The National Company Law Appellate Tribunal (NCLAT) has deferred the hearing of IDBI Bank’s plea, challenging the order passed by National Company Law Tribunal (NCLT) that has rejected its appeal to initiate insolvency against ZEE Entertainment. The matter will now be taken up on August 17, as per reports.
The August 2 appeal was listed for admission before a bench led by Justice (retd) Ashok Bhushan, the chairperson of NCLAT and Barun Mitra, a technical member.
NCLT’s order said that ZEEL was the corporate guarantor for the load taken by Siti Networks. However, the default was committed during the timeline specified under section 10A of the IBC.
In May 2023, the NCLT at Mumbai refused to entertain IDBI’s plea noting that it was barred under Section 10A of the Insolvency and Bankruptcy Code (IBC).
Section 10A mandates no application for initiation of corporate insolvency resolution process (CIRP) can be filed against any debtor by any financial and operational creditor for any default arising on or after March 25, 2020, for a period of one year.
This was a special provision inserted by the government in the IBC to help the companies when economic activities resumed after the Covid-induced lockdowns in phases. A two-member NCLT bench said that Zee Entertainment Enterprises Ltd (ZEEL), which was the corporate guarantor for the loan availed by Siti Networks -the principal Borrower of IDBI Bank – committed a default. The default was committed during the time specified under Section 10A.
The NCLT noted that the financial creditor invoked the DSRA Guarantee Agreement and demanded the outstanding amount from the corporate debtor on March 5, 2021, thereby placing the company’s petition squarely within the clutches of Section 10A of the Code.
Siti Networks had taken a loan of Rs 150 crore for a working capital facility and as per the agreement it has to maintain a Debt Service Reserve Account (DSRA). In DSRA, a credit balance equal to two-quarters interest on working capital was required to be maintained by Siti Networks, at all times till the repayment. However, there was a default.
On March 5, 2021, IDBI Bank invoked the guarantee provided by ZEEL and called to pay Rs 61.97 crore with further interest from February 18, 2021. It claimed an amount of Rs 149.60 crore in default.
This was contested by ZEEL contending that its guarantee provides for a limited and restricted liability on the guarantor and cannot be held liable for the entire debt in case of default by the borrower at Siti Bank.