Zee-Sony Merger Illegal, Infringes SEBI Order: Axis Finance To NCLAT

Axis Finance has alleged Zee-Sony merger scheme was designed to deceive lenders and public shareholders.

<div class="paragraphs"><p>Zee Entertainment channels. (Photo: BQ Prime)</p></div>
Zee Entertainment channels. (Photo: BQ Prime)

The Mumbai bench of the National Company Law Tribunal failed to consider that the Zee-Sony merger is illegal, unfair, and unjust as the order approving it is in breach of a SEBI order against Punit Goenka, Axis Finance Ltd. submitted to the National Company Law Appellate Tribunal in Delhi.

As per the petition filed by Axis Finance, which has been viewed by BQ Prime, the NCLT didn't consider that a key part of the scheme, which was appointing Punit Goenka as managing director and chief executive officer of the merged entity, couldn't be approved because the Securities and Exchange Board of India disqualified him. The scheme shouldn't have been approved without resolving this issue. This went against SEBI's decision, Axis Finance said.

The NCLT didn't realise that once a scheme is approved, you can't change a crucial part of it, according to the petition.

The NCLT doesn't provide any reasons for rejecting its application and hence can be overturned, it said. According to the loan agreement and bank statements, Goenka companies borrowed money from the appellant, the non-bank lender said.

It also submitted that, as per letters issued to the Goenka companies, it is evident that they defaulted on repayment of the said loans. Cyquator owes over Rs 61 crore, and Primat owes over Rs 82 crore to Axis Finance.

Other allegations mentioned in the filing are that the group created multiple layers of companies to avoid repaying the loan and protect themselves from Cyquator's actions, and that the approved merger scheme is designed to deceive lenders and public shareholders.

Axis Finance has stated that Zee Entertainment Enterprises Ltd. shareholders would hold 48% of the new entity, reducing their ownership from what they have in ZEEL. The promoter group should also see a drop in its ownership from 4% to 2%. However, the promoters want to maintain their 4% ownership in the new entity. To achieve this, they used a "non-compete" payment mechanism, Axis said.

Apart from Axis Finance, IDBI Bank Ltd. has also filed an appeal against the NCLT-approved merger. 


The NCLT approved the Zee-Sony merger in August this year, dismissing all objections. The tribunal had been reviewing the case since July 10.

The merger agreement between Zee and Sony was reached in December 2021. After obtaining approvals from various regulators like the NSE, BSE, SEBI, and the Competition Commission of India, the companies sought final approval from the tribunal.

However, the merger faced delays due to objections from creditors of the Essel Group, including Axis Finance Ltd., JC Flowers Asset Reconstruction Co., IDBI Bank Ltd., IDBI Trusteeship Ltd., and Imax Corp.

The main issue in this dispute was a non-compete clause in the scheme. It stated that Essel Mauritius, an Essel Group company, would receive Rs 1,100 crore as non-compete fees from SPE Mauritius, a Sony Group company, in exchange for Subhash Chandra agreeing not to compete with the resulting entity.