ZEEL Withdraws Merger Implementation Application From NCLT; Legal Experts Support Decision

ZEEL Withdraws Merger Implementation Application from NCLT; Legal Experts Support Decision

ZEE Entertainment Enterprises Ltd. (ZEEL) has opted to withdraw its merger petition submitted to the National Company Law Tribunal (NCLT) Mumbai, which sought approval for its proposed merger with Sony Pictures Networks (Culver Max).

In August 2023, the NCLT Mumbai granted approval for the Zee-Sony merger, poised to establish a $10-billion media conglomerate in the country. Subsequently, IDBI Bank, Axis Finance, and IDBI Trusteeship contested the approval of the merger before the NCLAT. However, in December 2023, the NCLAT declined to halt the merger.

In January 2024, Sony withdrew from the merger, citing Zee's alleged failure to fulfill certain financial terms of the agreement and to devise a plan to address them. ZEEL had filed the application in January 2024, after Sony called off their proposed merger.

The NCLT is scheduled to hear the case on April 26, wherein it will be withdrawn.

Legal experts have expressed support for ZEEL withdrawing its application before the NCLT to enforce the merger with Sony.

The decision to withdraw the application was made by ZEEL's board. In a statement, the company said, "This decision will also enable the Company to pursue growth and evaluate strategic opportunities to generate higher value for all shareholders. The Board remains committed towards reviewing the strategic action-oriented steps taken by the management and providing timely guidance."

ZEEL is currently pursuing arbitration proceedings against Sony at the Singapore International Arbitration Centre SIAC, where both parties have asserted claims seeking compensation for losses resulting from the termination of the merger.

Can NCLT Direct Sony to enforce the merger?

As per the Companies Act, 2013, the NCLT holds authority to enforce a sanctioned scheme, but not a scheme that has only been approved. Following the approval of a merger, the responsibility for its implementation falls on the merging entities.

Despite the absence of a specific provision for overseeing the implementation of an approved merger, any non-compliance or deviation/change/modification in the merger conditions would necessitate approval from the NCLT.

Under Section 231 of the Companies Act, 2013, the NCLT possesses the authority to oversee the implementation of a merger scheme and enforce or modify it to ensure compliance once sanctioned. It's important to note that once sanctioned by the NCLT, the scheme becomes legally binding on all parties involved.

It's essential to differentiate between the approval and sanctioning of a scheme. Approval indicates compliance with legal requirements, whereas sanctioning grants parties the authority to enforce the scheme. Without a special resolution approving the scheme, the NCLT lacks the power to sanction it. Given the mutual allegations of breach by both parties, a thorough trial before a competent court or arbitral tribunal is necessary. Since proceedings before the NCLT are summary in nature, the NCLT cannot adjudicate breach issues without a trial.

Can NCLT decision have impact on the SIAC arbitration proceedings?

An important aspect to consider is whether the result of one proceeding, such as ZEEL's application in the NCLT, could potentially affect the outcome of the arbitration taking place in SIAC.

According to a Supreme Court lawyer, “If ZEEL had faced adverse outcomes at the NCLT, and it could have bolstered Sony's position in the ongoing arbitration. One perspective advocating for the withdrawal of the implementation application could be to sidestep any adverse judicial remarks or findings against ZEEL that might potentially affect its defence or counterclaims against Sony.”

Experts suggest that concentrating on a single litigation is financially prudent for ZEEL compared to engaging in two separate tribunal battles.