Sebi debars Subhash Chandra, Punit Goenka from holding key positions

The Securities and Exchange Board of India (Sebi) on Monday debarred Zee Entertainment Enterprises (Zee) promoter and Essel group Chairman Subhash Chandra and Managing Director (MD) and Chief Executive Officer (CEO) Punit Goenka from holding key positions in any listed company for allegedly diverting assets of Essel Group companies.

The matter pertains to the Letter of Comfort (LoC) granted by Chandra in September 2018 towards credit facilities taken by certain group companies from YES Bank. The credit amounted to Rs 200 crore.

The allegations are that these guarantees were given without approval from the board and were used to siphon off funds by the promoters.

Calling for further investigation, Sebi observed the funds had followed a circuitous route, by which they originated in Zee or listed companies of Essel Group, passed through various entities owned or controlled by the promoter family, and ultimately ended up with Zee.

“…. (They) 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 Zee’s own funds which (were) rotated through multiple layers to finally end in Zee’s account,” noted Sebi Whole-time Member Ashwani Bhatia in the order.

In the interim order, Sebi, the regulator, has directed Zee to place the order with the board of directors within seven days. Further, Chandra and Goenka have been given a window of 21 days to submit their objections or replies to the allegations before Sebi.

“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,” noted Sebi.

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

Between FY19 and FY23, the promoter shareholding in the company dropped from 41.62 per cent to only 3.99 per cent.

Sebi has also pointed out the entities used in these layers were common to the ones used for fund diversion in Shirpur Gold Refinery, another Essel Group-listed company.

In April, Sebi had issued an interim order in the matter of Shirpur for allegedly diverting funds.

Last month, the stock exchanges had informed the National Company Law Tribunal (NCLT) about the order and strictures passed by Sebi for alleged fraudulent practices and the manipulation of financial statements of Shirpur.