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SEBI order casts doubts on Zee-Sony merger, potential delays expected
SEBI's order creates hurdles for ZEEL-Sony merger as governance concerns surround Punit Goenka, potentially causing delays and feasibility questions.
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The recent order by the Securities and Exchange Board of India (SEBI), which bans Subhash Chandra, chairman of Essel Group, and Punit Goenka, the head of Zee Entertainment Enterprises Ltd (ZEEL), from holding key managerial positions until further notice, has created significant hurdles for the planned merger between ZEEL and Sony Pictures Networks India.
SEBI's order has raised governance concerns regarding Punit Goenka, ZEEL's Managing Director (MD), due to alleged violations and lapses. These concerns have the potential to significantly impact the merger process, casting doubts on its feasibility in the absence of Goenka and potentially causing delays.
"It is important to note that even though the promoters only hold a 3.99% shareholding in Zee Entertainment Enterprises (ZEEL), they still enjoy the confidence of the board. ZEEL's promoters have the option to challenge SEBI's interim order," says Vipul Jai, a partner at PSL Advocates and Solicitors.
"While SEBI's order is unlikely to create any legal impediment to the merger, it may dampen the general mood, as necessary changes in the scheme would have to be made since Punit Goenka would not be able to hold any key managerial position in the merged entity," Jai adds.
SEBI's order not only puts Puneet Goenka's position as MD and CEO of the Zee-Sony merged entity at risk but also raises other concerns.
"The legal issues will create uncertainty around the Zee-Sony merger. A forensic auditor will be appointed to investigate the allegations and determine the authenticity of the financial statements before the merger process can proceed according to SEBI and the stock exchanges," says HP Ranina, a Senior Advocate at the Supreme Court, in an interview with CNBC TV18.
Last month, the National Company Law Tribunal (NCLT) requested the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) of India to reevaluate Zee's proposed merger with Sony Pictures Networks due to a fund diversion case involving Shirpur Gold Refinery, an Essel Group company. However, the National Company Law Appellate Tribunal overturned the NCLT's order. The NCLT is scheduled to convene for the next hearing on June 16.
According to reports, the NCLT proceedings related to the Zee-Sony merger, which were initially expected to conclude within one or two hearings, may now be extended if the NCLT takes into account the concerns raised by SEBI against Goenka, resulting in overall delays.
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