In the ongoing Zee-Invesco story, the National Company Law Tribunal (NCLT) in Mumbai today made it clear that it is the "mandate of the law" that Zee Entertainment should call for an extraordinary general meeting (EGM). The tribunal said this is not a discretionary power of the board to call or not call for an EGM.
The issue is at a critical stage as Invesco, a global fund that holds a 17.88 per cent stake in Zee, had on 11 September called for an EGM, seeking the ouster of Puneet Goenka, Zee's MD & CEO and bring in its own independent directors.
Today, the NCLT said the board of Zee does not have any right to deny an EGM sought by shareholders having one-tenth of the shareholding. The whole story took a dramatic turn when Zee, last week, announced a proposal to merge its operations with Sony Pictures Networks India to potentially form an entertainment behemoth. The plan is for Zee to call an EGM to get the approval from its shareholders. The company's board has already given its go-ahead.
Now, the NCLT, referring to the application made by Invesco, cited Section 100 of the Indian Companies Act, which makes it necessary to announce a date for an EGM within three weeks of receiving a request from an investor holding at least a 10% stake. The next round of hearing is scheduled for 4 October with the NCLT categorically stating Zee's board must comply with that section and there is no power vested to deny an EGM.
Meanwhile, Zee's spokesperson in an official statement said, "The board of the company is scheduled to meet as per the statutory time allotted, in relation to the matter. The company will continue to take all the actions needed in the interest of the shareholders and as per law."
Yesterday, Invesco spokesperson Jeaneen Terrio told Business Today over email that it sent Zee an EGM requisition letter on September 11 exercising its rights as ordinary shareholders to protect shareholder value in the company. "This initiative, which is unique in the history of our fund, was taken with a belief that a newly constituted Board elected by its shareholders would be foundational in reviving the long-term health of the business. On 23 September, 2021, we reiterated our call for an EGM in a letter to the Board of Directors of Zee," it said.
It goes on to scathingly say that "the company's failure to take steps within its notice period (21 days according to law) to call an EGM, coupled with its delay in noticing our EGM on 11 September and failure to notice our 23 September letter to the exchanges, has prompted us to file a petition before the NCLT to enforce our rights as shareholders to call for this EGM of the company".
Invesco is being represented by senior advocate, Mukul Rohatgi, who said the investor was "compelled to approach the tribunal within 21 days as Zee's board did not acknowledge their demand."
He pointed to Invesco being concerned about Zee's day-to-day running and that "our investment will go down the drain. We have invested Rs 5,000 crore."
Rohatgi made a reference to the proposed Zee-Sony merger and expressed apprehension that "the EGM call might be delayed till their shareholding gets diluted."
Media reports cited Janak Dwarakadas, another senior advocate on behalf of Invesco, who said, "Our concern is that they would not call for an EGM because they have told the stock exchanges that they have signed a non-binding term sheet with Sony."
NCLT's view today was that the Zee-Sony merger is not of concern since it will need Invesco's approval to go through. Meanwhile, Rohatgi said an EGM was critical and "merger or no merger, I want to call for the meeting. I have the right and this is why I have come to the court of law."
According to Arush Khanna, Partner, Numen Law Offices said, even if Invesco's pursuit for an EGM does not stay the impending merger between Sony Pictures and Zee, this boardroom battle raises serious issues of corporate governance. "There are two unacknowledged requisitions for an EGM made by Invesco, which holds 18 % stake in Zee Entertainment Enterprises, including one dated September 23, wherein they have called upon the Board to re-evaluate the merger proposal. Even if the Board does not heed to Invesco's request for conducting an EGM within 21 days, the requisitionists can, as per Section 100(4) of the Companies Act, 2013, hold an EGM by themselves. However, that may be a case of too little too late," he explained.
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