The National Company Law Appellate Tribunal (NCLAT) has dismissed IDBI Bank’s plea challenging a National Company Law Tribunal (NCLT) order that rejected the private lender’s request for insolvency proceedings against Zee Entertainment Enterprises Ltd (ZEEL).
NCLAT is the appellate body for the decisions of bankruptcy court NCLT.
ZEEL-IDBI Bank matter explained
The matter relates to an agreement signed on August 3, 2012, in which ZEEL was a corporate guarantor for a working loan facility provided by IDBI Bank to Siti Networks Ltd. Later, Siti Networks defaulted on the loan facility of Rs 149.6 crore, after which IDBI Bank filed an insolvency plea against ZEEL. In 2019, the main borrower, Siti Networks’ account, turned into a non-performing asset (NPA). However, the bank invoked ZEEL’s guarantee in March 2021, demanding a sum of Rs 61.97 crore.
ZEEL contested this demand by stating that the guarantee provided for a limited and restricted liability on the guarantor, stating that its guarantee was limited to only the payment of interest on the principal amount of Rs 50 crore and that it did not apply to the enhanced amount or principal.
In May 2023, the Mumbai arm of the bankruptcy court dismissed IDBI Bank’s petition against ZEEL, ruling that the alleged default fell within the protected period under Section 10A IBC. It also held that the bank’s claim of Rs 149.6 crore was unsustainable as ZEEL’s liability under the guarantee agreement was limited to maintaining interest for two quarters on the original sanctioned limit of Rs 50 crore, and not the entire outstanding amount.
In the DSRA, Siti Networks was required to maintain a credit balance amounting to two quarters of interest on working capital at all times till the repayment.
According to ZEEL, in February 2021, the entire credit facility was withdrawn, which automatically removed the responsibility of maintaining the debt service reserve account (DSRA).
Can IDBI Bank file a fresh insolvency petition?
However, IDBI Bank can file a fresh insolvency petition against the media giant over defaults after the period stipulated in Section 10A of the Insolvency and Bankruptcy Code (IBC), according to Chairperson Justice (Retd) Ashok Bhushan and Technical Member Barun Mitra.
What does Section 10A of IBC state?
As per the Corporate Insolvency Resolution Process (CIRP) rules, no corporate insolvency proceedings can be initiated by a financial or operational creditor against any defaults occurring within one year from March 25, 2020, in light of the COVID-19 pandemic.
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