IDBI Bank moves NCLAT against Zee; challenges NCLT order

New Delhi: IDBI bank has moved the National Company Law Appellate Tribunal (NCLAT) against Zee Entertainment to challenge an NCLT order, which rejected the private lender's plea to initiate insolvency proceedings against the media major.

IDBI's petition has been listed for hearing on Wednesday before a bench comprising Chairperson Justice Ashok Bhushan and Member Barun Mitra.

The Mumbai bench of the National Company Law Tribunal (NCLT) had on May 19, 2023, set aside the bank's plea, seeking insolvency against media major Zee Entertainment, observing that it was barred under Section 10A of the Insolvency & Bankruptcy Code (IBC).

Earlier in the day, ZEEL in a regulatory filing also informed: "An appeal has been filed by IDBI Bank Limited before the NCLAT, Delhi, challenging the order passed by the NCLT dated May 19, 2023".

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 -- has 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 said 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 has taken a loan of Rs 150 crore for a working capital facility and as per the agreement, it has 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 March 5, 2021, IDBI Bank invoked the guarantee provided by ZEEL and called to pay Rs 61.97 crore with further interest from February 18, 2021. It claimed an amount of Rs 149.60 crore in default.

This was contested by ZEEL contending that its guarantee provides for a 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 Bank.