Invesco’s demand that Zee Entertainment Enterprises Ltd convene a special shareholders’ meeting to oust managing director Punit Goenka and recast the board is not legally compliant, the Bombay high court ruled, giving a breather to Zee group founder Subhash Chandra, who is battling a revolt against his family’s control of India’s largest publicly traded broadcaster.
However, an ongoing legal battle between the two parties in the National Company Law Tribunal will continue.
The company court will hear if Zee should be ordered to convene the shareholders’ meeting on Wednesday.
“It cannot be correct to say that the board is to rubber-stamp every requisition,” Justice G.S. Patel said in his 44-page order on Tuesday. “I also do not suggest that shareholders’ rights are curtailed or abrogated or that they cannot seek what they now do. But the manner in which they go about doing it must be legally compliant.”
“I specifically asked Mr Dwarkadas (counsel for Invesco) if this (Invesco’s demand for an extraordinary general meeting, or EGM) meant that a group of qualified shareholders could propose that the company take up the business of online gambling,” said the order. “His response was that this is too extreme or outlandish. Indeed it is, and that is precisely the point. If the resolutions proposed are not such as can even be countenanced in law, then how does the question of putting them to the vote at an EGM even arise?”
“Sometimes, it happens that a company must be saved from its own shareholders, however well-intentioned. If a shareholder resolution is bound to cause a corporate enterprise to run aground on the always treacherous shoals of statutory compliance, there is no conceivable or logical reason to allow such a resolution even to be considered. Shareholder primacy or dominion does not extend to permitting shareholder-driven illegality,” said the order.
Zee termed Tuesday’s verdict as a victory for all stakeholders.
“The decision…is a huge win for all stakeholders of the company,” said a spokesperson for Zee.
An email sent to Invesco seeking comment went unanswered.
For now, the verdict gives Zee time, which is essential in its fight against Invesco, which owns 17.88% shares. First, Invesco would have ideally liked the EGM to be held before 31 December because its recommendations of removing Goenka and appointing six directors would have needed approval from 50% of shareholders. Starting 1 January, director appointments and removals require approval from 75% of shareholders.
Delays in deciding whether the EGM needs to be called will give Zee additional time to complete the due diligence process for its proposed transaction with Sony Pictures Networks India Ltd and seek shareholders’ approval. Chandra is betting that shareholders will favour its merger proposal over Invesco’s demands. Zee and Sony plan to complete inspection of books and assets as part of the proposed merger by the end of November, three weeks ahead of the 90-day deadline set by the two broadcasters, Mint reported on Tuesday.
The ongoing feud started when Invesco asked Zee to hold an EGM in its letter dated 11 September as it was unhappy with how the company was run. Subsequently, Zee and Sony agreed to sign a non-binding agreement to merge, under which Sony will invest $1.6 billion and take a 53% stake in the merged entity.
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