SAT Order on ZEEL Directors

SEBI’s Interim Order on Zee Entertainment Enterprises Limited

According to the web search results, SEBI passed an interim order against Zee Entertainment Enterprises Ltd (ZEEL) and its promoters on June 12, 2023, vide ref WTM/ASB/CFID/CFID_4/27348/2023-24 for allegedly siphoning off funds of the media firm. The order barred Essel Group chairman Subhash Chandra and ZEEL MD and CEO Punit Goenka from holding the position of a director or key managerial personnel in any listed company. SEBI also directed ZEEL to conduct a forensic audit of its financial statements for the financial years 2018-19 and 2019-20.

SEBI’s Settlement Order on Zee Entertainment Enterprises Limited

SEBI later passed a settlement order on June 21, 2023, vide reference SETTLEMENT ORDER No. –SO/VV/AS/2023-24/6980 after ZEEL and its promoters paid a settlement amount of Rs. 5.77 crore and agreed to certain undertakings. SEBI said that the settlement order disposed of the adjudication proceedings initiated against ZEEL and its promoters, but the interim order would continue to be in force until further orders.

The Complaint

The complaint against the directors of ZEEL was filed by a whistle-blower in November 2020, alleging that ZEEL had siphoned off funds through various related entities and had also issued a letter of comfort to Yes Bank without the approval of the board or the shareholders. The complaint also claimed that ZEEL had violated the listing regulations by not disclosing material information to the stock exchanges and the investors.

The complaint named Subhash Chandra, the founder and former chairman of ZEEL, and Punit Goenka, the son of Chandra and the managing director and CEO of ZEEL, as the main beneficiaries of the fund diversion. The complaint also named several other directors and key managerial personnel of ZEEL, who were allegedly involved in the transactions or had failed to exercise their fiduciary duties.

The complaint provided details of the transactions that were carried out by ZEEL to transfer money from its own account to various related entities, which are owned and controlled by Chandra and Goenka, through multiple layers of transactions. These transactions were done without the approval of the board of directors or the shareholders of ZEEL. The complaint also provided evidence of the letter of comfort that ZEEL had issued to Yes Bank to secure loans for its related entities, which resulted in the appropriation of a fixed deposit of Rs. 200 crore of ZEEL by the bank. The complaint further provided evidence of the false repayment that ZEEL had claimed to have received from the related entities, which was actually ZEEL’s own funds that were rotated through multiple layers to finally end in ZEEL’s account. This was done to create a façade of repayment and to mislead the investors and the regulator.

The complaint also highlighted the impact of the fund diversion on the financial position and performance of ZEEL, which had reported a decline in its revenue, profit, and cash flow in the financial year 2019-20. The complaint also pointed out the erosion of the share value of ZEEL, which had fallen by more than 50% in the year 2020. The complaint also alleged that ZEEL had failed to comply with the corporate governance norms and the listing regulations by not disclosing the material information to the stock exchanges and the investors, such as the fund diversion, the letter of comfort, the fixed deposit appropriation, the false repayment, and the resignation of two independent directors.

The complaint requested SEBI to take appropriate action against ZEEL and its promoters, directors, and key managerial personnel for the alleged violations of the SEBI Act and the Listing Regulations. The complaint also requested SEBI to order a forensic audit of ZEEL’s financial statements and to appoint an independent administrator to oversee the affairs of ZEEL. The complaint also requested SEBI to protect the interests of the minority shareholders and the public investors of ZEEL.

The Case

According to the web search results, ZEEL siphoned off funds by transferring money from its own account to various related entities, which are owned and controlled by Subhash Chandra and Punit Goenka, through multiple layers of transactions. These transactions were done without the approval of the board of directors or the shareholders of ZEEL. ZEEL also issued a letter of comfort to Yes Bank Ltd. to secure loans for its related entities, which resulted in the appropriation of a fixed deposit of Rs. 200 crore of ZEEL by the bank. ZEEL later claimed that it had received the funds back from the related entities, but the investigation revealed that it was actually ZEEL’s own funds that were rotated through multiple layers to finally end in ZEEL’s account. This was done to create a façade of repayment and to mislead the investors and the regulator.

