Bombay HC dismisses Yes Bank’s plea against Zee promoters2 min read . Updated: 19 Aug 2020, 05:26 PM IST
- The court said the bank did not make a case for any relief and the entire suit was possibly 'misconceived and misdirected'
Mumbai: The Bombay High Court on Wednesday dismissed a plea by Yes Bank that sought preventing promoters of Zee Entertainment Enterprises Ltd (ZEEL) from further selling their shares in the company and stopping managing director Punit Goenka from leaving India. The court said the bank did not make a case for any relief and the entire suit was possibly "misconceived and misdirected".
The entire issue revolved around a so-called ‘letter of comfort’ issued by Zee promoters to Yes Bank against loans taken by the company’s other businesses.
Essel group company Living Entertainment Ltd (LEL) borrowed $50 million from Yes Bank in 2016 to buy shares in its unit, Veria International. Promoter Goenka had provided guarantees for the loan. Separately, LEL entered into a put option agreement with another group firm, ATL Media. Under the put option, if the promoter stake in Zee fell below 30%, ATL must buy up to a 64.38% stake that LEL holds in Veria International, and also repay the loan.
Justice GS Patel, in the order, delved into whether ‘letter of comfort’ be fairly read to mean a ‘guarantee’. “I have concluded that, prima facie, the Plaintiff has made out no case at all for the grant of interim relief; that the suit is possibly entirely misconceived and misdirected; that the plaint proceeds on a wholly unwarranted and erroneous interpretation of law," the court said.
According to the order, Yes Bank had itself said the ‘guarantee’ in the letter of comfort was to put ATL in funds to buy shares from LELM to enable it to repay loan to YES Bank.
“But that is the whole of it. That is all that the LoC (letter of comfort) says. Yet, the prayers in the plaint are that Zee is bound and liable to repay US$ 51,634,564 “including by performing the acts" under the LoC; and then to restrain Zee from denying its status as guarantor," the court order said.
“The plaint seeks no direction to Zee to put ATL in funds and end it at that. Instead, in prayer after prayer it seeks direct repayment from Zee," it said.
According to the high court, this is where Yes Bank’s arguments fall apart and the lender seeks to make Zee liable for more than what it undertook and considerably more than what the letter of comfort stated.
“The commitment to fund ATL must, according to YES Bank, be read to be an unequivocal commitment to pay off LELM’s debt. That simply cannot be. There is nothing in the document or the surrounding documents or everything taken as a whole to support this approach," the order read.
The court also said a letter of comfort can indeed amount to guarantee but not every LoC is ipso-facto a guarantee.
“Besides, if this was indeed a guarantee of as much as US$ 52.5 million (say about ₹350 crores), then it would undoubtedly have had an impact on Zee itself. Zee is a listed, traded company. It is subject to all manner of regulations and a disclosure of a guaranteed exposure of this amount would undoubtedly have had to be made," the court said in the order.