When a promoter is accused of wrongdoing, the first casualty is often not the promoter’s wealth but shareholder value. A regulatory ban can shut a company out of the capital market, a governance scandal can hurt its valuation and alleged diversion of funds can leave public investors nursing losses, even when they had no role in the misconduct.
The recent Zee Entertainment case illustrates the dilemma. The Securities and Exchange Board of India (Sebi) barred Zee from accessing the securities market for two months and its promoters, Punit Goenka and Subhash Chandra, for a year each over the alleged unauthorised use of company property as collateral for promoter-linked loans. The Securities Appellate Tribunal (SAT) on Friday allowed Zee to proceed with its Rs 3,143.5 crore preferential issue while retaining the market-access ban.
For public shareholders, the stakes were immediate. About 96% of Zee’s shareholders are public shareholders. Zee said it received 76.64% votes in favour of the fundraising plan, clearing the 75% threshold required for a special resolution.
The episode raises a broader question: how much collateral damage should shareholders bear when regulators punish promoter misconduct?
“There is always a tension when a public company has to bear the brunt of fines and adverse orders that are attributable to actions and omissions of the promoters and management,” said Karam Daulat-Singh, managing partner at Touchstone Partners. In the Zee case, he said, SAT appeared to have “threaded the needle” by ensuring promoters did not escape accountability while recognising that the company as a whole should not suffer.
Different investors, different red lines
The impact of governance concerns also depends on the investor. Shriram Subramanian, founder and MD of proxy advisory firm InGovern, said investors have different “tolerance levels” for promoter misdemeanours.
Long-only pension funds and institutions such as Singapore’s GIC, for instance, require “squeaky clean” management and place corporate governance high on their investment radar. Others may tolerate some red flags if they believe the promoter can still generate profits and returns. Some investors, he said, may even work with promoters despite governance concerns if they believe the economics remain attractive.
But that tolerance can disappear as red flags accumulate. In Zee’s case, mutual funds reduced their holding by 170 basis points to 3.16% at the end of the June quarter from 4.86% at the end of March. Sister concern Dish TV also went through a prolonged governance battle involving institutional and minority shareholders, with repeated challenges to board appointments, financial results, and strategy.
Subramanian cited DHFL as an extreme example of promoter fraud and Satyam as a classic case of accounting fraud. The IL&FS crisis, which involved a Rs 91,000-crore financial default, similarly showed how governance failures can destroy investor value.
What can shareholders do?
The Companies Act, 2013 provides several remedies. Sections 241-242 allow eligible shareholders to approach the National Company Law Tribunal (NCLT) for oppression and mismanagement. Section 245 enables qualifying shareholders to pursue class-action proceedings against companies, directors and auditors for wrongful or oppressive conduct.
The Jindal Poly Films proceedings are significant in this context. Minority shareholders alleged promoter-linked transactions caused value diversion of about Rs 2,500 crore. NCLT admitted the Section 245 action in February 2026, making it an important test of shareholder class-action rights.
“Minority shareholders should not be made collateral damage of corporate governance failures towards which they had no knowledge or responsibility,” said Saloni Shah, partner at Khanwilkar & Shah Associates. The Jindal Poly Films proceedings, she said, demonstrate the growing significance of collective shareholder action.
Regulatory intervention can also provide relief. Sebi acted against Ahmedabad-based Mishtann Foods over alleged diversion of rights-issue proceeds in 2024 and against Jaipur-based Debock Industries in the same year over alleged financial manipulation and siphoning of funds. In both cases, the regulator imposed restrictions on market access and on the concerned individuals.
The proportionality problem
Yet remedies can take time. Hardeep Sachdeva, senior partner at AZB & Partners, said regulatory action must consider whether restrictions on a company end up punishing shareholders who had no role in the misconduct. “The economic consequences of promoter misconduct” should, as far as possible, not become “collateral punishment for innocent shareholders”, he said.
Raheel Patel, partner at Gandhi Law Associates, similarly noted that restrictions on a listed company can affect fundraising, valuation and cost of capital. Zee and its promoters have challenged Sebi’s order before SAT, with a further statutory appeal to the Supreme Court available on questions of law.
For shareholders, litigation is only one line of defence. Voting against promoter-backed resolutions, scrutinising related-party transactions and exiting when governance deteriorates can be equally important.