Lifting of Sebi ban on Punit Goenka to speed up Zee-Sony merger, say legal experts

In August 2023, SEBI passed an ex parte interim order (i.e., without hearing the other side) barring Goenka from holding key managerial positions (KMP), while it completed the investigation against him in eight months.

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The Securities Appellate Tribunal (SAT) move to set aside the Sebi interim order against former Zee Enterprises Limited (ZEEL) chief Punit Goenka will speed up the company's merger with Sony Pictures Networks India, according to legal experts.

The tribunal on October 30 allowed an appeal by Goenka to set aside an order of the Securities and Exchange Board of India (Sebi) barring him from holding key managerial positions in the company and other firms.

Goenka was spearheading the Zee-Sony merger till he stepped down as CEO. Goenka's resuming the office will help accelerate the stalled process, said Diviay Chadha, partner at the legal firm Singhania & Co.

Also read: With their merger looming, here’s a look at how Zee, Sony fared on key parameters in FY23

"A pre-condition for the merger was that Punit Goenka should be the managing director of the merged entity for five years. This scheme of amalgamation has also been approved by NCLT (National Company Law Tribunal). Thus, this order paves the way for the effective closure of the Zee-Sony merger," said advocate Ravi Prakash, associate partner at Corporate Professionals.

While the merger of Zee and Sony was approved by the NCLT earlier in August this year, the quashing of the Sebi Order will likely assist the two entities to complete all formalities and close the transaction, said Smiti Tewari, partner at Khaitan Legal Associates.

Also read: NCLT approves Zee-Sony merger, dismisses all objections

The markets regulator had on August 14 prevented Goenka from serving as a key managerial person (KMP) in Zee and its related entities resulting from the Zee-Sony merger or other means. "With this development (the SAT order of October 30), Goenka is now eligible to assume the positions of chairman and managing director (CMD) as envisaged under the Zee-Sony merger scheme and approved by the NCLT order dated August 10, 2023. Further, he can also take up the role of director or any other key managerial position," said Manmeet Kaur, partner at Karanjawala & Co.

Also read: Zee row: SAT sets aside Sebi bar on Punit Goenka from holding key managerial slots

Sebi investigation

Tewari said that as far as the Sebi investigation is concerned, the SAT order is unlikely to have a real impact as what has been quashed by the tribunal is an interim order of Sebi and not the entire investigation which is still on. "As a matter of procedure, Sebi can challenge the SAT order before the Supreme Court," she pointed out.

The markets watchdog will further intensify its efforts to carry out a much more thorough and robust investigation into the matter, indicated Rajesh Begur, managing partner at Begur & Partners.

SAT has clarified that its order will not come in the way of the broader investigation that Sebi is undertaking, experts pointed out.

Zee-Sony merger

In the scenario where Sebi gives a go-ahead in favour of Goenka, without going to the Supreme Court, analysts expect the Zee and Sony merger to complete by November.

This would mean that the listing of the merged company will happen towards the first week of January 2024, said Karan Taurani, senior vice-president, Elara Capital.

Also read: Sony says Zee merger to be delayed by a few months

"Further, with Punit Goenka coming on Board, there will be no need for any changes in the term sheet, or any Board or shareholder approval will be required for change in CEO. This means that business will be as usual for ZEE and lesser transition time will be needed with little change in senior management," he said.

However, he mentioned that there are bleak chances of Sony allowing Goenka to continue as CEO of the merged entity, unless the Sebi investigation is resolved. "In case of Sebi going to the Supreme Court, there may be a delay in the merger too if Goenka waits for the outcome of the investigation. In case of Sony not waiting, then merger is likely to go through as usual and the merged company will get listed by January 2024," he said.

He said that Zee and Sony as a merged entity could potentially command a market share of 53 percent in the TV and streaming business in India.