The Mumbai bench of the National Company Law Tribunal on Wednesday allowed to initiate insolvency proceedings against Zee Entertainment Enterprises Ltd.
The court appointed Sanjay Kumar Jhalani as the interim resolution professional.
The order comes on a petition filed by IndusInd Bank Ltd. after the company failed to fulfill its obligation under a Debt Service Reserve Account Agreement between the bank and Siti Networks Ltd., to which Zee was also a party. Siti Networks is part of the Essel Group.
Under the terms of the agreement, Zee had guaranteed IndusInd Bank's Rs 150 crore loan to Siti Networks, which was expected to maintain an amount equal to one quarter's interest and one quarter's principal at all times in the account for the purpose of servicing its debts. Zee, under the agreement, had guaranteed to maintain such an amount, which it failed to do.
According to IndusInd, Siti has failed to maintain the account since September 2019 and has since been a continuous defaulter. The default, according to it, amounted to Rs 89 crore on such date. As a guarantor, Zee should also be made liable for such defaults, it told the tribunal.
Zee Entertainment had questioned the maintainability of the petition, saying the default occurred in October 2020, when the insolvency code was suspended.
According to it, there cannot be a default unless the bank explicitly invokes the guarantee, which was not done until 2020. Objections were also raised on the default amount, as according to it, the claim amount cannot exceed Rs 69 lakh as of 2019, which is well below the minimum threshold of Rs 1 crore mandated under the insolvency code.
Dismissing Zee's arguments, the tribunal admitted the bank's petition.
Simultaneously, the court has also admitted IndusInd's insolvency petition against Siti Networks. Rohit Mehra is appointed as the interim resolution professional for this process.
Zee Entertainment is in the middle of a merger with Culver Max Entertainment Pvt., an indirect, wholly owned subsidiary of Sony Group Corp.
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