SEBI Likely To Issue Show Cause Notice To Zee Next Month In Fund Diversion Case

SEBI might issue a show cause notice to Zee Entertainment Enterprises Ltd. next month in a fund diversion case.

The capital market regulator is currently summoning directors to further investigate claims of fund diversion and is committed to closing the investigation process by April, according to people with knowledge of the matter, who spoke on condition of anonymity.

As part of its investigation, the regulator has detected a likely fund diversion of Rs 2,000 crore, said one of the people quoted above.

The findings add to Zee's challenges as its $10 billion-merger with Sony collapsed last month, after being two years in the making, on disagreements between the two parties amid the ongoing probe by the market regulator into its promoters.

In August last year, SEBI had barred Zee founder Subhash Chandra and his son Punit Goenka from holding key positions in Zee Entertainment Enterprises, Zee Media Corp., Zee Studios, and Zee Akaash News Pvt. The bar also extended to any entity that came out of the merger or demerger of these entities, creating a significant hurdle in Zee's proposed merger with Sony Pictures.

The order was issued after SEBI, in its interim order, alleged that the father-son duo diverted Rs 200 crore fixed deposit of Zee with Yes Bank, to service the loans of other Zee Group entities.

Goenka challenged the order before the Securities Appellate Tribunal, which set aside the SEBI ban against Goenka in the fund diversion case. However, the tribunal had directed Goenka to cooperate with investigation if something material turned up during the process.

As part of the original agreement announced in December 2021, Goenka was to continue with the post of managing director and CEO of the firm. However, the regulator's probe led to Sony being hesitant to let Goenka helm the new merged entity. The disagreement on this led to the fall of the merger in January this year.

Shares of Zee closed about 15% lower to settle at Rs 164 apiece on the BSE on Wednesday, as compared with a 0.6% fall in the benchmark Sensex. The stock fell over 42% in 2024 so far.