NSE, BSE file affidavits in ZEE-Sony merger case in NCLT

The proposed merger of Zee Entertainment Enterprises Ltd with Sony Pictures Networks India (SPN) is likely to face a significant setback after the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) on Thursday informed the National Company Law Tribunal (NCLT) that they have been instructed by the Securities and Exchange Board of India (SEBI) to submit a 25 April SEBI order as part of the record.

The regulator had passed an ex-parte order in the matter of Shirpur Gold Refinery fund diversion case.   

Nausher Kohli, counsel representing the NSE, informed the tribunal that the exchange was in receipt of a notice from SEBI wherein the regulator has directed it (NSE) to place on record its order before the court. 

A similar notice has been sent to BSE by SEBI.     

The proposed merger has already been facing legal hurdles due to opposition from various lenders, including Axis Finance and JC Flower ARC, among others. These creditors have been seeking a direction from NCLT to ZEE promoters to repay using the funds they are supposed to receive as part of the non-compete fee from Sony. 

Citing the Sebi order, Kohli stated that “Sebi had received a complaint alleging that the loans taken by Shirpur from banks and financial institutions had not been used for operations of the company but instead were siphoned off to companies under the control of Subhash Chandra and his family. It was also alleged that Shirpur was not providing information to public shareholders with respect to its operations”. 

He brought to the court’s notice that the Promoter of Shirpur is Jayneer Infrapower and which, as on 31 March 31, 2023, owns 43.66% shares in Shirpur. The shareholders’ details of Jayneer included brothers Amit and Punit Goenka, along with other members of the Goenka family — Sushila, Shreyasi, and Navyata.

Essentially, Jayneer’s shareholders are family members of Subhash Chandra Goenka, the founder of the Essel Group. Accordingly, Shirpur is part of Essel Group of Companies which itself is undergoing insolvency, the Sebi order showed. 

As per the SEBI order, the facts brought out in the case have detailed that Shirpur, its directors, and CFOs were involved in misleading investors through a complex network of business transactions that were presented as legitimate by manipulating the company's financial statements in a fraudulent manner. 

This has resulted in the published financial statements of the company failing to provide an accurate and honest representation of its financial position, which investors have relied upon. The SEBI order suggests that the company and its executives have engaged in fraudulent activities, leading to a violation of regulations governing securities markets.

Any mis–statement or misrepresentation in the financial statements adversely impairs an investor’s ability to take an informed decision about investing in a company. 

Referring to the order, Kohli pointed out, “In the extant case, Shirpur, after entering into sizeable financial transactions with entities having common Directors/ addresses, the money, through round tripping, found destination back to its promoter, Jayneer, which has members of the Essel Group Promoter family as its shareholders. The trading of shares of Shirpur stands suspended on the exchanges as the company has not paid listing fees. All these points to a ‘well–planned’ scheme to dupe innocent investors at large.” 

The NCLT bench led by Justice HV Subba Rao and member Madhu Sinha suggested the exchanges that they too should take into consideration the order since both NSE and BSE have cleared the merger of the two entities. 

Until now both the exchanges—NSE and BSE — and the Competition Commission of India have cleared the merger of ZEE-Sony which is expected to be one of the largest mergers in the Indian media entertainment space. However, the merger is subject to necessary regulatory, shareholder and third-party approvals. 

After hearing both the parties the court has posted the matter for further hearing on 16 June.