According to the web search results, SEBI found out about the alleged fund diversion by ZEEL through a whistle-blower complaint that was filed in November 2020. The complaint alleged that ZEEL had siphoned off funds through various related entities and had also issued a letter of comfort to Yes Bank without the approval of the board or the shareholders. SEBI then initiated a preliminary examination and sought information from ZEEL, Yes Bank, and the related entities. Based on the information received, SEBI observed that there were prima facie violations of the SEBI Act and the Listing Regulations by ZEEL and its promoters. SEBI also noted that the matter was of serious nature and required urgent intervention to protect the interests of the investors and the securities market. Therefore, SEBI passed an ex-parte interim order on June 12, 2023, barring Subhash Chandra and Punit Goenka from holding any directorship or key managerial position in any listed company. SEBI also directed ZEEL to conduct a forensic audit of its financial statements and appointed another Whole Time Member to further investigate the case.

What is a whistle blower complaint under SEBI

A whistle-blower complaint is a report made by an employee or a former employee of an organization about illegal, irregular, dangerous or unethical practices by the employer or its agents. A whistle-blower complaint can be made internally to the higher authorities of the organization or externally to the media, law enforcement agencies, regulators or other watchdog bodies. A whistle-blower complaint can help expose corruption, fraud, mismanagement, abuse of power, or other wrongdoings that may harm the public interest or the reputation of the organization. However, whistle-blowers may also face retaliation, harassment, discrimination, or legal action from their employers or others for making such complaints. Therefore, there are various legal mechanisms in India that provide protection and incentives to whistle-blowers, such as the Whistle-blowers Protection Act, 2014, the Companies Act, 2013, and the Securities and Exchange Board of India regulations.

Who is an Independent Director

An independent director is a member of a board of directors who is not an employee or a stakeholder of the company, and who provides unbiased and objective advice on various matters such as strategy, performance, risk management, and governance. An independent director helps to protect the interests of all stakeholders, especially the minority shareholders, and to balance the power and influence of the management and the promoters. An independent director also plays a key role in setting the remuneration of the top executives and managers, and in monitoring the integrity of the financial information and the internal controls of the company. An independent director is expected to exercise independent judgment, act in good faith, and comply with the legal and ethical standards of the company.

Insider Trading Explained

Insider trading is the practice of trading in the securities of a public company by someone who has access to non-public, material information about the company. Material information is any information that can affect the price or value of the securities or influence the investment decisions of the investors. Non-public information is any information that is not generally available to the public or disclosed by the company in accordance with the law.

Insider trading is illegal and unethical because it gives an unfair advantage to the insiders over the other investors and undermines the integrity and efficiency of the securities market. Insider trading also erodes the trust and confidence of the investors in the company and its management.

Insider Trading Regulations

In India, insider trading is regulated by the Securities and Exchange Board of India (SEBI), which is the statutory authority for the protection of investors and the development and regulation of the securities market. SEBI has framed the SEBI (Prohibition of Insider Trading) Regulations, 2015, which define the terms and concepts related to insider trading, such as insider, unpublished price sensitive information, connected person, trading plan, etc.. The regulations also prescribe the duties and obligations of the insiders, the code of conduct for the listed companies and intermediaries, the disclosure and reporting requirements, the trading window norms, the pre-clearance mechanism, the trading plan framework, the investigation and enforcement powers of SEBI, and the penalties and remedies for the violations.

Who is an Insider

According to the SEBI regulations, an insider is any person who is:

1. A connected person; or
2. In possession of or having access to unpublished price sensitive information.

Who is a Connected Person

A connected person is any person who is:

1. A director, or deemed to be a director, of a company, or an officer or employee of a company or a holding company or associate company or subsidiary company; or
2. An intermediary as specified in section 12 of the SEBI Act, 1992, or an employee or director thereof; or
3. An investment company, trustee company, asset management company or an employee or director thereof; or
4. An official of a stock exchange or of clearing house or corporation; or
5. a member of board of trustees of a mutual fund or a member of the board of directors of the asset management company of a mutual fund or is an employee thereof; or
6. A member of the board of directors or an employee, of a public financial institution as defined in section 2 (72) of the Companies Act, 2013; or
7. An official or an employee of a self-regulatory organization recognised or authorized by SEBI; or
8. A banker of the company; or
9. A concern, firm, trust, Hindu undivided family, company or association of persons wherein a director of a company or his immediate relative or banker of the company, has more than ten per cent of the holding or interest.

