The Supreme Court has issued notices to two promoter companies of Zee Entertainment Enterprises Ltd, agreeing to hear a plea filed by IDBI Trusteeship Services for insolvency proceedings.
IDBI Trusteeship had challenged a recent order of the National Company Law Appellate Tribunal rejecting its plea to initiate insolvency proceedings against Cyquator Media Services and Direct Media Distribution Ventures.
The apex court has now granted the two promoter companies four weeks to respond to its notices.
The case’s origin dates back to 2015 when Essel Infraprojects, a subsidiary of Zee TV founder Subhash Chandra’s Essel Group, proposed the sale of 425 non-convertible debentures worth Rs425 crore on a private placement basis.
IDBI had agreed to act as the debenture trustee. A debenture trust deed was executed between IDBI Trusteeship Services and Essel, with Cyquator Media and Direct Media Ventures acting as corporate guarantors.
The disbursal of the Rs425-crore debt occurred in two tranches–Rs200 crore in May 2015 and Rs225 crore the following month. The non-convertible debentures were due in May 2020, but when that didn’t happen IDBI Trusteeship Services invoked the corporate guarantee clause.
IDBI issued a notice to Cyquator to make the payments in June 2020, and an insolvency notice in May 2022 alleging a default of Rs591 crore.
The National Company Law Tribunal, however, rejected IDBI’s claim. Subsequently, the appellate tribunal too rejected its plea arguing that the default in payment had occurred in June 2020, which fell within the period excluded under Section 10A of the Insolvency and Bankruptcy Code.
The government had introduced Section 10A to provide relief to companies facing defaults during the Covid-19 period. According to this provision, a tribunal is barred from initiating insolvency proceedings against a company for defaults occurring between March 25, 2020 and March 25, 2021.
IDBI Trusteeship Services has also contested the merger of Sony Pictures Networks India and Zee, and lodged an appeal against former Zee Enterprises chairman Subhash Chandra in the National Company Law Appellate Tribunal.
It has claimed that Chandra failed to fulfil his obligations under the personal guarantee, thereby categorising him as a debtor. The appeal argues that Chandra is indebted to the trusteeship company, with the claimed amount being Rs500 crore.
Axis Finance too has filed similar plea before NCLAT against the Sony-Zee merger. The proposed merger worth $10 billion is under threat due to legal hurdles posed by creditors in different forums.
