Market regulator SEBI's order against Punit Goenka shouldn't be the reason to hold up the company's merger with Sony Pictures, Senior Advocate Janak Dwarkadas told the National Company Law Tribunal while arguing for Zee Entertainment Enterprises Ltd.
"The scheme shouldn't be held up just because Goenka could be held unfit subsequently," Dwarkadas submitted before the NCLT on Thursday.
Zee's proposed merger with Culver Max Entertainment Pvt., also known as Sony Pictures, has been impacted by SEBI's June 12 order against Goenka, who is the company's chief executive officer. He has been barred from holding directorial positions in any listed entity.
According to the regulator, Goenka, along with his father Subhash Chandra, was allegedly responsible for misappropriating Rs 200 crore of Zee's fixed deposit with Yes Bank Ltd. for the benefit of associate entities. The matter is on appeal before the Securities Appellate Tribunal, which had reserved its order last month.
Pointing to SEBI's direction, Dwarkadas said that the clause in the merger scheme, designating Goenka as the managing director of the combined entity, is not final. It's subject to approval by the Ministry of Information and Broadcasting and he could be changed at any time from the directorial position with the shareholders' approval, Dwarkadas said. "The scheme shouldn't be held up for such a reason."
Let's say the outcome is unfavourable. That doesn't mean that the scheme shouldn't go through. This shouldn't be an impediment to a scheme approved by 99.9% of shareholders.Janak Dwarkadas, Zee's Counsel
During the hearing, Dwarkadas also alleged that stock exchanges NSE and BSE failed to prove the relevance of placing SEBI's order against an Essel Group entity in Zee-Sony's merger proceedings.
The regulator, through the exchanges NSE and BSE, had placed on record before the NCLT an order against Shirpur Gold Refinery Ltd. In this order, the regulator has alleged siphoning of funds by Shirpur's promoter entities.
The order against Shirpur, Dwarkadas said, has no relevance to the merger as it is not even against Goenka. It's against his brother Amit Goenka and is still not final. These orders are subject to challenge, he said.
SEBI's orders are not set in stone and can be overturned, and they have been overturned by the SAT as well as the Supreme Court.Janak Dwarkadas, Zee's Counsel
As his third argument, Dwarkadas highlighted conditions under the Companies Act, 2013, on the basis of which a merger scheme can be rejected. That is, if the objectors can prove that it is against public policy, against the public interest, or against the interests of shareholders or creditors. "None of the objectors have proven any part of the scheme to be in contravention of these principles," he said.
The objections of intervening entities, Dwarkadas said, seem to arise from the non-compete clause in the merger scheme. This clause states that a non-compete fee of Rs 1,100 crore would be paid by SPE Mauritius to Essel Mauritius, which would be invested back in the merged entity.
The objectors—Axis Finance Ltd., IDBI Bank Ltd., JC Flowers Asset Reconstruction Pvt.—who are all creditors of the Essel Group have argued that the non-compete fee is designed to defraud creditors. The amount should have come to Subhash Chandra and not some Mauritian entity, they have submitted.
Countering this, Dwarkadas said that the clause has been included with a legitimate intent to protect the merged entity from any competition from the promoters. "The money is brought back into the entity as share capital. So, there is no money going out of the entity," he said. "Anyone would say that it's a good consideration. There's no prejudice to any of the creditors."
None of the objectors, he said, have locus to object to the scheme as they are not creditors of Zee but other Essel Group entities. As Essel Group is not a juristic entity, their objections can't be sustained, he said.
The matter will be heard next on July 10.
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