What is “Unpublished Price Sensitive Information”

Unpublished price sensitive information is any information, relating to a company or its securities, directly or indirectly, that is not generally available which upon becoming generally available, is likely to materially affect the price of the securities and shall, ordinarily including but not restricted to, information relating to the following:

• Financial results;
• Dividends;
• Change in capital structure;
• Mergers, de-mergers, acquisitions, delisting, disposals and expansion of business and such other transactions;
• Changes in key managerial personnel; and
• Material events in accordance with the listing agreement.

What does SEBI(Prohibition of Insider Trading) Regulations provide for

The SEBI regulations prohibit an insider from:

• communicating, providing, or allowing access to any unpublished price sensitive information, relating to a company or securities listed or proposed to be listed, to any person including other insiders except where such communication is in furtherance of legitimate purposes, performance of duties or discharge of legal obligations;
• procuring from or causing the communication by any insider of unpublished price sensitive information, relating to a company or securities listed or proposed to be listed, except in furtherance of legitimate purposes, performance of duties or discharge of legal obligations;
• Trading in securities that are listed or proposed to be listed on a stock exchange when in possession of unpublished price sensitive information.

Exceptions to the restrictions

The SEBI regulations also provide certain exceptions and defences for the insiders, such as:

• trading in accordance with an approved trading plan;
• trading by certain designated persons in the opposite direction of their earlier trades within six months, subject to certain conditions;
• trading by non-individual insiders who were not in possession of unpublished price sensitive information and had established appropriate systems and processes to prevent insider trading;
• trading by individuals who were not aware of the unpublished price sensitive information and had exercised due diligence to ensure that such information was not in their possession;
• trading for personal emergency or hardship, subject to certain conditions;
• Trading by certain persons for whom the unpublished price sensitive information was not material, subject to certain conditions.

Powers of SEBI

The SEBI regulations also empower SEBI to conduct investigation, inquiry, audit, inspection, or search and seizure in relation to any alleged or suspected violation of the regulations or the SEBI Act, 1992. SEBI can also issue directions, orders, or injunctions to the insiders or any other person to cease and desist from committing or causing the violation, to prevent the disposal of the securities, to impound the proceeds or securities, to restrain the insiders from accessing the securities market, to suspend the trading of the securities, to debar the insiders from buying, selling, or dealing in the securities, or to take any other action as it deems fit.

Penalties & Remedies

The SEBI regulations also provide for the penalties and remedies for the violation of the regulations or the SEBI Act, 1992. The penalties may include imprisonment for a term which may extend to ten years, or fine which may extend to twenty-five crore rupees or three times the amount of profits made out of insider trading, whichever is higher, or both. The remedies may include disgorgement of the amount of wrongful gain or avoidance of loss, restitution of the amount to the investors who have suffered losses, or initiation of civil or criminal proceedings.

The effect of SEBI order

In the case of ZEEL, the SEBI had passed an interim order against ZEEL and its promoters on June 12, 2023, for allegedly siphoning off funds of the media firm. The order barred Essel Group chairman Subhash Chandra and ZEEL MD and CEO Punit Goenka from holding the position of a director or key managerial personnel in any listed company. SEBI also directed ZEEL to conduct a forensic audit of its financial statements for the financial years 2018-19 and 2019-20.

SEBI later passed a settlement order on June 21, 2023, after ZEEL and its promoters paid a settlement amount of Rs. 5.77 crore and agreed to certain undertakings. SEBI said that the settlement order disposed of the adjudication proceedings initiated against ZEEL and its promoters, but the interim order would continue to be in force until further orders.

The SEBI had found out about the alleged fund diversion by ZEEL through a whistle-blower complaint that was filed in November 2020. The complaint alleged that ZEEL had siphoned off funds through various related entities and had also issued a letter of comfort to Yes Bank without the approval of the board or the shareholders¹². The complaint also claimed that ZEEL had violated the listing regulations by not disclosing material information to the stock exchanges and the investors.

Names persons in the order

The complaint named Subhash Chandra, the founder and former chairman of ZEEL, and Punit Goenka, the son of Chandra and the managing director and CEO of ZEEL, as the main beneficiaries of the fund diversion. The complaint also named several other directors and key managerial personnel of ZEEL, who were allegedly involved in the transactions or had failed to exercise their fiduciary duties.

