Two independent directors left the company in November 2019 after voicing concerns about matters such as the use of ZEEL’s fixed deposits by Yes Bank Ltd. to pay off debts to affiliated firms of the Essel Group. One of the directors resigned, informing the board that bank guarantees had been issued to a subsidiary without first receiving consent from the board and that the operating team had handled the situation with extreme carelessness. After investigation, it was discovered that the former chairman of the ZEEL/Essel Group had given a “Letter of Comfort” in support of the credit facilities obtained by some group companies from Yes Bank.
For the purpose of meeting the commitments of the 7 Associate Entities, which were owned and controlled by relatives of Subhash Chandra and Punit Goenka, Yes Bank altered the Fixed Deposit of Rs. 200 crores. When SEBI examined the bank statements, it discovered that the money had travelled in circles, starting with ZEEL and listed Essel Group firms, passing through numerous corporations owned or under the control of the Promoter Family, and finally arriving at ZEEL.
Conclusion by SEBI
In the case of Zed Entertainment Enterprises Ltd., the Securities and Exchange Board of India issued a temporary order prohibiting Subhash Chandra, the chairman of the Essel Group, and Punit Goenka, the CEO of ZEEL, from holding director or key managerial positions in any listed business that they own.
The SEBI had noted that monies from ZEEL and other listed Essel Group firms were used to create the impression that the Associate Entities had paid back the money they owed to ZEEL as a result of Subhash Chandra’s invocation of the LoC against ZEEL’s FD of Rs. 200 Crore. Additionally, it was discovered that the method of operation had resulted in the transfer of at least Rs. 143.90 crore from ZEEL and other listed firms of the Essel Group, ostensibly to show Associate Entities had paid ZEEL their debts. As a result, it looked that money had been stolen from ZEEL and other Essel Group-listed firms. As the Associate Entities, who were the recipients of ZEEL’s FD of Rs. 200 Crore from Yes Bank for the settlement of their liabilities, are under the control of the Promoter Family of ZEEL, the funds diverted from ZEEL ultimately benefited the Promoter Family. Subhash Chandra was directly involved in the diversion of cash from ZEEL and other listed firms of the Essel Group because he had issued the relevant LoC without the knowledge or consent of the ZEEL Board of Directors. When the money was transferred out of ZEEL and then returned to ZEEL through convoluted and layered transactions, Mr Punit Goenka served as the company’s MD and CEO while falsely representing that ZEEL had received the payments from Associate Entities. Therefore, promoting these transactions would not have been possible without the active participation of ZEEL’s MD and CEO Punit Goenka and Chairman Subhash Chandra.
Subhash Chandra and Punit Goenka are no longer permitted to serve as directors or key managerial personnel for any listed firm or its subsidiaries, under a SEBI directive.