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The ministry’s preliminary investigation found that Yes Bank appropriated ZEEL’s fixed deposits (FDs) to offset loans from entities related to the Essel Group. ZEEL is part of the Essel Group promoted by Subhash Chandra and his family.
Since 2019, both MCA and Sebi have been investigating the group over allegations made by independent directors. While the MCA is investigating allegations related to violations of the Companies Act, 2013, Sebi is investigating allegations of capital market violations. Their investigations had found that Yes Bank appropriated financial funds worth Rs 200 million to settle loans from related parties of the Essel Group.
“However, now that Sebi is reported to have found an accounting issue of over Rs 2,000 crore ($241 million), details of its findings have been sought,” a senior government official said. “The same would be studied to investigate whether there was indeed a diversion of funds, which is 10 times greater than initially suspected.”
MCA Lens on Fund Diversion by Top Commands
The official stated that during the course of the ongoing investigation, “if necessary, even Puneet Goenka could be summoned to join the investigation.” Goenka, CEO of ZEEL, is Chandra’s son. The person added that the MCA investigation would also look into any issues of corporate governance and misappropriation of funds by key management personnel. In November 2019, ZEEL’s independent directors Sunil Kumar and Neharika Vohra resigned from the board, citing governance failures in matters such as treasury operations. , related party agreements, film financing and corporate social responsibility expenses. They had expressed concern that Yes Bank had appropriated ZEEL FDs to settle a loan taken by related entities of ZEEL. However, these loan guarantees were provided with board approval.
MCA, during the course of its investigation into these allegations, inspected the offices of ZEEL, recorded statements of directors except Goenka and also issued notices under Section 206 of the Companies Act seeking documents. It also relied on Sebi’s earlier findings.
“The investigation revealed that Rs 200 crore in financial funds available at Yes Bank were used to adjust loans from seven associated entities of ZEEL,” said one of the people cited above. “This, after Chandra handed over a letter of credit to Yes Bank for an outstanding loan of Rs 200 crore from Essel Group Mobility.”
These “associated 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 they were aimed at hindering deal talks with Sony. The Japanese giant backed 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 board positions of listed companies for one year, alleging active involvement in diverting funds to other listed entities of the group and related companies related to the founding shareholders. This was said to be the issue that led Sony to refuse to proceed with the merger.
Sebi said its order had to be read with the interim order dated April 25, 2023 passed in the Shirpur Gold Refinery Ltd matter which read: “The noticees (Chandra and Goenka) disposed of the assets of ZEEL and other listed companies of Essel Group. for the benefit of its associated entities, which are owned and controlled by them. The diversion of funds appears to be a well-planned plan as, in some cases, the layering of transactions involved the use of up to 13 entities as passing entities in a short period of two days only.”
While giving its conditional approval to the proposed merger at the time, MCA had informed the National Company Law Tribunal (NCLT) that it had ordered inspection of the books of accounts to examine several complaints received against ZEEL.
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