SEBI Defends Action, Tells SAT Zee's Subhash Chandra, Son Siphoned Rs 200 Crore
Non-disclosure of material transactions and failure to inform investors about the misappropriation of funds warranted an urgent action against Zee Entertainment Enterprises Ltd.'s Chairman Emeritus Subhash Chandra and Managing Director and Chief Executive Punit Goenka, according to SEBI.
The Securities and Exchange Board of India's response at the the Securities Appellate Tribunal comes after Chandra and Goenka's assertion that the regulator's interim order was in violation of principles of natural justice.
On June 12, the market regulator had barred both from acting as key managerial persons or holding directorial positions in listed companies. Chandra and Goenka had given a Letter of Comfort to Yes Bank Ltd., without the knowledge of the board, against loans to several groups companies. Later, Yes Bank adjusted a fixed deposit of Zee worth Rs 200 crore against the liability of seven promoter entities, SEBI said.
According to it, both individuals had exploited their roles as directors or key managerial personnel of the Essel Group entity for their own benefits.
Last week, during the appeal proceedings, SAT had asked SEBI to respond to Chandra and Goenka's argument that there was no urgency to pass such an order.
In its reply, SEBI has detailed why an urgent preventive action was warranted in this case. BQ Prime has reviewed a copy of SEBI's submission.
At the beginning of the investigation, SEBI said, it had no reason to believe that Zee's claim that Rs 200 crore had been repaid to it by the promoter companies was false. It was only after subsequent tracing of funds that SEBI unearthed that Zee funded its own repayment.
Chandra and Goenka "created a façade through sham entries to misrepresent to the investors as well as the regulator that the money had been returned by seven related companies, whereas in reality, it was ZEE's own funds which rotated through multiple layers to finally end in ZEE's account." -SEBI's submission
Its analysis of the transactions revealed that the transfers occurred between the conduit entities on the same date or consecutive days in a sequential fashion and at very quick intervals—within seconds and minutes.
This is an indication that these transactions are not bona fide in nature but were only for the purpose of funneling money to the seven related parties so that they could make payments to Zee of the amounts appropriated by Yes Bank, the regulator has pointed out.
According to SEBI, it was the layering of the entities that gave away the diversion of funds by Zee's promoters. The whole-time member who looked into the matter of another Essel Group firm Shirpur Gold Refinery Ltd. had noticed some overlapping of entities in both cases, leading to the present investigation. Further, identical replies from related party entities promising to return the amounts appropriated by Yes Bank after the funds were misappropriated raised SEBI's suspicion.
These facts reasonably warrant urgent action to safeguard the management of such companies and protect their investors and other stakeholders, the regulator has stated.
The matter comes up for hearing in SAT on Monday.
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