SAT sets aside Sebi order against Zee’s Punit Goenka

Mumbai: Punit Goenka was reinstated as the managing director and chief executive of Zee Entertainment Enterprises Ltd (ZEEL) on Monday evening after the Securities Appellate Tribunal (SAT) overturned a ban imposed by the market regulator for allegedly siphoning off company funds.

SAT’s decision to set aside the 14 August Securities and Exchange Board of India (Sebi) order has also paved the way for Goenka to lead the proposed merged entity of Zee and Sony Pictures Networks India. The merger was announced in December 2021 but faced delays due to regulatory approvals and objections from financial creditors of Zee promoters.

The merger between Zee, a company founded by Goenka’s father over three decades ago, and Sony Pictures Networks India (now Culver Max Entertainment) received final approvals from the National Company Law Tribunal (NCLT) on 10 August following the dismissal of objections raised by some lenders, including Axis Finance, JC Flowers Asset Reconstruction Co., IDBI Bank, Imax Corp., and IDBI Trusteeship.

However, in August, Sebi prohibited Goenka from holding key directorship in a listed entity in connection with an alleged fund diversion case. The order, passed by Sebi chief Madhabi Puri Buch, was strongly worded and prevented Goenka and his father, Subhash Chandra, from holding key positions in publicly traded companies until further notice. This led Goenka to challenge Sebi’s order before SAT.

During the hearing, Sebi argued that the burden of proof was on Goenka to establish his innocence. The burden of proof necessitates that a party produces evidence to verify the facts required to satisfy all the necessary legal elements of the dispute. However, SAT noted that Sebi had not yet proven the diversion of funds and found that Goenka had sufficiently explained the situation with genuine documents, thus satisfying his burden.

While Sebi may appeal the tribunal’s decision to the Supreme Court, Monday’s ruling was a significant relief for Goenka. SAT allowed the regulator to continue its investigation and requested Goenka’s cooperation.

The SAT bench, led by Justice Tarun Agarwala, stated, “The impugned order cannot be sustained and is quashed insofar as it relates to the appellant (Goenka). The restraint order passed by the respondent pursuant to the ad interim order and the confirmatory order restraining the appellant from functioning as a managing director is set aside. The appeal is allowed. The appellant shall, however, cooperate in the investigation. In the event any material comes out against the appellant during the investigation, then the appropriate procedure can be adopted by Sebi in accordance with the law.”

The tribunal also clarified that any observations made in the order are preliminary and should not influence the investigation or be used by either party.

While the two companies initiated the integration process following NCLT’s order, Sebi’s order posed challenges. One of the merger’s conditions was that Goenka would remain the managing director of the combined entity.

Mint reported on 10 August that, following the NCLT order, both companies were working toward finalizing the merger, expected to be completed by mid-November.

On 15 October, Mint reported that, despite integration meetings with the Boston Consulting Group (BCG) progressing as planned, Sony Pictures Entertainment (SPE), the global entertainment unit of Japan’s Sony Group Corp., initiated preliminary talks with Walt Disney Co. about a potential acquisition of its India business as a contingency plan.

The Zee-Sony deal involved SPE, the indirect parent of Sony Pictures Networks, investing approximately $1.06 billion as growth capital for the merged entity, along with a non-compete fee of $147 million paid to Zee’s founders.

The deal was initially expected to close by 31 March 2022. In a statement, Sony Group Corp. said last month, “Although the transaction was previously expected to close by the end of the first half of the fiscal year ending on 31 March 2024, based on the latest progress, it is currently expected to close in the months ahead. Sony continues to assess the impact of the transaction on its consolidated financial results.”

In the meantime, Sony considered appointing an interim CEO until Goenka’s exoneration. With SAT’s order in favour of Goenka, many in the industry expect him to take charge as the new company’s leader.

“This order paves the way for the consolidated Zee-Sony to emerge as a force under the leadership of Punit Goenka. It has been over two years since the merger was announced. It’s time for shareholders to reap the benefits of a listed media MNC in India,” wrote Shriram Subramanian, founder and MD of corporate governance advisory firm InGovern Research Services on X (formerly Twitter).

SAT also emphasized that if there is any “greater responsibility” placed on the appellant (Goenka) following the merger, then it is all the more reason for him to continue as MD of the merged entity, especially when 99.97% of the shareholders have expressed faith in him.

“The structure of the merged entity is such that Sony Group would have the majority shareholding and a majority presence on the board of directors. They would have the right to appoint key managerial personnel like the chief financial officer, chief compliance officer, company secretary, etc. The appellant would be just one of the nine directors of the merged entity. Hence, his continuation as the managing director in the merged entity would have no impact on the investigation,” Justice Agarwala said in his 94-page order.