SEBI bars Subhash Chandra, Punit Goenka from holding directorial posts in listed company

The Securities and Exchange Board of India (SEBI) on Monday passed an interim order barring Essel Group chairman, Subhash Chandra and Chief Executive Officer (CEO) of Zee Entertainment Enterprises Limited (ZEEL), Punit Goenka from holding directorial or key managerial positions (KMP) in any listed company or its subsidiaries. .The order was passed by whole-time member of SEBI, Ashwani Bhatia after noting that Chandra and Goenka (noticees) had abused their position as directors/KMPs of a listed company for siphoning off funds for their own benefit and alienated the assets of ZEEL and other listed companies of the Essel Group for the benefit of associate entities owned and controlled by them."The noticees shall cease to hold the position of a director or a Key Managerial Personnel in any listed company or its subsidiaries until further orders," the SEBI directed. The siphoning off appeared to be a well-planned scheme, the SEBI said."The siphoning of funds appears to be a well-planned scheme since, in some instances, the layering of transactions involved using as many as 13 entities as pass through entities within a short period of two days only. The fact that some of the entities used in these layers are common to the ones used for fund diversion in Shirpur Gold Refinery Limited case only strengthens the prima facie finding in this case that funds have been diverted from ZEEL, which needs to be investigated thoroughly," the SEBI said in its order.Consequently, during the period of Financial Year 2018-19 to Financial Year 2022-23, the share price of ZEEL came down from a high of close to ₹600 per share to the current price of less than ₹200 per share. "This erosion of wealth despite the company being so profitable and generating profit after tax consistently would lead to a conclusion that all was not well with the company. During this period, the promoter shareholding dropped from 41.62% to current level of 3.99%," the SEBI observed..The noticees created a façade through sham entries to misrepresent to the investors as well as the regulator that money had been returned by associate entities, whereas in reality, it was ZEEL’s own funds that was rotated through multiple layers to finally end in ZEEL’s account. "The noticees have attempted to ride piggyback on the success of ZEEL, the flagship company of Essel Group, to bankroll the associate entities, which are owned and controlled by them," the order stated..SEBI's probe into the matter began after two independent directors of ZEEL, Sunil Kumar and Neharika Vohra resigned in November 2019 after raising concerns over several issues, including the appropriation of certain fixed deposits (FD) of ZEEL by Yes Bank for squaring off loans of related entities of Essel Group..The examination by SEBI revealed that Subhash Chandra, the then Chairman of ZEEL/ Essel Group, had provided a Letter of Comfort (LoC) dated September 4, 2018 towards credit facilities availed by certain group companies from Yes Bank.The resignation letter dated November 22, 2019, submitted by Neharika Vohra to the chairman of the Board of Directors of ZEEL, said that the abovementioned LoC was known only to a few persons in the management and that even the Board of ZEEL was not aware of the same.On the strength of the said LoC, Yes Bank had adjusted an FD of ₹200 crore of ZEEL for meeting the obligations of the seven associate entities towards Yes Bank.Those seven entities were owned/controlled by family members of Chandra and Goenka, SEBI noted.When probed by SEBI with regard to the above, ZEEL submitted to SEBI that ₹200 crore, equivalent to the value of the FD that was encashed by Yes Bank for the dues from associate entities owned by the promoter family, had subsequently been received back from those associate entities in September/October 2019."Though ZEEL had confirmed the receipt of Rs.200 Crore from the Associate Entities, SEBI found inter alia that Mr. Subhash Chandra and Mr. Punit Goenka, by signing comfort letters on behalf of ZEEL without informing, consulting, and/or approval of ZEEL or its board, had violated Regulation 4(2)(f)(i)(1)&(2), 4(2)(f)(ii)(6) and 4(2)(f)(iii)(3)&(6) of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations, 2015)," the SEBI said..SEBI then probed the matter further and, in order to examine the claim of ZEEL regarding receipt of funds, SEBI sought bank statements of ZEEL and other entities from various banks.An analysis of the said bank statements showed that although ZEEL had claimed to have received ₹200 crore from the abovementioned seven associate entities of the promoters, the major portion of the said funds had originated from either ZEEL itself or listed companies of the Essel Group, which after passing through several layers, reached the accounts of the associate entities from where it ultimately landed in ZEEL’s account, the SEBI order said."The funds had originated from ZEEL/other listed companies of Essel Group, which moved through multiple layers of Promoter Family owned/ controlled entities and was ultimately transferred to ZEEL, in order to show the fulfilment of payment obligations of the Associate Entities towards ZEEL. The above flow of funds clearly indicates that there was no actual net receipt of funds by ZEEL and these were merely book entries to show receipt of funds. It thus appears that ZEEL’s own funds/funds from other listed companies of Essel Group were used to give an impression that the Associate Entities had indeed returned the money they owed to ZEEL as a result of invocation of LoC given by Subhash Chandra against ZEEL’s FD of ₹200 Crore," it was stated.The disclosure in the Annual Report regarding payments from associate entities also appears to be a misstatement or a misrepresentation, the SEBI said, while passing interim directions against Chandra and Goenka..[Read Order]