In a significant relief to broadcaster Zee Entertainment Enterprises, the Mumbai bench of the National Company Law Tribunal (NCLT) on Friday dismissed an insolvency petition filed by IDBI Bank against it. On December 15 last year, the lender sought initiation of Corporate Insolvency Resolution Process (CIRP) against Zee alleging loan default of Rs 149 crore.
However, after several rounds of hearing, an NCLT bench headed by Justice Kishore Vemulapally and member Prabhat Kumar dismissed the petition on Friday. “In view of the foregoing discussion, this Bench is of the 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 object of the Code. The present petition deserves to be dismissed is,” 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 initiation of CIRP against a corporate debtor. IDBI’s claim against Zee stems from a Debt Service Reserve Account (DSRA) guarantee that Zee is alleged to have provided to secure a loan extended by IDBI to Citi Networks Limited – both Essel Group were part of. IDBI insisted before the NCLT that its claim was similar to that of IndusInd and on that basis the application should be allowed.
IndusInd Bank had filed a similar application against ZEE, which was accepted by the NCLT on 22 February. However, the National Company Law Appellate Tribunal (NCLAT) granted relief to the media company led by Managing Director and Chief Executive Punit Goenka against the NCLT order.
Later, Zee entered into a settlement agreement with IndusInd Bank, nearing its planned merger with Sony Pictures (Culver Max Entertainment).
Both IndusInd’s claim and IDBI’s claim were opposed by Zee primarily 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 prior to the period from 25 March 2020 to 25 March 2021, known as the covid period. This statutory bar has irked financial creditors as 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 apply to the entire loan.
IDBI is also opposing the merger of Zee with Sony.
Zee’s proposed merger with Sony Pictures is facing legal hurdles due to continued opposition from various parties including Axis Finance and JC Flower ARC.
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