Why SEBI barred former Zee executives Subhash Chandra and Puneet Goenka from the securities market for one year: Explained
· OpIndia
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The case against the ZEEL executives
The case relates to an unauthorised pledge of ZEEL’s immovable assets located in Hyderabad to secure loans for promoter-linked entities. The loans worth ₹726 crore were availed by four closely held borrowing companies from lender Indiabulls Housing Finance Ltd (IHFL) on December 13, 2016. The borrowing entities were Essel Group viz. Gnex Projects Private Limited, Vivek Infracon Private Limited, Gnex Infrabuild Private Limited, and Renu Realtech Private Limited. ZEEL was not a borrower in the deal and received no part of the loan proceeds.
SEBI’s findings in the matter
During the proceedings, Murugan examined whether the use of ZEEL’s immovable assets was part of a fraudulent scheme intended to benefit entities ultimately controlled by ZEEL’s promoter family. The examination revealed adverse findings against Chandra and Goenka.
“As of March 31, 2019, Essel Home held the entire share capital of each of the four borrowing entities. Though the ownership of Essel Home was held through multiple corporate layers, the investigation traced its ultimate ownership and control to Ms. Sushila Goenka, Noticee No. 2, and Essel International Limited,” the SEBI order stated.
Murugan found that both Subhash Chandra and Puneet Goenka were involved in or responsible for a scheme in which the land in question was used as security for loans availed by promoter‑related entities. This was done without authorisation from ZEEL’s board, audit committee, or any competent corporate authority.
The market regulator held that the ZEEL executives failed to follow the standards of diligence, care, integrity, and ethical conduct required of directors of a listed company. “The noticees did not act in good faith, with due diligence and care, and in the best interest of ZEEL and its shareholders. They further failed to maintain high ethical standards expected from a director, and such an act was also not in the best interest of stakeholders, including the listed entity itself and its shareholders,” the order said.
The order noted that the borrowing entities and a co‑borrower had already taken loans worth ₹726 crore from IHFL under four loan agreements. When IHFL later sought more security for the loans, a “declaration and acknowledgement” dated December 27, 2018, was executed in the name of ZEEL.
The declaration identified the Hyderabad land of ZEEL and tied it to the borrowers’ obligations, stating that the required permissions for creating security had been obtained. It bore the signature attributed to the then chairman acting on behalf of ZEEL, which, as noted by the SEBI, was not claimed to be forged or fabricated.
The contention of the ZEEL executives that the document was irrelevant because it was unregistered was rejected by SEBI. Dismissing the contention, Murugan observed that the non-registration of the document might have an implication under the property law, but in this case, it is treated as evidence of the acts.
“In both cases, the legal defect may prevent the creation of an enforceable pledge or assignment. It does not erase the acts undertaken to deploy or divert the corporate asset, the representations made to the counterparty, the intention behind the documentation, or the risk to which the asset was exposed,” he held.
Chandra and Goenka used deception: SEBI
SEBI held that Chandra and Goenka used deception and participated in a fraudulent scheme to benefit promoter-related entities, which was in clear violation of SEBI rules. “I find that they employed a deceptive device and participated in a scheme involving fraud in connection with dealing in ZEEL’s securities, thereby violating SEBI regulations. This deceptive practice resulted in the mis‑utilisation and diversion of ZEEL’s assets to benefit promoter‑related entities,” the order said.
The ZEEL executives argued that no loss was incurred in the scheme as the land was not sold by the lender and that it was later sold at a profit. SEBI rejected their argument, stating that the securities regulation is concerned with fair procedure and proper governance and that financial outcomes are irrelevant.
“I find that ZEEL was required to disclose the fraudulent and unauthorised pledging of the Hyderabad land through the 2018 Agreement to the stock exchange and on its website. ZEEL failed to make the said disclosure. The same is in violation of SEBI Regulations,” Murugan stated in the order.