Zee Entertainment Insolvency: Bankruptcy court admits Zee Entertainment under the insolvency resolution process

The Mumbai bench of the National Company Law Tribunal (NCLT), in two separate applications filed by the IndusInd Bank, has appointed Sanjeev Kumar Jalan, a partner in professional services firm BDO, and Mohit Mehra as resolution professionals for Zee Entertainment and Siti Network, respectively.

The division bench of judicial member HV Subba Rao and technical member Madhu Sinha, while allowing applications, also rejected ZEEL counsel’s oral request to stay the order for two weeks.

“Once the company gets admitted, the powers of the board of directors stand superseded in relation to the corporate debtor (Zee Entertainment),” said Prachiti Shah, managing partner of law firm Nanavati & Nanavati Advocates.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.”

Srishti Ojha, founder of the law firm Verist Law, said that now the outcome was completely dependent on lenders.

“It will depend on ZEEL’s Committee of Creditors (CoC) that has to formulate the resolution plan and design the outcome of this process,” she said.

The detailed order was not uploaded until late evening.Experts said that the order could potentially impact the merger.

“The order could affect the merger and place it in abeyance since it is yet to attain finality. 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,” said Pooja Tidke, senior partner at law firm Parinam Law Associates. “Any settlement process undertaken post formation of the CoC shall be subject to their consent under the provisions of the code.”

“We remain committed towards the proposed Scheme of Amalgamation for the merger of Zee Entertainment Enterprises Ltd. with and into Culver Max Entertainment Pvt. Ltd. We will continue to take all the required measures to achieve a timely completion of the same, guided by legal advice, in the interest of our stakeholders, who have recognized the value and potential of the merger,” said ZEEL MD & CEO Punit Goenka.

Merger Proposal
In December 2021, Sony and Zee signed a merger deal to combine their linear networks, digital assets, production operations, and program libraries.

After the closing of the merger deal, SPE was expected to indirectly hold 50.86% of the combined company, the ZEEL promoters 3.99%, and the other ZEEL shareholders 45.15% stake. Punit Goenka was to serve as the MD & CEO of the merged entity.

Under the terms of the definitive agreements, the merged entity was to have a cash balance of $1.5 billion at closing through infusions from the current shareholders of Culver Max Entertainment, an indirect subsidiary of Sony Pictures Entertainment (SPE), and the promoters (founders) of ZEEL.

IndusInd Bank had approached the tribunal against Subhash Chandra-promoted ZEEL, seeking payment of a default of over Rs 89 crore.

“The issue of the Company’s alleged default under the DSRA Guarantee Agreement is sub-judice before the Delhi High Court filed by the Company against IndusInd Bank,” said the company to the exchange at the time of filing the case last year.

Siti owes a total of Rs 850 crore to a group of nine lenders.

The development comes at a time when ZEEL is seeking approval for the merger with Sony Pictures, where four lenders, such as Axis Finance, IDBI Bank, and IndusInd Bank, are opposing as debtors of the company, while Indian Performing Right Society Ltd (IPRS) is opposing as an operational creditor and claimant of the company.

The Securities and Exchange Board of India (Sebi), Competition Commission of India (CCI), stock exchanges, and the Regional Director (RD) of the Ministry of Corporate Affairs have approved the scheme of arrangement between Sony and Zee.

This is the third company in the Essel Group to be admitted under the resolution process. Earlier, on February 10, the tribunal had also allowed an application against Zee Learn Ltd.

ZEEL’s share price was down 2.39% to Rs 205.90 at the close of market hours today.