Mumbai: The Securities and Exchange Board of India (Sebi) on Friday barred Zee Entertainment Enterprises (ZEEL) founder Subhash Chandra and CEO Punit Goenka from the securities market for one year each and imposed a total penalty of ₹1.48 crore over an unauthorised pledge of the company's land in Hyderabad to secure loans taken by promoter-linked Essel Group entities.
The capital-markets regulator also fined ZEEL ₹30 lakh and prohibited the company from accessing the securities market for two months.
Sebi said its investigation was triggered after ZEEL's statutory auditor, Deloitte Haskins & Sells LLP, reported in its FY19 audit that the title deeds of certain immovable properties were missing.
The regulator said the original title deeds of ZEEL's Hyderabad land were deposited with Indiabulls Housing Finance on December 27, 2018, to create a first-ranking mortgage securing loans availed by four Essel Group companies. The entities had together borrowed ₹726 crore, while Essel Home acted as the co-borrower.
In a separate development, ZEEL got the green light from shareholders to raise ₹3,144 crore by issuing convertible warrants to its promoter group, narrowly clearing the 75% approval mark required by law, with 76.64% of votes backing the resolution.
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Friday's balloting at the extraordinary general meeting (EGM) marks a turnaround from a year ago, when investors blocked a similar ₹2,237-crore warrant proposal, giving it just 60% support-short of what was needed to have the proposal passed.
Friday's move would help raise promoters' stake in ZEEL from 4% to 24% once converted-a change that will cut the holdings of other shareholders by 21%.
EGM Outcome
Ashish K Singh, managing partner, Capstone Legal, said the Sebi curbs on capital-markets access for the promoters and the company could introduce regulatory ambiguity around ZEEL's plans to issue fully convertible warrants to an entity within the promoter group.
"However, in the absence of a specific Sebi directive on the preferential warrant issue, the outcome of the EGM would stand," Singh said. "In my assessment, Sebi's recent order concerning Zee, Subhash Chandra and Punit Goenka does not have a bearing on the EGM's resolution," he added.
The regulator alleged that the borrowing entities were ultimately controlled by Chandra, Goenka and their family members through multiple layers of shareholding, making the transaction a related party transaction under accounting standards. Sebi said Chandra signed the declaration and acknowledgement on behalf of ZEEL, stating all necessary corporate approvals had been obtained before creating the mortgage.
"The investigation, however, did not find any prior approval of the audit committee, the board of directors or the shareholders of ZEEL for the creation of security over the Hyderabad land," Sebi said in its 150-page final order.
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