Zee Entertainment Enterprises (ZEEL) has moved the National Company Law Appellate Tribunal (NCLAT) seeking relief in the bankruptcy court’s order that permitted initiating of insolvency proceedings against the media firm. This is an attempt to save the earlier proposed merger with Culver Max Entertainment (CME) as insolvency laws prohibit any transaction till bankruptcy cases are settled.
“Punit Goenka has filed an appeal before the NCLAT today, seeking relief against the order passed by the Mumbai bench of the National Company Law Tribunal (NCLT). Goenka is taking all the necessary steps as per law to protect the interests of all stakeholders of ZEEL and to achieve timely completion of the proposed merger with CME,” a statement issued by ZEEL MD & CEO Punit Goenka’s office said.
The statement further added that Goenka firmly believes in the potential of the merger to deliver immense value to all stakeholders. ZEEL is a debt-free and financially strong company, and believes in value creation for its stakeholders.
On Thursday, ZEEL’s share price fell sharply by over 10% in the initial trade before recovering to close at `199.20, down 3.4 5%.
On Wednesday, the NCLT’s bench permitted initiating insolvency proceedings against ZEEL, admitting a petition filed by private lender IndusInd Bank and appointed Sanjay Kumar Jhalani as interim resolution professional. The lender had earlier moved the bankruptcy court seeking a payment of more than Rs 83 crore from ZEEL, after the media firm failed to fulfil obligations under a Debt Service Reserve (DSR) account agreement.
“Once the insolvency petition is admitted, the merger cannot go through. So, moving NCLAT and seeking a stay on the constitution of the Committee of Creditors (CoC) would be the logical move by promoters as it would help in buying some time, say a window period of 15-20 days or more so that ZEEL could in the meantime settle the matter with the lenders, as getting out of bankruptcy proceedings would be challenging and time-consuming,” Sumant Batra, insolvency lawyer, said.
“Getting a stay on the constitution of CoC should be backed by convincing assurances that given some time the debt will be settled either by the company or by the parties involved in the merger,” Batra added.
In September 2021, ZEEL, an Essel Group company that is promoted by media baron Subhash Chandra, had entered into agreement with CME (then Sony Pictures Networks India, a subsidiary of Japan’s Sony Corp) to create the country’s largest media and entertainment company with standalone revenues of $2 billion. The completion of the merger is pending as the companies await certain regulatory approvals.
“As a matter of law, the logical move is to put the merger on hold till the bankruptcy court gives its interim or final order. This is done to protect the interest of the creditors, shareholders, public and others involved in the issue. According to IBC rules, all transactions and deals have to be put on hold when insolvency processes are initiated against a company. An option before ZEEL is to settle the matter and get out of the insolvency proceedings,” Diljeet Titus, managing partner at Titus & Co Advocates said.
According to Daizy Chawla, senior partner at S&A Law Offices: “It will now be difficult to have the merger concluded unless the order is set aside. It is important to note that in case CoC is formed then getting the approval to proceed with the Section 12A withdrawal application will be difficult as it requires 90% CoC members’ consent, which is difficult to obtain. All the creditors would like to have their dues settled before withdrawal of the petition.”
The section 14 of Insolvency and Bankruptcy Code, bars the continuance of various proceedings, and does not permit transactions or deals till the insolvency cases reach a conclusion.