The National Company Law Appellate Tribunal (NCLAT) has dismissed an appeal filed by IDBI Bank, which had challenged an earlier decision by the National Company Law Tribunal (NCLT). The NCLT had rejected IDBI Bank’s insolvency application against Zee Entertainment Enterprises Limited (ZEEL).
The NCLAT bench, led by Chairperson Justice (Retd.) Ashok Bhushan and Technical Member Barun Mitra, ruled that the bank is free to file a fresh insolvency application, but only for defaults that occurred outside the time period protected under Section 10A of the Insolvency and Bankruptcy Code (IBC), 2016.
Section 10A of the IBC was introduced in response to the COVID-19 pandemic. It barred the initiation of insolvency proceedings for any defaults that happened between March 25, 2020, and March 25, 2021. This legal protection aimed to give companies breathing room during the economic disruptions caused by the pandemic. Since IDBI Bank’s demand against ZEEL came during this protected period, the tribunal found that the insolvency plea was not legally valid.
The dispute dates back to a guarantee agreement signed on August 3, 2012. According to this agreement, ZEEL had guaranteed the maintenance of a Debt Service Reserve Account (DSRA) for working capital loans given by IDBI Bank to another company, Siti Networks Limited.
Siti Networks failed to repay its dues and became a non-performing asset (NPA) in December 2019. However, IDBI Bank only invoked ZEEL’s guarantee in March 2021, asking the company to pay ₹61.97 crore. ZEEL objected, arguing that its guarantee was limited only to covering the interest payments on the original ₹50 crore loan and did not apply to any increased loan limits or principal repayments.
Moreover, ZEEL claimed that since the loan had been officially recalled in February 2021, its obligation to maintain the DSRA had ended.
The NCLT, in its May 2023 order, agreed with ZEEL’s position. It held that the default claimed by IDBI Bank happened during the Section 10A moratorium period and was therefore not eligible for insolvency proceedings.
The tribunal also examined the terms of the guarantee agreement and concluded that ZEEL’s liability was strictly limited to maintaining two quarters’ worth of interest on the original ₹50 crore loan. The claim for ₹149.60 crore, therefore, could not be supported. Importantly, the NCLT also clarified that a guarantor’s liability only begins when a formal demand is made, not when the main borrower (Siti Networks) initially defaulted.
In the recent NCLAT hearing, the appellate tribunal upheld this reasoning and confirmed that IDBI Bank’s insolvency plea was rightly dismissed. However, it left the door open for IDBI Bank to file a new application for any defaults that occurred after the COVID-19 protection period ended.
IDBI Bank was represented by Additional Solicitor General N. Venkataraman and a team of lawyers including Diwakar Maheshwari, Vishnu Sriram, Pratiksha Mishra, and Karan Bhootra. ZEEL was represented by senior advocates Arun Kathpalia and Abhijeet Sinha, along with advocates Aman Raj Gandhi, Vardaan Bajaj, and Ojasni Sharma.
