NCLT Order in Zee-Sony Merger Reiterates High Onus on Objectors

The proposed merger of Zee Entertainment Enterprises Limited with Sony’s India operations (through its entity Culver Max Entertainment Private Limited) has attracted considerable attention. This is essentially due to some governance and financial circumstances surrounding the Zee group. Zee Entertainment was the subject matter of shareholder activism spearheaded by an institutional investor, Invesco, although the investor subsequently divested its stake in the company. Several lenders of the Zee group had initiated proceeding to recover debts due to them, which continue to be pending before different legal and regulatory for. More recently, the promoters of Zee Entertainment, being Mr. Subhash Chandra and Mr. Punit Goenka, were subject to an interim order by the Securities and Exchange Board of India (SEBI) that barred them from holding a position in any listed company, in which the Securities Appellate Tribunal (SAT) refused to interfere.

Scheme and Objections

These circumstances are a clear indication that the proposed merger transaction between Zee Entertainment and Sony India was unlikely to be smooth sailing, which indeed turned out to be the case. Although the scheme of arrangement for amalgamation of the two companies was approved by 99.997% of Zee Entertainment’s shareholders and it received the backing of the requisite majority of creditors, it garnered a litany of objections when the merger proposal arrived at the doorstep of the National Company Law Tribunal, Mumbai Bench (NCLT) for its sanctification. By way of its order passed in Axis Finance Limited v. Zee Entertainment Limited (10 August 2023), the NCLT overruled the objections and approved the scheme, thereby paving the way for implementation of the Zee-Sony merger.

The objections to the scheme emerged from various creditors of the Zee group, including Axis Finance Limited, IDBI Trusteeship Services Limited, IMAX Corporation, IDBI Bank Limited, and JC Flowers Asset Reconstruction Private Limited (in respect of funds lent by Yes Bank Limited). Their protestations to the merger were two-fold. First, they argued that a non-compete fee of over INR 1,100 crores was being paid by a Sony group entity in Mauritius to a Zee group entity, Essel Mauritius. The objectors’ argument is that such a non-compete payment “is bogus and a disguised mechanism to cheat lenders & public shareholders of Zee” (at paragraph 3(i)). The creditors effectively sought to have some form of recourse to the non-compete amounts as a means towards realization of the amounts owed to them. Second, the objectors argued that the terms of the scheme by which Mr. Goenka was to be appointed the CEO of the merged entity militates against SEBI’s order which prevents him from acting on the board of any listed company. The NCLT failed to be persuaded by either of the objections.

Creditor Interests and Locus Standi

The NCLT found that the objecting creditors were owed amounts from various group entities of Zee Entertainment and not by the very company that was part of the merger and hence proceedings that were before the NCLT. In other words, there was no privity of contract between the objectors and Zee Entertainment, and that the objectors were effectively capitalizing on the opportunity that arose through the merger to assuage their personal recoveries which were unconnected with the proposal before the NCLT. Moreover, even where any amounts were to be owed by Zee Entertainment, they were disputed by the parties and are yet to be crystallized. In these circumstances, such creditors would not have the ability to participate in the decision-making process for a scheme of arrangement. In any event, the NCLT found that given the net worth of the combined company would be manifold compared to a similar measure for Zee Enterprises as a standalone entity, creditors ought not to be prejudiced.

While a large portion of the NCLT’s reasoning is premised on the specific facts and circumstances relating to each of the objectors’ connection (or lack thereof) with Zee Entertainment and the present scheme, the order also reiterates some points that pertain to the state of the law. At the outset, unlike the preceding regime under sections 391 to 394 of the Companies Act, 1956, the present corporate law regime contained in sections 230 to 232 of the Companies Act, 2013 places hurdles on the ability of shareholders, creditors or other interested parties from objecting to the scheme during the proceedings before the NCLT. Specifically, section 230(4) of the 2013 legislation stipulates that objections can be made only by persons who hold not less than 10% of the shareholding or have outstanding debt of at least 5%. The NCLT found that none of the objectors satisfied these threshold requirements to gain locus standi in the scheme proceedings.

More importantly, the NCLT relied on the well-established principles enunciated in the landmark case of Miheer Mafatlal v. Mafatlal Industries Limited by which the NCLT is allowed to intervene in the commercial wisdom of shareholders and creditors who have approved a scheme only if such a “scheme is unconscionable, illegal, unfair, or unjust to the class of shareholders or creditors for whom it is meant” (paragraph 7 of Zee Entertainment). In that sense, there is a high bar for objectors to a scheme of arrangement. The NCLT did not expand on specific aspects of the scheme and the extent to which it can exercise oversight, presumably because the objectors were unable to satisfy it as to the maintainability of their objections. However, even if one were to assume that the objectors had to the locus standi to seek to assuage their concerns before the NCLT, the tenor of its order suggests that it is unlikely to have intervened on specific terms of the scheme, such as the non-compete clause, once the scheme has received the support of the requisite majority of shareholders and creditors. In that sense, the NCLT’s approach is indicative a high bar that objectors must cross before they can invoke the NCLT’s intervention in a scheme of arrangement.

Managerial Position

As for the objection relating to the appointment of Mr. Goenka as CEO of the merged entity in the face of the SEBI order banning his role as a director on any listed company, the NCLT seem to have tread a middle path. While it approved the scheme as a whole, the NCLT left it to the board of the company to examine the appointment of the CEO subsequently, and also clarified that the observations of the NCLT bench is subject to orders under other regulations, such as the approval of SEBI. Although the NCLT seems to have extricated itself from the controversy, and refused to turn down the clause in the scheme relating to Mr. Goenka’s as CEO, his appointment would nevertheless be subject to the fate of the proceedings emanating from SEBI’s order.


At one level, the NCLT’s order is somewhat straightforward, as it has ruled based significantly on the facts and circumstances of the case. However, at a broader level, it has adopted a non-interventionist approach given scope of the NCLT’s jurisdiction as articulated by the Supreme Court. However, due to the financial situation of the Zee group and the various disputes it is currently battling with lenders, the Zee-Sony merger will likely be the subject matter of appeals by one or more objectors.

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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