The National Company Law Appellate Tribunal (NCLAT) on Monday rejected an appeal filed by IDBI Bank against Zee Entertainment Enterprises Limited (ZEEL), marking the latest development in a long-standing insolvency dispute.

The appeal had challenged a previous National Company Law Tribunal (NCLT) ruling that dismissed IDBI Bank’s insolvency petition over an alleged default of ₹150 crore. According to a Bar and Bench report, the appellate tribunal upheld the lower court’s view, while granting IDBI Bank the liberty to initiate fresh proceedings for any default outside the period protected under Section 10A of the Insolvency and Bankruptcy Code (IBC), 2016.

Tribunal Upholds NCLT’s Interpretation of Section 10A of IBC

As per Bar and Bench, NCLAT supported the NCLT’s interpretation that the insolvency petition was not maintainable because the alleged default fell squarely within the COVID-19 moratorium period provided under Section 10A of the IBC. The appellate bench agreed that while the debt may have been longstanding, the triggering default notice from IDBI Bank—issued in March 2021—occurred during the protected window, effectively barring insolvency proceedings.

Dispute Stemmed from ZEEL’s Guarantee for Siti Networks

The Bar and Bench report further detailed that the case originated from a corporate guarantee agreement dated August 3, 2012. ZEEL had provided a guarantee for maintaining a debt service reserve account (DSRA) in favour of IDBI Bank for working capital facilities extended to Siti Networks Limited. Though the borrower’s loan account turned into a non-performing asset (NPA) in December 2019, IDBI Bank invoked the guarantee only in March 2021, demanding ₹61.97 crore from ZEEL. The media report noted that ZEEL disputed the invocation, arguing that its obligation was strictly limited to interest on the original ₹50 crore facility, not the enhanced limits or principal repayment.

NCLT Had Earlier Ruled ZEEL’s Liability Was Limited

The NCLT Mumbai bench had in May 2023 dismissed IDBI Bank’s insolvency plea on the grounds that ZEEL’s liability was contractually limited. The tribunal concluded that ZEEL was obligated to maintain only two quarters’ interest on the sanctioned ₹50 crore, and not the revised total amount claimed by the bank. It emphasized that ZEEL’s DSRA commitment did not extend to the expanded exposure or to full repayment obligations, making the ₹149.60 crore claim by IDBI Bank unsustainable.

The NCLT, as cited by Bar and Bench, had ruled that the triggering event—the demand notice dated March 5, 2021—fell within the moratorium period declared by the government amid the COVID-19 pandemic, running from March 25, 2020 to March 25, 2021. During this period, filing of insolvency petitions under the IBC was barred. The tribunal held that the actual date of default could not be backdated to the original borrower’s NPA status in 2019, as ZEEL’s liability as guarantor would only arise upon formal demand.

The lower tribunal had scrutinised the specific terms of the guarantee agreement, along with sanction letters issued to Siti Networks. According to Bar and Bench, the NCLT had concluded that ZEEL’s commitment was strictly capped at the original sanctioned limit. The tribunal rejected IDBI Bank’s argument that default should be interpreted from the time Siti Networks was classified as an NPA, stating that a guarantor’s liability begins only once the guarantee is formally invoked and demand is made.