The complaint provided details of the transactions that were carried out by ZEEL to transfer money from its own account to various related entities, which are owned and controlled by Chandra and Goenka, through multiple layers of transactions. These transactions were done without the approval of the board of directors or the shareholders of ZEEL. The complaint also provided evidence of the letter of comfort that ZEEL had issued to Yes Bank to secure loans for its related entities, which resulted in the appropriation of a fixed deposit of Rs. 200 crore of ZEEL by the bank. The complaint further provided evidence of the false repayment that ZEEL had claimed to have received from the related entities, which was actually ZEEL’s own funds that were rotated through multiple layers to finally end in ZEEL’s account. This was done to create a façade of repayment and to mislead the investors and the regulator.

The complaint also highlighted the impact of the fund diversion on the financial position and performance of ZEEL, which had reported a decline in its revenue, profit, and cash flow in the financial year 2019-20. The complaint also pointed out the erosion of the share value of ZEEL, which had.

Powers of SEBI Listed

SEBI investigates cases of insider trading by using its powers under the SEBI Act, 1992 and the SEBI (Prohibition of Insider Trading) Regulations, 2015. SEBI can:

1. appoint officers or auditors to inspect the books and records of the insiders and other connected persons;
2. seek information or documents from the insiders, the listed companies, the intermediaries, the stock exchanges, or any other person who may be relevant to the investigation;
3. conduct search and seizure operations at the premises of the insiders or any other person who may have evidence of the violation;
4. record the statements of the insiders or any other person who may have information or knowledge of the violation;
5. analyse the trading data, the communication records, the bank statements, the financial statements, or any other data that may indicate the existence of insider trading;
6. Issue show cause notices to the insiders or any other person who may be involved in the violation and give them an opportunity to present their case before passing any order.

SEBI can also use the information or evidence provided by whistle-blowers, complainants, media reports, or other sources to initiate or support its investigation. SEBI can also coordinate or cooperate with other regulators or agencies, such as the Reserve Bank of India, the Income Tax Department, the Enforcement Directorate, or the Central Bureau of Investigation, to share or obtain information or assistance in the investigation⁴. SEBI can also seek the assistance of foreign regulators or authorities under the bilateral or multilateral arrangements, such as the IOSCO Multilateral Memorandum of Understanding, to obtain information or evidence relating to cross-border insider trading.

Who is a “Forensic auditor”

A forensic auditor is a finance specialist who reviews records and other financial data to use in legal cases. A forensic auditor can play an important role in investigating insider trading, which is the practice of trading in the securities of a public company by someone who has access to non-public, material information about the company.

Some of the tasks that a forensic auditor can perform in investigating insider trading are:

• Conducting detailed audits to review the trading history, financial statements, and compliance with regulations of the suspected insiders and their related parties.
• Working with law enforcement and legal experts to gather evidence that proves or disproves the existence of insider trading.
• Writing detailed audit reports on the findings and conclusions of the investigation.
• Testifying in court or regulatory hearings as an expert witness on the technical aspects of the case.

A forensic auditor can help to expose and prevent insider trading by using their accounting, auditing, and investigative skills to detect and document any irregularities, anomalies, or violations in the trading activities of the insiders¹². A forensic auditor can also help to protect the interests of the investors and the securities market by ensuring that the trading is fair and transparent.

Regulations under SEBI and alleged violations by ZEEL

Here is a table that lists some of the insider trading regulations in India and the alleged violations by the directors of ZEEL against each such regulation:

Penalties contemplated under SEBI Regulations

The penalty for violating insider trading regulations depends on the jurisdiction and the nature of the violation. In India, the SEBI Act, 1992 and the SEBI (Prohibition of Insider Trading) Regulations, 2015 provide for the following penalties:

• Criminal penalty: Imprisonment for a term which may extend to ten years, or fine which may extend to twenty-five crore rupees or three times the amount of profits made out of insider trading, whichever is higher, or both.
• Civil penalty: Disgorgement of the amount of wrongful gain or avoidance of loss, restitution of the amount to the investors who have suffered losses, or initiation of civil proceedings.
• Regulatory penalty: Directions, orders, or injunctions to cease and desist from committing or causing the violation, to prevent the disposal of the securities, to impound the proceeds or securities, to restrain the insiders from accessing the securities market, to suspend the trading of the securities, to debar the insiders from buying, selling, or dealing in the securities, or to take any other action as SEBI deems fit.

