ZEEL AND SONY, CONSOLIDATION OR CONFLICT?

12th November, 2024 - 6:52 am Categories: Legal Case Legal Issues NCLT 0 Comments

INTRODUCTION

The National Company Law Tribunal (NCLT) recently cancelled the earlier consent granted earlier for the merger of Zee Entertainment Enterprises Limited (ZEEL) with Culver Max Entertainment. [1] Culver was formally known as Sony Pictures Networks India (SPNI). It was sanctioned way back in August 2023. The two concerned parties had agreed mutually to a merger cancellation and cleared all disputes that had not been settled yet. They filed all pending cases in different courts and even arbitration at the Singapore International Arbitration Centre. The merger would have created one of India’s largest media companies. However, differences over some key terms caused the need to cancel this plan. Zee and Sony did not settle the cash; instead, they settled through a non-monetary mode. Therefore, the SoA Composite Scheme of Arrangement was dissolved, leading to the merger plan guide.[2]

BACKGROUND

With this in mind, ZEEL launched an ambitious project which, at best, could have provided the nation with media rivalling its top international challengers: Netflix and Disney. This scheme involved an SoA, the legal structure under which companies can merge subject to shareholder and regulatory approvals. Accordingly, this scheme was sanctioned by NCLT conditionally in August 2023. This generally means meeting pre-set financial, operational and legal conditions going through entirely.

But again, the problem arose in this respect regarding whether either of the parties fulfilled these requirements or not. Once more, the complexities of the merger deal surrogacy here, ZEEL was contending that it had fulfilled all the requirements on its side, which SPNI and Bangla Entertainment Private Limited (BEPL) were arguing that it hadn’t. Furthermore, it was argued that ZEEL had defaulted in fulfilling those obligations. Thus, both companies moved the NCLT with applications for the appointment of a liquidator to sack the security or be unfairly harassed by it and take the case to an all-out legal showdown. [3]

FACTS

In this appeal, the Applicants moved an application that challenged the validity and jurisdiction of the ZEEL Application (Company Application No. 32 of 2024). It was filled out by ZEEL, the respondent seeking implementation of an agreed-upon SoA between the applicants and respondents, along with their respective shareholders and creditors.

It was based on a Merger Cooperation Agreement (MCA) signed on December 22, 2021. It laid down the grounds for this arrangement. This MCA further stated that the SoA would be effective only when the conditions in Clause 5.1 of Section V of the scheme were met. 5.1(e) and (h) stated that its effectiveness would depend upon the mutual acceptance of all parties to be covered by the conditions set up in the MCA. Also, the occurrence of a “Closing Date.”

After the MCA was performed, the parties made relevant applications seeking schemes sanctioned by the NCLT. Subsequently, the scheme was given the conditional order of approval of the NCLT in August 2023. However, the conditions required for finalising the “Closing” also formed an essential aspect of the MCA. As per it, each party had a contractual obligation to exercise all reasonable commercial efforts to fulfil said conditions precedent within at least 15 days of the “End Date.” This end date was scheduled for December 24, 2023, two years since MCA was signed. Though exercised by ZEEL with their best effort, conditions were not achieved until the agreed end date, resulting in the collapse of this scheme that needed to occur.

Since ZEEL did not meet the closing conditions precedent, the applications involved their option under the MCA to terminate the same effective from January 22, 2024.They commenced arbitration under the rules of the Singapore International Arbitration Centre (SIAC).

The Applicants argued that ZEEL failed to attend and abide MCA and sought reference of the dispute to arbitration by declining the applications of ZEEL as being premature and also infructuous. Respondent pleaded that they have maintained the right to answer the grievances made by the applicant in the arbitration proceeding. They also pointed that the application is not relevant since it is a consequence of the Applicant’s default in breach of MCA.

NCLT’s ORDER

While dealing with the application filed by ZEEL, the NCLT dealt with counter-applications moved by the respondents who, in turn, wanted the application of ZEE to be rejected. The tribunal found it wise to allow withdrawal of the application. Such a decision is thus well in line with the principle of resolving disputes in one forum to avoid multiplicity of litigation. In that regard, the Tribunal had it that their decision does not amount to an opinion on the case’s merits but permits parties to adequately prosecute remedies appropriately under the law. It dismissed them as baseless with no merit, thus nullifying the respective applications put before it for relief.

ANALYSIS

The NCLT has a regulatory role in this case. In fact, by allowing ZEEL to withdraw its application, it had indirectly endorsed the policy of consolidating the disputes in the same forum. The importance of preventing the consolidating outcome of all in corporate cannot be over-emphasised since mergers and acquisitions raise issues across multiple jurisdictions. This streamlines the process for the resolution of disputes, but in the process, it only tightens the integrity of the legal system.

However, this judgment brings up a few issues that come into view when the companies choose to arbitrate while proceeding simultaneously in the court for remedies.

This would lead to a “race to the courthouse” where parties would try to avail themselves of different legal avenues to their advantage. This shows the choice between judicial intervention and arbitration autonomy. The dismissal of the counter-application by NCLT reflects a pragmatic approach that gives more importance to the efficiency of dispute resolution over the judicial examination.

CONCLUSION

Therefore, the cancellation of the merger of ZEEL and SPNI involves an overlap of corporate governance, legal oversight, and dispute resolution; however, allowing ZEEL to withdraw its application indicates the decision of NCLT regarding consolidating disputes within a single forum. This, however, raises tensions if the parties approach the pre-agreed arbitration and concurrent court proceedings simultaneously. Considering all these corporate entities’ challenges, the NCLT’s decision to prioritise dispute resolution, as pleaded by the parties over the judicial process, comes as a rescue.

Author: Priyal Bansal, in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at  Khurana & Khurana, Advocates and IP Attorney.