The Securities Appellate Tribunal (SAT) on Friday granted partial relief to Zee Entertainment, allowing the company to proceed with its proposed Rs 3,143.5 crore capital raise, while keeping the Securities and Exchange Board of India’s (SEBI) two-month market ban on the company intact.
Conditions Attached
The tribunal’s order allows Zee to issue fully convertible warrants to Sunbright Mauritius Investments, a promoter-group entity, on a preferential basis. The relief is subject to Zee and its CEO Punit Goenka depositing the full penalty imposed by Sebi within a week.
The regulator had imposed penalties of Rs 30 lakh on Zee, Rs 58 lakh on Goenka and Rs 60 lakh on Subhash Chandra besides barring the latter two for a year each (and Zee for two months) with regard to the alleged unauthorised use of Zee’s land in Hyderabad as a collateral against loans to promoter-linked entities.
SAT has also extended by one week the deadline for issuing the warrants, which was due to expire today.
The relief while critical is limited to the proposed fund raise, legal experts said. Zee will continue to remain barred from accessing the securities market during the two-month period ordered by SEBI.
SAT Questions
The Friday order follows a hearing on Wednesday, when SAT had questioned the rationale behind Sebi blocking Zee’s fundraise during the two-month market-access ban.
The bench of Presiding Officer PS Dinesh Kumar and Technical Members Meera Swarup and Dheeraj Bhatnagar asked Sebi what would materially change if the Rs 3,143.5 crore fundraise was allowed now, given that the company could undertake the same transaction after the two-month restriction ended.
The tribunal also questioned why Zee had been debarred when, according to the arguments before it, the company itself had not been charged with fraudulent market activity.
Appearing for Zee, senior advocate Ravi Kadam had argued that the Sebi order severely prejudiced the company’s capital-raising plans. He pointed out that shareholders had approved the fundraise on July 31, the same day Sebi passed its order, and that the preferential issue was subject to a strict 15-day completion window.
Kadam also argued that a delay could force the company to recalculate the issue price because of changes in its market valuation.
Senior advocate Pesi Modi, appearing for Goenka, told the tribunal that 96% of public shareholders had voted in favour of the fundraise and argued that the capital would directly benefit Zee and its public investors.
Sebi, represented by senior advocate Chetan Kapadia, defended the restriction, arguing that debarment serves as deterrence, prevention and punishment. Sebi maintained that the capital raise could be undertaken once the two-month restriction expired.