Zee Entertainment Enterprises Limited (ZEEL), whose CEO Punit Goenka is battling to garner adequate support from the company’s shareholders for his re-appointment, may have another major challenge on its hand in the upcoming annual general meeting, as a proxy advisor has also recommended that its shareholders not approve the company’s audited financial statements.
While proxy advisors InGovern and IiAS have both recommended that ZEEL shareholders should vote against the re-appointment of Goenka, InGovern in its report has also pointed out several concerns regarding the company’s financial statements, highlighting lack of sufficient provisions for certain potential liabilities facing the company, audit-related issues as well as allegedly excessive compensation paid to Goenka. A third proxy advisory firm Stakeholder Empowerment Services (SES) is yet to put out its recommendations.
Given the promoter group holding of 4 percent in ZEEL, public shareholders, especially foreign and domestic institutional shareholders will play a key role in the upcoming AGM of the company on November 28.
Both Goenka’s reappointment and the adoption of financial statements are ordinary resolutions, which as per Companies Act, require 51 percent of the votes cast at the AGM to be in favour of the resolution for it to pass.
Also Read: Punit Goenka to face a test of investor confidence at Zee Entertainment AGM
Moneycontrol has reached out to ZEEL for comments on the proxy advisory firm's recommendations, and the story will be updated once the company's comments are received.
Proxy advisor recommendation on adoption of financial statements
The proxy advisory firm InGovern, in its report on ZEEL AGM voting recommendations, noted that there is no audit qualification for the standalone financial statements of the company.
“However, the statutory auditors have mentioned certain Emphasis of matters which were raised last year as well regarding the Put Options. Shareholders should seek that company restate its financials providing for the Put Option as per IND AS and re-present the financial statements for shareholder approval,” the advisory firm said.
The Put Options refer to a transaction between ATL Media Limited (ATL) --- an overseas subsidiary of the company --- which in 2016 had entered into a put option agreement with Living Entertainment Limited (LEL), Mauritius, a related party of ZEEL, to acquire shares held by LEL in Veria International Limited, another related party of the company, at an exercise price of $105 million (later renewed at $52.5 million in 2019 and valid till December 2026), as per ZEEL’s latest annual report. In order to secure a loan from Axis Bank Limited and Yes Bank Limited, LEL had assigned all its right, title, benefit and interest under the Put Option agreement in favour of Axis Bank and Yes Bank.
In the financial year ended 31 March 2020, Yes Bank invoked the Put Option and demanded that ATL pay the exercise price. Subsequently, upon inquiry, ATL became aware of certain “misrepresentations” by LEL at the time of renewal of the Put Option agreement and consequently, ATL rescinded the Put Option, as per ZEEL's annual report. The matter is currently subjudice in Mauritius as well as the Bombay High Court.
Also Read: Punit Goenka asks ZEE board to relinquish him from his position as managing director
The advisory firm commented that the key audit matters as noted out by the auditors involves pending litigations / charges against the company and the amount involved therein are significant. Given that the company has not made provisions for a significant portion of these, any adverse judgement may severely damage the company’s financial health, it added.
“Shareholders should seek details regarding the notes made by the auditors regarding the nonavailability of audit trail in certain circumstances and seek details of the action that they will take to ensure compliance in future. Shareholders should seek details regarding the reason for paying excessive remuneration to Mr. Punit Goenka (MD and CEO) which exceeded the limit under Reg. 17(6)(e) for the last 2 years as well as the details of the amount that was paid back by him to the Company in June 2024,” InGovern advised shareholders in its report.
Given these concerns, the proxy advisory firm has recommended that shareholders vote against the resolution.
In case the resolution fails to pass, it will be a rare example of a listed company where shareholders have rejected the audited financial statements.
The last such case was that of DishTV Limited in March 2022.
Impact
“Company law provides for only filing of unadopted financial statements with the Registrar of Companies on provisional basis. The law provides for adopting the same in adjourned annual general meeting. This would mean that board shall re-consider the financial statements and also get inputs from statutory auditors. It is also important to check whether the adjourned AGM is called within prescribed time or extension of AGM has been obtained from the Registrar of Companies. Even though such occasions are rare, the Company Law shall provide for more detailed provisions where financial statements are not adopted by the shareholders,” said Gaurav Pingle, a practising Company Secretary.
A governance expert who did not wish to be named, added that if shareholders reject the audited statements, the company will have to seek a re-approval of the accounts in the next annual general meeting of shareholders. Till that time, the company will have restrictions on items such as dividend distribution, although the day to day functioning of the company will not be affected.
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