SAT Continues Hearing Zee Entertainment’s Plea Against SEBI Order; NCLT to Decide Fate of ZEEL-Sony Merger

• Blockchain Council
• June 29, 2023

The Securities Appellate Tribunal (SAT) of India is set to continue the hearing of Zee Entertainment Enterprises’ plea against the interim order issued by the Securities and Exchange Board of India (SEBI). The company’s Chairman Emeritus, Subhash Chandra, and managing director and CEO, Punit Goenka, have challenged the SEBI order, which barred them from holding key managerial positions in any listed company. The hearing, scheduled for Monday, also witnessed the National Company Law Tribunal (NCLT) examining the potential merger between ZEEL and Sony Pictures Networks India. The fate of this merger hangs in the balance as the proceedings unfold.

During the proceedings, the counsel representing Zee Entertainment Enterprises argued that SEBI’s allegations of round-tripping of funds lacked substantial evidence beyond bank statements. The counsel further emphasized that SEBI cannot pass an ex-parte order without proper evidence and called for a stay on the SEBI order. They also highlighted the honorary nature of the Chairman Emeritus position held by Subhash Chandra, stating, “Such positions are honorary positions, and the concept of this position is not alien to corporate India.” The counsel drew a parallel with the idea of Vanprasthashram, where the intention is to honor individuals for their lifelong service to the group or company.

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In response, SEBI stated in its affidavit to SAT, “In the instant case, we have a situation before us where the Chairman Emeritus and the Managing Director and CEO of this large listed company are involved in a myriad of different schemes and transactions through which vast amounts of public money belonging to listed companies are diverted to private entities owned and controlled by these persons.”

The uncertainties surrounding the merger have raised concerns among financial institutions as well. BofA Securities, a leading financial services company, refrained from providing a rating for Zee Entertainment due to the lack of clarity surrounding the merger with Sony. The report by BofA Securities cited weak business performance, risks associated with the merger, and the ongoing SEBI investigation as factors contributing to Zee Entertainment’s deteriorating fundamentals. The interim order against Zee promoters imposed by SEBI further adds to the risks involved in the merger with Sony. The report also questions the eligibility of Punit Goenka to serve as the CEO of the joint entity.

Sony Pictures Entertainment expressed its serious consideration of the SEBI interim order, stating that it would continue to monitor any developments that may impact the merger deal. Punit Goenka, on the other hand, affirmed his confidence in the successful completion of the ZEE Entertainment-Sony merger, irrespective of his role as the CEO of the merged company. The merger, initiated through a non-binding term sheet in September 2021, aims to consolidate the linear networks, digital assets, production operations, and program libraries of SPNI and ZEEL. Upon completion, the merged entity would possess a vast portfolio comprising over 70 TV channels, two video streaming services (ZEE5 and Sony LIV), and two film studios (Zee Studios and Sony Pictures Films India), thereby establishing itself as the largest entertainment network in India.

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Despite the consent of ZEEL shareholders and conditional approval from the Competition Commission of India, the merger’s progress faces uncertainty due to the ongoing legal proceedings. The SAT hearing adjourned until June 27, and the NCLT’s deliberations hold the key to determining the future course of action for both Zee Entertainment Enterprises and the ZEEL-Sony merger.

The SAT’s decision to defer the hearing was met with objections from ZEEL’s representatives. However, the bench declined to consider these objections, leading to further uncertainty surrounding the final outcome. The legal counsels representing Zee Entertainment Enterprises argued against the urgency of the SEBI order, emphasizing that Subhash Chandra had not been actively involved in the company’s operations since August 2020 and held no key managerial or directorial positions. They criticized the flawed nature of the order and raised concerns about potential bias and pre-judgment in the decision-making process at SEBI. These arguments highlight the intricacies and complexities of the legal battle between Zee’s promoters and the market regulator.

The ongoing legal tussle assumes significance due to its potential impact on the ZEEL-Sony merger. While legal experts suggest that the merger itself may not be significantly affected, as the issue primarily concerns an individual rather than the company as a whole, the outcome of the court proceedings will undoubtedly have implications for the future of the merger. The SAT has the authority to direct SEBI to conduct a thorough investigation, potentially suspending the interim order until the investigation concludes. Alternatively, SEBI may choose to continue the interim order, arguing that reinstating the directors could impede an independent investigation. With the hearing set to resume on Tuesday, Zee Entertainment Enterprises hopes for a favorable outcome that could grant them a stay on the SEBI order.

The fate of Zee Entertainment Enterprises hangs in the balance as the SAT and NCLT proceedings continue. The outcome of the legal battle against the SEBI interim order and the decision regarding the ZEEL-Sony merger will shape the future of the company and the entertainment landscape in India. As stakeholders eagerly await further developments, the uncertainties surrounding the merger and the implications for Zee Entertainment Enterprises remain key points of interest.

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