The National Company Law Appellate Tribunal (NCLAT) on Thursday issued notice to Zee Entertainment Enterprises Ltd (ZEEL) over a petition filed by private sector lender IDBI Bank, directing it to file a reply within two weeks. The private lender has challenged an NCLT order, which on May 19 rejected a plea to initiate insolvency proceedings against the media major.
An NCLAT bench comprising Chairperson Justice Ashok Bhushan and Member Barun Mitra also granted two weeks to IDBI Bank to file rejoinder and directed to list the matter on October 11 for the next hearing.
The Mumbai bench of the National Company Law Tribunal (NCLT) on May 19, 2023, set aside the bank’s plea, seeking insolvency against media major Zee Entertainment, observing that it was barred under Section 10A of the Insolvency & Bankruptcy Code (IBC).
In its order, the NCLT bench said that Zee Entertainment Enterprises Ltd (ZEEL), which was the corporate guarantor for the loan availed by Siti Networks — the principal Borrower of IDBI Bank — has committed a default.
However, the default was committed during the timeline specified under section 10A of the IBC.
Section 10A mandates no application for initiation of corporate insolvency resolution process (CIRP) can be filed against any debtor by any financial and operational creditor for any default arising on or after March 25, 2020, for a period of one year.
This was a special provision inserted by the government in IBC to help the companies after the economic activities had resumed post-lockdown in phases.
The NCLT said Section 10A bars absolutely and forever, the filing of any application under Sections 7, 9 and 10 of the Code, for defaults committed on or after March 25, 2020, up to March 25, 2021.
Siti Networks has taken a loan of Rs 150 crore for a working capital facility and as per the agreement, it has to maintain a Debt Service Reserve Account (DSRA).
On March 5, 2021, IDBI Bank invoked the guarantee provided by ZEEL and called to pay Rs 61.97 crore with further interest from February 18, 2021. It claimed an amount of Rs 149.60 crore in default.
This was contested by ZEEL contending that its guarantee provides for a limited and restricted liability on the guarantor and cannot be held liable for the entire debt in case of default by the borrower at Siti Bank.
