IndusInd Bank had approached the tribunal against Subhash Chandra-promoted ZEEL, seeking payment of a default of over Rs 89 crore. Siti owes a total of Rs 850 crore to a group of nine lenders.
The bankruptcy proceeding comes at a time when Zee and a local unit of Japan’s Sony are merging their television channels, film assets and streaming platforms.
One expert has argued that settling dues with lenders is the only way out for any merger or amalgamation to go through.
“Once the company gets admitted, the powers of the board of directors stand superseded in relation to the corporate debtor (Zee Entertainment),” said Prachiti Shah, managing partner of law firm Nanavati & Nanavati Advocates.
“The only way out for the original promoters is to settle the dues with the lender under 12 (A) for post-admission settlement. Unless and until this occurs, no scheme matters, including merger or amalgamation, will be possible.”
The order could affect the merger and place it in abeyance since it has yet to attain finality, said Pooja Tidke, senior partner at law firm Parinam Law Associates.
“ZEEL could, however, appeal against the order and, in the interim, seek a stay on the formation of the CoC if it is able to muster up the resources to fund the debt and seek a settlement of dues,” she added.
“Any settlement process undertaken post formation of the CoC shall be subject to their consent under the provisions of the code.”
Why the down move in stocks?
Shares of Zee Entertainment Enterprises sunk as much as 14.4% on Thursday. The insolvency admission comes against a petition filed by IndusInd Bank over a default of Rs 830.80 million ($10.04 million).
Zee was part of a debt service reserve account guarantee agreement with the bank for a term loan facility availed by Siti Networks. Both Siti and Zee are part of the conglomerate Essel Group.
Zee provided commitments for funding shortfalls in debt service reserve account related to certain financial facilities availed from banks by Siti, multiple exchange filings show.
Zee had informed the exchanges in December that IDBI Bank filed an application under insolvency proceedings against the company over a default of Rs 1.5 billion for a loan availed by Siti.