Before we dive into the key takeaways from the Zee – Invesco spat, here’s a quick step-wise chain of events in the matter.
Background
Step 1. Invesco requisition for EGM
On 11th September, 2021, Invesco Developing Markets Fund (Invesco) alongwith OFI Global China Fund, LLC (OFI) sent a requisition to Zee Entertainment Enterprises Limited (Zee) for calling an Extraordinary General Meeting (EGM). Together Invesco and OFI hold aprox 18% shares in Zee. The items which Invesco wanted to consider are as follows:
- Removal of Mr. Punit Goenka, Mr. Manish Chokhani, Mr. Ashok Kurien, Directors of Zee
- Appointment of 6 Independent Directors
The requisition letter may be viewed here.
Step 2: Second attempt of Invesco for EGM
On 29th September, 2021, Zee intimated the Stock Exchanges that it had received another letter from Invesco dated 23rd September, 2021 in which Invesco referred to:
(a) their earlier letter dated 11th September requesting Zee to convene an EGM; and
(b) urging the directors of Zee to adhere to their fiduciary duties and not violate its statutory obligations to convene the EGM as requisitioned.
Step 3: Zee refused to call EGM
Even after two attempts by Invesco, Zee took no action to call an EGM which paved the way for Invesco to take further action.
Step 4: Invesco approached NCLT
On 29th September, 2021, Invesco approached NCLT to seek relief and aid in convening EGM of Zee for removal of the Managing Director along with 2 other directors and appointment of 6 Independent Directors.
Step 5: NCLT’s stand
On September 30, NCLT through its oral order directed Zee to conduct a board meeting to consider requisition of Invesco for convening an EGM. [Source – News articles (links given below)]
Step 6: Zee called requisition “Illegal and Invalid”
On 1st October, 2021, Zee issued a Press Statement, It mentioned that the Board, comprising of experienced professionals deliberated and discussed various legal and statutory implications of the requisition notice. The Board sought the opinions of independent counsel, legal experts including senior retired Supreme Court judges and evaluated the matter in a fair and transparent manner.
In its meeting held on 1st October 2021, the Board has arrived at a conclusion that the requisition is invalid and illegal; and has accordingly conveyed its inability to convene the EGM to Invesco and OFI.
The Board has arrived at this decision by referring to various non-compliances under multiple laws, including the Securities and Exchange Board of India Guidelines, Ministry of Information and Broadcasting Guidelines and key clauses under the Companies Act & Competition Act, and after taking into account the interests of all the shareholders and stakeholders of the Company. The Company cannot comment on any future actions since the matter is sub judice.
Step 7: Zee approached Bombay High Court
On 2nd October, 2021, Zee intimated the Stock Exchanges that it has filed a Civil Suit before the Hon’ble High Court of Judicature at Bombay (Bombay High Court) under the ordinary original civil jurisdiction (Civil Suit), inter alia requesting the Bombay High Court to declare that the requisition notice sent to the Company by Invesco and OFI is illegal and invalid.
Step 8: NCLT asks Zee to reply by 7th October
On 5th October, 2021, NCLT asked Zee to submit its reply by 7th October, 2021. NCLT said it can not give ‘weeks and weeks’ of time to Zee for filing its reply. [Source – News articles (links given below)]
Comments from Advocates representing Invesco
Senior advocate Mukul Rohatgi –
- “It was mandatory duty of Zee Entertainment Enterprises Ltd (ZEEL) to honour the EGM requisition as Invesco has 18 per cent shareholding in the company and as per law, a minimum of 10 cent shareholding is needed to request for convening an EGM.”
- “Zee will create hindrances if funds call for EGM independently and also requested for appointment of a retired High Court judge to chair the EGM.”
- “I am concerned about the day to day running of the company (ZEEL). We are worried that our investment will go down the drain. We have invested Rs 5,000 crore”
- “Merger or no merger, I want to call for the meeting (EGM). I have the right and this is why I have come to the court of law” –
Senior advocate Janak Dwarkadas –
- “Our concern is that they would not call for an EGM because they have told the stock exchanges that they have signed non-binding term sheet with Sony”
- “Our shareholding will be diluted post the ZEEL-Sony merger” -.
Key Takeaways from the clash between Zee and Invesco – Legal Point of view
Q1 – Is NCLT right in considering premature petition by Invesco?
Author’s view – Section 100(4) clearly sets out that if the Board does not proceed to call EGM within 21 days from the receipt of a valid requisition for the consideration of that matter on a day not later than 45 days from the receipt of such requisition, EGM may be called and held by the requisitionists themselves within 3 months from the date of the requisition.
A. Now here are a 2 reasons why NCLT might not be right in considering petition of Invesco:
Firstly, Invesco was entitled to call an EGM on its own and without approaching NCLT as per Section 100(4).
Second, Invesco made EGM requisition on 11th Sept and approached NCLT on 29th Sept i.e., 18th day from the date of requisition. This makes Invesco’s suit premature as Zee still had a few more days to consider EGM because Section 100 gives 21 days to call EGM.
B. Valid reason why NCLT has jurisdiction to consider the petition:
Section 98 of the Act empowers NCLT to call an EGM either suo motto or on an application of any member of the company who is entitled to vote at the meeting. NCLT is entitled to give such ancillary or consequential directions as the Tribunal thinks expedient.
Q2 – Is Invesco’s requisition illegal and invalid?
Author’s view – Here’s a checklist to find out if Invesco’s requisition to call EGM was valid or not.
| S. No. | Provision | Check Point | Invesco’s requisition | Compliance or not? |
| 1 | Section 100(2)(a) | The Board shall call EGM, at the requisition made by members who hold, on the date of the receipt of the requisition, atleast 10% paid-up share capital of the company which carries the voting right. | Invesco and OFI together hold approx 18% shares with voting rights. | ✅ |
| 2 | Section 100(3) | The requisition shall –
| Invesco and OFI’s requisition fulfilled all the 3 points. The same may be viewed here | ✅ |
Author’s view – On 1st October, 2021, Zee issued a Press Statement which mentioned that the Board has arrived at a conclusion that the requisition is invalid and illegal. However, the Press Statement failed to mention why and how the requisition is invalid and illegal.
From the above checklist, it is amply clear that the requisition of Invesco is completely valid and in accordance with the provisions of law.
Q3 – Does Invesco want to take control over the company by appointing 6 directors?
Author’s view – That’s unlikely that Invesco will be successful in taking control over Zee by appointing majority directors since all the proposed directors are Independent and will not be in a position to favour any shareholder
Q4 – Is Zee correct in approaching the High Court when NCLT is already hearing the matter?
Author’s view – Have a look at Section 430 of the Companies Act, 2013-
“430. Civil Court Not to Have Jurisdiction.
No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which the Tribunal or the Appellate Tribunal is empowered to determine by or under this Act or any other law for the time being in force and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act or any other law for the time being in force, by the Tribunal or the Appellate Tribunal.”
On a bare perusal of Section 430, it becomes apparent that no civil court has jurisdiction to entertain any suit in respect of any matter which NCLT is empowered to determine under this Act. It is obvious that it is shady maneuvers of Zee to approach the High Court and delay the decision of holding EGM of the Company. Prima facie it looks like a long battle between Zee and Invesco since Zee has moved to High Court. It will be interesting to see the take of the High Court on this matter when NCLT is already hearing the same. Also, whether this battle will reach the Hon’ble Supreme Court in the coming future or not.
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