The merger between Sony Pictures Networks India and Zee Entertainment Enterprises could be subject to another round of delays as Punit Goenka and Subhash Chandra take the Securities and Exchange Board of India (SEBI) to the Securities Appellate Tribunal (SAT) for their Monday night order banning the father-son duo from leadership and board positions at Zee.
The merger, which was set to create one of the largest media corporations in the country, has been marred and delayed by malfeasance by its promoters since its announcement. Over the last two years, multiple stakeholders at Zee have taken Goenka and Chandra to court.
The merger has been subject to multiple legal hurdles from entities such as Zee’s majority shareholders and creditors like IDBI and Axis Bank that have sought legal recourse against Zee’s promoters, Chandra and Goenka.
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The latest order by SEBI has barred Punit Goenka from holding any managerial position at Zee or any of its subsidiaries; this will be in direct violation of one of the key terms of the Zee-Sony merger, which dictated that Goenka would continue as the managing director and CEO of the merged entity. If SEBI’s interim order holds, it will be in direct violation of this part of the deal.
Experts that businessline spoke with remain skeptical that Sony is likely to call the merger off on the back of SEBI’s interim order.
Karan Taurani of Elara Capital explained, “Sony would have done its due diligence in the past and was likely aware of the promoters’ activities.” However, Taurani added that if SEBI’s interim order holds, the companies will have to modify the key terms of the merger agreement that mandated Goenka continue on as the MD and CEO.
Appeal with SAT
On Tuesday, Goenka and Chandra also filed an appeal on SEBI’s order with SAT, and that case is likely to drag on for a few months. Amit Tandon, founder and MD at IiAS, conjectures that the proceedings are going to delay the merger as well.
“As long as the matter remains in court, it will remain uncertain whether Goenka will continue on as CEO or not, at which point the merger cannot happen under the current terms.”
- Also read: SEBI bans Zee’s Subhash Chandra and Puneet Goenka from holding key positions in any listed entity
There is also the option of removing Goenka from the position of CEO in the merged entity, in which case Tandon believes that Zee’s shareholders will have to approve new terms of the merger. Other experts argue that the merger will need approval from the Ministry of Information and Broadcasting again.
More trouble
More legal troubles could also be underway, as it remains unclear how the National Company Tribunal will respond to SEBI’s diktat. The merger still hinges on NCLT’s approval, which has already asked stock exchanges to reassess the merger on the back of another SEBI order against one of the promoters’ companies.
“Given that the merger is pending before NCLT and is already facing opposition by the lenders, the SEBI order will likely cause further delay in the matter. The precise impact will be known in the coming week when the NCLT has a chance to consider this aspect if raised by any party,” said Sangeeta Jhunjhunwala, Partner at Khaitan Legal Associates.