On Friday, the National Company Law Tribunal (NCLT) dismissed IDBI Bank’s petition to seek insolvency against media giant Zee Entertainment, finding that the petition was barred by Section 10A of the Insolvency and Bankruptcy Code (IBC).

Section 10A provides that no financial and operational creditors may apply to any debtor to initiate a Corporate Insolvency Resolution Proceeding (CIRP) for a period of one year in respect of any default occurring on or after March 25, 2020.

This is a special provision inserted by the government in the IBC to help businesses after the phased resumption of economic activity following the lockdown. Two members of the NCLT said Zee Entertainment Enterprises Ltd (ZEEL), the corporate guarantor of the loan provided by IDBI Bank’s major borrower Siti Networks, had defaulted. However, the breach occurred within the time frame set forth in Section 10A. NCLT noted that the financial creditors invoked the DSRA security agreement and on March 5, 2021, demanded repayment of the outstanding monies from the corporate debtor, thereby placing the corporate petition directly under the jurisdiction of Section 10A of the Code.

“Therefore, the judge found that the corporate debtor was in default of its obligation to maintain two quarterly interest payments in the principal borrower’s DSRA account during the period specified in section 10A of the code.

“Under Rule 10A of the Code, no application to initiate corporate insolvency proceedings may be filed for defaults that occurred on or after March 25, 2020, and up to September 24, 2020,” followed by two members of the NCLT, the government has extended the deadline to March 25, 2021, through a notification dated December 22, 2022. The NCLT said that for breaches committed on or after March 25, 2020, and up to March 25, 2021, Section 10A absolutely and forever prohibits the filing of any application under Sections 7, 9 and 10 of the Act.

Siti Networks has borrowed Rs 150 crore for working capital financing and as per the agreement, it is required to maintain a Debt Servicing Reserve Account (DSRA). In DSRA, Siti Networks is required to maintain a credit balance equal to two-quarters of interest on working capital at all times until repayment. However, there is a default value.

On March 5, 2021, IDBI Bank invoked the guarantee provided by ZEEL and demanded payment of Rs 61.97 crore and further interest from February 18, 2021. It claimed the default amount was Rs 149.6 crore.

ZEEL disputed this, arguing that its guarantee provided the guarantor with limited liability and would not be liable for the entire debt in the event of default by Siti Bank’s borrowers.