Zee-Sony Merger Shouldn't Be Halted For SEBI's Case Against Punit Goenka, Says NCLT
The court has limited jurisdiction to interfere with the commercial wisdom of the shareholders, says NCLT.
Market regulator SEBI's order against Zee Entertainment Enterprises Ltd.'s former CEO Punit Goenka is a recent one and couldn't have been anticipated, the NCLT said on Friday.
The order by the Securities and Exchange Board of India was passed much after the scheme of arrangement between Zee Entertainment and Sony Pictures was filed, and shouldn't be the reason to halt the merger, the tribunal said in its written order.
The National Company Law Tribunal approved the merger between Zee Entertainment and Culver Max Entertainment Pvt.—also known as Sony Pictures—on Thursday.
Sony Pictures, the NCLT said, has every right to take up this issue at their board level after approval of the scheme, depending upon the final outcome of SEBI's order.
At the same time, the above observations of this bench does not in any way amount to approving the appointment of Punit Goenka under the scheme as it is sub judice and subject to further approval. - NCLT Order
Besides SEBI's order against Goenka, the other hurdle in the Zee-Sony merger didn't find merit at the NCLT as well.
Several creditors of the Essel Group—such as IDBI Bank Ltd., IDBI Trusteeship Ltd., Imax Corp., JC Flowers Asset Reconstruction Co. and Axis Finance Ltd.—had objected to the non-compete clause in the scheme. The provision is a device to defraud them, they had argued. According to the clause, Essel Mauritius will receive Rs 1,100 crore from SPE Mauritius as non-compete fees for Subhash Chandra's right to compete.
The tribunal said none of the parties objecting to the Zee-Sony merger are direct creditors of Zee, nor have any privity of contract with the company. Their claims are against other companies of the Essel Group, it said.
The only direct claim is one that IDBI Bank made in accordance with a debt service reserve account agreement, which is also under dispute, according to it. As a disputed claim, IDBI too has no locus standi in the case, the NCLT said.
According to the court, the creditors were using the merger as a last resort to recover their dues.
The NCLT highlighted that it has limited authority to question the commercial wisdom of the merger, given that 99.97% of the shareholders have approved it. Unless the objectors can demonstrate that the plan is unethical, illegal, unfair or unjust to the class of shareholders or creditors for whom it is meant, the tribunal cannot intervene, it said.
As the objectors have failed to prove the minimum shareholding or quantum of debt threshold under company law, they have no locus to object. The court cannot sit in appeal over the shareholders' commercial wisdom, it said. The rights of creditors are not lost and they would have the same rights against the merged entity, the NCLT highlighted.