The National Company Law Appellate Tribunal (NCLAT) on Monday (Apr 7) dismissed an appeal filed by IDBI Bank challenging the order of the National Company Law Tribunal (NCLT) which dismissed an insolvency plea against Zee Entertainment Enterprises Limited (ZEEL). NCLAT is the appellate body for the decisions of the bankruptcy court NCLT. 

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As per Bar and Bench, 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.

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In May 2023, NCLT Mumbai dismissed IDBI Bank's insolvency petition against ZEEL, ruling that the alleged default fell within the protected period under Section 10A (IBC). The tribunal held that IDBI Bank's claim of Rs149.60 crore was unsustainable as ZEEL's liability under the guarantee agreement was strictly limited to maintaining two quarters' interest on the original sanctioned limit of ₹50 crore, not the entire outstanding amount.

It also held that the default occurred only when the bank issued its demand notice on March 5, 2021, which squarely fell within the COVID-19 moratorium period from March 25, 2020 to March 25, 2021, during which insolvency filings were barred.

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The NCLT scrutinised the terms of the guarantee agreement and sanction letters, concluding that ZEEL's liability was indeed restricted to the initial ₹50 crore exposure. The tribunal rejected IDBI Bank's argument that the default date should relate back to the principal borrower's NPA classification, holding that a guarantor's liability arises only upon proper demand.

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Before NCLAT, IDBI Bank was represented by Additional Solicitor General N Venkataraman with Advocates Diwakar Maheshwari, Vishnu Sriram, Pratiksha Mishra and Karan Bhootra. ZEEL was represented by Senior Advocates Arun Kathpalia and Abhijeet Sinha with Advocates Aman Raj Gandhi, Vardaan Bajaj and Ojasni Sharma.

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What's next?

However, according to Chairperson Justice (Retd) Ashok Bhushan and Technical Member Barun Mitra, IDBI Bank is at liberty to file a fresh insolvency plea against the media giant for defaults beyond the period stipulated under Section 10A of the Insolvency and Bankruptcy Code (IBC), 2016.

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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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(With inputs from agencies)