Zee Entertainment Insolvency: CEO Punit Goenka Moves NCLAT For Relief

A day after the Mumbai Bench of the National Company Law Tribunal (NCLT) admitted Zee Entertainment Enterprises (Zee) for insolvency resolution, the company’s managing director and chief executive officer, Punit Goenka, moved the National Company Law Appellate Tribunal (NCLAT) on Thursday, seeking relief against the order.

In a statement, Goenka’s office said he was taking all necessary steps to protect the interests of Zee stakeholders and achieve timely completion of the proposed merger with Culver Max Entertainment (formerly Sony Pictures Networks India).

“Zee is a debt-free and financially strong company, and believes in value creation for its stakeholders,” the statement said.

Zee posted a consolidated net profit of Rs 24.3 crore on revenue of Rs 2,111.2 crore for the December quarter of FY23. For the first nine months of the year, net profit came in at Rs 243.8 crore, while revenue stood at Rs 5,985.3 crore, its results showed.

In an order passed on Wednesday, the NCLT had allowed the plea of IndusInd Bank, a financial creditor to Zee, to admit the company under the Corporate Insolvency Resolution Process (CIRP). The tribunal appointed Sanjeev Kumar Jalan the interim resolution professional (IRP) for the company.

The NCLT also admitted a similar insolvency petition against Essel Group’s Siti Networks by IndusInd Bank, appointing Rohit Mehra the IRP.

The developments hit Zee’s shares hard on Thursday, with the stock tanking 14 per cent intra-day on the BSE. It finally settled at Rs 198.75 apiece at the close of trade, down 3.47 per cent versus the previous day’s close.

The admission of insolvency proceedings against Zee, say lawyers, will delay the company’s proposed merger with Sony. “I see a delay of at least three to six months with these insolvency proceedings having been initiated by IndusInd Bank because these issues will have to be resolved first before the final approval to the proposed merger is granted by NCLT,” Satish Kishchandani, managing partner at Mumbai-based law firm Pioneer Legal, said.

IndusInd Bank claimed a default of Rs 83 crore against Zee in its plea before the NCLT. A financial creditor, according to experts, is allowed to move the NCLT for initiation of the CIRP in case of a default of Rs 1 crore and above under Section 7 of the Insolvency and Bankruptcy Code (IBC).

IndusInd Bank is not the only financial creditor to file insolvency proceedings against Zee. In the last two months, financial and operational creditors such as IDBI Bank and the Indian Performing Right Society have claimed dues of Rs 149 crore and Rs 211 crore respectively, which Zee has disputed.

“Zee had receivables of Rs 700 crore pending from related parties, namely, Dish TV and Siti Networks. These receivable amounts have come down to Rs 100 crore in the last few quarters. While we don't foresee a reason for the merger to be called off, these issues pertaining to settlement of dues will have to be resolved,” Karan Taurani, senior vice president, research at Mumbai-based brokerage Elara Capital, said.

Some legal experts say that Zee may have to settle its dues with lenders under 12 (A) of the IBC, if it wishes to conclude its proposed merger with Sony. “This is because powers of the board of directors are suspended, and a statutory moratorium under Section 14 of the IBC Code comes into place once a firm is admitted under IBC,” says Kirti Dua, partner at Delhi-based law firm ANG Partners, Advocates and Solicitors.

According to the initial announcement on the proposed merger in December 2021, Sony was slated to hold nearly 53 per cent stake in the merged entity, while Zee would have the remaining 47 per cent. The merger would also involve an investment of $1.57 billion from Sony into the merged entity.