Rejection Of EGM By Zee Board 'Mala Fide', Says Invesco
Invesco Developing Markets Fund on Monday said that its apprehensions were proven correct after Zee Entertainment Enterprises Ltd.’s board rejected its requisition to convene an extraordinary general meeting of the company.
The fund, aiming to oust Zee’s Managing Director Punit Goenka, told the National Company Law Tribunal that the decision to reject the requisition was 'mala fide'.
At the last hearing, the tribunal had asked Zee board to "positively consider" Invesco's requisition. Post which, on Friday last week, the board rejected the demand for an EGM on grounds of "legal infirmities", including violation of SEBI's Listing Regulations, Takeover Code, contravention of company law rules, and Zee's articles of association.
The funds had suspected this outcome, Senior Advocate Mukul Rohatgi told the NCLT on Monday.
Invseco and OFI Global China Fund LLC together hold around 18% shares in Zee Entertainment. Under the Companies Act, 2013 any shareholder which holds at least 10% shares in the company can request the board to call an EGM. Failing which, the meeting may be called by the shareholders (requisitionists) themselves within three months.
The board has no discretion to call or not call such an EGM, Rohatgi argued.
The board is bound to call the meeting. Only the 10% shareholding threshold needs to be met. No other formality is required. The reason for the meeting is not subject to judicial scrutiny.Mukul Rohatgi, Invesco's Counsel
After the rejection of its requisition, Invesco doesn't trust the board, Rohatgi said. He requested the NCLT to make a mandatory order directing an EGM and appoint a retired high court judge to chair it.
The independent directors currently on the board have not shown their independence. They [Zee] only want to prolong litigation, cause an imbroglio. Perversity of this rejection is that if the board does not call the EGM, then I myself have the right to call the EGM. Then how are the board’s reasons for rejecting the requisition relevant?Mukul Rohatgi, Invesco's Counsel
It is absurd to argue that there should be an advance opinion of the I&B Ministry on appointments to the board. In the communication rejecting the requisition, the board of the company cited the requirement of taking prior permission of the Ministry of Information and Broadcasting for any changes to its board.
In response to this, Rohatgi said the process is that the company writes to the ministry to seek approval after the resolution to appoint new directors is passed.
Even the Supreme Court in an earlier ruling has made it clear that the board cannot sit in decision over the validity of the notice, he added.
Arguing for OFI, Senior Advocate Janak Dwarkadas said that last week's board meeting was a mere formality. In the last hearing, Zee’s lawyer had told the court that they cannot say anything on the likely decision of the board on requisition for the EGM.
But, Dwarkadas pointed out, their letter to the exchange reveals they had already obtained legal advice, indicating that the board had already made up its mind even before the case started at the tribunal.
The lawyers for Zee did not get to begin their arguments on Monday but informed the court of their intent to oppose Invesco's applications on grounds of jurisdiction and maintainability.
The company has already approached the Bombay High Court challenging the requisition notice sent by Invesco.
Zee Vs Invesco: The Story So Far
On Sept. 30, the National Company Law Tribunal in Mumbai had directed Zee’s board to “positively consider” the EGM requisition sent by the two foreign funds that collectively own 17.88% in the company.
Earlier in September, the two institutional investors wrote to the board of Zee seeking the ouster of Goenka and two other directors on the Zee board. They further proposed the appointment of six new independent directors.
The two directors, Ashok Kurien and Manish Chokhani, stepped down the on Sept. 13, citing personal reasons.
But Goenka has stood firm against this investor pushback. Since then, he has initiated a merger with Sony India Pvt. and plans to lead the combined entity. Zee has said Goenka's leadership of the merged company is pivotal to the deal.
Invesco moved the NCLT seeking a court-ordered EGM. In its petition, Invesco said that not convening an EGM is a deliberate and oppressive act by Zee Entertainment.
The matter was heard by the NCLT on Sept. 30 where the tribunal observed that it'll be a “travesty of justice” if Invesco’s right to requisition an EGM is denied.
The hearing of the case will resume on Tuesday.