JC Flowers and Co., an Essel Group creditor, has questioned the legality of the non-compete arrangement between Zee Entertainment Enterprises Ltd. and Culver Max International Pvt. (Sony Pictures).
As per the scheme, Essel Mauritius—an Essel Group entity—will receive a non-compete fee of Rs 1,100 crore from Sony Group entity SPE Mauritius.
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This fee is an amount that should legally accrue to Subash Chandra, as he is the one who is giving up his right to compete, JC Flowers told the Mumbai bench of the National Company Law Tribunal.
By redirecting the amount to a Mauritius entity, in which Chandra, by admission, holds no stake, Zee is trying to ring-fence the income, senior advocate Ravi Kadam said, while arguing for JC Flowers.
As per the income tax law, any income received or receivable for giving up a right to compete is taxable. The arrangement proposed in the scheme ensures that no tax is payable in India. This is an attempt at tax evasion. —Ravi Kadam, counsel for JC Flowers
JC Flowers argued against Zee's contention that it has no locus standi to object to the scheme. Yes Bank Ltd. had extended a loan of Rs 377 crore to Essel Infra Projects Ltd, which was later assigned to JC Flowers.
Kadam highlighted that Yes Bank's no objection certificate to the scheme is only in respect to certain car loans advanced to Zee and not for loans to Essel Infra. "JC Flowers has not lost his right to sue by virtue of Yes Bank's non-objection," he said.
The loans assigned to JC Flowers were guaranteed by Chandra, Kadam informed the NCLT.
But by giving up his right to receive the non-compete fee, Zee as well as Subash Chandra are trying to defraud the creditors of Essel Group. The money that should have been utilised for the payment of Chandra and Essel Group's loans is now redirected to some outside entity, Kadam said.
Besides JC Flowers, Axis Finance Ltd., IDBI Bank Ltd. and IMAX Co. have also approached the court objecting to the merger between Zee and Sony.
The tribunal will hear the matter next on May 11.
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