NCLAT stays insolvency against Zee Entertainment on Punit Goenka plea

The National Company Law Appellate Tribunal (NCLAT) on Friday stayed initiation of insolvency proceedings against Zee Entertainment (Zee), in a relief to the company. The move came after NCLAT heard the plea of Punit Goenka, MD and CEO of Zee, challenging the National Company Law Tribunal’s (NCLT’s) decision to allow the initiation of insolvency proceedings against the firm. The matter will be next heard on March 27.

Shares of Zee, on Friday, recovered on the BSE from intraday lows, after the NCLAT’s breather to the firm and closed at ~195.60 apiece, down 1.58 per cent versus the previous day's close. Year-to-date, the stock has shed 18.5 per cent in value, data compiled by BS Research Bureau shows.

In a statement, Goenka said he respected the decision taken by the NCLAT. “We remain committed to protecting the interests of all stakeholders. Our focus continues to be on the timely completion of the proposed merger with Culver Max Entertainment (formerly Sony Pictures Networks India),” he said.

Goenka moved the NCLAT on Thursday, a day after the Mumbai bench of the NCLT admitted insolvency proceedings against Zee on a plea filed by IndusInd Bank -- a financial creditor of Zee.

Senior Advocate Mukul Rohatgi, appearing for Goenka at the NCLAT hearing, argued that the recovery of the loan, for which Zee was a guarantor, must go through the Debt Recovery Tribunal and not through the Insolvency and Bankruptcy (IBC) Code.

Zee had guaranteed IndusInd Bank's ~150-crore loan to Siti Networks, which is part of the Essel group, the lender stated in its plea to the NCLT. It said that Siti Networks had failed to maintain its loan account since September 2019 and the default amounted to ~89 crore. As a guarantor, Zee was liable for such defaults, it said.

While arguing the matter, Rohtagi said Zee had given a guarantee, not for Siti’s debt, but to maintain a shortfall for one tranche of interest repayment.

Rohtagi also said that no arguments from Zee were heard by the NCLT when admitting insolvency proceedings against the company, which violated the principle of natural justice.

IndusInd Bank, on its part, said in the NCLAT on Friday, that Zee knew that insolvency proceedings were pending in the NCLT and had taken a chance by not responding to it. The lender also said that in a previous order from the Delhi High Court in the matter, Zee was asked to cover every default by Siti and that the guarantee would remain operative and binding on it. 

Zee is in the advanced stages of merging with Sony in one of the biggest deals in the domestic media and entertainment industry. While insolvency proceedings against the firm have been stayed for now, legal experts said that issues pertaining to dues would have to be resolved before the final approval to the proposed merger is granted.