Sebi's Order Barring Zee Promoter Punit Goenka From Key Managerial Posts Quashed By Tribunal

In a significant relief to Zee Entertainment Enterprises promoter Punit Goenka, the Securities Appellate Tribunal (SAT) on Monday quashed the Securities and Exchange Board of India's (Sebi) order that had barred him from holding key managerial posts in the company and other group firms.

SAT quashes Sebi order

While setting aside the order, the tribunal also directed Goenka to cooperate with Sebi's probe against him. If any material comes out against Goenka during the course of the investigation, then the appropriate procedure can be adopted by the regulator in accordance with the law. Any observation made in this order is only a prima facie observation and will not influence the investigation nor will be utilised by either of the parties, it added.

Background of the case

The order came after Goenka challenged the Sebi confirmatory order, passed on August 14, which confirmed the directions of the regulator that had debarred ZEEL promoters -- Goenka and Subhash Chandra -- from holding any directorship or other key managerial positions in the company and other organisations, including the merged entity of ZEEL and Sony Pictures Networks India until further directions.

Tribunal's observations

In a 94-page ruling on Monday, the tribunal said Sebi's order cannot be sustained and is quashed insofar as it relates to the appellant Goenka. The restraint order passed by the respondent Sebi pursuant to the ad interim order and the confirmatory order restraining the appellant to function as a Managing Director and is set aside, it said.

While orally delivering the order, Presiding Officer Justice Tarun Agarwala said, "The appellant shall however cooperate in the investigation. In the event, any material comes out against the appellant during the course of the investigation, appropriate proceeds can be adopted by Sebi."

Delay in issuing the order

The tribunal noted that there is a delay in the issuance of an ex parte ad interim order and the alleged transaction is of the year 2019. No further evidence has come on record to indicate any further diversion of funds. Consequently, the impugned order is harsh and unwarranted as there was no real urgency at this late stage in passing the ad interim order, as per the appellate tribunal.

Restraint order set aside

Passing a restraint order at this stage virtually restrains the appellant from his right to continue as a Managing Director on the basis of a needle of suspicion, which in our opinion is unfounded, it added.

It was also found that shareholders of ZEEL had reposed faith in Goenka to continue as MD and CEO of the merged entity between Zee Entertainment and Sony. Pursuant to the interim order, the NCLT has also approved the scheme of amalgamation in which the appellant would hold the post of an MD of the merged entity. This aspect has wrongly been construed by Sebi chairperson that it will wield substantial power of management of the affairs of the merged company upon the appellant, which he cannot be permitted to do so. Such an approach is unwarranted apart from the fact that there is no evidence to show that the appellant exercised positive control over the borrowed entities, the tribunal said.

When investigations are being done on mere possibilities without any concrete evidence as on date then, in our opinion, passing an ad interim order was wholly unjustified and, in any case, the continuation of the interim order till the completion of the investigation is per se arbitrary and cannot be sustained, the appellate tribunal said.