SEBI's report contains a comprehensive chart showing the movement of funds
Zee founder Subhash Chandra and his son Punit Goenka used an intricate web of entities to fake recovery of loans and siphoned off funds "for their own benefit", markets regulator Securities And Exchange Board Of India (SEBI) has alleged.
In an interim order, SEBI has used diagrams and flowcharts to illustrate that funds originated from Zee Entertainment Enterprises Limited (ZEEL) and other listed companies of Essel Group were routed through multiple layers of entities owned or controlled by Mr Chandra's family. Eventually, these funds were transferred back to ZEEL to show that its associate entities had paid off loans.
"The above flow of funds clearly indicates that there was no actual receipt of funds by ZEEL and these were merely book entries to show receipt of funds," SEBI has alleged.
The markets regulator has said that it appears that ZEEL's "own funds/funds from other listed companies of Essel Group were used to give an impression that the Associate Entities had indeed returned the money they owed to ZEEL".
The SEBI's investigation was prompted by the resignation of two independent directors of the media giant in 2019.
The SEBI has said that Mr Chandra issued a Letter of Comfort in 2018 towards credit facilities availed by certain group companies from Yes Bank.
A Letter of Comfort indicates a will to support a subsidiary entity of meet financial obligations. It is usually issued by a third party. For example, the government can issue such a letter to assure a lender that loans taken by public sector enterprises will be paid back.
Based on Mr Chandra's Letter of Comfort, Yes Bank adjusted a Rs 200 crore fixed deposit of ZEEL to meet obligations of the seven other group entities, the SEBI has found. It is alleged that the ZEEL board was not aware of Mr Chandra's move to issue this Letter of Comfort. His son and ZEEL CEO Goenka is also accused of signing Letters of Comfort on behalf of ZEEL without consulting the board.
SEBI has said that it is apparent that Mr Chandra's Letter of Comfort, the circuitous transactions through connected entities to show receipt of funds and submissions made to SEBI "were part of an elaborate scheme orchestrated by the Promoter Family of ZEEL to divert assets of ZEE and other other listed companies of Essel Group to the promoters."
The markets regulator has said that a sum of at least Rs 143.9 crore was transferred from ZEEL and other Essel Group companies to falsely portray repayment. The fund trail is now being examined, SEBI has said.
The serious allegations have threatened to derail ZEE's big merger plans with a subsidiary of Sony. The merger aims to create a media platform that can take on Netflix and Amazon.com.
Amid the investigation deepens, SEBI has barred Mr Chandra and Mr Goenka from holding the position of a director or key managerial personnel in any listed company.