The Mumbai bench of the National Company Law Tribunal (NCLT) on Wednesday admitted an insolvency petition against homegrown media company Zee Entertainment Enterprises Ltd (ZEE) filed by its financial creditor IndusInd Bank, under Section 7 of the Insolvency and Bankruptcy Code (IBC).
The dedicated bankruptcy court also admitted a similar insolvency application against Essel Group’s Siti Networks Ltd, filed by the same financial lender.
A bench led by justices H.V. Subba Rao and Madhu Sinha admitted the applications and appointed interim resolution professionals (IRPs) for both companies: Sanjeev Kumar Jalan for ZEE and Rohit Mehra for Siti Networks.
The development could delay or even derail the proposed merger between ZEE and Culver Max Entertainment (earlier Sony Pictures Networks India), legal experts said.
The bench rejected the ZEE counsel’s request for a two-week stay on the order, stating there was no precedent for granting such a request.
ZEE will challenge the order in the National Company Law Appellate Tribunal (NCLAT) as it feels that due process was not followed by the tribunal, a person aware of the matter said.
While the final order is awaited, the matter has been under litigation for close to two years.
Queries sent to spokespeople for ZEE and IndusInd remained unanswered till press time.
The matter pertains to a loan taken by Siti Networks, where ZEE was the loan’s guarantor under the terms of the Debt Service Reserve Account Guarantee Agreement (DSRA) on 29 August 2018.
On 1 October 2020, IndusInd Bank issued a notice to ZEE invoking the DSRA agreement and asked it to pay ₹83.7 crore. The media firm claimed that the bank made the demand for an accelerated amount which was the entire loan amount advanced by the bank to Siti on account of the shortfall in the DSRA Account.
In 2021, IndusInd Bank first approached the Delhi high court, and in February 2022, it filed a case against ZEE under the Corporate Insolvency Resolution Process (CIRP) in the NCLT, seeking claims of over ₹83.7 crore.
In a ruling passed last September, the Delhi high court made it clear that it had not prohibited IndusInd Bank from bringing ZEE before a bankruptcy court. This cleared the way for the private lender to file for bankruptcy petition against the media business in order to recover debts it claims owed by Siti Networks.
ZEE said then that the company’s alleged default under the DSRA Guarantee Agreement was sub-judice before the Delhi high court.
“ZEE was arguing on the maintainability of the petition filed by IndusInd in the NCLT, without prejudice,” said a lawyer with knowledge of the matter. “For the last year, the case was heard and argued only on the maintainability. Today, surprisingly, the decision was on maintainability and merit.”
Punit Goenka, son of Essel Group founder Subhash Chandra and promoter of ZEE, said in his personal capacity, “We remain committed towards the proposed Scheme of Amalgamation for the merger of Zee Entertainment Enterprises Ltd with and into Culver Max Entertainment Pvt. Ltd (earlier known as Sony Pictures Networks India). We will continue to take all the required measures to achieve timely completion of the same guided by legal advice, in the interest of our stakeholders, who have recognized the value and potential of the merger.”
ZEE, a debt-free company, posted a net profit of ₹24.3 crore in the quarter ended 31 December. It recorded operating revenue of ₹2,111.2 crore.
