SAT Questions SEBI Credibility To Complete Investigations On Time

The Securities Appellate Tribunal raised concerns on Thursday over the eight-month investigation period dedicated by SEBI to look into the alleged fund diversion by Zee Entertainment Enterprises Ltd.'s promoters, Punit Goenka and Subhash Chandra.

"The order says to investigate for eight months. Now, where do you get these eight months, and what's the certainty that you won't extend this beyond eight months?," the tribunal asked the market regulator.

The past record of the Securities and Exchange Board of India shows that they have always extended it either through the tribunal or through the Supreme Court. This has happened in not one but multiple cases, it said. The latest one is in the Adani case, the SAT said. "Your credibility to complete an investigation within the stipulated time is not there."

In a confirmatory order on Aug. 14, SEBI barred Chandra and Goenka from the boards of Zee Group entities until further directions. The regulator said that it would complete a detailed investigation into the matter within eight months.

The matter revolved around a letter of comfort issued by Chandra as Zee chairperson, leading to the alleged misappropriation of a Rs 200 crore fixed deposit by Zee with Yes Bank Ltd. Zee showed that it received the money back from its associates when the funds eventually originated from the company, thereby violating several SEBI regulations.

Goenka appealed against the order on Aug. 25, citing the eight-month ban as unjust and punitive.

During the hearing, Goenka's counsel, Abhishek Manu Singhvi, argued that the order was long, disproportionate, and unreasonable as he could be found innocent subsequently. Singhvi contended that the matter is a "public-interest issue" as it has implications for the Zee-Sony merger.

According to the merger scheme, Goenka is supposed to be the managing director of the entity that comes out of the merger of Zee Entertainment and Culver Max Entertainment Pvt. (Sony India). The National Company Law Tribunal approved the Zee-Sony merger on Aug. 10.

Singhvi said that there was no need to explain the circulation of funds undertaken among Zee's associate entities as it can't explain any transactions besides its own. He claimed that all funds were transferred to Zee's associate entities for commercial purposes.

Senir Advocate Darius Khambata, who appeared for SEBI, argued that Zee is obligated to explain the circulation of funds as there is no commercial rationale for even the first leg of transactions. He said it could have provided filings of goods and services tax or invoice details to prove the legitimacy of transactions.

Singhvi said this was pure presumption, as SEBI presumed that these transactions were malicious because they didn't submit certain documents that the regulator thought were adequate to prove the genuineness of the transaction.

He said that neither Goenka nor Chandra unjustly enriched themselves through these transactions, and, therefore, this is a prosecution before adjudication.

SEBI has concluded its arguments. The tribunal will hear Goenka's rebuttal to SEBI's arguments on Sept. 27.