Bombay High Court allows EGM to vote on Zee managing director removal

In a setback to the Subhash Chandra family, the Bombay High Court on Tuesday allowed an appeal filed by Invesco Developing Markets Fund, a shareholder of Zee, against a single judge order of October last year that had stayed a shareholders’ meeting to remove Zee’s Chief Executive Officer and Managing Director, and family scion, Punit Goenka.

Invesco holds an 18 per cent stake in Zee and wants to remove Goenka from the board and appoint its own nominees after a bitter legal feud broke out between the shareholders. The Chandra family owns only 4 per cent stake in the company.

In its order, the division Bench of Justices S J Kathawalla and Milind Jadhav quashed and set aside the single judge Bench’s order but granted Zee three weeks to file an appeal before the Supreme Court. If Zee does not get any relief from the SC, then Invesco can ask Zee’s board to call a shareholders’ meeting to appoint its nominees.

“We have held that the requisition notice (sent by Invesco to Zee) is neither illegal nor incapable of being set aside,” the court said. It then allowed the status quo to continue for the next three weeks for Goenka to appeal to the Supreme Court.

Zee shares closed 3.5 per cent down on Tuesday at ~248 apiece.

A Zee spokesperson said while they wait for written order, the company has full faith in the Indian judicial system and will continue to take the required steps in accordance with the law; and most above, in the best interest of its stakeholders.

Zee and its former partner, Invesco Developing Markets, an Oppenheimer fund, had a falling out after the latter proposed a merger with two Reliance Industries-owned media entities last year.

In court filings, Goenka had alleged that Invesco wanted to “teach him” a lesson for rebuffing their proposal for merging Zee with the media entities controlled by its rivals. The merger proposal by Invesco with the “strategic group’’, would have led to a massive loss to Zee shareholders in the absence of any valuation reports, Goenka had informed the court.

The Chandra family lost control of the company after the promoter entities defaulted on bank loans taken for the infrastructure sector. The family sold shares in Zee to repay banks and their stake fell to 4 per cent as a result. In December, Zee proposed a merger with rival Sony Entertainment Network India, which is currently awaiting regulatory approvals.

In September, just before Zee’s annual general meeting, Invesco had asked the company to hold an extraordinary general meeting of shareholders. As per the EGM notice, Invesco sought to remove three directors from the Zee’s board, including Goenka.

After Zee refused to respond to the EGM notice, Invesco moved the National Company Law Tribunal (NCLT) in Mumbai, which directed Zee to consider the requisition in accordance with law. Zee then approached the high court, seeking a declaration that the requisition notice by Invesco to hold the EGM was illegal and invalid.

In its October 26 order, the Bombay High Court had said that sometimes 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.

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. The interpretative question is therefore not over the word ‘valid’ at all but about the matters proposed to be considered at a requisitioned EGM. And the Court is never foreclosed from considering this,” the Court had said while ordering an injunction on the EGM. Business Standard