Zee - Invesco Case: NCLT Directs Zee's Board To 'Positively Consider' EGM
The board of directors of Zee Entertainment Enterprises Ltd. should positively consider the request for an extraordinary general meeting by Invesco Developing Markets Fund and OFI Global China Fund LLC, the tribunal said on Thursday.
Counsels for Invesco and OFI Global told the Mumbai bench of the National Company Law Tribunal that the law doesn't give the board of directors discretion once an EGM requisition is made. 'The only requirement is that the 10% shareholding threshold must be met', Senior Advocate Mukul Rohatgi said.
Invesco and OFI Global together own 17.88% in Zee Entertainment. On Sept. 11, the two institutional investors wrote to the Zee Entertainment board seeking an EGM of the company's shareholders to oust Zee’s managing director and chief executive Punit Goenka, two other directors, who have since resigned, and induct six new independent directors to the board.
Under company law, shareholders holding not less than 10% of paid-up share capital can requisition an EGM. The company board has up to 21 days to call a meeting, which must take place within 45 days of the receipt of requisition. Failing which the requisitionists can call and hold the EGM themselves within 3 months.
Those 21 days for the Zee Entertainment board run out on Oct. 2. So far, no EGM has been called.
Senior Advocate Gopal Subramanium appeared for Zee and informed the tribunal that the company's board will meet on Thursday (Sept. 30) to take a call on the requisition by Invesco and OFI.
'Want An EGM For Removal Of Managing Director’
The lawyers for Invesco accused Zee’s board of maintaining a stoic silence on their requisition and argued the company was not functioning smoothly under current managing director Punit Goenka.
With a 3.99% shareholding in the company, Goenka has no vested or entrenched right to run the company, Rohatgi said.
Arguing for OFI, Senior Advocate Janak Dwarkadas pointed to an earlier Supreme Court ruling which held that the right to call an EGM is an inalienable right of a shareholder who has a minimum of 10% shares of the company. It's been held that such a shareholder does not have to give any reason and even if they choose to give a reason, it's not justiciable by any court, Dwarkadas argued.
Here’s what Invesco and OFI’s argued in support of their plea for an EGM:
Not against the Zee Entertainment - Sony India merger but want proposal to be considered by a board of our choice.
Fairly certain the board will not call EGM so as to ensure that Punit Goenka can continue to run the company.
Want to remove Goenka as he's failed to run the company as it should be. This will benefit shareholders. Our shareholding in the company is worth Rs 5,000 crore. We are worried that our investment will go down the drain.
Our shareholding in the company is worth Rs 5,000 crore. We are worried that our investment will go down the drain. Our apprehension is that they will not call for the meeting because they have already announced the Sony merger to the exchanges.Invesco, OFI's Counsels
Shareholders have an absolute unfettered right to call an EGM. It's not definitive that the proposal to remove Goenka, induct new independent directors will be approved by all shareholders.
The promoter shareholding in the proposed new entity after Zee-Sony merger will not change. It can actually go up to 20% as per the disclosures. But shareholding of the funds in the merged entity will get diluted.
Even though the law allows the requisitionists to call an EGM, unable to do so since 2.5 lakh public shareholders are involved.
Why can’t I call the EGM? There are two and a half lakh public shareholders. Notices have to go to them. Their addresses and details are not available to me. I am a foreign fund.Mukul Rohatgi, Invesco's Counsel
Let The Board Meeting Take Place, ZEE To NCLT
Zee Entertainment's counsel Gopal Subramanium informed the court that the board of directors of the company are set to meet on Thursday and will take up the request for an EGM.
The bench asked Senior Advocate Gopal Subramanium if the board can decide on whether to call an EGM even if the 10% threshold is met.
Can the board deny calling an EGM when a 17% shareholder requests for it? We have not come across any case where the board can deny request for an EGM. It'll be travesty of justice if their right to requisition an EGM is deniedNCLT's Observations
There can be certain situations where the board can decide not to, Subramanium responded.
He argued that:
The board is meeting on Thursday and there will be a decision which will be suitably communicated.
The 21-day timeline under law to respond to such an EGM requisition ends Oct 2. The board is within that timeline.
There can be cases which involve statutory violations or safeguards where it is on the board to decide whether can EGM should be convened.
The action of the board will speak for itself. If it is wrong, then the course of law will follow.
Consider the requisition made by the petitioners, NCLT said while dictating its order. It has directed Zee's board to comply with Section 100 of the Companies Act.
The hearing in the case will resume on Oct. 4.