Zee Sony case: NCLT hearing pushed to later date

The National Company Law Tribunal (NCLT) hearing regarding Zee Entertainment's plea to enforce the stalled $10-billion merger with Sony Pictures Networks was scheduled to be heard today. However, it has now been pushed to a later date. The outcome of the hearing will provide clarity on whether the merger stands a chance to be reconsidered.

On January 22, Sony terminated the proposed $10 billion merger with Zee first announced in December 2021, citing Zee's failure to fulfil certain financial terms outlined in the deal and provide a viable plan to rectify the situation.

In response, Zee refuted the allegations in a letter addressed to Sony, and accused the Japanese conglomerate of acting in ‘bad faith’ by calling off the merger.

According to reports, the legal representative for Zee contended that if the maintainability applications are addressed in the hearing which was scheduled for March 12, Zee would face challenges in filing timely responses, particularly if Sony insists on submitting rejoinders before the mentioned date.

On February 6, NCLT had issued a notice to Culver Max (formerly Sony Pictures Networks) in response to an application filed by Zee Entertainment Enterprises. NCLT has granted a hearing to the plea of Mad Men Film, a Zee Entertainment Enterprises Limited shareholder seeking the execution of the terminated merger.

The NCLT had given the merger first announced in December 2022 a go-ahead on August 10, 2023.

The case, now before the NCLT and the Singapore International Arbitration Centre (SIAC), presents a complex legal landscape where Sony must navigate the provisions of the Insolvency and Bankruptcy Code, 2016 (IBC) and other relevant laws to protect its interests and seek appropriate remedies.

Corporate law expert, Aditya Chopra, Managing Partner, Victoriam Legalis - Advocates & Solicitors, explained the legal standing of the merger termination.

“Sony’s decision to call off the merger raises questions regarding its legal obligations under the IBC. Section 12A of the IBC allows for the withdrawal of insolvency applications with the approval of 90 percent of the committee of creditors. However, the termination of a merger scheme approved by the NCLT may require justification under Section 66 of the IBC, which deals with fraudulent trading and wrongful trading by corporate entities,” Chopra said.

Sony's assertion of breach of conditions by Zee and its demand for a termination fee necessitate a thorough examination of the contractual obligations outlined in the merger agreement.

Under Section 74 of the IBC, termination clauses and penalty provisions in contracts are subject to scrutiny by the NCLT, which may assess the reasonableness and enforceability of such terms.

As for the arbitration proceedings, according to Chopra, Sony's initiation of arbitration proceedings, seeking $90 million as a termination fee, underscores its recourse to alternative dispute resolution mechanisms.

The Arbitration and Conciliation Act, 1996, governs the arbitration proceedings in India and provides for the enforcement of arbitral awards, subject to limited judicial intervention under Section 34 of the Act.

Sony's legal counsel, led by Senior Advocate Darius Khambata, has indicated an intention to challenge the maintainability of the petition filed by Zee Entertainment Enterprises Ltd before the NCLT.

As per experts, the legal scenario hinges on whether Sony can establish that Zee breached the specified ‘preconditions’ outlined in the merger scheme. If Sony can substantiate a breach within the defined preconditions, Zee and its shareholders may find it challenging to compel Sony to proceed with the merger.

On the other hand, if the alleged breaches extend beyond the preconditions, the NCLT might direct Sony to fulfil its obligations under the scheme.