The market regulator’s order against Punit Goenka, MD of Zee Entertainment Enterprises, may delay the company’s merger with Sony Pictures Networks India, but it won’t be called off, experts said.
The order does not create an embargo on the merger, said Sandeep Bajaj, managing partner at PSL Advocates & Solicitors.
“Goenka was supposed to be the MD and CEO of the merged entity. However, now Sony and Zee will have to amend the scheme and propose a new CEO and MD unless the SEBI order is overturned,” Bajaj said.
The Securities and Exchange Board of India, in an interim order on June 12, banned Essel Group chairman Subhash Chandra and his son Goenka from holding any directorial or key managerial position for siphoning funds from Zee for their own benefit.
SEBI’s direction is an interim one and the directors can file their replies or objections within 21 days, advocate Shashank Agarwal said. He said the larger implications of the actions that led to the order cannot be ignored.
Also Read: Sebi bars Subhash Chandra, Punit Goenka from holding directorial, key managerial roles
“The merger can still happen, irrespective of this order and without Punit Goenka on board. However, it may get delayed as Sony might have to reconsider the larger scheme of things in light of this order,” he said.
SEBI’s order is likely to further delay the already dragged-out merger, said Sangeeta Jhunjhunwala, a partner at Khaitan Legal Associates.
NCLT hearings
“However, given that the order of SEBI is only interim and appealable, its precise impact on the NCLT (National Company Law Tribunal) process will become known in time,” Jhunjhunwala said.
On May 11, the NCLT asked the BSE and the National Stock Exchange of India to reconsider Zee's proposed merger with Sony Pictures Networks in light of the fund diversion case involving Shirpur Gold Refinery, an Essel Group company. However, the National Company Law Appellate Tribunal set aside the NCLT order. The next hearing in the NCLT is scheduled for June 16.
While the NCLT proceedings on the Zee-Sony merger were expected to be completed in one or two hearings, the matter could get stretched if NCLT notes SEBI's concerns against Goenka, a person aware of the development said.
Also Read: Zee Ent slumps after SEBI cracks down on Chandra, Goenka; Sony merger under a cloud
“Zee will file an appeal with SAT (Securities Appellate Tribunal) against the SEBI order. This is likely to happen over the next one day, post a board meeting. SAT will either grant a stay against the SEBI order or dismiss Zee Entertainment's plea,” said Karan Taurani, senior vice president at Elara Capital.
He said that according to legal experts, the SAT usually gives a decision 24 to 48 hours after a plea is filed. If the SAT stays the SEBI order, it will lead to the merger getting delayed extensively, he said.
"In case of the second outcome (Zee's plea gets dismissed), Sony will continue to go ahead with the merger with a new CEO, which means a change in the merger arrangement," he said. "We don't think that Sony would back out of the merger in case Punit Goenka is not able to hold a key managerial position."
He added that a change in the management within the merger scheme will not require approval from the exchanges and may only need endorsement from the ministry of information and broadcasting, which could take a few weeks.
Shriram Subramanian, founder of InGovern Research Services, a proxy advisory firm, said SEBI's order does not impose restrictions or indict Zee.
"It should not have a major impact on the merger process. While it is damaging to Punit Goenka, it is likely to be challenged in a higher court. There would be a scenario of Goenka giving up the role of MD so as not to hold back the merger," he said.
The Zee-Sony merger, announced in 2021, was expected to conclude by the end of August. Sony Corp. CEO Kenichiro Yoshida said during the annual corporate strategy meeting in May he expected the merger to be completed by the first half of FY24.
Goenka said during a Q4 earnings call that legal matters remotely connected to the company have been addressed. He also said the team is taking steps to ensure there are no further hindrances and expressed hope for positive developments on the merger front.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
Find the best of Al News in one place, specially curated for you every weekend.
Stay on top of the latest tech trends and biggest startup news.
