In a significant relief to broadcaster Zee Entertainment Enterprises, the Mumbai bench of the National Company Law Tribunal (NCLT) on Friday rejected an insolvency petition filed against it by IDBI Bank. On 15 December last year, the lender sought the initiation of the corporate insolvency resolution process (CIRP) against Zee, alleging default of an Rs149 crore loan.
However, after multiple rounds of hearings, the NCLT bench led by Justice Kishore Vemulapalli and member Prabhat Kumar, dismissed the petition on Friday. “In view of the foregoing discussion, this bench is of the considered view that the present application is barred by section 10A of the Code. This application is also not maintainable on the ground that it is not in accordance with the intent and purport of the Code. The present petition deserves to be dismissed,” the bench ruled.
The public sector lender had filed the petition under section 7 of the Insolvency and Bankruptcy Code (IBC), which allows a financial creditor to file an application for initiating CIRP against a corporate debtor before the adjudicating authority. IDBI’s claim against Zee arises out of a debt service reserve account (DSRA) guarantee that it alleged Zee provided to secure loans provided by IDBI to Siti Networks Ltd – both were part of Essel Group. IDBI insisted before the NCLT that its claim is identical to that of IndusInd and on that ground, the application must be permitted.
IndusInd Bank had filed a similar application against ZEE, which was admitted by the NCLT on 22 February. However, the National Company Law Appellate Tribunal (NCLAT) granted relief against the NCLT order to the media company led by managing director and chief executive Puneet Goenka.
Later, Zee entered into a settlement agreement with IndusInd Bank, inching closer to its planned merger with Sony Pictures (Culver Max Entertainment)
Both IndusInd’s claim and IDBI’s claim were opposed by Zee mainly on the grounds that the guarantee was invoked during the pandemic. Under Section 10A of the IBC, insolvency proceedings cannot be initiated if the alleged default occurred before the period of 25 March 2020 to 25 March 2021, which is termed as the covid period. This statutory bar has troubled financial creditors because the insolvency proceeding can never be initiated for the defaults during the covid period. Zee’s stand was also that the guarantee is a limited guarantee and does not extend to the entire debt.
IDBI is also opposing Zee’s merger with Sony.
Zee’s proposed merger with Sony Pictures has been facing legal hurdles due to the constant opposition from various parties including Axis Finance and JC Flower ARC to name a few.
