A week before the Japanese Sony Group Corp. canceled the merger of its local unit with Zee Entertainment Enterprises Ltd, Subhash Chandra, founder-promoter of the Indian entertainment giant, wrote to Union finance minister Nirmala Sitharaman, accusing the country’s market regulator of trying to scuttle the $10 billion merger.
In a January 16 letter, a copy of which Mint has seen, Chandra said the Securities and Exchange Board of India (Sebi) was acting with a preconceived mindset, and sought the minister’s intervention to protect minority investors. Chandra cited excerpts from an order of the Securities Appellate Tribunal (SAT), which quashed a Sebi order barring him and son Punit Goenka from holding any key position in the merged entity.
Chandra cited the October 30 order of SAT chairman Justice Tarun Agarwalla, which stated, “The (Sebi) chairman committed a glaring error in confirming the interim interim order on the ground of presumptions, presumptions/preponderance of probability. The Supreme Court has categorically said in a chain of cases that fundamental facts must be established first before a presumption is made.”
Justice Agarwalla also pointed out that Goenka cooperated with Sebi and supplied whatever information was sought. “On the one hand, the president based his finding on a preponderance of probabilities, while on the other hand he refused to accept the evidence presented by the appellant and rejected the same on the ground that the documents did not prove the authenticity of the transaction. beyond reasonable doubt. This contrary attitude taken of the president is, in our view, arbitrary,” the order said.
On Monday, Sony sent a cancellation notice to Zee, pulling the plug on the $10 billion mega-merger two years after the two parties signed a definitive agreement. While Sony has dragged Zee to the Singapore International Arbitration Centre, seeking $90 million in termination fees, Zee is also weighing legal options.
The letter also highlighted concerns about the timing and urgency of Sebi’s probe, given the Zee-Sony merger completion timeline.
“I am not suggesting that Sebi should not investigate if they have any doubts. The company and all other people are cooperating in the investigation,” he wrote. “The department also summoned an ex-director, questioning him for more than four hours. My concern is the timing of this new notice, and the urgency of the same. because it matches the timeline of merger completion. The said notice does not contain any point which is not already part of the records of the company which have already been made available to Sebi.”
A query emailed to a Sebi spokesperson seeking comment went unanswered.
In his letter, Chandra said that issuing notices to the former directors of Zee appears to be an “exercise to sensationalize” the issue through media. “I had expressed my concerns earlier too, in a letter to Sebi in November 2018 about negative forces affecting the valuation of Zee, but my pleas went unnoticed,” he said. “If the said parties continue to influence the investigations, especially by Sebi, it will lead to huge financial loss for the minority shareholders of Zee. As the founder of the company, several shareholders have repeatedly asked me to help the company as the proposed merger remains extremely important for all shareholders.”
Chandra said he and his son tried until the end to save the merger, but it was Sebi’s approach that did not let it happen, and resulted in the loss of Sony’s $1.5 billion foreign direct investment in India.
Chandra stated that he has repaid 92% of his debt from ₹4,000 crore and is still trying to “ensure” that the lenders who suffered financial losses because of him are “repaid and their losses are compensated”.
On Tuesday, Zee shares plunged nearly 33% on BSE to end at ₹155.90.
Separately, many minority investors of Zee have written to Sebi and other institutional investors expressing their grief against the promoter family.
They urged Sebi and the larger investors to take immediate action against the board and investigate the matter.