Exploring the Powers of the NCLT: An Expert's Take on the Zee-Sony Legal Saga

BW Legal World spoke with commercial disputes expert Mayank Arora to delve into the functions, authority, and breadth of the NCLT's role.

Amid the ongoing Zee-Sony dispute, grasping the foundational legal principles and chronological developments is essential. 

September 2021: ZEEL received an in-principle approval from its board of directors for merger with SPNI

December 2021: The merger deal was officially signed after a 90-day due diligence period.

February 2022: IndusInd Bank petitioned to initiate insolvency proceedings against ZEEL for an alleged default of ₹83.08 crore.

July 2022: BSE and NSE approved the ZEEL-SPNI merger.

October 2022: The Competition Commission of India (CCI) approved the merger with modifications.

December 2022: IDBI Bank sought insolvency proceedings against ZEEL for alleged dues of ₹149.60 crore.

March 2023: ZEEL and IndusInd Bank settled their payment dispute.

May 2023: NCLAT set aside the NCLT Mumbai order for stock exchanges to review their merger approval.

June 2023: SEBI banned Subhash Chandra and Punit Goenka from directorial roles.

August 2023: NCLT Mumbai approved the ZEEL-SPNI merger.

September 2023: Axis Finance appealed against the NCLT’s approval in NCLAT.

October 2023: The Securities Appellate Tribunal (SAT) overturned SEBI’s interim order against Punit Goenka concerning directorial roles in listed companies.

November 2023: NP Singh was reportedly sought by Sony to lead the merged entity.

December 2023: NCLAT received petitions against the merger from IDBI Bank and AXIS Finance; Zee sought an extension for the merger deadline.

January 2024: Sony decided to call off the merger with ZEEL. Zee moved the NCLT and Singapore International Arbitration Centre (SIAC), seeking an implementation of the merger agreement, after Sony cancelled the deal. ZEEL also initiated legal actions to contest the claims of USD 90 million filed by Sony Group before SIAC. 

February 2024: SIAC denied Sony's plea to restrain ZEEL from approaching NCLT to enforce the merger that was called off. NCLT issued a notice in response to ZEEL's request for the execution of its merger with Culver Max Entertainment (previously Sony Pictures Network India). Reuters reports that the tribunal plans to conduct a hearing on the matter on March 12.

Where did the dispute begin?

Legal Expert: The recent termination of the merger deal between Sony Group Corp's Indian unit, Sony Pictures Networks India Private Ltd (SPNI, now known as Culver Max Entertainment Limited), and Zee Entertainment Enterprises Ltd (ZEEL) has led to a complex dispute between the two entities, each levelling allegations against the other.

The merger agreement, which was initially announced on December 22, 2021, was terminated by Sony. Sony, in its statement has cited unfulfilled "closing conditions" of the MCA (Merger Cooperation Agreement) as the primary reason for the termination, despite engaging in good faith discussions with Zee to extend the deadline which was set for January 21, 2024. 

On the other hand, ZEEL has refuted Sony's claims of breach of obligations under the deal or the MCA. ZEEL stated that Sony is seeking a termination fee of $90 million citing alleged breaches and has invoked arbitration at SIAC while seeking interim reliefs against ZEEL. ZEEL categorically denies all allegations raised by Sony and said that it is considering appropriate legal action.

Bone of Contention

Legal Expert: A major point of contention in the failed merger appears to be the leadership of the proposed combined entity. Initially, Zee's CEO, Punit Goenka, was slated to lead the merged company as per the terms of the Merger Scheme. However, Goenka was facing intense regulatory scrutiny and a ban by the Securities and Exchange Board of India (SEBI) from holding directorships at any listed company due to allegations of involvement in diverting Zee's funds. Although the ban was stayed later by Securities Appellate Tribunal (SAT), Sony's reluctance to proceed under Goenka's leadership, even after he agreed to step down post-merger, appears to be the sticking point. 

Breaches of the Parties

Legal Expert: It is difficult to comment on the breaches of either party and its effect on the merger scheme since the MCA is not available in public domain at this stage. It also appears that there exists an arbitration clause in the MCA which enables either party to seek resolution through arbitration under the aegis of SIAC and also seek interim reliefs.

What is the role of NCLT and SIAC in this dispute?

Legal Expert: The NCLT (National Company Law Tribunal) deals with issues related to company law, insolvency, and bankruptcy. Its powers are defined under the Companies Act, 2013, and the Insolvency and Bankruptcy Code, 2016. In matters of corporate disputes, the NCLT's role is typically confined to resolving issues related to the governance, management, restructuring, or winding up of companies. Whereas The Singapore International Arbitration Centre (SIAC) is an independent arbitration institution. If Sony has initiated arbitration proceedings at SIAC, these can usually proceed concurrently with any proceedings before the NCLT. 

Does NCLT have the power to force a Merger or order Reversal of Termination?

Legal Expert: While the NCLT has the power to enforce its order including its approval of the Merger scheme; however, NCLT does not typically have the authority to compel parties to enter into or fulfil merger agreements, nor can it reverse a decision by a company to terminate a merger if it is arising out of a breach of some other agreement which formed the basis of the Merger Scheme. The decision to merge or terminate a merger is usually at the discretion of the companies involved, based on their contractual agreements and the resolution of such dispute is subject to the dispute resolution clauses that they may have agreed upon.

Can NCLT waive off the Termination Fee?

Legal Expert: Whether the NCLT can waive off a termination fee would depend on the specific terms of the MCA and the laws applicable to the parties in dispute. (Whether it is Indian laws or some other laws that the parties have decided to be bound by under the MCA)

What are the subsequent stages in a dispute of this nature at the NCLT, and what is the expected timeline for reaching a final verdict?

Legal Expert: The NCLT has already issued a notice to Sony, to file a reply to the petition by Zee shareholder within three weeks and the next date of hearing is set for March 12, 2024. Usually there may be more stakeholders who may seek to implead themselves in this matter given the stakes involved in the matter. Further post the reply from Sony, Zee may choose to file a rejoinder ( rebuttal ) to the reply filed by Sony. In such high stake and hotly contested matters, it is also not uncommon to see several other interim applications being filed by the parties seeking ad interim relief during the pendency of adjudication in the matter, and appeals from any such orders being preferred before the NCLATs and even the Supreme Court. Notably, Mad Men Ventures, a shareholder in Zee, has already initiated/preferred an interim application before the NCLT seeking to enforce the merger between Zee and Sony in the NCLT Mumbai.

Given the above, and the fact that how busy NCLTs are, and sheer number of matters that are listed before them each day, I can safely predict that the final verdict in this matter may not be seen in the near future.

About the expert: Mayank Arora is a Partner at The Chambers of Bharat Chugh. His expertise lies in the realm of criminal law, complex commercial disputes including insolvency and bankruptcy, HNI's conflicts, disputes and settlements.

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NCLT NCLAT zeel SPNI sony Mayank Arora Chambers of Bharat Chugh

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