Zee-Sony merger approved: Leadership speculation grows amid SEBI restrictions

With the Zee-Sony merger getting the green light, attention has turned to the leadership of the new entity. Shortly after the NCLT (National Company Law Tribunal) approved the merger, the Securities and Exchange Board of India (SEBI) stepped in. The markets regulator stopped Zee promoters Punit Goenka and Subhash Chandra from taking up any key management roles in Zee companies or the combined entity with Sony.

The temporary Zee committee may therefore end up managing the merged company for now or deciding on new leadership. Experts are in wait-and-watch mode with SEBI saying its investigation into Goenka and Chandra would conclude within the next eight months.

Shashank Agarwal, Advocate, Delhi High court, explained that the NCLT order approving the merger was subject to MIB (Ministry of Information and Broadcasting) approval of directorial appointments to the board. Further, it was clarified by the NCLT that its observations would not amount to approval of Goenka’s appointment, and the same would be subject to the outcome of further approvals as may be required under law.

“Therefore, the next step in selecting a new head for the merged entity will be to hold a meeting of the board and select among themselves a head/chairman of the merged entity. And, thereafter, seek approval from the MIB as required under the Scheme (the merger) read with the MIB Guidelines,” Agarwal said.

Meanwhile, the interim committee will oversee the merged entity’s management, a situation likely to persist for some time, according to Rohit Jain, Managing Partner at Singhania & Co.

“Even otherwise, this is an interim order and the outcome of the SEBI investigation will determine what will be the final position of Goenka in the merged entities,” said Jain.

Currently, Goenka's appointment to the top job in the merged Zee-Sony entity seems unlikely. The final decision, however, will hinge on SEBI’s verdict.

The NCLT order

The NCLT order was issued on August 10, four days before the SEBI order. In the order, the tribunal said, “The impugned order passed by SEBI is a very recent one that was passed much after filing the above scheme before the NCLT which cannot be anticipated [SIC] at the time of approving the scheme by the board and filing before the NCLT.”

“Culver Max Entertainment Private Limited (the transferee Company) has every right to take up this issue at their board level after approval of the scheme depending upon the final outcome of the order of the SEBI for which the present scheme need not be halted on that ground,” it added.

Simultaneously, the order clarified that the bench’s remarks did not constitute an endorsement of Goenka’s appointment under the scheme. This aspect remains under legal consideration and necessitates additional approval from the transferee company or relevant authorities as stipulated by regulations.

The SEBI order

The SEBI order did not just highlight observations on regulatory issues but also recognised the recent NCLT endorsement of the Zee-Sony merger. The order mentioned Punit Goenka’s impending takeover as managing director after the merger, a role that would involve substantial managerial duties and responsibilities.

“That very role in ZEEL is under question and therefore, till the final outcome of the proceedings in the instant matter, it would be appropriate that he is not part of the management of ZEEL or any corporate avatar of it,” said the order.