Zee Vs Invesco: Bombay High Court Proposes To Allow EGM, But...
Zee Entertainment Enterprises Ltd. faced some tough questions from the Bombay High Court on Thursday in its dispute against Invesco Developing Markets Fund and OFI Global China Fund LLC.
The high court bench of Justice Gautam Patel made several observations to underscore that denying a shareholder the right to call an extraordinary general meeting will set a "ferocious precedent".
The bench proposed a solution to the counsel of Zee and Invesco: that the EGM be called and Zee's right to contest the validity of the resolutions post the EGM be reserved. It also asked the parties to propose a date and name of a former judge, senior counsel or someone from the corporate world as a neutral chairperson to conduct the EGM.
Invesco agreed to the court's suggestion while Zee's counsel Gopal Subramanium said he'll take instructions and confirm the company's position. The high court is likely to pronounce its order on Friday morning.
Board Can't Have Stranglehold On The Company: High Court
The high court expressed its discomfort in accepting Zee's argument that the resolution to appoint independent directors violates SEBI's regulations.
Subramanium argued that for a listed company, the nomination and remuneration committee of the board has to follow the process laid down under the listing regulations.
If this argument is accepted, the high court said, no requisition can ever be called for removal of directors because the board controls the NRC. "This means that the board of directors has a stranglehold on the company."
The order that Zee seeks is in the teeth of a statutory provision (provisions of the Companies Act, 2013). I can't see if the resolution is going to be passed and I don’t see why I should presume it will be passed. If the resolution is passed, the best we can do is ask that it should not be acted upon for a week.Justice GS Patel's Observations
If this is allowed, every time such a situation arises, the board of directors will come and argue "injunct this, injunct that, or this situation will result in some SEBI, RBI or FEMA violation", the court pointed out.
Civil court after civil court will be asked to examine taking away the democratic right of the shareholders. The entire plaint proceeds on this assumption that the resolution is a foregone conclusion. You are entitled to defeat these resolutions.Justice GS Patel's Observations
Zee vs Invesco: Story So Far...
On Oct. 2, Zee Entertainment had moved the Bombay High Court against a demand by institutional investors Invesco Developing Markets Fund and OFI Global China Fund LLC seeking an extraordinary general meeting.
The company had filed a suit before the high court to declare that the requisition notice sent by the two institutional investors is “illegal and invalid”. The requisition notice suffers from several legal infirmities, Zee has said.
Invesco and OFI Global, together holding a 17.88% stake in the media major, are locked in a dispute with the company's current board and Managing Director and Chief Executive Officer Punit Goenka. Goenka is the son of Zee Group founder Subhash Chandra. The two funds are seeking to oust Goenka and appoint six new independent directors.
Besides the high court, the dispute is also playing out before the National Company Law Tribunal.
Invesco had approached the NCLT, seeking the EGM. But Zee’s board rejected the requisition. On a direction by the appellate tribunal, the NCLT gave time to Zee to respond to Invesco's petition seeking the EGM. The tribunal is likely to hear the matter on Oct. 22.
Meanwhile, all sides have also been issuing public statements to make their case.
In an open letter, Goenka said Invesco made a "blatant attempt" to assume "de-facto control" of Zee Entertainment. This was followed by Zee Entertainment's board slamming Invesco for secretly negotiating merger deal with Reliance Industries Ltd. In response, Invesco raised questions regarding management, governance and "value destruction" at Zee, and said it will stay "firm and steadfast" in fight against the company's board.