In a Wire report dated January 24, Zees controlling shareholder Essel Group was named in connection to a probe into large and allegedly fraudulent deposits made after The report immediately sent the company’s shares in a nosedive Friday.
The investigation, based on publicly available documents, showed dubious financial transactions between Dreamline Manpower Solutions an allegedly independent firm with minimal business activity currently under scrutiny and certain firms associated with the Essel Group, between 2015 and 2017.
The chief players
The Subhash Chandra-led Essel Group is also involved in the high-profile legal spat with the Dhoot family which owns Videocon. Chandra, who was elected to the Rajya Sabha from Haryana in 2016 as an independent with the backing of the BJP, is best known for his ownership of Zee Television.
Dreamline, now known as Nityank Infrapower, is being probed by the Serious Fraud Investigations Office (SFIO) for suspicious cash deposits worth over Rs 3,000 crore, just after demonetisation in 2016. Prime Minister Narendra Modis move has, on several occasions, been billed as a drive to weed out black money from the system.
In March 2018, the Centre revealed that it was probing 575 shell companies ghost firms which exist as a conduit for circuitous transactions on account of alleged fraud.
Nityank which features on that list reportedly deposited Rs 3,177.96 crore during the demonetisation period between November 8 and December 31, 2016. The Wires analysis puts this figure to Rs 5000 crore, involving listed entities and big corporate houses. This money was quickly withdrawn in the same manner, according to the report.
Modus operandi
This was presumably accomplished with the help of inter-corporate deposits, issue of non-convertible debentures and extending short-term loans are their usual means of moving around money, claims the report.
Three firms, including Nityank, constituted Lemonade Capital Advisors which moved funds around for Churu Enterprises. This final entity is believed have comprised a clutch of companies associated with Zee of Essel Groups. Essel, however, claims to be unaware of any transaction between Lemonade and Nityank, and has denied ownership of Nityank.
Other loans directed to Churu Enterprises were issued by Direct Media Solution LLP and Prajatma Enterprises LLP, both allegedly associated with the Essel Group.
According to these firms corporate filings, all of them share common traits like interlinked shareholding, common directors, middling business activity, Rs 1 lakh share capital, part-time employees who serve as directors on multiple companies and are paid salaries.
The Videocon connect
Nityank allegedly went on to play a crucial role in the Videocon D2H-Dish TV merger in November 2016, which has been the subject of investigation since August 2018.
Soon after Dreamline subscribed to the non-convertible debentures of the Dhoots Hindustan Oil Ventures Private Limited to the tune of Rs 1,626 crore, HOVP reportedly got Rs 1,492 crore from a “body corporate”.
The Dhoots are the wealthy group behind the Videocon empire, with Saurabh P. Dhoot owning nearly half the shares in HOVP. To raise money for the investment firm which did not have any business at the time, the family subsequently created a hypothecation deed by pledging D2H shares held by some of Videocons group companies.
These companies including one Domebell Electronics had a substantial stake in Videocon D2H which later merged with Dish TV (a Zee group company) in the wake of demonestisation. By pledging Videocon D2H shares to promoters of Dish TV (owned by Essel) through Dreamline/Nityank, the Dhoot family got Rs 1,626 crore.
Sources told the Wire that the SFIO and IT department are examining Nityank and the legality of these implications on the merger. According to the report, the merger shows that Dreamlines second investment indirectly benefited the Essel Group.
Videocon has also accused Essel of placing these shares in Nityanks custody so that they could be usurped by Essel if the merger were to fail. The legal battle between Videocon and Essel ensued when a financial creditor took Domebell Electronics to the National Company Law Tribunal in 2018 for bankruptcy proceedings.
Nityank alleged that Domebell planned on pledging some Videocon D2H shares to a third-party, and that these shares that were pledged actually belonged to Nityank.
Whats next
In its official response to a questionnaire from the Wire, the Essel Group has noted that it has always maintained extremely high levels of corporate governance. While Zees parent company has labelled Nityank as an independent company, they refused to comment on what role Nityank, then Dreamline, played in financing and fund-raising transactions.
Meanwhile, Zee Groups shares fell sharply by 19% after the report hit the newsstands. According to a BloombergQuint report, “Shares of broadcaster Zee Entertainment Enterprises Ltd fell nearly 25 per cent the most since October 2008 to Rs 326.60 a piece on National Stock Exchange. The stock was on track for its worst every single-day fall since March 1999.”
“Shares of Zee Learn Ltd. fell as much 19.6 per cent its worst intraday fall. Essel Propack Ltd. and Dish TV India Ltd. plunged 18.6 per cent and 21.2 per cent, respectively,” the report stated.
Essel Group met lenders over the weekend to allay concerns over the debt held by them in its infrastructure companies after they began to sell pledged shares on Friday following the report, eroding Rs 14,000 crore of Essels market value.
Zee Entertainment Enterprises Ltd, in various statements put out on Sunday, noted that it has no connection to the alleged transactions, adding it has filed a legal case against the Wire for the publications malicious attempt to establish a linkage between the SFIOs investigation and ZEE Entertainment Enterprises Ltds promoters.
Meanwhile, creditors have reportedly given Chandra a three-month breather to find a buyer for half his 42% shares, in light of the recent development. Essel’s largest shareholder had announced last November about his plans to divest most of his stocks, and according to latest reports, Sony Corporation may be looking into acquiring some. The leading Indian media giant is reportedly also attracting interest from Comcast, Amazon, Tencent and Alibaba as a strategic partner.
Prarthana Mitra is a staff writer at Qrius