NCLT moves insolvency process against Zee founder

NEW DELHI: The National Company Law Tribunal (NCLT) Delhi on Monday admitted Indiabulls Housing Finance's (IBHF) personal insolvency plea against Zee Entertainment Enterprises Limited (ZEEL) chairman emeritus Subhash Chandra over guarantees given to Vivek Infracon.

The tribunal also rejected appeals by IDBI Trusteeship and Axis Bank against Chandra being admitted to personal insolvency. 

IBHF earlier told the tribunal that Chandra claimed that a settlement had been reached in the dispute, but it had not materialised even after months, asserting that they were constrained to revive the personal insolvency plea.

As the moratorium will apply, no litigation can be initiated against Chandra, nor can he alienate or sell any of his assets. IBHF moved a petition to initiate personal insolvency against Chandra in 2022 after a loan of Rs 170 crore given to Vivek Infracon turned into non-performing assets. Chandra had argued that the NCLT cannot rule on an individual's insolvency.

The tribunal in May 2022 said it had powers to rule on Chandra's insolvency and appointed a resolution professional to consider Indiabulls' application.

However, since the provisions relating to personal guarantees under IBC were challenged in the Supreme Court, the matter was not taken up. The Supreme Court in November 2023 upheld the validity of these provisions, paving the way for companies to revive cases against personal guarantors.

A personal guarantor is a person who gives a written assurance to a lender that a company will repay the loan/credit facility it has obtained. In case the company does not repay the loan/credit facility, the guarantor's personal assets can be attached by the lender.

Apart from the moratorium that will be placed on legal proceedings against Chandra, there is an immediate stay on his ability to deal with his assets or beneficial interests therein.

"This would mean that he is also restrained from dealing with his shares in the Zee group, including the creation of a pledge of such shares. Additionally, even outstanding sale obligations under contracts executed by Mr. Subhash Chandra would now be stalled due to the moratorium," said Durgesh Khanapurkar, Partner, Desai & Diwanji.

Ultimately, since the Zee group is a promoter-driven entity, the NCLT decision is likely to impair the group’s ability to raise further debt, he said, adding the NCLT order is likely to have a catalytic effect as all creditors of Chandra will be required to submit their claims with the Resolution Professional.

“Insofar as Indiabulls is concerned, given that the overall debt of Mr. Chandra is not publicly known, we are unable to gauge the extent to which Indiabulls will ultimately control/lead the repayment plan," Khanapurkar said.