Yes Bank drags Zee Entertainment to court over $50 million loan guarantee spat

Yes Bank has filed a suit at the Bombay High Court against Zee Entertainment Enterprises and its board of directors, including founder Subhash Chandra as well as MD and CEO Punit Goenka, over their alleged failure to honour obligations under a disputed guarantee related to a 2016 loan of around $50 million.

Yes Bank, which is backed by a consortium led by State Bank of India, believes Zee Entertainment defaulted on the loan and sought the dues to be paid back in the suit, according to people intimately familiar with the case. The bank urged the court to restrain the media and entertainment firm from disposing of assets to third parties.

In response to an e-mail query sent to Zee Enterprises, a company spokesperson said: "Hon'ble Mumbai High Court has declined interim reliefs sought by the bank."

The suit came up for hearing at the Bombay High Court via video conferencing on June 30. The next date of hearing is yet to be notified.

"Yes Bank's case is that Zee Entertainment has obligations as a guarantor for the foreign currency term loan of around $50 million under a letter of comfort issued in May 2016. This alleged liability has been disputed by  Zee Enterprises," said one of the persons cited above.

A second person familiar with the case said one of the additional reliefs that Yes Bank has sought from the court is to restrain the promoter group from transferring their shareholding in the company. The suit further alleges that the promoter group of Zee Enterprises diluted its shareholding in the firm in violation of the lending terms, as part of which they were required to maintain at least 30 percent shareholding in Zee Entertainment until the loan is repaid, he added.

The bank has also made the firm’s auditor Deloitte Haskins & Sells a party to the case.

"Yes Bank had requested the auditors earlier to treat the alleged obligations of Zee Entertainment as a liability in the firm’s books and  accounts. But it’s the primary responsibility of the management to identify a liability and the audit firm reviews it later," said a third person.

All the three people spoke to Moneycontrol on condition of anonymity.

Moneycontrol is awaiting an email response from Yes Bank and will update this article as soon as we hear from the firm. Deloitte Haskins & Sells did not respond to queries.

Promoters hold 4.77 percent of Zee Entertainment, according to the latest stock exchange disclosures.  In August 2019, the promoters announced the  sale of a 11 percent stake to US-based financial investor Invesco Oppenheimer Developing Markets Fund for a consideration of Rs 4,224 crore. The deal was struck as part of a deleveraging exercise initiated by the debt-ridden parent, Essel Group.

In March 2020, Essel Group chairman Subhash Chandra appeared before the Enforcement Directorate (ED) in connection with a money laundering case against Yes Bank co- founder and former MD and CEO Rana Kapoor.  Essel Group clarified in an official statement that all its credit facilities availed from Yes Bank were fully secured and that the group had never made any transactions with Kapoor or his family or for that matter any private entities controlled by them.

Reports had pegged Essel's exposure to Yes Bank at around Rs 8,000 crore. The ED, which investigates financial crimes, had also summoned other promoters  such as Anil Ambani of ADAG group, Naresh Goyal of Jet Airways and Gautam Thapar of Avantha Group as part of its probe in the case.

On March 13, 2020, the government approved a rescue plan led by SBI, India’s largest lender, for liquidity-strapped Yes Bank.  Under the plan, investors including SBI, HDFC, ICICI Bank, Kotak Mahindra Bank, Bandhan Bank, Federal Bank and IDFC First Bank, invested a combined Rs 10,000 crore into Yes Bank. SBI spearheaded the rescue with a Rs 6,050 crore infusion and is currently the largest shareholder in the bank with a 48.2 percent stake.