Zee vs Invesco: Shareholders have no greater immunity

Sometimes, it happens that a company must be saved from its own shareholders, however well-intentioned, the Bombay High Court held in the dispute between Zee Entertainment Enterprises Ltd. and Invesco Developing Markets Fund.

The high court granted an injunction in favour of Zee restricting Invesco to act on its requisition notice for an extraordinary general meeting. Invesco and OFI Global China Fund LLC, together holding a 17.88% stake in the media major, are locked in a dispute with the company’s current board and Managing Director and Chief Executive Officer Punit Goenka. The two funds are seeking to oust Goenka and appoint six new independent directors.

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, the high court said.

Shareholder primacy or dominion does not extend to permitting shareholder-driven illegality. – Bombay High Court order

Explaining its conclusion, the high court said a perfectly legal resolution, if carried, may well result in the diminution of the company’s profits or business. That is not a court’s concern. But the resolution must be legal, it said.

The court said it cannot see how Goenka can be removed at all, leaving a managerial void only to be possibly later filled. His removal causes an immediate vacancy and non-compliance.

How this is to be done without prior permission of the MIB is also unclear. I see no method of circumventing the NRC or directly proposing named persons as ‘independent directors’. – Bombay High Court order

That came in response to Zee’s arguments that Invesco’s requisition suffers from legal infirmities, including violation of guidelines requiring a prior approval from the Ministry of Information and Broadcasting for any board changes. And SEBI’s Listing Regulations which lay down a Nomination and Remuneration Committee-led process for appointing independent directors. BloombergQuint