NCLAT Notice To Zee Entertainment In IDBI Bank's Appeal Against Dismissal Of Insolvency Plea

The NCLAT issued a notice to Zee Entertainment Enterprises Ltd. on Thursday in an appeal filed by IDBI Bank Ltd. against an NCLT's order that rejected the lender's plea to initiate insolvency proceedings against the company.

The dispute arose over Siti Networks' loan from IDBI for which Zee was the guarantor. On a default of payments, the bank called upon Zee in 2021 to pay Rs 62 crore along with interest from February 2021 and claimed a total of Rs 149 crore. However, Zee argued that a guarantor cannot be held liable for the entire loan amount in case of default by the borrower. 

IDBI contended before the National Company Law Appellate Tribunal that Siti did not maintain a debt service reserve account as per their agreement. Zee was also informed about the failure of Siti to replenish the DSRA.

Appearing for Zee, senior advocate Abhishek Singhvi argued that IDBI had utilised the guarantee during the pandemic, a time when the Union government had decreed that no insolvency proceedings could be launched for any defaults stemming from or after March 25, 2020, for one year.

Section 10A of the Insolvency and Bankruptcy Code stipulates that for a duration of one year starting from March 25, 2020, no financial or operational creditor is permitted to submit an application to instigate the corporate insolvency resolution process against a debtor for defaults occurring during this period.

Senior advocate Ramji Srinivasan, who was representing IDBI, countered that the default had occurred prior to the pandemic and the regulation suspending the commencement of insolvency proceedings wouldn't be pertinent to the current scenario.

The bench observed that the issue needs further consideration and posted the matter for further hearing on Oct. 11.