SEBI Bars ZEE, Punit Goenka, Subhash Chandra From Securities Market Over Unauthorised Property Pledge

The Securities and Exchange Board of India (SEBI) has restrained Zee Entertainment Enterprises Ltd. (ZEEL), former Managing Director and CEO Punit Goenka, and former Chairman Subhash Chandra from accessing the securities market.

ZEEL has been restrained for two months, while Goenka and Chandra have each been debarred for one year after the regulator found that the company's Hyderabad property was unauthorizedly pledged to secure loans taken by promoter-linked entities without the approval of ZEEL's Board, Audit Committee, or shareholders.

The proceedings arose from a SEBI investigation after ZEEL's statutory auditors reported that the original title deeds of the company's Hyderabad property were missing.

SEBI found that in December 2018, Subhash Chandra executed a Declaration and Acknowledgement (D&A) and deposited the original title deeds with Indiabulls Housing Finance Ltd. (IHFL). This created a first-ranking mortgage over the property to secure loans worth ₹726 crore taken by four Essel Group entities linked to the promoter family.

According to the regulator, the property was offered as additional security without obtaining prior approval from ZEEL's Audit Committee, Board of Directors, or shareholders. Although the declaration stated that all necessary approvals had been obtained, ZEEL later claimed it had no knowledge of the mortgage.

SEBI also held that ZEEL failed to disclose the arrangement as a related-party transaction. It observed that the company omitted the contingent liability from its financial statements and did not disclose the Delhi high court proceedings concerning the property, the undertaking restraining its disposal, or the subsequent release of the title deeds to the stock exchanges.

The regulator rejected objections that the proceedings were delayed and biased. It observed that Section 11C of the SEBI Act does not prescribe any limitation period for initiating investigations. SEBI also held that observations made by the Securities Appellate tribunal in separate proceedings could not, by themselves, establish bias in the present case.

On merits, SEBI ruled that Subhash Chandra, Punit Goenka and Sushila Goenka exercised ultimate control over the borrowing entities through a chain of Essel Group companies. It held that ZEEL's Hyderabad property was exposed to legal and commercial risk even though the company itself had not borrowed the funds.

Rejecting Subhash Chandra's claim that he did not remember signing the 2018 D&A, the regulator observed,

"The document bearing his signature, his representation as ZEEL's authorised signatory, the specific contents of the 2018 D&A, the custody of the title deeds with the lender, IHFL, the absence of any plea of forgery or categorical denial of execution and his connection with the beneficiaries establish, on a preponderance of probabilities, that he consciously executed the 2018 D&A with full knowledge of its contents and purpose."

SEBI also rejected Punit Goenka's claim that he became aware of the transaction only later. It observed that there was no evidence showing he had promptly disowned the transaction or initiated action against those responsible.

"When these circumstances are considered cumulatively, the defence of Noticee No. 2 that he had no knowledge of the transaction merely because he did not correspond directly with IHFL or was not named in the 2018 D&A cannot be accepted."

On the allegation of fraud, SEBI observed,

"Accordingly, the knowledge, intention, benefit and meeting of minds of Noticee Nos. 2 and 3 stand established, and I find that they employed a deceptive device and participated in a scheme involving fraud in connection with dealing in ZEEL's securities."

The regulator also held that the borrowing entities were related parties of ZEEL. It ruled that the use of the Hyderabad property to secure their borrowings constituted a related-party transaction under the SEBI (LODR) Regulations.

Besides the market access restrictions, SEBI imposed penalties of ₹30 lakh on ZEEL, ₹58 lakh on Punit Goenka and ₹60 lakh on Subhash Chandra for violations of the LODR Regulations, the PFUTP Regulations, and the SEBI Act.