NCLAT to hear IDBI's plea against Zee Entertainment on Aug 31

New Delhi: The National Company Law Appellate Tribunal (NCLAT) on Thursday agreed to hear the IDBI bank's plea against Zee Entertainment to initiate insolvency proceedings and allowed the lender to file an additional affidavit in a week's time.

A two-member NCLAT bench has directed to list the matter on August 31, 2023, for the next hearing.

"Learned Counsel for Appellant prays for and is allowed a week’s time to file the Additional Affidavit," said the NCLAT bench, comprising Chairperson Justice Ashok Bhushan and Member Barun Mitra.

IDBI bank had challenged the orders of the Mumbai bench of the National Company Law Tribunal (NCLT), which rejected the private lender's plea to initiate insolvency proceedings against Zee Entertainment Enterprises Ltd.

ZEE is merging with Culver Max Entertainment (earlier known as Sony Pictures Networks India), and last week, the NCLT bench from Mumbai had given a go-ahead to the merger.

Before NCLAT, IDBI challenged the NCLT order passed on May 19, 2023, in which the tribunal had set aside its plea, seeking insolvency against media major Zee Entertainment, observing that it was barred under Section 10A of the Insolvency & Bankruptcy Code (IBC).

In its order, the NCLT bench had said that ZEEL, 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 that 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 the 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).

Under 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.