The National Company Law Appellate Tribunal today stayed the order of the tribunal which had admitted Zee Entertainment Enterprises Ltd. into insolvency.
Earlier this week, the National Company Law Tribunal had admitted Zee into insolvency on an application by IndusInd Bank last year for defaulting under a Debt Service Reserve Account Agreement between the bank and Siti Networks Ltd., to which Zee was also a party.
A day later, Zee's Chief Executive Officer Punit Goenka approached NCLAT seeking relief against the company's admission to insolvency.
On Friday, arguing for Zee, senior advocate Mukul Rohatgi said that recovery of the loan must go through the Debts Recovery Tribunal and not through Insolvency and Bankruptcy Code. He pointed out that Zee is the guarantor, not the principal debtor. Debtor is the company called Siti Networks.
Rohatgi contended a demand can be made on Zee only after one is made on the debtor. “I am bound by the guarantee but I am not the debtor".
So only if the debtor fails to maintain the comfort of three months under debt service reserve account, only then can the guarantee be invoked, he argued.
"I have given a special guarantee that if the debtor does not maintain interest, I will pay. I'm going through a merger which is going to get stuck. It is not that if he (debtor) defaults, then I will pay everything. Zee doesn't have to pay the loan".
Responding to Zee's arguments, IndusInd Bank's counsel Rajiv Nayar said the issue is not one of maintainability; it's a merit issue.
"I am a public institution and more than Rs 180 crore is due as on date", Nayar said.
He pointed out that Zee did not file a reply before the NCLT after insolvency proceedings were initiated. "Four hearings had taken place and still they did not file a reply. Zee has come here going from one court to another taking their chance. Today, they cannot say that they were not heard."
The NCLAT has given two weeks to IndusInd Bank to file its response while staying the operation of the tribunal's order in the interim.
This would mean that the moratorium, which had kicked in as a result of the NCLT order, will not apply. The NCLAT will hear the matter next on March 29.
It's important to note that on March 9, the company law tribunal is set to hear Zee's application on the proposed merger with Culver Max Entertainment Pvt.—an indirect, wholly owned subsidiary of Sony Group Corp.
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