Is Dish TV’s Refusal Of Yes Bank's EGM Requisition Legal?
The board's power to refuse a shareholder's requisition for an extraordinary general meeting has become the hottest legal question this season. It's playing out in courts between Zee Entertainment Enterprises Ltd. and Invesco Developing Markets Fund. And Dish TV India Ltd. and Yes Bank Ltd. are likely headed there.
Last week, Dish TV's board rejected the demand for an extraordinary general meeting of the company. The requisition was sent by the company’s largest shareholder Yes Bank last month. The lender has a 25.63% shareholding in the company.
The key reasons stated by the board for rejecting the requisition include:
Yes Bank acquired the stake through invocation of pledges.
The Banking Regulations Act and SEBI regulations do not allow Yes Bank’s resolution to be placed before the shareholders.
Prior approval is required from the Ministry of Information and Broadcasting for the proposal to be placed before the shareholders.
..there are certain embargos under the provisions of the Banking Regulation Act, 1949 read with Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, because of which the said resolutions cannot be placed before the shareholders.Regulatory filing by Dish TV India Ltd.
Experts who spoke with BloombergQuint doubt if these reasons will stand legal scrutiny.
Yes Bank’s Shareholding
In May last year, Yes Bank acquired Dish TV's shares after invocation of pledge subsequent to default/breach of terms of loan by the company, a May 2020 regulatory filing by the bank said. To reiterate, Yes Bank holds 25.63% stake in the company.
Under the Companies Act, 2013, a shareholder can requisition an EGM as long as he holds not less than 10% voting rights in the company. If the board does not call an EGM within 45 days of a valid requisition, the meeting may be called and held by the shareholder itself.
The Companies Act requires the board to act on the notice only if it is a valid requisition, explained Harvinder Singh, partner at DSK Legal.
That raises another question: what's a 'valid' requisition?
Apart from 10% threshold, Singh said, the board has to check whether the requisition for an EGM is properly given and it sets out the matters for which the meeting is to be called. Also, it can check whether the requisition is signed by the requisitionists or by its authorised representative and is properly sent to the registered office of the company.
But the fact that Yes Bank acquired shares as a consequence of invocation of pledges will not affect its right to requisition an EGM.Harvinder Singh, Partner, DSK Legal
The only thing that needs to be checked is whether the shareholder is in the register of the company, said Sandeep Bajaj, managing partner at PSL Advocates & Solicitors.
After the invocation of pledge, the company has to be intimated about the transfer of shares, Bajaj pointed out. If the shareholders are in the register of the company, they become members and are entitled to call for EGM, subject to the eligibility threshold provided under the act, he said.
If there is violation of any other law, that is a separate issue entitling the aggrieved to challenge that. Whether the company has recorded the new shareholder in the register of company is the only thing needs to be checked at the state of calling an EGM.Sandeep Bajaj, Managing Partner, PSL Advocates & Solicitors
EGM Requisition Only Governed By Companies Act: Experts
Further, Yes Bank said there was default/breach of terms of credit facilities sanctioned by it to Essel Business Excellence Services, Essel Corporate Resources, Living Entertainment Enterprises, Last Mile Online, Pan India Network Infravest, RPW Projects Private, Mumbai WTR and Pan India Infraprojects.
The companies were at the time part of the Essel Group led by Subhash Chandra.
Dish TV’s board has, however, taken the stance that being a banking company and acquiring shares through invocation of pledges will put certain embargoes on the shareholder as per the Banking Regulations Act,1949 and SEBI regulations.
Bajaj opined there is nothing in the two laws that can be grounds for rejecting the requisition.
Provision of calling EGM under the Companies Act is not regulated by any other act and only requirement for a valid requisition is 10% shareholding in the company.Sandeep Bajaj, Managing Partner, PSL Advocates & Solicitors
Similarly, references to the SEBI Takeover Code, the Competition Act and the Banking Regulation Act do not seem to have any basis, Rajat Sethi, partner at S&R Associates, said.
No Bar By MIB Regulations
Dish TV’s board said the resolutions which Yes Bank seeks to place before the shareholders need prior approval under the Competition Act, 2002 and by the Ministry of Information and Broadcasting.
Both Bajaj and Singh said that a resolution seeking change of directors does not need any prior MIB approval.
DTH operators require certain clearances by the MIB but that does not include change of directors, they said.
As per DTH Guidelines issued MIB, every DTH operator is subjected to security clearance by MIB in consultation with the Ministry of Home Affairs and for clearance of satellite use with the Department of Space. There is no requirement of obtaining prior approval for any change of director and can be obtained subsequently.Harvinder Singh, Partner, DSK Legal
The explanatory statement proposed by the requisitioning shareholder itself states that the proposed appointments will take effect on receipt of requisite MIB approval, Sethi said.
The Purpose Of The EGM
On Sept. 6, Yes Bank issued notices to Dish TV for the removal and appointment of directors on the company's board. The notices sought to place the resolutions to shareholders in the annual general meeting scheduled for Sept. 27.
The company refused to put the resolutions to vote citing the need for prior MIB approval. This prompted Yes Bank to revise the resolutions, seeking to appoint the five directors, subject to MIB clearance.
The company then postponed the AGM. "In light of the company engaging in dilatory tactics in placing the resolutions before the shareholders," Yes Bank sought an extraordinary general meeting to put its board revamp resolution to shareholders.
The bank seeks to appoint 7 new directors on the company's board, two non-executive, non-independent directors (both currently working with Yes Bank) and five independent directors.
It also seeks the removal of Jawahar Goel as managing director and director of the company alongwith the removal of four other directors.
Jawahar Goel is the younger brother of Subhash Chandra, the founder of the Essel Group - that includes the Zee media empire.
Goel and his family are the promoters of Dish TV. The promoter shareholding has fallen from over 50% in 2019 to 5.93% as on Jun. 30, 2021.
Over 94% of Dish TV's shareholding is public, which includes lenders such as Yes Bank, Housing Development Finance Corp., IndusInd Bank Ltd. and Clix Capital, according to stock exchange disclosures.
The reasons Yes Bank has cited for the removal of Dish TV's incumbent directors
1. They approved a rights issue process, despite the bank having raised objections, solely to dilute the shareholding of the bank.
2. The board has sidelines multiple requests to reconstitute the board.
3. The board is "purportedly acting at the behest of certain minority shareholders holding merely ~6% of the shares in the company".