The Securities and Exchange Board of India (SEBI) on Friday barred Zee Entertainment Enterprises Ltd (ZEEL) former chairman Subhash Chandra and former managing director and CEO Punit Goenka from accessing the securities market for one year after finding that the company’s Hyderabad land was unauthorisedly used to secure loans for promoter-linked entities.
SEBI also restrained ZEEL from accessing the securities market for two months and imposed penalties of Rs 60 lakh on Chandra, Rs 58 lakh on Goenka and Rs 30 lakh on the company.
The case concerned an unauthorised pledge of ZEEL’s Hyderabad land to secure loans worth Rs 726 crore availed by four promoter-linked companies from Indiabulls Housing Finance Ltd (IHFL). ZEEL was neither a borrower nor did it receive any part of the loan proceeds.
In an order passed by SEBI’s quasi-judicial authority N Murugan, the regulator held that Chandra and Goenka were responsible for deploying the company’s land as collateral without the approval of ZEEL’s board, audit committee or any competent corporate authority.
The order found that the executives failed to act in good faith and in the best interests of ZEEL and its shareholders, holding that their conduct fell short of the standards of diligence, integrity and ethical conduct expected of directors of a listed company.
SEBI noted that after the borrower entities had availed loans aggregating Rs 726 crore, IHFL sought additional security, following which a “declaration and acknowledgement” dated December 27, 2018 was executed in ZEEL’s name. The document identified the Hyderabad land as security for the borrowers’ obligations and was signed on behalf of ZEEL by then chairman Chandra. The regulator observed that the authenticity of the document was never disputed.
Rejecting the contention that the document was irrelevant because it was unregistered, Murugan held that while registration may affect enforceability under property law, it did not negate the acts undertaken to expose ZEEL’s asset to risk or the intention behind the transaction.
The regulator further found that the transaction was never placed before ZEEL’s board or audit committee and that the company failed to disclose the unauthorised pledge to the stock exchanges, in violation of SEBI’s disclosure requirements.
Rejecting the defence that no loss was ultimately caused because the land was recovered and later sold at a profit, SEBI observed that securities law is concerned with corporate governance, transparency and conflicts of interest, not merely the eventual financial outcome.
Holding that the former executives had employed a deceptive device and participated in a fraudulent scheme involving the diversion of ZEEL’s assets for the benefit of promoter-related entities, SEBI barred Chandra and Goenka from the securities market for 12 months and directed payment of the monetary penalties within 45 days.
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