In the case of ZEEL, the SEBI had passed an interim order against ZEEL and its promoters on June 12, 2023, for allegedly siphoning off funds of the media firm. The order barred Essel Group chairman Subhash Chandra and ZEEL MD and CEO Punit Goenka from holding the position of a director or key managerial personnel in any listed company. SEBI also directed ZEEL to conduct a forensic audit of its financial statements for the financial years 2018-19 and 2019-20.

SEBI later passed a settlement order on June 21, 2023, after ZEEL and its promoters paid a settlement amount of Rs. 5.77 crore and agreed to certain undertakings. SEBI said that the settlement order disposed of the adjudication proceedings initiated against ZEEL and its promoters, but the interim order would continue to be in force until further orders.

Can a Company be held liable under SEBI Insider Trading Prohibition, Regulations 2015?

Yes, a company can be held liable for insider trading by its employees or directors, depending on the jurisdiction and the nature of the violation. In the US, for example, a company can face criminal and civil penalties if it fails to take appropriate steps to prevent illegal trading by its insiders, such as establishing and enforcing policies and procedures, monitoring and reporting trading activities, and educating and training its employees and directors. In India, a company can also face regulatory penalties if it violates the code of conduct and the code of corporate disclosure practices prescribed by the SEBI (Prohibition of Insider Trading) Regulations, 2015. A company can also be held vicariously liable for the acts of its employees or directors if they perform the criminal act within the scope of their employment and the company is an intended beneficiary of the act. However, a company can also defend itself by proving that it had no knowledge or involvement in the insider trading, or that it had taken adequate measures to prevent and detect such violations.

Defence and representations from ZEEL

According to the web search results, the accused directors of ZEEL have put up the following defence against the allegations of insider trading and fund diversion:

• Subhash Chandra and Punit Goenka have denied any wrongdoing and claimed that they have acted in the best interests of the company and its shareholders. They have also said that they have cooperated with SEBI and provided all the relevant information and documents.
• Ashok Kurien and Manish Chokhani, the two independent directors who resigned after the EGM notice, have said that they have resigned due to personal reasons and not because of any pressure or dissatisfaction. They have also said that they have always followed the highest standards of corporate governance and ethics.
• Vivek Mehra and Sasha Mirchandani, the two independent directors whose reappointment was rejected by the shareholders at the AGM, have said that they have no knowledge or involvement in the alleged transactions and that they have performed their duties diligently and independently. They have also said that they have resigned to avoid any further controversy or damage to the company’s reputation.

Status

The defence of the accused directors of ZEEL is yet to be tested by SEBI and the courts, as the investigation and the legal proceedings are still ongoing. The shareholders and the investors of ZEEL are also awaiting the outcome of the forensic audit and the EGM, which may have a significant impact on the future of the company and its management.

According to the web search results, the investigation against ZEEL is still ongoing, as SEBI has appointed another Whole Time Member to further probe the case. The National Company Law Appellate Tribunal (NCLAT) has also stayed the insolvency proceedings against ZEEL, which were initiated by a group of minority shareholders who alleged mismanagement and fraud by the company and its promoters. The Sony-Zee merger, which was announced in December 2021, is also in jeopardy, as Sony Pictures has not agreed to extend the deadline for closing the deal, which expired on December 21, 2023. One of the main issues in the merger is the role of Punit Goenka, the MD and CEO of ZEEL, who is facing allegations of siphoning off funds and insider trading. The shareholders and the investors of ZEEL are awaiting the outcome of the forensic audit and the extraordinary general meeting (EGM), which may have a significant impact on the future of the company and its management.

The Securities Appellate Tribunal (SAT) is a statutory body that hears appeals against the orders of the Securities and Exchange Board of India (SEBI) and other regulators in the securities market. SAT has the power to confirm, modify, or set aside the orders of SEBI or pass any other order as it deems fit.

In the case of ZEEL, Punit Goenka, the MD and CEO of ZEEL, challenged the interim order of SEBI that barred him from holding any directorial or key managerial position in any listed company, pending the completion of the investigation into the alleged fund diversion and insider trading by him and his father, Subhash Chandra. Goenka filed an appeal before SAT, claiming that the SEBI order was based on presumption and not proof, and that it was punitive and not preventive. He also argued that he was critical for the merger of ZEEL and Sony, which was approved by the shareholders.

