The Singapore International Arbitration Centre (SIAC) has rejected Sony’s request to stop Zee Entertainment from pursuing the merger scheme that was cancelled by the Japanese media giant. Zee Entertainment has approached the National Company Law Tribunal (NCLT) in India to enforce the merger that was approved by the same tribunal in August 2023.
Background of the merger
Zee Entertainment and Sony Pictures Networks India (SPNI) had announced a merger deal in September 2023, which would create India’s largest media and entertainment company with a combined revenue of over $1.5 billion. The deal involved Sony transferring its two Indian entities, SPNI and Bangla Entertainment Pvt Ltd (BEPL), to Zee Entertainment in exchange for a 52.93% stake in the merged entity.
The merger was expected to create synergies in content, distribution, technology and advertising, as well as enhance the value proposition for all stakeholders. The deal was also seen as a strategic move by Zee Entertainment to fend off competition from global players like Netflix, Amazon Prime Video and Disney+ Hotstar.
Reasons for the termination
However, on January 22, 2024, Sony terminated the merger agreement, citing unfulfilled conditions precedent and breaches of representations and warranties by Zee Entertainment. Sony also demanded a termination fee of $90 million from Zee Entertainment for the alleged breaches.
Zee Entertainment disputed Sony’s claims and called the termination notice invalid and illegal. Zee Entertainment also accused Sony of acting in bad faith and reneging on its commitments due to changed market conditions and regulatory uncertainties.
Legal developments
Following the termination notice, Zee Entertainment filed a petition before the NCLT on January 24, 2024, seeking directions to Sony to perform its obligations and implement the merger scheme that was sanctioned by the NCLT on August 10, 2023. Zee Entertainment argued that Sony had no right to terminate the merger agreement after the NCLT approval and that the alleged breaches were either non-existent or curable.
On January 28, 2024, another petition was filed by Mad Men Film Ventures, a shareholder of Zee Entertainment, seeking enforcement of the merger scheme and alleging that Sony’s termination notice was detrimental to the interests of Zee Entertainment and its shareholders.
On February 2, 2024, Sony filed an application before an emergency arbitrator of the SIAC, seeking interim relief to restrain Zee Entertainment from approaching the NCLT or any other court or authority in India to implement the merger scheme. Sony contended that the merger agreement contained an arbitration clause that required all disputes arising out of or in connection with the agreement to be resolved by arbitration in Singapore.
SIAC’s decision
On February 4, 2024, the emergency arbitrator passed an award denying Sony’s application for interim relief. The emergency arbitrator held that he had no jurisdiction or authority to injunct Zee Entertainment from approaching the NCLT to implement the merger scheme, since these matters fell within the statutory system and were for the NCLT to decide.
The emergency arbitrator also observed that there was no prima facie case of irreparable harm or urgency that warranted an interim injunction against Zee Entertainment. The emergency arbitrator noted that Sony had not shown how Zee Entertainment’s actions before the NCLT would affect the arbitration proceedings or prejudice Sony’s rights.
The emergency arbitrator further stated that his decision was without prejudice to the merits of the dispute or the jurisdiction of the arbitral tribunal that would be constituted under the normal procedure of the SIAC.
Implications and future course
The decision of the emergency arbitrator is a setback for Sony, as it allows Zee Entertainment to continue pursuing its legal remedies before the NCLT and other forums in India. However, it does not preclude Sony from challenging Zee Entertainment’s actions before the arbitral tribunal or seeking other reliefs in arbitration.
The decision also does not affect the validity or enforceability of the arbitration clause in the merger agreement, which remains binding on both parties. Therefore, it is likely that both parties will continue to pursue arbitration as well as litigation in parallel until a final resolution is reached.
The outcome of this dispute will have significant implications for both parties as well as for the media and entertainment industry in India. The merger, if implemented, would create a dominant player with a diversified portfolio of channels, platforms and content across genres and languages. The termination, on the other hand, would leave both parties vulnerable to competition and disruption in a rapidly evolving market.
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