On Thursday, the National Company Law Appellate Tribunal (NCLAT) accepted to consider the IDBI bank's request to start bankruptcy proceedings against Zee Entertainment and gave the lender a week to provide an additional affidavit.
The matter is scheduled to be heard again on August 31, 2023, under a two-member NCLAT bench order.
“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.
When the private lender's request to file for insolvency against Zee Entertainment Enterprises Ltd. was denied by the Mumbai bench of the National Company Law Tribunal (NCLT), IDBI Bank filed a challenge.
The merger of ZEE and Culver Max Entertainment, formerly known as Sony Pictures Networks India, was approved last week by the Mumbai-based NCLT bench.
The NCLT ruling from May 19, 2023, in which the tribunal dismissed IDBI's request for insolvency against media firm Zee Entertainment because it was illegal under Section 10A of the Insolvency & Bankruptcy Code (IBC), was appealed by IDBI before NCLAT.
The NCLT court stated in its ruling that ZEEL, the corporate guarantor for the loan taken out by Siti Networks, the primary Borrower of IDBI Bank, had defaulted.
But the default was made within the window of time allowed by section 10A of the IBC.
For a period of one year, Section 10A prohibits financial and operational creditors from filing an application for the start of the corporate insolvency resolution process (CIRP) against any debtor for any default occurring on or after March 25, 2020.
This was a unique clause the government included in the IBC to assist the businesses once economic activity had gradually returned following the lockout.
The NCLT stated that for defaults occurring on or after March 25, 2020, up until March 25, 2021, Section 10A completely and permanently prohibits submitting any application under Sections 7, 9, and 10 of the Code.
For a working capital facility, Siti Networks has borrowed Rs 150 crore, and the terms of the deal require that it keep a Debt Service Reserve Account (DSRA).
According to DSRA, Siti Networks was obligated to keep a credit balance that was equal to two-quarters of the interest on working capital up until the repayment process. There was a default, though.
On March 5, 2021, IDBI Bank triggered the ZEEL guarantee and was ordered to pay Rs. 61.97 crore with additional interest beginning on Feb. 18, 2021. It asserted that 149.60 crore rupees were in default.
ZEEL disputed this, claiming that its guarantee only allows for limited and restricted liability on the guarantor and that, if the borrower at Siti Bank defaults, the guarantor cannot be held liable for the full amount of the loan.
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