Governance experts red-flag two recent Zee disclosures regarding Sebi notice and promoter stake rise

In November 2024, investors defeated a proposal of Zee to allot new shares to promoters via preferential issue to a tune it over Rs 2,000 crore.

• Zee disclosed promoter stake reversal and show-cause notice in non-standard ways
• Governance experts say Zee's disclosure methods raise transparency concerns
• SEBI investigates Zee's promoter deals over low stake and governance concerns

Did our AI summary help?

Governance experts are raising red flags over two recent disclosures made by Zee Entertainment.

The first one pertains to a fresh show cause notice received regarding inter-corporate deposits on January 16. However, the company did not disclose this to the  exchanges but instead disclosed the information as a foot note in the results which were declared on January 22.

A week ago, Zee told its investors that the promoters of the company were not going to increase their stake in the company, contrary to statements they had made in the last few years. The company did not disclose this letter on stock exchanges, instead posted it on their website.

Governance experts say such methods of disclosures go against the spirit of regulations.

“Even though technical compliance may be argued by Zee, the manner in which Zee chose to communicate them raises serious governance concerns. Material information—such as a reversal of promoter intent on stake increase or receipt of a show-cause notice—would ordinarily merit prompt and uniform disclosure through stock to ensure uniform access for all investors and not selective via investor emails or buried in footnotes. Such practices risk reduced visibility and is not fully aligned with the spirit of transparency envisaged under SEBI’s LODR framework,” said Pallavi Puri, Partner, DMD Advocates.

The Securities and Exchange Board of India(Sebi) is probing certain transactions by promoters. Promoters currently own about 4% in the company.

"Under Regulation 30 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, any material information concerning a listed company is required to be disclosed promptly and uniformly through the stock exchanges. The framework is designed to ensure equal access to information for all investors, so disclosures should be clear, timely, and easily accessible to the entire market, rather than communicated selectively or in a manner that may create information asymmetry and erode investor confidence,” said Madhura Samant, Managing Partner, Elarra Law Offices.

“The disclosures reported in relation to Zee Entertainment Enterprises Limited raise serious concerns about adherence to India’s securities disclosure regime and, more importantly, to accepted standards of corporate governance” said Kushagra Sharma, partner, KP & Associates.

In November 2024, investors defeated a proposal of Zee to allot new shares to promoters via preferential issue to a tune it over Rs 2,000 crore.

Proxy advisory firm Ingovern issued a report on Tuesday pointing out several red flags in the company including low skin in the game for promoters and attrition among independent directors.

“The Company is witnessing a deepening crisis of confidence where Promoters exercise substantial operational control despite holding a stagnant equity stake of just 3.99%. A significant governance vacuum exists: while shareholders rejected Mr. Punit Goenka’s reappointment as a Director in Nov 2024 (~50.4% against), he continues to lead as CEO, effectively bypassing the shareholder mandate,” the  proxy advisory said in the report.

Zee however denied these allegations.

“The points mentioned in the report published by InGovern are factually incorrect, misleading and prejudiced. The report consists of certain dated issues, which have already been addressed by the Company. The absence of any new points in the report, coupled with multiple factual inaccuracies, misrepresentation of facts and lack of basic diligence questions the intent of the firm behind the report. The Company has consistently ensured that all the shareholders are apprised about the developments in a proactive and transparent manner. A detailed rebuttal to the proxy advisory firm will be issued by the Company, addressing the baseless allegations. The Company has always maintained highest standards of Corporate Governance and has taken consistent efforts to enhance its disclosures and strengthen its policies and processes to protect shareholder interest. The Company remains committed to deliver value to its shareholders by consistently working towards enhancing its performance across the business.”   said a Zee spokesperson.