Zee Entertainment Moves High Court As Legal Tussle With Invesco Intensifies
Zee Entertainment Enterprises Ltd. has 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 has filed a suit before the High Court to declare that the requisition notice sent by the two institutional investors is “illegal and invalid”, according to a stock exchange filing.
The requisition notice suffers from several legal infirmities, Zee said
First, any change in the CEO or board of directors positions requires prior approval of Ministry of Information and Broadcasting, Zee said in the filing. The company pointed to the language under 'Policy Guidelines for Uplinking of Television Channels from India', which says
"It will be obligatory on the part of the company to take prior permission from the Ministry of Information & Broadcasting before effecting any change in the CEO/ board of directors."
Second, Invesco's requisition notice will also result in non-compliance with SEBI's Listing Regulations and Companies Act, 2013, as per Zee.
The regulations mandate that the board of directors of a listed entity shall have an optimum combination of executive and non-executive directors; and that not less than 50% of the board of directors shall comprise of non-executive directors. If Invesco's requisition is carried out, the board of directors of the company will solely comprise of all non-executive directors.
Also, the Nomination and Remuneration Committee is supposed to identify persons who are qualified to become directors and recommend to the board of directors their appointment and removal.
"The Companies Act and the SEBI Listing Regulations carve out a special structure in relation to independent directors. It is after such meticulous procedure that the matter of appointment of the independent directors is referred to the shareholders by the board of directors, for their approval."
Any appointment of an independent director must pass through the rigors provided under the applicable laws, it said.
Additionally, the company law requires it to have a managing director, or CEO or manager. And in their absence, a whole-time director. The rules under Companies Act, 2013 requires the company to have a whole-time key managerial personnel.
"Requisitioning an EGM pursuant to the Requisition Notice will result in the Company and the board of the directors to act in dereliction of their duties under the SEBI Listing Regulations and the Companies Act."
Third, Invesco's requisition notice is contrary to Article 71 of the articles of association of Zee. It states that until it's determined by a general meeting, the number of directors of the shall not be more than 12. Invesco's notice will result in the company having 13 directors.
Finally, Invesco's requisition will also result in non-compliance with SEBI's Takeover Regulations and Competition Act, 2002, Zee said.
Fundamental changes to the board of directors and key managerial personnel will mean change in control without making an open offer. This will also violate competition law, Zee's filing stated.
Invesco vs Zee: 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 Chief Executive Punit 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 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 Oct. 4.