The National Company Law Tribunal (NCLT) on Friday rejected IDBI Bank's plea seeking insolvency against media major Zee Entertainment, observing that it was barred under Section 10A of the Insolvency & Bankruptcy Code (IBC).
Section 10A mandates no application for initiation of corporate insolvency resolution process (CIRP) can be filed against any debtor by any financial and operational creditor for any default arising on or after March 25, 2020, for a period of one year.
This was a special provision inserted by the government in IBC to help the companies after the economic activities had resumed post-lockdown in phases.
A two-member NCLT bench said that Zee Entertainment Enterprises Ltd (ZEEL), which was the corporate guarantor for the loan availed by Siti Networks -- the principal Borrower of IDBI Bank, has committed a default. However, the default was committed during the timeline specified under section 10A.
The NCLT noted the financial creditor invoked the DSRA Guarantee Agreement and demanded the outstanding amounts from the Corporate Debtor on March 5, 2021, thereby placing the Company Petition squarely within the clutches of Section 10A of the Code.
"Accordingly, this Bench is of the considered view that the Corporate Debtor committed the default in relation to its obligation to maintain two-quarter interest in the principal borrower DSRA account during the period specified in Section 10A of the Code.
"As per the provisions of Section 10A of the Code, no application for initiation of corporate insolvency resolution process can be filed in respect of a default that has occurred on or after March 25, 2020, till September 24, 2020," which was subsequently extended till March 25, 2021, by the government through a notification dated December 22, 2022, said a two-member NCLT bench.
The NCLT said Section 10A bars absolutely and forever, the filing of any application under Sections 7, 9 and 10 of the Code, for defaults committed on or after March 25, 2020, up to March 25, 2021.
Siti Networks has taken a loan of Rs 150 crore for a working capital facility and as per the agreement it has to maintain a Debt Service Reserve Account (DSRA).
In DSRA, a credit balance equal to two-quarters interest on working capital was required to be maintained by Siti Networks, at all times till the repayment. However, there was a default.
On March 5, 2021, IDBI Bank invoked the guarantee provided by ZEEL and called to pay Rs 61.97 crore with further interest from February 18, 2021. It claimed an amount of Rs 149.60 crore in default.
This was contested by ZEEL contending that its guarantee provides for a limited and restricted liability on the guarantor and cannot be held liable for the entire debt in case of default by the borrower at Siti Bank.