NCLAT dismisses IDBI Bank's insolvency appeal against ZEEL

The National Company Law Appellate Tribunal (NCLAT) on Monday 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). .A coram of Chairperson Justice (retd) Ashok Bhushan and Technical Member Barun Mitra said that IDBI Bank is at liberty to file a fresh insolvency plea for defaults beyond the period stipulated under Section 10A of Insolvency and Bankruptcy Code (IBC), 2016. .Section 10A mandates that 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, owing to the pandemic. The dispute originated from a guarantee agreement dated August 3, 2012, where ZEEL had guaranteed maintenance of a debt service reserve account (DSRA) for working capital facilities extended by IDBI Bank to Siti Networks Limited. While the principal borrower's account became a non-performing asset in December 2019, the bank invoked ZEEL's guarantee only in March 2021, demanding ₹61.97 crore. ZEEL contended that its obligation was limited to interest payments on the original ₹50 crore facility and didn't extend to the enhanced limits or principal amounts. The company also argued that the entire facility had been recalled in February 2021, which extinguished any ongoing DSRA maintenance obligations.IDBI Bank moved the NCLT against ZEEL subsequently. .In May 2023, NCLT Mumbai dismissed IDBI Bank's insolvency petition against ZEEL, ruling that the alleged default fell within the protected period under Section 10A IBC). The tribunal held that IDBI Bank's claim of ₹149.60 crore was unsustainable as ZEEL's liability under the guarantee agreement was strictly limited to maintaining two quarters' interest on the original sanctioned limit of ₹50 crore, not the entire outstanding amount. It also held that the default occurred only when the bank issued its demand notice on March 5, 2021, which squarely fell within the COVID-19 moratorium period from March 25, 2020 to March 25, 2021, during which insolvency filings were barred. The NCLT scrutinised the terms of the guarantee agreement and sanction letters, concluding that ZEEL's liability was indeed restricted to the initial ₹50 crore exposure. The tribunal rejected IDBI Bank's argument that the default date should relate back to the principal borrower's NPA classification, holding that a guarantor's liability arises only upon proper demand. .Before NCLAT, IDBI Bank was represented by Additional Solicitor General N Venkataraman with Advocates Diwakar Maheshwari, Vishnu Sriram, Pratiksha Mishra and Karan Bhootra. .ZEEL was represented by Senior Advocates Arun Kathpalia and Abhijeet Sinha with Advocates Aman Raj Gandhi, Vardaan Bajaj and Ojasni Sharma..Corrigendum: The article previously carried an image of Zee Media as the featured image, while the proceedings in this case involve Zee Entertainment Enterprises, a separate entity. The error is regretted.