SEBI To Continue Proceedings against Zee Entertainment with Fresh Notice

Moneylife Digital Team 03 January 2025

Investor Interest

In a significant development, the Securities and Exchange Board of India (SEBI) has rejected settlement applications from Zee Entertainment Enterprises Ltd (ZEEL) and its leadership regarding alleged violations of listing regulations. While continuing its investigation into the alleged violation of listing norms against ZEEL, its founder chairman Subhash Chandra and his son Punit Goenka, who is former managing director (MD) of the company, SEBI says the contents of the previous show-cause notice (SCN) will be incorporated in the SCN to be issued in the instant matter.

ZEEL and its top management are under SEBI scrutiny for alleged violations of the Listing Obligations and Disclosure Requirements (LODR) Regulations in which an SCN was issued to them in July 2022.

Rather than accepting the settlement applications, SEBI has instructed its adjudicating officer to incorporate new findings from their investigations and issue fresh show-cause notices to all three parties. The regulator specified that the allegations from the original July 2022 notice would be incorporated into a broader investigation framework, with all examination reports and related documents becoming integral parts of the expanded probe.

This regulatory action comes at a challenging time for ZEEL, following recent corporate developments. In late-November 2024, shareholders rejected a proposal to reappoint Mr Goenka as director during the company's 42nd annual general meeting, with 50.4% voting against the resolution. While Mr Goenka had stepped down as managing director earlier that month, he retained his position as chief executive officer (CEO) to focus on operational responsibilities.

The situation has been further complicated by SEBI's previous actions against the company's leadership. In August 2023, the regulator had barred both Mr Chandra and Mr Goenka from holding key positions in four group firms. The regulatory scrutiny also played a role in derailing the proposed US$10bn (billion) merger between Zee and Sony's India unit. SEBI's investigation includes examining alleged fund diversions, particularly focusing on letters of comfort (LoC), including one substantial LoC worth Rs4,210 crore issued by Mr Chandra in his capacity as chairman of the Essel group.

The impact of these developments has been reflected in ZEEL's market performance as its shares experienced significant volatility. While the stock showed an immediate positive response to SEBI's latest order, with the stock touching a high of Rs132.80 on Friday, the broader picture remains challenging, with Zee stock declining nearly 60% over the past 12 months, particularly following the collapse of the Sony deal.

The case has seen several administrative changes, with Amit Kapoor taking over as adjudicating officer (AO) on 27 December 2024, following the transfer of previous officers. Under Section 11B of the SEBI Act 1992, the regulator is now proceeding with a comprehensive investigation that promises to scrutinise the company's practices and compliance with regulatory requirements more thoroughly than initially planned.

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