SAT quashes SEBI interim order barring Zee CEO Punit Goenka from holding directorial position

SAT quashes SEBI interim order barring Zee CEO Punit Goenka from holding directorial position

Censures the markets regulator for its damaging track record of not completing investigations on time

The Securities Appellate Tribunal (SAT) has set aside an interim order of the Securities Exchange Board of India (SEBI) barring Zee Entertainment Enterprises Limited (ZEEL) Chief Executive Officer Punit Goenka from holding directorial positions in listed companies because of a pending investigation in a case of fund embezzlement.

A Coram of Justice Tarun Agarwala (Presiding Officer) and Meera Swarup (Technical Member) observed that continuing the interim order was harsh and unwarranted.

While disallowing the continuation of the interim order, the bench stated, "The foundational facts have not been established coupled with the fact that the respondent has restrained the appellant on a preponderance of probabilities while rejecting the genuine documents on the ground that it does not prove the transactions beyond a reasonable doubt.”

The order paves the way for Goenka to take up a directorial position in the entity to be formed after the merger between Zee Entertainment Enterprises (ZEE) and Culver Max Entertainment (earlier known as Sony Pictures Networks India).

On 12 June, SEBI passed an interim order barring Goenka and Essel Group Chairman Subhash Chandra from holding key managerial positions in any listed company or its subsidiaries.

The order was challenged before SAT by Chandra and Goenka, but on 10 July their appeal was dismissed. However, SAT directed SEBI to appoint another whole-time member (WTM) to hear the allegations of Goenka and Chandra being involved in siphoning off funds.

The matter was heard by a new WTM, who on 14 August while confirming the interim order, modified it. He also directed SEBI to complete its investigation against the two within eight months.

Meanwhile, until the probe was completed, Chandra and Goenka remained barred from holding directorial positions.

Goenka challenged the confirmatory order before the SAT, which heard the appeal and reserved it for orders on 27 September.

On 30 October, while allowing the appeal, SAT stated that no justification was given for setting a time limit of eight months to complete the investigation.

The appellate tribunal held, "The diversion of funds has not yet been proved. Sufficient explanations backed by genuine documents have been shown by Goenka, having validly discharged his burden. Because a wider investigation is now being undertaken by SEBI to consider the various Letters of Credit issued by ZEEL and its promoter companies, there is no real urgency. Therefore, this tribunal will not place any impediment in restricting the period of investigation."

The bench added that SEBI had a track record of not completing its investigation within a stipulated period. Therefore, restraining Goenka from holding a directorial post was unwarranted.

SAT stated, "We have seen that on numerous occasions whenever this tribunal or the superior court directed SEBI to complete the investigation within a stipulated period, the same has not been done and application after application is being filed by SEBI seeking time to extend the period.”

Briefed by Economic Laws Practice, Senior Advocates Dr Abhishek Manu Singhvi and Navroz Seervai along with Advocates Somasekhar Sundaresan, Amit Bhandari, Nitesh Jain, Shruti Rajan, Mudit Jain, Vivek Shah, Anubhav Ghosh, Hari, Jitendra Motwani, Abhiraj Arora, Deepanshu Agarwal, and Samreen Fatima appeared for Goenka.

Briefed by K Ashar & Co, Senior Advocate Darius Khambatta alongwith Advocates Aditya Mehta, Vidhi Shah, Mihir Mody, and Arnav Misra appeared for SEBI.