Context:
In a major win for Zee Entertainment Enterprises Ltd, the National Company Law Appellate Tribunal (NCLAT) has dismissed an insolvency petition filed by IDBI Bank over unpaid dues of approximately ₹150 crore. The judgment brings temporary relief to Zee amid ongoing legal and financial challenges.
NCLAT Decision
- NCLAT upheld the earlier NCLT Mumbai ruling, which rejected IDBI Bank’s insolvency plea.
- The tribunal invoked Section 10A of the Insolvency and Bankruptcy Code (IBC), 2016, which bars insolvency proceedings for defaults occurring during the Covid-19 moratorium period (25 March 2020 to 25 March 2021).
- Zee’s default was dated 5 March 2021, thus falling within the protected period.
Details of the Dispute
- Dispute originated from a 2012 guarantee agreement where Zee guaranteed a debt service reserve account (DSRA) for IDBI Bank’s working capital loan to Siti Networks.
- While Siti Networks’ loan turned into an NPA in December 2019, IDBI invoked Zee’s guarantee only in March 2021, demanding ₹61.97 crore.
- Zee argued its guarantee was limited to interest on the original ₹50 crore loan, not covering increased limits or principal.
- It further claimed its DSRA obligations ceased in February 2021 when the loan facility was recalled.
IDBI Bank’s Options
- NCLAT permitted IDBI Bank to file a fresh insolvency case if defaults occurred outside the Section 10A period.
Implications and Industry Perspective
- The ruling offers temporary reprieve for Zee, allowing it to avoid insolvency proceedings for now.
- Highlights the importance of timely invocation of guarantees and the Covid-19 shield under IBC.
- Also underlines growing legal scrutiny on debt guarantee agreements and DSRA structures in corporate finance.
Zee’s legal defense and favorable timing under Section 10A helped it avoid immediate insolvency proceedings. However, IDBI Bank still has room to reinitiate the case for any post-moratorium defaults, which means legal uncertainty continues.
