IDBI Bank Files Appeal at NCLAT Against NCLT Order on Zee Entertainment
IDBI Bank has approached the National Company Law Appellate Tribunal (NCLAT) challenging a National Company Law Tribunal (NCLT) order of 19 May, which had rejected the bank’s plea to initiate insolvency proceedings against Zee Entertainment Enterprises.
The public sector lender- IDBI Bank had filed the petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC), which provides that the financial creditor may file an application for initiating Corporate Insolvency Resolution Process (CIRP) against a corporate debtor before the adjudicating authority.
The claims of IDBI Bank against Zee stemmed out of a debt service reserve account (DSRA) guarantee which alleged that Zee provided to secure loans granted by IDBI to Siti Networks Ltd – both being part of Essel Group.
IDBI urged before the NCLT that its claim was identical to that of IndusInd Bank and, on that ground, the application must be permitted. Moreover, the IDBI Bank had filed a similar application against ZEE, which was admitted by the NCLT, on 22 February.
However, the NCLAT granted relief against the NCLT order to the media company led by managing director and Chief Executive Puneet Goenka.
Thereafter, in March, Zee entered into a settlement agreement with IndusInd Bank, inching closer to its planned merger with Sony Pictures (Culver Max Entertainment).
Zee vehemently opposed to both IndusInd’s claim and IDBI’s claim 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 between 25 March 2020 and 25 March 2021, which is termed as the Covid period. This statutory bar turmoil among the financial creditors since the insolvency proceedings can never be initiated for 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.
Notably, ZEE’s proposed merger with Sony Pictures has been significantly facing various legal issues due to the constant opposition from various parties including IndusInd, Axis Finance and JC Flower ARC. The Mumbai bench of NCLT after hearing all the parties, has reserved its verdict in the matter.
However, ZEE has contended that the merger has been approved by the majority of shareholders. ZEE's senior counsel said, “With regards to the merger, members are happy, creditors are happy, unsecured creditors are happy, who are the only ones unhappy? Those whose debts are disputed and ZEE is not their debtor. The total value of claims raised by non-creditor objectors is Rs. 1,259 crores.”
The Counsel argued that they have no locus in the matter.