Bombay High Court Denies Relief To Yes Bank In Zee Entertainment Case
Yes Bank wanted to enforce a letter of comfort as guarantee and sought an order against Zee prohibiting disposal of its assets.
Zee Entertainment Enterprises Ltd. cannot be restrained from disposing or transferring its assets, the Bombay High Court has said while denying interim relief to Yes Bank Ltd. The bank had approached the high court arguing that a letter of comfort given by Zee Entertainment is in the nature of guarantee—a claim the court found no merit in.
In 2016, Zee Entertainment’s Mauritius-based subsidiary ATL Media Ltd. entered into a put option agreement with Living Entertainment Ltd. -- a related party. Living Entertainment borrowed money from Yes Bank against this put option. Zee Entertainment gave Yes Bank a letter of comfort confirming its intention to support ATL Media by infusing equity or debt as well as honoring the put option.
After Living Entertainment and ATL Media failed to repay the loan and honor the put option, Yes Bank approached Zee Entertainment to support its subsidiary.
Zee Entertainment had also agreed to fulfill four conditions during the subsistence of the loan:
That the group will support ATL Media by infusing the requisite equity or debt.
All overseas operations will be undertaken through ATL Media or its subsidiaries.
A holding of at least 51% in ATL Media.
In case of default in payment, ATL’s obligations to Yes Bank will prevail over all other shareholder loans.
After a default by the group entity, Yes Bank moved the high court. It’s counsel Veerendra Tulzapurkar argued that the commitment by Zee Enterprises to adhere to these four conditions until the loan is repaid amounts to a guarantee.
But the high court didn’t see it that way. It noted that all that the letter of comfort says is Zee Enterprises would adhere to the four clauses until all the advances, dues are repaid. It doesn’t, prima facie, amount to any guarantee to repay dues of the group company, the court said.
“...the letter of comfort is the only document on which the entire suit is premised and it is not the Plaintiff’s [Yes Bank] case that Defendant No.1 [Zee Enterprises] has gone back of any of its four commitments made in it.
And so, a two-judge bench of the high court observed that there was no ‘prima facie’ case made out by Yes Bank for allowing an interim relief.
Senior counsel Aspi Chinoy argued on behalf of Zee Entertainment.
(Updates an earlier version to correct details of the put option agreement between Zee Group entities)