Will Zee-Sony Merger Get Delayed Because Of The NCLT Order?

Zee Entertainment Enterprises Ltd. (ZEEL) of India mentioned to the tribunal that the start of insolvency proceedings against them will cause a delay in their merger with a local division of Sony Group Corp. of Japan. The remarks were made at the time when Zee’s CEO, Punit Goenka, recently stated in a statement said that he is trying every legal way so that the merger between Zee and Sony be completed on schedule. Goenka challenged the insolvency actions taken by India’s bankruptcy court NCLAT in response to a loan default on Zee from IndusInd Bank Ltd.

After hearing the plea, the National Company Law Appellate Tribunal (NCLAT) issued Zee Entertainment Enterprises Ltd. temporary relief, halting the company’s insolvency procedures. The appellate tribunal has scheduled a hearing on March 29. Punit Goenka petitioned the NCLAT for relaxation from the February 22 NCLT ruling. The bankruptcy court accepted Zee Entertainment’s petition against the corporate insolvency resolution process (CIRP) against a petition by IndusInd Bank, which is attempting to collect ₹83.1 crores in debts from the firm. 

Earlier, the National Company Law Tribunal (NCLT) accepted an insolvency petition filed by creditor IndusInd Bank, which can trigger a threatening move to derail Zee’s merger with Sony. The insolvency filing comes as Zee and a local arm of Sony Japan are integrating their television channels, movie assets, and streaming platforms.

The attorneys of ZEE and IndusInd Bank.

A division bench of Judge Ashok Bhushan and technical member Barun Mitra heard Zee’s petition. The bench instructed IndusInd Bank, a private sector lender, to submit its reply within two weeks, with a rejoinder available two weeks later. Prominent attorney Mukul Rohatgi represented Goenka, while senior advocate Rajiv Nayar represented IndusInd Bank. 

Can IndusInd Bank will challenge the NCLAT ruling to the Supreme Court?

According to NPS Chawla, the cofounder of AEKOM Legal, IndusInd Bank may file an appeal against this stay order before the Supreme Court because, during the hearing, NCLAT refused to accept IndusInd Bank’s plea instructing ZEEL to deposit a portion of their accepted dues. This stay order will undoubtedly provide some relief to all ZEEL investors. The ruling of admitting ZEEL to insolvency, raised concerns, notably about the consequences of the pending merger with Sony.  

Brief details about the proposed merger.

ZEEL and Sony are in the process of integrating their operations. The two corporations have previously gotten conditional permission from the Competition Commission of India (CCI). The stock markets and the shareholders of ZEEL have also authorized the acquisition.

Can this insolvency proceeding delay the proposed merger?

Law experts believe that processes in bankruptcy courts might cause the Zee-Sony agreement to be delayed. Under the current position, when management files an appeal against the insolvency decision, the NCLAT will only intervene in extremely narrow situations, stated Sudip Mahapatra, partner at S&R Associate. Alternatively, it can seek the withdrawal of insolvency proceedings with the approval of 90% of the creditors’ committee.

Is there a dispute between Zee and IndusInd Bank?

The NCLT order clearly states that there is a dispute between Zee and IndusInd on the exact amount, because Zee contends that their liability is limited only to the DSRA amount as defined in the DSRA Act, whereas IndusInd Bank contends that Zee should compensate City Networks for the entire liability of Rs 150 crore plus interest, etc. Anyways, Zee is a debt-free corporation, which the markets acknowledge.

What Zee can do to save its merger with Sony?

ZEEL may pay, resolve, or rearrange the outstanding debt with IndusInd Bank Ltd on its initiative. On the strength of the settlement/restructuring agreement executed by the parties, it may then prefer to file an appeal before the NCLAT for the stay and dismissal of the NCLT order, or request the Bank through the IRP to file an application with the NCLT itself for withdrawal of application admitted under Section 7 of the IBC.

Because the merger has yet to be finalized, the insolvency order might have an impact on it. Once the company gets admitted, the powers of the board of directors stand superseded concerning the corporate debtor. The only way out for the original promoters is to satisfy the post-admission dues with the lender under 12 (A). No scheme proceedings, including merger or amalgamation, will be feasible unless and until this occurs.

Disclosure.

Let’s see where things move in the upcoming time! Will Zee pay the money the IndusInd Bank asked, will IndusInd bank move to SC against NCLAT’s stay on insolvency proceedings, and when will India see the merger of two great Entertainment Television Channels? Only, time can and will answer these queries!

edited and proofread by nikita sharma