The proposed merger of Zee Entertainment Enterprises Ltd with Sony Pictures Networks India (SPN) is likely to face a fresh setback after the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) on Thursday informed the National Company Law Tribunal (NCLT) that they have been asked by the Securities and Exchange Board of India (Sebi) to submit a 25 April Sebi order as part of the record. The market regulator had passed an ex-parte order in the matter of Shirpur Gold Refinery fund diversion case.
Nausher Kohli, the counsel representing the NSE, informed the tribunal that the exchange received a notice from Sebi directing it to place on record the order before the court. A similar notice has been sent to the BSE by Sebi. The proposed merger has already been mired in legal hurdles due to opposition from several lenders, including Axis Finance and JC Flower ARC. These creditors have been seeking direction from NCLT to the promoters of Zee to repay their borrowings using funds they are supposed to receive as part of the non-compete fee from Sony.
Citing the Sebi order, Kohli said, “Sebi had received a complaint alleging that the loans taken by Shirpur from banks and financial institutions had not been used for operations of the company but instead were siphoned off to companies under the control of Subhash Chandra Goenka and his family. It was also alleged that Shirpur was not providing information to public shareholders with respect to its operations”.
He brought to the court’s notice that the promoter of Shirpur is Jayneer Infrapower and which, as of 31 March, owns 43.66% shares in Shirpur. The shareholders’ details of Jayneer included brothers Amit and Punit Goenka, along with other members of the Goenka family—Sushila, Shreyasi, and Navyata. Essentially, Jayneer’s shareholders are family members of Subhash Chandra, the founder of the Essel Group. Accordingly, Shirpur is part of Essel Group of Companies, which itself is undergoing insolvency, the Sebi order showed.
As per the Sebi order, the facts brought out in the case have detailed that Shirpur, its directors, and finance chiefs were involved in misleading investors through a complex network of business transactions that were presented as legitimate by manipulating its financial statements in a fraudulent manner. This resulted in the company’s published financial statements failing to provide an accurate and honest representation of its financial position, which investors had relied upon. The Sebi order said the company and its executives have engaged in fraudulent activities by violating securities market regulations.
The NCLT bench led by Justice H.V. Subba Rao and comprising member Madhu Sinha suggested that both BSE and NSE should take into consideration the order since they had cleared the merger. Until now, both the exchanges and the Competition Commission of India have cleared the merger of Zee-Sony, which is expected to be one of the largest mergers in the Indian media entertainment space. However, the merger is subject to necessary regulatory, shareholder and third-party approvals.
After hearing both the parties, the tribunal has posted the matter for further hearing on 16 June.
