Zee-Sony merger: What litigation did Zee fight to keep the deal afloat?

ZEEL fought litigations across three tribunals in two cities

On January 22, Sony Pictures terminated its $10-billion merger deal with Zee Entertainment Enterprises Limited (ZEEL).

In a notice issued to Zee, Sony called off the December 22, 2021 agreement to merge ZEEL and Culver Max Entertainment Private Limited (CME), formerly known as Sony Pictures Networks India Private Limited.

According to Sony, the two sides were unable to agree upon an extension beyond the January 21 deadline given to ZEEL to meet certain conditions. Sony has also sought $90 million in termination fees from ZEEL.

In its statement, ZEE said, “The company is evaluating all available options and basis the guidance received from the Board and will take all necessary steps to safeguard the long-term interests of its stakeholders, including by taking appropriate legal action and contesting Culver Max and BEPL’s claims in the arbitration proceedings.”

Ever since the merger was announced in December 2021, ZEEL had fought and won a series of cases across tribunals to keep the deal afloat. In fact, even as late as December 2023, ZEEL had managed to avoid interim orders against the merger from the National Company Law Appellate Tribunal (NCLAT).

Moneycontrol takes a look at the legal hurdles ZEEL has had to cross to keep the merger afloat.

National Company Law Tribunal (NCLT):

The Companies Act, 2013, mandates that any scheme of merger and acquisition will have to be approved by the NCLT. Accordingly, ZEEL sought the NCLT’s green light for the proposed merger.

Banks that had lent money to companies belonging to the Essel group, of which ZEEL is a part, had objected to the merger alleging that they would not be able to recover their money if the merger went ahead. However, the NCLT refused to entertain such pleas and assented to the merger on August 10, 2023. Banks and institutions such as IDBI and Axis Finance then moved the NCLAT against the NCLT’s August 10 order. These cases are still pending.

Meanwhile, in February 2023, the NCLT had dealt a near-fatal blow to ZEEL by admitting it into the insolvency resolution process on a plea filed by IndusInd bank for an alleged default of Rs 92 crore. ZEEL ultimately got the issue settled at the NCLAT (more on this later). Had ZEEL been admitted into insolvency, the merger with Sony would have been terminated a year ago.

In May 2023, the NCLT junked a similar plea by IDBI Bank on the ground that the alleged default occurred during a period of exemption granted to companies amid the Covid pandemic. The government of India had in 2020 amended the law to protect enterprises from being admitted to insolvency if they defaulted on repayment of loans during the pandemic.

National Company Law Appellate Tribunal cases

ZEEL’s Chief Executive Officer (CEO) Punit Goenka challenged the order of the NCLT admitting ZEEL into the insolvency resolution process. At the very first hearing, the NCLAT stayed the NCLT order. In March 2023, ZEEL announced that it had entered a settlement with IndusInd bank over the issue. Ultimately in July 2023, NCLAT took the settlement terms on record and set aside the NCLT order for good.

In July 2023, IDBI Bank had appealed against the NCLT order refusing to entertain its insolvency plea. Despite agreeing to hear the plea, the NCLAT refused to grant any interim relief to IDBI Bank. A considerable amount of arguments were made in this case this month, however, no effective order has been passed yet.

Separately, in September 2023, IDBI Bank, Axis Finance and IDBI trusteeship had appealed against the NCLT order sanctioning the merger with Sony. The case came up for an effective hearing for the first time in December 2023. The NCLAT refused to stay the merger while agreeing to hear the case.

All the appeals against the merger are still pending at the NCLAT and are likely to come up for hearing next month.

Securities Appellate Tribunal

ZEEL’s CEO Punit Goenka had to fight two rounds of litigation at the Securities Appellate Tribunal (SAT), both arising from the same transaction and both proscribing him from holding key managerial positions.

In June, the Securities and Exchange Board of India (SEBI) had passed an interim order stating that Goenka and his father Subhash Chandra were not to hold any board or key managerial position in ZEEL, its subsidiary companies or any company resulting from a merger with these companies.

The market regulator alleged that the duo helped move funds out of ZEEL and routed them back to the company through layered and circuitous transactions. They did so by “falsely portraying that ZEEL had received the dues from associate entities”, it said. This order had a big impact on the merger prospects with Sony as Goenka was supposed to hold a key managerial position in the merged entity.

Chandra and Goenka appealed against this order at the SAT, but the tribunal refused to stay it. The father-son duo were directed by the SAT to file a reply/objection along with an application to vacate the stay given in the interim order.

In August 2023, SEBI passed an order revising the directions it had given to Chandra and Goenka, asking its investigating officials to complete the enquiry within eight months. It further barred them from holding key managerial positions till the conclusion of the investigation.

Goenka challenged this order at the SAT and in October 2023 the appellate tribunal set it aside. However, SEBI is continuing its investigation.