SAT Order

SAT heard the appeal and quashed the SEBI order, stating that SEBI had failed to establish the foundational facts before arriving at a presumption of round tripping, and that the transactions between ZEEL and the other entities were based on legal documentation. SAT also observed that SEBI had a history of extending the investigation periods and lacked credibility in completing them within the specified time frame. SAT also noted that the SEBI order had a serious impact on the reputation and career of Goenka, and that he was entitled to a fair hearing before any action was taken against him.

Therefore, SAT got into the picture because it was the appellate authority for the SEBI order, and it exercised its jurisdiction to review the merits and legality of the order, and to provide relief to the aggrieved party.

Who is SEBI in these matters

The Securities Appellate Tribunal (SAT) is a statutory body that hears appeals against the orders of the Securities and Exchange Board of India (SEBI) and other regulators in the securities market. In the case of ZEEL, Punit Goenka, the MD and CEO of ZEEL, challenged the interim order of SEBI that barred him from holding any directorial or key managerial position in any listed company, pending the completion of the investigation into the alleged fund diversion and insider trading by him and his father, Subhash Chandra.

Reason for Conclusion by SAT

The SAT order dated October 30, 2023 quashed the SEBI interim order dated June 12, 2023 that barred Punit Goenka, the MD and CEO of ZEEL, from holding any directorial or key managerial position in any listed company, pending the completion of the investigation into the alleged fund diversion and insider trading by him and his father, Subhash Chandra. The SAT order gave the following point by point rebuttal of the SEBI interim order:

• The SEBI interim order was based on a presumption of round tripping, which is a form of money laundering, without establishing the foundational facts that would lead to such a presumption. The SAT order stated that the transactions between ZEEL and the other entities were based on legal documentation, such as loan agreements, invoices, and bank statements, and that there was no evidence of any illegal or fraudulent activity.
• The SEBI interim order failed to consider the materiality of the transactions, which amounted to less than 1% of the total revenue of ZEEL, and the impact of the transactions on the financial position and performance of ZEEL, which showed consistent growth and profitability. The SAT order stated that the transactions did not affect the interests of the shareholders or the securities market, and that there was no allegation of any price manipulation or insider trading by ZEEL or its promoters.
• The SEBI interim order did not give any opportunity of hearing to Goenka before passing the ex parte ad interim order, which violated the principles of natural justice and fair play. The SAT order stated that Goenka was entitled to a fair hearing before any action was taken against him, and that the SEBI order had a serious impact on his reputation and career.
• The SEBI interim order did not specify the duration of the investigation or the interim order, and that SEBI had a history of extending the investigation periods and lacked credibility in completing them within the specified time frame. The SAT order stated that the interim order was not preventive but punitive, and that it was not justified to continue the interim order indefinitely without any progress in the investigation.

Therefore, the SAT order quashed the SEBI interim order and allowed Goenka to continue his position as the MD and CEO of ZEEL, subject to the outcome of the investigation and the final order by SEBI. The SAT order also directed SEBI to complete the investigation within three months and pass a final order in accordance with the law.

Next steps for ZEEL & its Directors

The next steps here depend on the outcome of the investigation and the legal proceedings against ZEEL and its promoters. Some of the possible scenarios are:

1. If SEBI finds sufficient evidence of fund diversion and insider trading by ZEEL and its promoters, it may impose criminal, civil, or regulatory penalties on them, such as imprisonment, fine, disgorgement, debarment, or suspension.
2. If SEBI does not find sufficient evidence of fund diversion and insider trading by ZEEL and its promoters, it may drop the charges and lift the interim order against them, subject to the final order of SAT.
3. If the forensic audit reveals any irregularities or anomalies in the financial statements of ZEEL, it may affect the credibility and valuation of the company and its securities, and may also trigger further action by SEBI or other regulators.
4. If the forensic audit does not reveal any irregularities or anomalies in the financial statements of ZEEL, it may restore the confidence and trust of the shareholders and the investors in the company and its management.
5. If the extraordinary general meeting (EGM) of ZEEL, which is scheduled for January 15, 2024, results in the removal of Punit Goenka and other directors from the board of ZEEL, it may lead to a change in the management and the control of the company, and may also affect the merger deal with Sony.
6. If the EGM of ZEEL does not result in the removal of Punit Goenka and other directors from the board of ZEEL, it may indicate the support of the majority shareholders for the current management and the merger deal with Sony.
7. If the Sony-Zee merger deal is completed, it may create a media giant with a combined market share of over 40% in the Indian television industry, and may also bring in fresh capital and expertise for ZEEL.
8. If the Sony-Zee merger deal is cancelled, it may result in a loss of opportunity and value for ZEEL, and may also expose it to the risk of hostile takeover by other competitors or investors.

