SEBI, the Securities and Exchange Board of India, has issued an interim order prohibiting Subhash Chandra, Chairman of Essel Group, and Punit Goenka, CEO of Zee Entertainment Enterprises Limited (ZEEL), from holding any directorial or key managerial positions in listed companies or their subsidiaries. This action was taken after SEBI found evidence that Chandra and Goenka had misused their positions to divert funds for personal gain and transfer assets of ZEEL and other Essel Group companies to associate entities controlled by them.
SEBI's investigation revealed a well-planned scheme of fund diversion, involving the use of multiple entities as pass-through vehicles within a short span of time. This pattern of transactions, along with the involvement of entities previously linked to fund diversion in another case, strengthens the suspicion that funds were indeed siphoned off from ZEEL. The order emphasizes the need for a thorough investigation into this matter.
During the period from 2018-19 to 2022-23, ZEEL's share price declined significantly, despite the company's profitability and consistent generation of post-tax profits. The SEBI order notes that this erosion of wealth, coupled with a substantial drop in promoter shareholding, indicates underlying issues within the company. The noticees, Chandra and Goenka, allegedly created a facade through false entries to deceive investors and regulators into believing that funds had been returned by associate entities, whereas it was ZEEL's own funds that were circulated through multiple layers and eventually returned to ZEEL's accounts.
SEBI initiated the investigation following the resignation of two independent directors of ZEEL in November 2019, who raised concerns about the appropriation of ZEEL's fixed deposits by Yes Bank to repay loans of Essel Group's related entities. The examination revealed that Chandra had provided a Letter of Comfort (LoC) to Yes Bank, which allowed the bank to adjust ZEEL's fixed deposit towards the obligations of seven associate entities owned by Chandra and Goenka's family members.
Despite ZEEL's claims of receiving the funds back from the associate entities, SEBI's analysis of bank statements revealed that a significant portion of the funds originated from ZEEL itself or other listed companies of the Essel Group. These funds were routed through various entities owned or controlled by the promoters before reaching the associate entities and eventually returning to ZEEL's account. SEBI concludes that there was no genuine net receipt of funds by ZEEL and that the transactions were merely book entries to create the impression of repayment.
The SEBI order also highlights the misstatement or misrepresentation in the Annual Report regarding payments from associate entities. In light of these findings, SEBI has imposed interim restrictions on Chandra and Goenka, pending further investigations.
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TAGS: SEBI Securities and Exchange Board of India Essel Group Subhash Chandra Zee Entertainment Enterprises Limited (ZEEL) Punit Goenka interim order barring directorial positions key managerial positions listed company subsidiaries siphoning off funds asset alienation associate entities well-planned scheme layering of transactions fund diversion share price erosion of wealth profitable company promoter shareholding façade sham entries misrepresenting piggybacking independent directors Sunil Kumar Neharika Vohra concerns fixed deposits Yes Bank Letter of Comfort (LoC) resignation appropriation examination bank statements fund receipt book entries misstatement misrepresentation Annual Report interim directions.
