The fate of Sony-Zee merger after SEBI's ban on Subhash Chandra, Punit Goenka

If Goenka is unable to hold a key managerial position, it is unlikely that Sony would withdraw from the merger, as per Karan Taurani, SVP- Research Analyst (Media, Consumer Discretionary and Internet), Elara Capital

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The fate of Sony-Zee merger after SEBI's ban on Subhash Chandra, Punit Goenka

Karan Taurani

Following market regulator SEBI’s decision to bar Essel Group chairman Subhash Chandra and Zee Entertainment Enterprises (ZEEL) MD and CEO Punit Goenka from holding a directorial role or any key managerial personnel in any listed company for siphoning off ZEEL funds, Zee management will now file an appeal in the Securities Appellate Tribunal (SAT), to fight against the SEBI order, as per Karan Taurani, SVP- Research Analyst (Media, Consumer Discretionary and Internet), Elara Capital.

This may happen over the next one day and after hearing Zee management's appeal the SAT may grant a stay against the SEBI order, he added. 

“The above may have a negative impact in terms of delayed timelines for the merger process, which was to move at a faster pace after NCLAT dismissed appeal of NCLT to reassess exchange approval and asked the latter to hear Zee arguments,” Taurani said. 

On the flip side, there may also emerge a scenario wherein Zee management loses the case in SAT and the merger goes through without them, and this may eventually happen as Zee management has a mere 4% stake, as per Taurani. It may require shareholder approval again and the scheme of merger may change to appoint a new CEO/MD for the merged company. However, this is a far-fetched scenario. 

As of now, Goenka is slated to be the MD/CEO of the merged company, as per the scheme of arrangement. The Zee-NCLT hearing for merger is scheduled on June 16. 

"We don’t think Sony would back out of the merger, in case Goenka is not able to hold a key managerial position, as Sony would then search for a new CEO," he stated.

Furthermore, he added, “The stock may see a mild negative reaction on the above news, as there is some certainty that this will cause a delay in the merger approval process. We were earlier expecting the merger process to end by August, as more than seven hearings have already been done in NCLT. However, we don’t expect the merger to be called off and that is a big long-term respite, as Sony may go ahead with the merger even without Goenka being a KMP (key management person) of the merged company.” 

According to a news report by, the case pertains to Chandra, who was also the chairman of ZEEL during the alleged violation, and Goenka having abused their position as directors or KMPs of a listed company for siphoning off funds for their own benefit.

In its interim order, SEBI noted that Chandra and Goenka alienated the assets of ZEEL and other listed companies of Essel Group for the benefit of associate entities, which are owned and controlled by them.

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 pass-through entities within two days only, it added.

SEBI noted that the share price of ZEEL has come down from a high of close to Rs 600 per share to the current price of less than Rs 200 per share during the period FY 2018-19 to FY 2022-23. 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 the current level of 3.99%.

Although the promoter family only holds 3.99% shares in ZEEL, Chandra and Goenka continue to be at the helm of the company’s affairs, the order noted.

"Noticees (Chandra and Goneka) 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 which were rotated through multiple layers to end in ZEEL's account finally.”

“The noticees have attempted to piggyback on the success of ZEEL, the flagship company of Essel Group, to bankroll the associate entities, which are owned and controlled by them," SEBI said in its 17-page order.

The order came after SEBI conducted an examination in the wake of the resignation of two independent directors -- Sunil Kumar and Neharika Vohra -- of ZEEL in November 2019.

They had raised concerns over several issues, including the appropriation of certain Fixed Deposit (FD) of ZEEL by Yes Bank for squaring off loans of related entities of Essel Group. Vohra alleged that bank guarantees were given to a subsidiary without approval from ZEEL's board.

SEBI's investigation found that Chandra had provided a “Letter of Comfort” or LoC in September 2018, that was towards a Rs 200 crore loan outstanding from Essel Group Mobility.

Going by the letter, the Rs 200 crore FD available with Yes Bank from any of the Essel Group companies, including ZEEL, could be taken to settle it. Accordingly, Yes Bank had adjusted the loans of seven associate entities with this Rs 200 crore of ZEEL.

Later, it was found that these seven entities were owned or controlled by family members of Chandra and Goenka, SEBI noted.

When SEBI investigated further, ZEEL submitted that Rs 200 crore had been returned by the associate entities to ZEEL. Since Chandra and Goenka had signed the LoCs without consulting or informing the Board, both were found to have violated provisions of LODR (Listing Obligations and Disclosure Requirements) rules.

Accordingly, SEBI said, "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".

Karan Taurani Subhash Chandra Punit Goenka Zee SEBI ZEEL SEBI order SAT Zee management