SAT allows Zee Entertainment's upcoming capital raise but SEBI's market ban to continue

The Securities Appellate Tribunal (SAT) on Friday granted partial relief to Zee Entertainment Enterprises Limited (ZEEL) by permitting it go ahead with its upcoming capital raising plans [Zee Entertainment Enterprises Ltd and Punit Goenka v. SEBI]

However, the bench of Presiding Officer PS Dinesh Kumar and Technical Members Meera Swarup and Dheeraj Bhatnagar refused to otherwise interfere with the Securities and Exchange Board of India’s (SEBI) July 31 order barring Zee from accessing securities market for two months.

This order would mean that Zee and its chief executive officer Punit Goenka can go ahead with the plan to issue fully convertible warrants to the promoter-group entity on a preferential basis for a ₹3,143-crore fundraise.

This relief is subject to both Zee and Goenka depositing the full penalty mandated by SEBI within one week.

The deadline for issuing warrants, which was expiring today, was extended by SAT by one week.

The market-access ban imposed by SEBI will remain active barring this specific relief from SAT.

Zee can deploy mutual fund investments for daily operational business needs but cannot use them for other purposes, including the proposed dividend, the SAT said.

SEBI had on July 31 barred Zee Entertainment and its chief executive officer Punit Goenka from accessing the securities market in connection with an improper disclosure case.

This was after SEBI found that a land parcel in Hyderabad was secretly used by ZEEL in 2018 to secure loans for promoter-linked entities without board approval or proper disclosure.

It barred ZEEL from the securities market for two months and Goenka for 12 months over alleged irregularities.

ZEEL and Goenka challenged the order before SAT. The parties sought urgent stay on the order till the appeal is finally heard.

During the hearing on August 12, senior advocate Ravi Kadam argued that SEBI's late order severely harms ZEEL's capital-raising plans. He claimed SEBI issued the order on July 31, the same day ZEEL shareholders approved a ₹3,143-crore fundraise.

He explained the company needs to complete issuing convertible warrants within a strict 15-day window. However, serving the order on August 1 jeopardizes this timeline and risks financial losses from price fluctuations.

He requested clarification to ensure market restrictions do not block ZEEL from accessing ₹1,200 crore in mutual funds for operational costs and dividends.

Senior Advocate Pesi Modi, appearing for Punit Goenka, highlighted that 96% of public shareholders voted in favor of the ₹3,143 crore capital raise, directly benefiting public investors. SEBI's late-night order caused ZEEL's stock price to crash, he said.

He stressed that a two-month delay forces a recalculation of the issue price at a lower valuation, severely harming the company.

SAT on August 12 raised queries over the logic behind halting ZEEL’s proposed ₹3,143 crore capital raise for a two-month window. 

It asked SEBI to explain what harm occurs if the fundraise proceeds now, given it is allowed after the two-month period.

The tribunal questioned why ZEEL was debarred without charges of fraudulent market activity.

Senior Advocate Chetan Kapadia, representing SEBI, defended the order. He argued that debarment orders serve as deterrence, prevention, and punishment. He maintained that debarment naturally restricts raising funds during the penalty period, noting the capital raise could simply be executed after the two-month debarment expires.

After hearing all sides, the appellate tribunal reserved its order on interim relief.

The order was pronounced today granting limited relief to Zee.

Senior Advocates Ravi Kadam and Zal Andhyarujina and advocate Rohan Kadam appeared for ZEEL.

Senior Advocate Pesi Modi appeared for Goenka.

All of them were briefed by Nitesh Jain from Trilegal.

Senior Advocate Chetan Kapadia appeared for SEBI, briefed by The Law Point.