NCLAT Declines IDBI Bank’s Insolvency Appeal Against ZEEL

NCLAT

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

Background

The legal dispute traces back to a guarantee agreement dated August 3, 2012, in which ZEEL committed to maintaining a debt service reserve account (DSRA) for working capital loans provided by IDBI Bank to Siti Networks Limited. Although the borrower’s account was classified as a non-performing asset (NPA) in December 2019, IDBI Bank invoked ZEEL’s guarantee only in March 2021, seeking ₹61.97 crore.

ZEEL contested the insolvency plea, asserting that its liability was limited to interest payments on the original ₹50 crore facility and did not extend to the enhanced credit limits or principal repayment. The company further noted that the entire facility had been recalled in February 2021, ending its DSRA maintenance obligations.

NCLT’s Decision

In May 2023, the NCLT Mumbai dismissed the insolvency application, stating that the default cited by IDBI Bank occurred on March 5, 2021, when the demand notice was issued. This date fell within the moratorium period under Section 10A of the Insolvency and Bankruptcy Code (IBC), 2016, which bars insolvency proceedings for defaults occurring between March 25, 2020 and March 25, 2021 due to the pandemic.

The tribunal ruled that the ₹149.60 crore claim was unsustainable, as ZEEL’s liability was only for two quarters’ interest on the original sanctioned limit, not the full outstanding amount. It also rejected the bank’s argument that the default date should relate back to the borrower’s NPA classification, emphasizing that a guarantor’s liability is triggered only upon a formal demand.

NCLAT Verdict

The NCLAT bench, led by Chairperson Justice (Retd.) Ashok Bhushan and Technical Member Barun Mitra, upheld the NCLT ruling. However, it clarified that IDBI Bank is at liberty to file a fresh insolvency application for any defaults not covered under Section 10A of the IBC.

Before the NCLAT, IDBI Bank was represented by Additional Solicitor General N. Venkataraman, assisted by advocates Diwakar Maheshwari, Vishnu Sriram, Pratiksha Mishra, and Karan Bhootra.

This ruling reaffirms the protective scope of Section 10A and underscores the importance of timely invocation of guarantees and strict interpretation of contractual liabilities during insolvency proceedings.