The ministry’s preliminary probe had found appropriation of ZEEL’s fixed deposits (FDs) by Yes Bank, for squaring off loans of related entities of Essel Group. ZEEL is part of the Essel Group promoted by Subhash Chandra and his family.
Since 2019, both the MCA and Sebi have been investigating the group over allegations levelled by independent directors. While the MCA is probing allegations pertaining to violations under the Companies Act, 2013, Sebi is investigating accusations of capital market breaches. Their probes had found that FDs of Rs 200 crore were appropriated by Yes Bank for settling loans of related parties of Essel Group.
“However, now with reports that Sebi has found an accounting issue of over Rs 2,000 crore ($241 million), details of their findings have been sought,” said a senior government official. “The same would be studied to investigate if there was indeed a fund diversion, which is 10 times more than what was initially suspected.”
MCA lens on fund diversion by brass
The official said that during the course of the ongoing probe, “if need be, even Puneet Goenka could be summoned to join the investigation”. ZEEL CEO Goenka is Chandra’s son. The person added that the MCA probe would investigate any corporate governance issues and fund diversions by key management personnel as well.In November 2019, ZEEL independent directors Sunil Kumar and Neharika Vohra had resigned from the board, alleging governance lapses on matters such as treasury operations, related-party deals, film financing and corporate social responsibility expenses. They had raised concerns over ZEEL’s FDs being appropriated by Yes Bank to settle a loan taken by ZEEL’s related entities. However, these guarantees for the loans were given with the board’s approval.
MCA, during the course of its probe into these allegations, had inspected ZEEL’s offices, recorded statements of directors except Goenka and had also issued notices under Section 206 of the Companies Act seeking documents. It had also relied on Sebi’s previous findings.
“The investigation revealed that Rs 200 crore in FDs available with Yes Bank was used to adjust loans of seven associate entities of ZEEL,” said one of the persons cited above. “This, after Chandra gave a Letter of Credit to Yes Bank for a Rs 200 crore outstanding loan of Essel Group Mobility.”
These “associate entities” included Pan India Infraprojects, Essel Green Mobility, Essel Corporate Resources, Essel Utilities Distribution Company, Essel Business Excellence Services, Pan India Network Infravest and Living Entertainment Enterprises.
ZEEL has denied the allegations in the past, saying that they were aimed at hampering deal talks with Sony. The Japanese giant pulled out of a deal to merge its India business with ZEEL in January, two years after it was announced.
In June 2023, Sebi had banned ZEEL chairman Chandra and CEO Goenka from holding any board positions in listed companies for a year, alleging active involvement in the diversion of funds to the group’s other listed entities and related firms related to founding shareholders. This was said to be the issue that led to Sony’s reluctance to proceed with the merger.
Sebi said that its order was to be read with the April 25, 2023, interim order passed in the matter of Shirpur Gold Refinery Ltd that said: “The noticees (Chandra and Goenka) alienated the assets of ZEEL and other listed companies of Essel Group for the benefit of associate entities, which are owned and controlled by them. The siphoning of funds appears to be a well-planned scheme since, in some instances the layering of transactions involved using as many as 13 entities as pass through entities within a short period of two days only.”
While giving conditional approval to the proposed merger at the time, MCA had informed the National Company Law Tribunal (NCLT) that it had ordered the inspection of books of accounts to examine various complaints received against ZEEL.
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