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TMI Blog2023 (8) TMI 199X X X X Extracts X X X X X X X X Extracts X X X X ..... based on bank statements prima facie led to a conclusion that there has been a siphoning of the funds of the listed company through related entities and which is to the detriment of the shareholders and the investors. These bank statements made the WTM to observe prima facie that there has been a siphoning of the funds and round tripping of the funds from ZEEL to ZEE through related entities. Contention of the appellants that the transaction related to the financial year 2019-20 and therefore there was no tearing hurry to pass such kind of interim order at this stage is not acceptable. There is nothing on record to indicate that the details of the repayment made by the related entities was made known to the SEBI or to the Stock Exchange in 2019-20. These details only surfaced when ZEEL provided the information on May 8, 2023. Thus, prima facie at this stage there is no delay in the passing of the impugned order. Contention that no prima facie case existed in passing the impugned order is wholly erroneous. The contention that the conclusion of siphoning of the funds cannot be arrived at on the basis of the bank statements is an attractive argument but such cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... K. Ashar Co. ORDER PER : JUSTICE TARUN AGARWALA, PRESIDING OFFICER 1. Two appeals have been filed against an ex parte ad interim order dated June 12, 2023 passed by the Whole Time Member ( WTM for short) of the Securities and Exchange Board of India ( SEBI for short) wherein the following interim directions were issued:- a) The Noticees shall cease to hold the position of a director or a Key Managerial Personnel in any listed company or its subsidiaries until further orders. b) ZEEL shall place this order before its Board of Directors, within 7 days from the date of receipt of the Order. 2. The appellant Punit Goenka is the Managing Director and Chief Executive Officer of Zee Entertainment Enterprises Ltd. ( ZEEL for short) since January 1, 2010. Subhash Chandra was the then Chairman of ZEEL at the relevant moment of time when the alleged violation occurred and at the present moment is the Emeritus Chairman of ZEEL. 3. The facts leading to the filing of the present appeal is, that in November 2019 two independent directors of ZEEL resigned after raising concerns over several issues and one such issue was appropriation of a fixed deposit of Rs. 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this regard, details regarding the amount paid by the related entities was sought by SEBI on April 27, 2023. The details were provided by ZEEL on May 8, 2023. Thereafter, SEBI sought some clarifications vide their letter dated June 7, 2023 to which a reply was given on June 11, 2023 and thereafter the impugned ex parte ad interim order was passed. 7. While passing the ex parte ad interim order 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, it also directed the appellants to file their reply / objections, if any, within 21 days. Instead of filing a reply the appellants have chosen to prefer this appeal before this Tribunal. 8. We have heard Shri Janak Dwarkadas, the learned senior counsel with Shri Pesi Modi, senior counsel, Shri Somasekhar Sundaresan, Shri Kunal Katariya, Shri Nitesh Jain, Ms. Shruti Rajan, Shri Anubhav Ghosh, Shri Vivek Shah, Ms. Vatsala Kumar, Shri Harishankar Raghunath, Shri Zerrick Dastur, Ms. Smriti Singh, Shri Kushil Shah, Shri Jitendra Motwani and Shri Manendra Singh, the learned counsel in respective appeals and Shri Dar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrived at by the respondent that there was round tripping of funds were wholly incorrect and that the money was paid by ZEEL for valid consideration and therefore the impugned order was violative of the principles of natural justice. 15. It was also urged that the directions issued in the impugned order has caused undue prejudice and irreparable harm to the appellants and is also disproportionate to the alleged violations. In support of the submissions the learned senior counsel placed reliance upon a decision of this Tribunal in Zenith Steel Pipes and Industries Limited vs SEBI, Appeal no. 554 of 2021 decided on February 21, 2023 . 16. It was contended that the prima facie case made out on the basis of bank statements was wholly erroneous as no reasonable person could arrive at a finding that the entries in the bank statements are fictitious or sham or bogus book entries. 17. In the end it was urged that the impugned order is not only arbitrary but is also punitive which cannot be permitted. It was therefore urged that the impugned order should be set aside and the appeal should be allowed. 