SC agrees to hear IDBI Trusteeship Services’ appeal, issues notice to Essel group entities
Dec 11, 2023
Synopsis
The Supreme Court has asked a response from Essel group firms, Cyquator Media Services Pvt Ltd and Direct Media Distribution Ventures, on the appeal against a National Company Law Appellate Tribunal's (NCLAT) September order that rejected its insolvency plea against the firms. The NCLAT dismissed an insolvency petition against Direct Media Ventures and two days later, the insolvency petition against Cyquator Media, a promoter group company of Zee Entertainment Enterprises.
The Supreme Court on Monday sought response from Essel group firms - Cyquator Media Services Pvt Ltd and Direct Media Distribution Ventures on the IDBI Trusteeship Services’ appeal against a National Company Law Appellate Tribunal’s (NCLAT) September order that rejected its insolvency plea against the firms.
A bench led by Chief Justice DY Chandrachud posted the matter for further hearing after four weeks.
On September 12, the appellate tribunal had dismissed an insolvency petition against Direct Media Ventures and two days later, it also rejected the insolvency petition against Cyquator Media, a promoter group company of Zee Entertainment Enterprises. The NCLAT had noted that the default took place in June 2020, which was covered under the period of exclusion under Section 10A from insolvency and bankruptcy cases due to COVID-19.
Challenging the NCLAT’s order, IDBI through counsel Gaurav Mitra and Nagarkatti Kartik Uday asked the SC to consider “whether the sale of the pledged shares subsequent to the suspension period under Section 10A, amounts to a fresh cause of action entitling it to file a Section 7 petition and further whether the bar under Section 10A whittles down or dilutes the obligations of a corporate debtor under a corporate guarantee, which is continuing and subsisting and under which obligations of the corporate debtor are not discharged, released, impaired or otherwise affected by reason of any legal limitation, till the discharge of all obligations of the corporate debtor.”
Essel Infraprojects, another Essel group company, had proposed to issue 425 rated, unlisted, redeemable, non-convertible debentures aggregating a nominal value of Rs 425 crore. IDBI Trusteeship had agreed to act as debenture trustee. A debenture trust deed was executed between IDBI Trusteeship Services and Essel for which Cyquator Media and Direct Media Ventures jointly stood as corporate guarantors. Last year, IDBI Trusteeship issued a demand notice to Direct Media and Cyquator to make payment of Rs 592 crore with 12% interest. While it filed an insolvency plea against Cyquator for default in payment in May 2022, the National Company Law Tribunal dismissed the IDBI Trusteeship's insolvency plea in June 2023.
The appeal filed by Manilal Kher Ambalal and Co stated that after the dismissal of petitions, which were filed by the two entities against its notice of demand, by the Delhi High Court, IDBI had invoked the pledge of securities and sold 43,47,500 pledged shares of ZEE Entertainment Enterprises in the open market in various tranches and realized Rs 92.34 crore and accordingly gave credit to that effect to Essel.
It further contended that while the appellate authority without considering the facts of the case had upheld the NCLT’s order, it had
held that the Section 7 petition was barred by Section 10A of the IBC, on the ground that the liability of the two Essel entities to make the outstanding payment arose on the date of invocation of the guarantee, i.e., on June 12, 2020, as per which June 16, 2020 was the date on which the default was committed.
[The Economic Times]
