Zee warrant row: SAT questions SEBI’s timing and logic

MUMBAI: Zee’s warrant saga has found another plot twist. The Securities Appellate Tribunal (SAT) has questioned both the logic and timing of the Securities and Exchange Board of India’s (SEBI) intervention, allowing Zee Entertainment Enterprises to proceed with its Rs 3,143 crore preferential warrant issue to a promoter group entity.

The tribunal’s interim order on Friday came after SEBI barred Zee from accessing the securities market for two months and restricted Punit Goenka for 12 months. SAT, however, stayed the relevant part of the order to allow the warrant transaction to be completed, subject to Zee and Goenka depositing the full penalty within a week.

The ruling turns heavily on the timing of the regulatory action.

Zee’s board had approved the warrant issue on July 1 and notified shareholders about an extraordinary general meeting on July 3. At the July 31 EGM, the proposal received approval from 76.64 per cent of the public shareholders.

The company then disclosed the voting outcome to the stock exchanges at around 8pm on July 31. About an hour later, at around 9pm, SEBI passed its order restricting Zee and its key managerial personnel from accessing the securities market.

That left Zee facing a regulatory roadblock just as its shareholder-approved transaction was approaching its deadline.

Under the applicable securities regulations, Zee argued that the shareholder approval had made the resolution binding and that the warrants had to be allotted within 15 days, taking the original deadline to August 14.

SEBI, however, told the tribunal that the investment could still be brought into the company after the two-month debarment period ended. That argument became central to SAT’s decision.

The tribunal noted that when asked whether the proposed investment could come in after the two-month ban, SEBI had answered in the affirmative. But it found that position difficult to reconcile with the regulator’s decision to prevent the transaction from being completed immediately.

“SEBI’s stand that the proposed investment is permissible after two months … defeats logic,” the tribunal said.

SAT observed that no other legal bar to the investment had been pointed out apart from the direction contained in SEBI’s order. It also noted that 76.64% of shareholders other than promoters had approved the warrant issue.

More importantly, the tribunal highlighted Zee’s ownership structure. About 96% of the company’s shareholders are public shareholders, it noted, and the proposed warrant issue is expected to bring in around Rs 3,100 crore.

Against that backdrop, SAT said the further issue of fully convertible warrants through the preferential route was likely to benefit public shareholders.

The timing of SEBI’s order was also significant because the company said its share price had fallen considerably following the debarment. Zee argued that continued restrictions could push the stock lower and put the proposed capital raise at risk.

The tribunal stopped short of lifting the entire debarment. Instead, it granted narrowly tailored interim relief, allowing Zee and Goenka to complete the warrant issue while keeping the wider restrictions on access to the securities market in place.

The relief is also conditional. Both appellants have been directed to deposit the full penalty within one week, with SEBI instructed to keep the deposits in an interest-bearing account.

SAT has also extended the deadline for issuing the warrants by one week from August 14.

The tribunal separately allowed Zee to carry out mutual fund transactions for its ordinary day-to-day business requirements. The company cannot use that permission for other purposes, including payment of the proposed dividend.

The order does not settle the underlying dispute between Zee, Goenka and SEBI. SAT said the other arguments raised by the parties would remain open for consideration at the final hearing.

For now, however, the tribunal has ensured that a shareholder-approved capital raise does not get caught in a regulatory time warp. Zee gets its warrant window, while SEBI’s broader debarment remains firmly in place.