In a continued legal setback for Zee Entertainment Enterprises, the Supreme Court on January 16 upheld the Delhi High Court’s decision to refer a ₹150 crore dispute between Aditya Birla Finance and Siti Networks to arbitration. The high court had appointed former Supreme Court judge Justice LN Rao as the sole arbitrator, and this decision raises concerns for Zee as it stands as the guarantor for the term loan extended to Siti Networks by Aditya Birla Finance.
Background of the Dispute:
Aditya Birla Finance initiated the legal proceedings, claiming that Siti Networks had not cleared dues amounting to ₹134 crore plus interest for the loan that Zee had agreed to guarantee. Zee Entertainment Enterprises, in its role as a guarantor for the term loan, is entangled in the case.
Supreme Court’s Ruling:
During the January 16 hearing, the Supreme Court referred to its recent judgment, stating that even non-signatories to an arbitration agreement can be subject to it under the ‘Group of Companies’ Doctrine. In a December 6 judgment, the court affirmed that the arbitrator has the authority to decide whether a non-signatory to an arbitration agreement can be bound by it. Consequently, the apex court directed Zee to present its concerns before the appointed arbitrator, Justice LN Rao.
Aditya Birla Finance’s Claims:
Aditya Birla Finance contends that the interest rate on the loan was reduced from 16% per annum to 13% on the condition that Siti Networks would reduce the outstanding loan to ₹75 crore before 2018, with Zee standing as a guarantor for the loan. The lender alleges that Siti Networks failed to fulfill these conditions.
Zee’s Defense:
Zee Entertainment Enterprises argues that it acted as the corporate guarantor and not the principal debtor in Siti’s loan. The intricacies of the contractual relationship are expected to be examined in detail during the arbitration proceedings.
