ZEE ENTERTAINMENT FILES SETTLEMENT APPLICATION WITH SEBI AMIDST ONGOING INVESTIGATIONS

Zee Entertainment Enterprises Limited (“Company”) a prominent business conglomerate in the Indian media and entertainment industry has recently moved a settlement application with the Securities and Exchange Board of India (“SEBI”) under Regulation 3 of the SEBI (Settlement Proceedings) Regulations, 2018 (“Settlement Regulation”), amidst ongoing investigations into alleged corporate governance lapses and financial irregularities by the Company.

By seeking recourse under the Settlement Regulation, the Company aims to address and resolve all the ongoing investigative probes by SEBI over alleged corporate governance non-compliances under various securities laws, including potential siphoning off of funds by the promoter group, including managing director and CEO Punit Goenka, Subhash Chandra, the chairman of the Essel Group (having founded the Company), through engaging in undisclosed related party transaction.

SEBI through Regulation 3 of the Settlement Regulations allows persons/corporate entities against whom proceedings have been initiated or are pending to be initiated, to make a settlement application before the SEBI, requiring the applicants to make full and true disclosure in relation of the cause of action for which the investigation is initiated,  and thereby giving the applicants an opportunity of one-time settlement against all the proceedings that have been initiated or may be initiated in respect of same cause of action. However, no settlement application can be moved in case any proceeding between the parties is pending before the Securities Appellate Tribunal or any other court of law.

Regulation 4 of the Settlement Regulations provide a 60 (sixty) days’ timeline for the applicants to file a settlement application from the date of receipt of the show-cause notice or the supplementary show-cause notice, whichever is later, along with an application fee (i.e INR 15,000/- (Indian Rupees Fifteen Thousand) for individuals and INR 25,000/- (Indian Rupees Twenty-Five Thousand) for corporate entities). However, SEBI shall not consider any settlement application:

1. If an earlier application with regards to the same cause of action has been rejected;
2. The audit or investigation or inspection or inquiry, if any, in respect of any cause of action, is not complete, except in case of applications involving confidentiality.
3. Where monies are due by the applicant under an order issued under any securities law.

Furthermore, SEBI has the discretion of whether or not to move ahead with any settlement, wherein the board may select not to settle any specified proceedings if in its opinion the alleged default in the matter has:

1. a market wide impact;
2. caused losses to large number of investors; or
3. affected the integrity of the securities market.

For the purposes of determining the aforesaid scenarios, the SEBI may take into account the following factors:

1. whether the applicant has refunded or disgorged the monies due against the default, to the satisfaction of SEBI;
2. whether the applicant has provided an exit or purchase option to the investors in the compliance with the securities laws;
3. whether the applicant is in compliance with the securities law or any order/direction passed under the securities laws, to the satisfaction of SEBI;
4. any other factor deemed appropriate by SEBI.

The Internal Committee of SEBI, constituting of an officer of the board, not below the rank of Chief General Manager and other members, are empowered to adjudicate whether a matter can be settled in light of the aforesaid consideration to be taken into account by SEBI, before moving ahead with a settlement application.

During the pendency of a accepted settlement application, SEBI may reject any settlement if amongst other things as set out in Regulation 6(1) of the Settlement Regulation, the applicant fails or refuses to respond to any communication or provide information as called for by SEBI.

Furthermore, under Regulation 8 of the Settlement Regulation, it has clearly stated that the pendency of any settlement application shall not affect the continuation of the investigation proceedings against the applicant, except to the event that the final order of such investigation proceeding shall not be passed till the time the settlement application is not disposed off or if the settlement has been arrived between SEBI and the applicant.

For the purposes of arriving at a settlement with the applicant, the SEBI has constituted a High Powered Advisory Committee (constituting of a former supreme court or high court judge and 3(three) external experts of the securities market), for providing considerations and recommendations for the terms of the settlement to be entered with the applicant, wherein the settlement can be arrived by SEBI in the nature of monetary settlement amount to be discharged by the applicant and/or non-monetary terms to be complied with by the applicant, which can be in nature of:

1. Suspension or cessation of business activities for a specified period;
2. Exit from management of the applicant entity;
3. Disgorgement on account of the action or inaction of the applicant;
4. Refraining from serving as a partner, officer, or director of an intermediary or a company that has securities regulated by SEBI for a specified period;
5. Cancellation of securities and reduction of holdings where the securities have been issued in a fraudulent manner;
6. Lock-in of securities;
7. Implementation of enhanced policies and procedures to prevent future securities laws violations and appointment of an independent consultant to review internal policies, processes and procedures by a company;
8. Provide enhanced training and education to employees of intermediaries and securities market infrastructure institutions;
9. Submit to enhanced internal audit and reporting requirements;
10. Restricting the applicant from accessing the securities market and/or prohibiting the applicant from buying selling or otherwise dealing in securities for a specified period.

The applicants are required to credit the settlement monetary amounts in the Consolidated Funds of India, wherein the application fee and legal costs in relation to the settlement proceedings (as determined by SEBI in accordance with the Settlement Regulations) are required to be deposited in the Securities and Exchange Board of India General Fund.