Zee Vs Yes Bank: Letter Of Comfort Not A Guarantee, Bombay High Court Says

The Bombay High Court dismissed Yes Bank Ltd.'s interim application that sought enforcement of a 'letter of comfort' extended by Zee Entertainment Enterprises Ltd. as a guarantee, and restrictions on the broadcaster from disposing of or transferring assets without the court's approval.

A single-judge bench of Justice GS Patel observed that the letter of comfort issued by Zee Entertainment only confirmed support to its Mauritian subsidiary. It cannot be said to have created a direct liability towards Yes Bank, the court said. So the pleas in the interim application “utterly” lacked merit and are set aside, the judge said.

The case stems from a 2016 transaction when Zee Entertainment's Mauritius-based subsidiary, ATL Media Ltd., entered into a put option agreement with Living Entertainment Ltd., a related party. Living Entertainment borrowed money from Yes Bank against this put option. Zee Entertainment gave Yes Bank a letter of comfort confirming its intention to support ATL Media by infusing equity or debt as well as honoring the put option.

The bank approached Zee Entertainment to support its subsidiary after Living Entertainment and ATL Media failed to repay the loan and honour the put option. The default prompted Yes bank to initiate a suit against the media house in June.

Timeline

• June 26: Yes Bank files a suit in the Bombay High Court against Zee Entertainment seeking, among other things, enforcement of the letter of comfort as a guarantee. Files an interim application.
• June 30: A single-judge bench dismisses Yes Bank's initial interim application citing that the LoC lacks elements of a guarantee.
• July 24: Yes Bank challenges dismissal of its initial interim application before a division bench, which remits the case back to a single-judge bench for fresh consideration.
• Aug. 19: Bank's second interim application on nearly similar grounds is again rejected by the high court.

Reasons For Dismissal

Veerendra Tulzapurkar, senior counsel for Yes Bank, argued:

• The letter of comfort was nothing but an “unequivocal commitment” by Zee Entertainment; was issued in nature of an absolute and unconditional guarantee and formed an indivisible part of the security.
• While every LoC is not necessarily a guarantee, the letter issued by Zee Entertainment was in fact a guarantee.
• And the LoC cannot be treated as a separate document or read in a sterile fashion. Being an integral part of the security, it must be read and approached in a commercially reasonable manner.

To this, Aspi Chinoy, senior counsel representing Zee Entertainment, argued that the LoC was issued only in form of a confirmation and contained no guarantee. And Zee did not owe any liability directly to the bank.

The high court, after analysing past rulings on contract of guarantees, observed that Yes Bank's application is nothing but a “wholesale rewriting” of the letter of comfort to give it a form of guarantee, which is not permissible. As the bank's plea failed to establish several critical nuances, the plea is dismissed, the court said.