These are some of the possible next steps here, but they are not exhaustive or certain. The situation is complex and dynamic, and may change depending on various factors and events. Therefore, it is advisable to keep a close watch on the developments and updates related to ZEEL and its promoters.

ZEEL, SONY Merger

According to the web search results, ZEEL and Sony have obtained the necessary approvals from various regulators, including SEBI, for their merger deal, which is valued at $10 billion. The National Company Law Tribunal (NCLT) has also approved the scheme of amalgamation of ZEEL and Sony on December 21, 2023². However, the merger is still subject to the outcome of the SEBI investigation and the final order by SAT.

Merger & SAT Order

The SEBI investigation is still ongoing, as SEBI has appointed another Whole Time Member to further probe the case of alleged fund diversion and insider trading by ZEEL and its promoters, Subhash Chandra and Punit Goenka. The SEBI had passed an interim order on June 12, 2023, barring them from holding any directorial or key managerial position in any listed company or their subsidiaries. However, the SAT had quashed the SEBI order on October 30, 2023, stating that SEBI had failed to establish the foundational facts before arriving at a presumption of round tripping, and that the transactions between ZEEL and the other entities were based on legal documentation. The SAT had also allowed Goenka to continue his position as the MD and CEO of ZEEL, subject to the outcome of the investigation and the final order by SEBI. The SAT had also directed SEBI to complete the investigation within three months and pass a final order in accordance with the law.

Merger Process through NCLT

The amalgamation process in NCLT involves the following steps:

• Call a board meeting and approve the draft scheme of merger, the valuation report, the share exchange ratio, and the authorization to file an application to NCLT.
• File the first motion application to NCLT in Form No. NCLT-1, along with the notice of admission in Form No. NCLT-2, the affidavit in Form No. NCLT-6, the copy of the scheme of compromise and arrangement, and the fee as prescribed in the schedule of fees.
• Obtain the directions from NCLT for convening the meetings of the creditors and the members, and for publishing the notice of the meetings in the newspapers and on the websites of the companies.
• Hold the meetings of the creditors and the members and pass the resolutions approving the scheme of merger with the requisite majority.
• File the second motion application to NCLT in Form No. NCLT-1, along with the report of the result of the meetings in Form No. NCLT-3, and the affidavit in Form No. NCLT-6.
• Obtain the sanction order from NCLT approving the scheme of merger and file a certified copy of the order with the Registrar of Companies within 30 days of the receipt of the order.
• File an application to NCLT for dissolution of the transferor company without winding up and obtain the dissolution order.
• File a certified copy of the dissolution order with the Registrar of Companies within 30 days of the receipt of the order.

Therefore, ZEEL and Sony can apply or proceed with the amalgamation process in NCLT, as they have obtained the necessary approvals from the regulators and the shareholders. However, they may face some challenges or risks, depending on the outcome of the SEBI investigation and the final order by SAT, which may affect the role of Punit Goenka and the valuation of ZEEL. They may also face some opposition or litigation from the minority shareholders or other stakeholders, who may allege mismanagement or fraud by ZEEL and its promoters. Hence, ZEEL and Sony should be cautious and vigilant while pursuing the merger deal, and should comply with all the legal and regulatory requirements.

In conclusion, the case of ZEEL and its promoters is a complex and dynamic one, involving allegations of fund diversion and insider trading, regulatory and legal actions, shareholder activism, and merger deal. The outcome of the case may have significant implications for the future of the company and its management, as well as the interests of the shareholders and the investors. Therefore, it is advisable to keep a close watch on the developments and updates related to ZEEL and its promoters.

This article is contributed by one of the avid readers FCA Chandrasekaran Ramadurai and jointly by him and prompts from Bing. The sources from which the articles were generated are given below.

Source: Conversation with Bing, 1/11/2024

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