The Supreme Court on Tuesday upheld a Delhi High Court judgment that referred a Rs 150-crore loan default row between Zee Entertainment Enterprises Ltd and Aditya Birla Finance Ltd for adjudication to an arbitration tribunal.

The ruling comes just days ahead of Zee’s merger deadline with Sony Pictures, now known as Culver Max Entertainment Private Ltd.

A bench headed by Chief Justice of India D.Y. Chandrachud refused to entertain the appeal filed by Zee Entertainment challenging the March 3, 2023 order of the Delhi High Court.

The Delhi court order made Zee party to the arbitration as it was the guarantor for principal debtor Siti Cables which had since entered insolvency proceedings.

It had referred the matter for arbitration to a single member tribunal headed by former Supreme Court judge Justice L. Nageswara Rao.

The high court had rejected the argument of the Zee that it cannot be part of the arbitration proceedings as it was not a party to the arbitration agreement between Aditya Birla Finance and Siti Cable.

The apex court on April 21, 2023, allowed a petition filed by the Zee group challenging the high court order and listed the matter for hearing on merits pending a decision by a five-judge constitution bench on the extent of liability of group companies as guarantors even if they were not parties to an agreement.

On December 6, 2023, the five-judge Supreme Court bench in the “Cox and Kings Ltd vs SAP India Private Limited and Another” case had ruled that related companies which are not part of an original arbitration agreement between the parent/subsidiaries are bound by the agreement under the “group companies’ doctrine”.

At the hearing on Wednesday, the bench which included Justice J. B. Pardiwala and Justice Manoj Misra, upholded the high court judgment.

Impact

The development comes just days ahead of Zee’s merger deadline with Sony on January 21. The deadline was pushed back by a month after Zee sought an extension under the merger co-operation agreement signed between them in 2021.

Recent statements from both Zee and Sony had suggested that they are committed to the merger.

Sources said that the latest development in the top court though a setback for the Essel group is unlikely to affect the merger.

The proposed amalgamation of Zee Entertainment Enterprises Ltd, Bangla Entertainment Pvt Ltd (BEPL) and CMEPL have already received approvals from fair trade regulator CCI, NSE and BSE, shareholders and creditors of the company apart from the National Company Law Tribunal.

Reported differences over who will lead the merged entity is the main stumbling block to the merger — Zee is backing its current MD and CEO Punit Goenka, while Sony is reportedly pitching for Sony Pictures Networks India head N.P. Singh.

Sony had expressed concerns over Goenka after regulator Sebi barred him from holding managerial posts in Zee and any of the entities in a fund-diversion case.

Though the Securities and Exchange Board of India order was stayed by the Securities Appellate Tribunal, Sony is not comfortable with Goenka leading the merged entity due to the stringent corporate governance policy in Japan.

The deal, which was signed between Zee Entertainment and Sony Pictures Networks India in 2021, has a stipulated period of two years in which the merger was to be completed before December 21, 2023.

The combined entity will own over 70 TV channels, two video streaming services (ZEE5 and Sony LIV) and two film studios (Zee Studios and Sony Pictures Films India), making it the largest entertainment network in India. With inputs from Mumbai Bureau