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26 November 2021
 

In an order dated 26October 2021, the Bombay high court has granted an interim injunction in favour of Zee Entertainment Enterprises (“ZEE”) and restrained the Invesco Developing Markets Fund and OFI Global China Fund (together, “Invesco”), the largest shareholders of ZEE, from taking any action in furtherance of their September 2021 requisition notice for Zee to hold an extra-ordinary general meeting (“EGM”) under Section 100(4) of the Companies Act, 2013 (“Companies Act”).

 

The requisition notice sent by Invesco Developing Markets Fund, contained 9 (nine) resolutions, which included the removal of Mr. Punit Goenka, the CEO & Managing Director of ZEE, and the appointment of 6 (six) independent directors on the board of ZEE.
 

ZEE had moved the Bombay high court, praying for directions that the requisition notice be declared invalid, and to injunct Invesco from taking any steps to call the EGM on its own. ZEE had objected to the proposed resolutions, as the implementation of any of the proposed resolutions would result in an illegality on the part of ZEE and would cause ZEE to be in contravention of a number of applicable laws including regulation 17 of SEBI (Listing Obligations and Disclosure Requirement) Regulations, 2015, section 203 of the Companies Act, 2013 (“Act”) the mandatory provisions regarding the nomination and remuneration committee under the Act, and guidelines issued by the Ministry of Information & Broadcasting (“MIB Guidelines”).
 
The court after considering the submissions on both sides held that the resolutions proposed by Invesco to be decided in the EGM, were such that if approved, would result in the company being non-compliant under a number of applicable laws. The resolution with respect to removal of Mr. Punit Goenka as the director, would result in a violation of section 203 of the Companies Act, which provides that a company must have a managing director and a whole-time director at all times.
 
Further, the MIB Guidelines requires a company to seek prior approval from the ministry before effecting any change in the board of directors of the company to which the MIB Guidelines apply.
 
Further, the court also held that the resolutions proposed for the appointment of the independent directors would also cause the company to be non-compliant with the process for the appointment of the independent directors as laid down under the Act. The court noted that independent directors cannot be appointed on the basis of a nomination received from a shareholder of the company and that the independent directors must be first proposed by the nomination and remuneration committee, followed by subsequent appointment by the board, and approval by the shareholders.
 
The court while determining the scope of the term ‘valid requisition’ in Section 100 (4) of the Act, held that a resolution proposed to be passed at a shareholders’ meeting should be such that if the proposed resolutions are passed, the same would be valid in law, and would not result in any illegality on the part of the company. However, the court has not passed a final decision in the matter regarding the validity of the requisition notice, and has only passed an injunction restraining Invesco from calling the EGM on its own.
 
The order thus clarifies an important point in law, that although the shareholders have a right to call an EGM, the resolution proposed to be passed at such an EGM, must be valid resolutions in law, and should not be such as would cause the company to commit an illegal action.
 
Please click here to read the order.
 

 

For further information, please contact:  

Souvik Ganguly, Partner, Acuity Law

al@acuitylaw.co.in  

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