IDBI Bank Moves to NCLAT Challenging NCLT Order to Initiate Insolvency Proceedings Against Zee Entertainment Ltd.
IDBI Bank has approached the National Company Law Appellate Tribunal (NCLAT) to challenge an earlier National Company Law Tribunal (NCLT) order to initiate insolvency proceedings against Zee Entertainment Ltd.
The NCLAT bench comprising Ashok Bhushan (Judicial Member) and Barun Mitra (Technical Member), is set to hear the petition.
The Mumbai bench of NCLT on 19 May, 2023, had set aside the bank’s plea, seeking insolvency against media major Zee Entertainment, observing that it was barred under Section 10A of the Insolvency and Bankruptcy Code, 2016 (IBC).
In its order, the NCLT bench had said that ZEEL, which was the corporate guarantor for the loan availed by Siti Networks- the principal Borrower of IDBI Bank- had 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 had ruled that 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 had taken a loan of Rs. 150 crores for a working capital facility and as per the agreement, it had to maintain a Debt Service Reserve Account (DSRA).
In DSRA, a credit balance equal to two-quarters of interest on working capital was required to be maintained by Siti Networks at all times till the repayment. However, there was a default.
On 5 March, 2021, IDBI Bank invoked the guarantee provided by ZEEL and called to pay Rs. 61.97 crores with further interest from 18 February, 2021. It claimed an amount of Rs. 149.60 crores in default.
Therefore, Zee had defended itself by arguing that its guarantee provides for 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 Networks.
Both IDBI Bank and Zee Entertainment informed the exchanges in separate filings about the petition by the bank challenging the 19 May NCLT order.