18. On the other hand, the learned senior counsel for the respondent conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated and in the given circumstances post decisional hearing has been provided which the appellants have failed to avail. It was submitted that the impugned order does not suffer from any error of law and the appeal should be dismissed. 22. Having heard the learned counsel for the parties at some length, we find that the power to pass ex-parte ad interim order, pending investigation, flows from Section 11 and 11B of the SEBI Act. A plain reading of Section 11 and 11B shows that SEBI has to protect the interests of the investors in securities and to regulate the securities market by such measures as it thinks fit and such measures may be for any or all of the matters provided in sub-section (2) of Section 11 of the Act. SEBI has power to pass an interim order and such interim order can also be passed ex parte in order to prevent further possible mischief of tampering with the securities market. If during the course of investigation, it is found prima-facie , that the person is violating the securities laws or is siphoning of the funds of the listed company to the detriment of its shareholders, it would be obligatory for SEBI to pass an interim order or for that matter an ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he effect of preventing a person, however temporarily say, from pursuing his profession or line of business, may have substantial serious and even disastrous consequences to him and may expose him to grave risk and hazard. Therefore, we say that there must be observed some modicum of residual, core natural justice sufficient to enable the affected person to make an adequate representation (These considerations may not, however, apply to cases of liquor licensing which involve the grant of a privilege and are not a matter of right; See Chingleput Bottlers v. Majestic Bottling Company . That may be and in some cases it can only be after an initial exparte interim order is made. 32. Thus, it is a settled position that while ex parte interim orders may always be made without a pre decisional opportunity or without the order itself providing for a post decisional opportunity, the principles of natural justice which are never excluded will be satisfied if a post decisional opportunity is given, if demanded. In the present case the order of 12-3-2001 itself provided a post decisional hearing on 21-3-2001. The same was availed of by the petitioners. At the post-decisional heari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esolution of the Board of Directors is a matter to be considered on merit by the appropriate authority and it is not appropriate for this Tribunal to consider such documents at this stage as consideration of these documents may prejudice not only the investigation but also the parties. 26. Considering the aforesaid we find that in the instant case the WTM has found that the related entities of ZEEL had defaulted in the repayment of the loan taken by them, as a result of which, the fixed deposit given by ZEEL was encashed by the Bank. The related entities alleged that the money was eventually repaid to ZEEL along with interest. In this regard, the details of the payment was sought by SEBI and the information supplied by ZEEL led to a further enquiry which showed prima facie a round tripping of the funds by ZEEL. It was found in paragraph 13, 16, 19, 22 and 25 of the impugned order that the funds originated from ZEEL and listed companies of Essel Group and ultimately through multiple layers the funds travelled back to ZEEL within 2 to 3 days. This evidence based on bank statements prima facie led to a conclusion that there has been a siphoning of the funds of the listed comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties which are controlled by the appellants. In the absence of any evidence being filed by the appellants before us, we do not find any perversity, irregularity, illegality or irrationality in passing of the impugned order. 32. Since the appellants have failed to provide any cogent evidence barring the fact that one of the entities, namely, Pen India Ltd. which according to the appellants is not a related entity, we are of the opinion that the appellants should file an appropriate reply for vacation / modification of the impugned order dated June 12, 2023. We do not find any reason to interfere in the impugned order at this stage and we dispose of the appeals directing the appellants to file a reply / objection along with a stay vacating application to the ex parte ad interim order dated June 12, 2023 within two weeks from today. The WTM will fix a date for hearing within a week from the date of filing the reply by the appellants and the WTM will pass appropriate orders within two weeks thereafter after giving the appellants an opportunity of hearing. 33. It is made clear that all arguments raised before this Tribunal will remain open to the appellants to raise the same ..... X X X X Extracts X X X X X X X X Extracts X X X X
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