The National Company Law Tribunal is currently reviewing the merger of Zee Entertainment Enterprises Ltd. and Sony Pictures. The court has listened to objections from several creditors of Essel Group.
Zee and Sony agreed to merge their businesses in December 2021 after obtaining the necessary permissions from regulators. However, the merger process was halted at the NCLT due to objections raised by Essel Group creditors regarding a non-compete clause in the scheme.
As per the scheme, Essel Mauritius, an Essel Group entity, would receive a non-compete fee from Sony Group entity SPE Mauritius in exchange for Subhash Chandra’s right to compete against the merged entity. Creditors argue that this clause is an attempt to defraud them and divert funds that should have been used to pay off debts.
Various entities, including Axis Finance Ltd., JC Flower Asset Reconstruction Co., IDBI Bank Ltd., Imax Corp., and IDBI Trusteeship Ltd., have objected to the scheme.
The NSE and BSE have presented two orders to the court regarding Essel Group entities, where funds were diverted for the benefit of associated entities. One of the orders restricts Punit Goenka, a promoter, from holding a directorial position in any listed company. This order affects the merger since Goenka is intended to be the Managing Director of the merged entity.
The objectors also argue against the inclusion of a non-compete clause in the scheme, as it involves entities that are not part of the merger agreement.
Zee’s counsel countered the arguments by stating that the provisions in the scheme were not meant to override any statutory disqualifications. If Goenka is disqualified, shareholders can choose another Managing Director. The scheme should not fail because of his disqualification.
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