NCLAT dismisses IDBI Trusteeship's appeal against ZEEL promoter entity Cyquator

IDBI Cyquator

The National Company Law Appellate Tribunal (NCLAT) on September 14 dismissed an appeal by IDBI Trusteeship's appeal challenging an order refusing to initiate insolvency process against Cyquator Media Services, a promoter group company of Zee Entertainment Enterprises Ltd  (ZEEL).

NCLAT dismissed the appeal after noting that default took place in the month of June 2020 which is covered under the period excluded under Section 10A of the Insolvency and Bankruptcy Code, 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.

On September 12, NCLAT dismissed IDBI Trusteeship's plea against another ZEEL company called Direct Media Ventures.

Essel Infraprojects a company belonging to the Essel group proposed to sell 425 non-convertible debentures worth ₹425 crore on a private placement basis in 2015.  At the request of the Essel, the IDBI agreed to act as Debenture Trustee.

A debenture trust deed was executed between IDBI Trusteeship and Essel, for which Cyquator Media  and another Essel company called  Direct Media Ventures stood as a corporate guarantor. The debt amount of Rs. 425,00,00,000/- was disbursed in two tranches i.e. First Series of Rs. 200,00,00,000/- on 22.05.2015 and Second Series of Rs. 225,00,00,000/- on June 2015.

The non-convertible debentures fell due in May 2020, and IDBI Trusteeship invoked the corporate guarantee clause and sent a notice to Cyquator in June 2020 to make the payments. IDBI trusteeship alleged that Cyquator failed to pay the amounts as a result of which, it sent an insolvency notice in May 2022.

In 2022, IDBI trusteeship filed an insolvency plea against Cyqator alleging that it had defaulted in paying them Rs. 591 crore.

In June 2023, the National Company Law Tribunal (NCLT) dismissed IDBI's insolvency plea observing that the liability of Cyquator to make the outstanding payment arose only when the corporate guarantee was invoked in June 2020, a date on which is covered by Section 10A prohibition.