SAT Upholds SEBI’s Order Restraining MD and CEO of ZEEL from Holding a Directorial Position for Siphoning off Funds

Case Details: Punit Goenka v. Securities and Exchange Board of India - [2023] 152 taxmann.com 205 (SAT-Mumbai)

Judiciary and Counsel Details

• • Tarun Agarwala, Presiding Officer & Ms Meera Swarup, Technical Member
  • Janak Dwarkadas, Pesi Modi, Sr. Advs. Kunal Katariya, Nitesh Jain, Ms Shruti Rajan, Anubhav Ghosh, Vivek Shah, Ms Vatsala Kumar, Harishankar Raghunath, Zerrick Dastur, Ms Smriti Singh, Kushil Shah, Jitendr Motwani & Manendra Singh, Advs. for the Appellant.
  • Darius Khambata, Sr. Adv. Aditya Mehta, Vidhi Shah, Jayesh Ashar, Mihir Mody, Arnav Misara & Harshvardhan Melanta, Advs. for the Respondent.

Facts of the Case

In the instant case, the appellant was the Managing Director and Chief Executive Officer of ZEEL since 1-1-2010. Subhash Chandra was the Chairman of ZEEL at that time. In November 2019, two independent directors of ZEEL resigned after raising concerns over several issues, one of which was the appropriation of a fixed deposit of Rs. 200 crore of ZEEL by Yes Bank Ltd. to square off loans of related parties.

The SEBI conducted an examination to investigate the events that led to the resignation of independent directors. The examination revealed that Subhash Chandra issued a ‘Letter of Comfort’ to Yes Bank Ltd. regarding credit facilities availed by certain related entities of ZEEL.

The investigation, further revealed that the issuance of a ‘Letter of Comfort’ without informing the Board of Directors and without taking its approval was violative of the LODR Regulations. As a result, a show cause notice was issued.

SEBI further examined the matter concerning ZEEL’s claim of receiving funds from related entities. Thereafter, the impugned ex parte ad interim order was passed, directing the appellants that they would cease to hold any position of a director or a Key Managerial Personnel in any listed company or its subsidiaries till further orders.

On appeal, it was found that there was evidence, based on bank statements that prima facie indicated that there had been siphoning of funds and round tripping of funds from ZEEL to ZEE through related entities. Further, there was nothing on record to indicate that details of repayment made by related entities were made known by the appellants to the SEBI or the Stock Exchange in 2019-20.

SAT Held

The SAT held that there were no instances of perversity, irregularity, illegality or irrationality in the impugned order that barred the appellants from holding any position of a director or a Key Managerial Personnel in any listed company or its subsidiaries. Therefore, the SAT concluded that there were no grounds to interfere with the impugned order. Accordingly, the appeal was to be dismissed.