEBI order said.

“Therefore, I am convinced that, pending completion of investigation by SEBI, interim directions need to be issued to safeguard the management such companies and protect their investors and other stakeholders.” it said.

ZEEL shall place this order before its Board of Directors, within seven days from the date of receipt of the order.

The foregoing prima facie observations and findings contained in this Order, are made on the basis of material available on record. The Noticees may, within 21 days from the date of receipt of this Order, file their reply/objections, if any, to this Order and may also indicate whether they desire to avail an opportunity of personal hearing on a date and time to be fixed in that regard, the order said.

ZEEL and Mr. Punit Goenka had filed a settlement application under the provisions of the SEBI (Settlement Proceedings) Regulations, 2018 in respect of the aforesaid proceedings. The said application was rejected by SEBI.

In the wake of the resignation of two independent directors, Mr. Sunil Kumar and Neharika Vohra of Zee Entertainment Enterprises Ltd. (ZEEL) in November 2019 after raising concerns over several issues, including appropriation of certain Fixed Deposit (FD) of ZEEL by Yes Bank Ltd. for squaring off loans of related entities of Essel Group, SEBI conducted an examination in the matter. Ms. Niharika Vohra in her resignation letter dated November 22, 2019 had inter alia alleged – “At the October 17, 2019 meeting it was brought to light via a letter received by the board from the concerned bank that guarantees have been given to a subsidiary without approval from the board. The operating team treated the issue very casually.”