The Securities and Exchange Board of India’s (Sebi’s) ongoing investigations into the role of Zee Entertainment MD & CEO Punit Goenka in the alleged fund diversion that led to the collapse of the proposed $10 billion merger with Culver Max International has drawn stiff criticism from Zee group founder Subhash Chandra.
In a letter to the Finance Minister Nirmala Sitharaman on January 16, a few days before Sony decided to pull the plug on the deal, Chandra alleged that “the Indian market regulator of “acting with a predetermined mind” and requested the finance minister to take the necessary steps “to safeguard the interest of the minority shareholders of Zee”.
This is not the first time that the group has found itself under regulatory glare, especially from Sebi. In 1999-2000, Zee Telefilms was part of the infamous K-10 stocks that was manipulated by stockbroker Ketan Parekh. Parekh was found guilty and banned from markets for 14 years.
In the past few years, it has had several run-ins with the regulator. And it has chosen to settle cases several times in charges related to insider trading and delayed disclosure by the firm
In July 2022, six months after the proposed Zee-Sony merger was announced, two Zee promoter entities paid over Rs 9 lakh to settle insider trading charges leveled by Sebi.
In April 2023, Goenka paid Rs 50.2 lakh to settle an insider trading charge by in the regulator. In June last year, Zee paid Rs 7 lakh to settle an issue pertaining to delayed disclosures by the firm.
“Allegations of insider trading were also made against E-City Hi-Tech Projects, which is part of Essel Group, for certain 2019 trades in Zee Entertainment. However, SEBI vide Order dated 27.08.2021 disposed the proceedings and considered the said trades were based on oft-used trading strategy instead of insider information,” Manmeet Kaur, partner at Karanjawala & Co, said.
Proxy advisory firms say that settlements were also made in the past few years because Zee was looking to merge with Sony, which meant it had to settle outstanding issues with creditors and regulators quickly.
“Financial impropriety has many aspects to it. The issue here is that offenders, when penalised by Sebi can seek relief from the appellate tribunal or the higher courts or can simply settle the issue, by paying a settlement fee without having to admit or deny anything. This, therefore, does not act as a strong deterrent against financial misdeeds,” said J N Gupta, founder and MD of proxy advisory firm Stakeholders Empowerment Services (SES).
Shriram Subramanian, founder and MD, said that the Zee-Sony merger could have heralded a new beginning for the company from a corporate governance perspective. “Non-promoter shareholders of Zee were counting on a number of things, including infusion of capital into the company (by Sony) apart from the entry of an MNC (Sony), which takes corporate governance matters seriously. This would have helped Zee,” Subramanian added.
Since the beginning of the deal in FY22 till first half of FY24, Zee has incurred as much as Rs 374 crore in merger and compliance costs – a point it is likely to raise at the National Company Law Tribunal that it moved last week.
