Axis Finance Wants To Use Zee-Sony Merger To Recover Dues

Pay up or will oppose merger with Sony, Axis Finance tells Zee Entertainment.

<div class="paragraphs"><p>Zee employees  work in the program control room in Mumbai. (Photographer: Santosh Verma/Bloomberg News)</p></div>
Zee employees work in the program control room in Mumbai. (Photographer: Santosh Verma/Bloomberg News)

Axis Finance Ltd. has put Subhash Chandra, Punit Goenka, Zee Entertainment Enterprises Ltd., and Sony Pictures Networks India Pvt. on notice. That if dues worth approximately Rs 150 crore are not paid, it will oppose the Zee-Sony merger. Last month, the two media groups finalised the terms of the merger.

Under company law, any objection to a scheme of arrangement can be made only by persons holding not less than 10% or having outstanding debt amounting to not less than 5% of the total outstanding debt.

In this case, Axis Finance does not feature in the list of Zee Entertainment shareholders owning 1% or more, leave alone 10%. And by the NBFC’s own admission, the credit facilities were extended to Essel Group companies, and not Zee Entertainment. So, it's not clear what locus Axis Finance has to object to the scheme.

To be clear, Axis Finance's borrowers are Essel Group companies Cyquator Media Services Pvt. and Primat Infrapower and Multiventures Pvt. The two entities were extended a term loan of Rs 200 crore at the request of Chandra and his son Goenka, claims Axis Finance in a letter dated Dec. 30, 2021. BloombergQuint has reviewed a copy of the letter.

The loan was secured by pledge of equity shares of Essel Group companies—Direct Media Distribution Ventures Pvt., Essel Corporate LLP and Primat Infra—the letter says, adding that both Chandra and Goenka had reassured repayment by way of guarantees. Since the default, the letter notes, Axis Finance has recovered a partial amount by selling Direct Media and Essel Corporate's shares.

The merger with Sony will only benefit Zee Entertainment's promoters, and lenders of the company and group entities will face a huge task in recovering their dues. If Zee goes ahead with the merger without paying the dues, the letter states, Axis Finance will take legal recourse before the high court and the company law tribunal.

In response, Zee Entertainment has called Axis Finance's claims as 'meritless' and 'unjustified'. And it's not liable for group companies, the broadcaster said in a letter this week, which BloombergQuint has reviewed.

The company has no contractual or legal privity with Axis Finance and no request was made by it for credit facilities for Cyquator Media, Zee has claimed in its response. "Zee is neither a party to any of the loan documents nor has it provided any assurances to Axis Finance for repayment."

Goenka, too, as the promoter, managing director and chief executive officer of Zee, has not given any repayment assurances, the letter states. Allegations of such assurances being made by Goenka in the media and investor conference calls have also been denied by Zee. Even if they were made, such statements can never amount to a guarantee or a binding undertaking, Zee's response says.

Finally, Axis Finance has no right to object to the merger, Zee has said in its letter. "It is clear that Axis Finance is simply trying to arm-twist Zee into making payments for Cyquator and Primat, which is legally not tenable."

Axis Finance is not a stakeholder in the Zee-Sony merger and has no locus to object to it, the letter adds.

Zee Entertainment and Axis Finance's response to BloombergQuint's queries on this development is awaited.