Sony-Zee Merger

Background of Zee-Sony Merger

Timeline of Events

 September 2021- Zee announced plan to merge with Sony

 December 2021- Zee and Sony signed for the merger
 July 2022- Stock exchanges (NSE and BSE) approved the merger
 October 2022- Competition Commission of India approved the merger
 October 2022- Shareholders (Zee) approval of the merger
 February 2023- NCLT initiated insolvency proceedings against Zee on IndusInd
bank’s plea
 March 2023- IndusInd Bank withdrew its insolvency process plea against Zee
 May 2023- NCLT ordered the stock exchanges to reassess their approval for the
merger
 May 2023- NCLT rejected IDBI bank’s insolvency plea against Zee
 May 2023- NCLAT set aside NCLT’s order directing stock exchanges to reconsider
approval
 June 2023- SEBI passed its interim order against promoters of Zee for siphoning off
funds for their own benefit
 June 2023- Appeal made to Securities Appellate Tribunal (SAT). SAT has refused to
impose a stay on SEBI order, and will be hearing the matter

About the Merger Scheme

 As per the 2021 announcement, Zee Entertainment Enterprises Limited (Zeel) and
Sony Pictures Entertainment (Sony) are to merge and in the resulting combined entity
Sony will indirectly hold 50.86% and the founder of Zee will own around 4%. Rest
will be owned by other shareholders of Zee (45.15% stake). Mr. Punit Goenka will be
acting as the MD and CEO of the merged entity. The merger has been planned to take
place in the first half of fiscal 2024.
 According to analysts, will bring together over 70 TV channels, two video streaming
services (Zee5 and SonyLiv) and two film studios (Zee Studios and Sony Pictures
Films India).

SEBI’s Interim Order

Facts-

 Mr. Subhash Chandra, the then chairman of Zeel/ Essel Group and Mr. Punit Goenka
who is the MD and CEO of Zeel (promoters) provided a ‘Letter of Comfort’ (LoC)
in 2018 towards credit facilities availed by certain group companies from Yes Bank.
According to the LoC, fixed deposit (FD) of Rs. 200 crore of Zeel was to be utilized
to adjust the loan of 7 associate entities. Accordingly, Yes Bank adjusted it. These 7
associate entities are owned/controlled by Mr. Subhash and Mr. Punit’s family
members (Promoter family). It was reported by Zeel that Rs. 200 crore which were
enchased to fulfil the obligations of associate entities, that has been received back
from them in 2019.
Allegations-

 The promoters signed the LoC on behalf of Zeel without consulting or informing or
taking approval of board of Zeel thereby violating Regulation 4(2)(f)(i)(ii)(iii) of
SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR
Regulations).
 SEBI initiated adjudication proceedings against Zeel and its promoters to look into the
violations.

Findings-

 There was no actual receipt of funds from associate entities to Zeel, there were mere
book entries to show receipt of funds. The funds followed a circuitous route wherein
the funds originated from Zeel or its subsidiaries or listed companies of Essel Group,
then passed through various entities owned/controlled by the promoter family and
ultimately ended up with Zeel. This gave an impression that FD of Rs. 200 crore by
which obligations of associate entities were settled, it was returned back to Zeel. But
in reality, Zeel received net zero amount.

 In respect of diversion of funds from Zeel, untrue disclosures made in Annual Report
of Zeel regarding the amounts being received by Zeel, and false submissions to SEBI,
the regulator held the promoters in violation Regulation 4(1) and 4(2)(f) of SEBI
Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market)
Regulations, 2003.

 For misrepresentation in Annual report, false submissions to SEBI and failure to

discharge the duties as directors of Zeel for their person benefit, the promoters have
violated Regulation 4(2)(f) of LODR Regulations.

 The promoters abused their position as directors/KMPs of a listed company for

siphoning off funds for their own benefit.

Directions-

 Mr. Subhash Chandra and Mr. Punit Goenka have been barred from holding position
of director/KMP in any listed company or its subsidiaries until further order.

Recourse by the promoters

The promoters have approached SAT with an appeal. SAT has refused to impose a stay on
SEBI’s interim order, and will be hearing the matter.

SAT

It upheld SEBI’s interim order. The prima facie findings by SEBI have been made on
objective considerations.
For any objections, they are to be presented before the WTM.