Zee Entertainment Enterprises Ltd (ZEEL), it seems, has missed the deadline to pay $200 million to Disney Star as part of its over $1.4 billion deal for TV rights of ICC matches. The payment default by Zee has added another layer of complexity to the already tumultuous situation surrounding the Zee-Sony merger, as experts say it could trigger legal actions against the Punit Goenka-led company.

Disney India, as an aggrieved party, could initiate legal proceedings against Zee and approach an appropriate forum seeking damages for the non-payment, said Kritika Seth, Founding Partner, Victoriam Legalis – Advocates & Solicitors.

Bigger trouble for ZEEL and its impending merger with Sony?

As per recent reports, Sony intends to send a deal termination notice to Zee, signalling potential call-off of the merger. Zee, however, has stated its commitment to continuing with the merger despite these reports.

“The uncertainty surrounding the merger may heighten as Zee grapples with legal challenges from Disney and the financial fallout from its default. The lack of furnished bank guarantees adds to the concerns surrounding Zee's ability to meet its financial obligations, raising questions about the viability of the merger,” said Seth.

Speaking of the adverse impact of Zee’s possible fallout with Disney on the merger with Sony, Abhilash Agrawal, Counsel (Corporate), Law SB, said that termination by Disney India would not bode well for Zee’s impending merger with Sony, since this “may trigger the threshold to qualify as an event of default having a material adverse effect on the valuation and business prospects of Zee, which would in turn allow Sony to walk away from the deal, maybe even with a hefty termination fee.”

On August 27, 2022, Disney Star secured the ICC media rights for the 2024-27 term, amounting to approximately $3 billion.

Reportedly, ZEEL has missed a deadline to pay $200 million to Walt Disney’s India unit for TV rights of cricket matches as the firm is trying to preserve cash ahead of a likely collapse of its mega merger with Sony Group Corp.

“The instalment due in early January was a crucial part of this larger agreement. As a result, Zee now faces potential legal challenges, as Disney has sought an explanation for the skipped payment. This failure to fulfil financial obligations not only damages Zee's credibility but also exposes the company to legal scrutiny,” Seth said.

According to legal experts, Zee's failure to provide bank guarantees further complicates the situation, potentially strengthening Disney's legal position.

Adding to this, advocate  Rajiv Sharma, Partner, Singhania & Co, said that if the insolvency proceedings are initiated against Zee, “an interested resolution applicant may furnish their resolution plan to acquire and run Zee under their management.”

Elara Capital Senior VP Karan Taurani said, “Disney Star can definitely penalise Zee if they do not make the payment but Zee will not make it unless the merger with Sony goes through. If the merger happens, then things will fall in place.”

However, one of the legal experts also said that there was a possibility that Disney might not enforce any legal proceedings against Zee as at this juncture, Disney would find it hard to replace its television broadcasting partner.

“Another reason is that the merged entity of Sony-Zee will be a media giant, capable of servicing the outstanding financial commitments of Zee towards Disney; which Zee may find hard to service sans the merger coming through.

“Therefore, Disney is most likely to wait and watch, as any legal action taken by it would jeopardize both its broadcasting commitments towards ICC, and also impact its ability to recover financial dues from Zee,” Agrawal said.

What legal action could Disney Star India take against Zee in this scenario?

As per legal experts, agreements of such nature generally provide for a cure period, and Zee will have the opportunity to cure the alleged default within a specified period of time.

“However, if Zee fails to cure the alleged default, Disney India will broadly have three legal options- terminate the agreement and claim damages/ indemnification from Zee; enforce specific performance by Zee; file a corporate insolvency resolution process (CIRP) under the Insolvency and Bankruptcy Code, 2016 (IBC) against it,” said Agrawal.

Under Indian Contract Law, which draws from the Indian Contract Act, 1872 (ICA), a breach allows the aggrieved party, Disney Star India in this instance, to seek remedies provided by law, said Seth.

“These remedies may include specific performance, where the court orders the defaulting party (Zee) to fulfil its contractual obligations, or monetary compensation for damages suffered due to the breach.

“Specific performance is an equitable remedy available under Section 10 of the Specific Relief Act, 1963, allowing a party to seek the actual performance of a contract instead of seeking damages,” she explained.

As per the legal experts, other potential legal avenues for Disney Star include initiating arbitration proceedings against Zee, filing a suit directly in the High Court or approaching the NCLT under the Insolvency and Bankruptcy Code (IBC) in case Zee is unable to meet the financial obligations.

According to Rajiv Sharma, Partner, Singhania & Co, “In this case, Disney is an operational creditor under the Insolvency and Bankruptcy Code, 2016. And in case Zee has in fact defaulted the undisputed payment, Disney can initiate insolvency proceedings against Zee under the IBC. Disney can approach National Company Law Tribunal (NCLT) at Mumbai and initiate insolvency proceedings against Zee.”