IDBI Trusteeship's appeal against ZEEL promoter Cyquator is rejected by the NCLAT

15 Sep 2023 , 10:39 AM

On September 14, the National Company Law Appellate Tribunal (NCLAT) denied an appeal by IDBI Trusteeship appealing a decision not to file for insolvency against Cyquator Media Services, a promoter group business of Zee Entertainment Enterprises Ltd (ZEEL).

After observing that the default occurred in the month of June 2020, which is covered by the time excluded under Section 10A of the 2016 Insolvency and Bankruptcy Code, NCLAT dismissed the appeal.

For a period of one year, Section 10A prohibits financial and operational creditors from filing an application for the start of the corporate insolvency resolution process (CIRP) against any debtor for any default occurring on or after March 25, 2020.

On September 12, the NCLAT rejected IDBI Trusteeship’s appeal against Direct Media Ventures, a different ZEEL firm.

2015 saw the proposed sale of 425 non-convertible debentures for a total of Rs 425 crore through a private placement by Essel Infraprojects, a firm under the Essel group.  The IDBI agreed to serve as the Debenture Trustee at the Essel’s request.

The non-convertible debentures were due in May 2020, and IDBI Trusteeship used the corporate guarantee provision to force Cyquator to make the payments by sending a notice to them in June 2020. Cyquator allegedly failed to make the payments, and as a result, the IDBI trusteeship allegedly delivered an insolvency notice to Cyquator in May 2022.

IDBI trusteeship filed an insolvency petition against Cyqator in 2022, claiming that the company had failed to pay them Rs 591 crore as agreed.

The National Company Law Tribunal (NCLT) dismissed IDBI’s bankruptcy claim in June 2023, noting that the corporate guarantee was only invoked in June 2020—a date covered by Section 10A prohibition—that Cyquator became liable to make the unpaid balance.

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