NCLAT Junks IDBI Bank's Insolvency Appeal Against Zee

NCLAT Junks IDBI Bank's Insolvency Appeal Against Zee

In 2023, the NCLT dismissed the petition, stating that the alleged default fell within the protected period

The National Company Law Appellate Tribunal (NCLAT) has rejected the appeal of IDBI Bank challenging the National Company Law Tribunal (NCLT) order, which dismissed an insolvency plea against Zee Entertainment Enterprises Limited (ZEEL).

A Coram of Justice (Retd) Ashok Bhushan (Chairperson) and Barun Mitra (Technical Member) held that IDBI Bank could file a fresh plea for defaults beyond the period stipulated under Section 10A of the Insolvency and Bankruptcy Code (IBC), 2016.

Section 10A mandates that no application for initiation of the Corporate Insolvency Resolution Process (CIRP) can be filed against a debtor by any financial and operational creditor for a default arising on or after 25 March 2020, for one year (owing to the Covid-19) pandemic.

The dispute originated from a 3 August 2012 agreement, wherein Zee guaranteed maintenance of a debt service reserve account (DSRA) for working capital facilities extended by IDBI Bank to Siti Networks Limited.

While the principal borrower's account became a non-performing asset in December 2019, the bank invoked Zee's guarantee in March 2021, demanding Rs.1.97 crore.

Zee submitted that it was obligated to interest payments on the original Rs.50 crore facility and did not extend to the enhanced limits or principal amounts. The facility was recalled in February 2021, extinguishing any ongoing DSRA maintenance obligations.

Aggrieved by Zee’s stance, IDBI Bank approached the NCLT, Mumbai.

In May 2023, the tribunal dismissed the bank's insolvency petition. It ruled that the alleged default fell within the protected period under Section 10A.

The NCLT added that IDBI's claim of Rs.149.60 crore was unsustainable as Zee's liability under the guaranteed agreement was limited to maintaining two quarters' interest on the original limit of Rs.50 crore and not the entire outstanding amount.

The tribunal held that the default occurred only when the bank issued its demand notice on 5 March 2021, which fell within the pandemic moratorium period (25 March 2020 to 25 March 2021), when insolvency filings were barred.

While scrutinizing the agreement terms and sanction letters, the NCLT rejected IDBI's argument that the default date must relate to the principal borrower's NPA classification. It clarified that a guarantor's liability arose upon proper demand.

IDBI Bank was represented by Additional Solicitor General N Venkataraman with Advocates Diwakar Maheshwari, Vishnu Sriram, Pratiksha Mishra and Karan Bhootra.

Senior Advocates Arun Kathpalia and Abhijeet Sinha, with Advocates Aman Raj Gandhi, Vardaan Bajaj and Ojasni Sharma, appeared for Zee.