ZEEL took the right decision to withdraw plea to enforce merger with Sony, say legal experts

Zee was right in withdrawing the plea from NCLT, experts say

Legal experts have opined that Zee Entertainment Enterprises Limited (ZEEL) was right in withdrawing its plea at the National Company Law Tribunal (NCLT) to enforce its merger with Sony.

“If ZEEL had lost before the NCLT, it would have impacted before the arbitration (a case seeking a $90-million termination fee is pending before the Singapore International Arbitration Centre) . In all probability, they ought to have kept the proceedings before the arbitrator rather than approaching NCLT. Withdrawal of the application is a wise decision considering the intricacies and gravity of the situation,” said Alay Razvi, partner, Accord Juris LLP.

On April 16, ZEEL announced through a regulatory filing that it was withdrawing the merger implementation application filed before the Mumbai bench of the NCLT against Sony India. ZEEL had filed the application in January 2024, after Sony called off their proposed merger.

The NCLT is scheduled to hear the case on April 26, wherein it will be withdrawn.

The decision was taken by its board after seeking appropriate legal advice, ZEELee said in a statement. "This decision will also enable the Company to pursue growth and evaluate strategic opportunities to generate higher value for all shareholders. The Board remains committed towards reviewing the strategic action-oriented steps taken by the management and providing timely guidance," the statement read.

However, ZEEL is pursuing an arbitration against Sony at the Singapore International Arbitration Centre (SIAC), where the parties have staked claims against each other to recover damages on account of the collapse of the merger.

According to the Companies Act, 2013, while the NCLT has the powers to enforce a sanctioned scheme, it cannot enforce a scheme that has just been approved.

Pratyush Miglani, managing partner, MVAC Advocates & Consultants, noted that while the NCLT had granted an approval to the scheme, it had not sanctioned the scheme itself. According to Miglani, “Approval of the scheme merely confirms its compliance with legal provisions, ensuring its validity under the law. The sanctioning of the scheme empowers the parties to enforce it upon each other, thereby legitimising their actions within the realm of law.”

Sumant Nayak, senior partner at Desai and Diwanji, said, “Mergers and for that matter amalgamation between entities are mostly the prerogative of the management of the merging entities as it would bring in synergies and enhance productivity by cutting down inefficiency and redundancy.” According to Naik, the NCLT's role is to ensure that the interests of stakeholders such as creditors and shareholders are not prejudiced and public interest is not compromised.

As ZEEL had filed an application in the NCLT while pursuing an arbitration in SIAC, an issue that needs to be addressed is whether the outcome of one proceeding influences the outcome of the other.

“If ZEEL had suffered a loss at the NCLT, that would have given an advantage to Sony to back up its claims in the ongoing arbitration proceedings. One view supporting withdrawal of the implementation application could be to avoid any negative observation/judicial finding against ZEEL which might impact ZEEL’s defence and/or counterclaims against Sony,” said Sahshank Agarwal, a Supreme Court advocate.

According to experts, focusing on one litigation makes financial sense to ZEEL rather than fighting two at different tribunals. “With pending disputes being pursued, Zee’s withdrawal can be a part of its overall business alignment. Zee announced 15 percent pruning of its human resources  this month as well. Zee seems to be putting its house in order and prioritising in terms of importance including its key litigations,” said Shryeshth Sharma, partner, SKV Law Offices.

In August 2023, the NCLT at Mumbai approved the Zee-Sony merger which would have created a $10-billion media giant in the country. IDBI Bank, Axis Finance and IDBI Trusteeship had all moved the National Company Law Appellate Tribunal (NCLAT) challenging the approval of the merger. However, the NCLAT refused to stay the merger in December 2023.

In January 2024, Sony withdrew from the merger saying the move was in part because Zee failed to meet some financial terms of the deal and come up with a plan to address them. Zee denied the allegations and accused the Japanese company of "bad faith" in calling off the merger.