INVESCO approaches NCLT Mumbai for directions to Zee Entertainment to hold EGM

The National Company Law Tribunal at Mumbai directed Zee Entertainment to consider the requisition put by INVESCO Developing Markets Fund, the largest shareholder in Zee, to hold an extra-ordinary general meeting of shareholders (EGM) [INVESCO Developing Markets Fund v. Zee Entertainment Enterprises Ltd & Ors.].INVESCO had put a requisition on September 11, 2021 to the Zee Board of Directors to hold an EGM on the grounds that they felt that the company was not running as smoothly as they wanted it to and required certain new directors to come on the board in order to safeguard their interest. INVESCO wanted to remove three directors from the board which included the Managing Director and Chief Executive Officer Punit Goenka. .As per Section 100 of the Companies Act, 2013 relating to calling an EGM, the Board is obligated to decide on the requisition within 21 days of receiving the notice. The 21 day period was expiring on October 3, 2021 and it seemed to INVESCO that the board had done nothing about the requisition, hence they moved the Court for directions under Section 98 of the Companies Act. .Submissions by INVESCO.Senior Advocates Mukul Rohatgi and Janak Dwarkadas appeared for INVESCO. Terming it a case of "corporate democracy", Rohatgi submitted that the shareholders having a share of 10% and above was entitled to requisition a meeting. He stated that the petition was filed after the board's inaction, seeking mandamus for honouring the requisition and then follow the law..He contended that while the Act provided that on expiration of the 21st day, the shareholders could hold a meeting on their own, there was a practical difficulty to call for a meeting with the 2.5 lakh shareholders whose addresses INVESCO did not have. .Rohatgi informed the Court that INVESCO had invested more than ₹5,000 crores in the company and were concerned with the day to day functioning of the company. Justifying why INVESCO moved when the 21-day period was yet to expire, Rohatgi submitted that they were concerned over newspaper reports discussing possible merger of Zee with Sony Entertainment Ltd, after which Goenka would continue to remain on the board..He highlighted that the only time a board could deny a meeting was if less than 10% of the shareholders called for a meeting which was absent in the present case. "Merger or no merger, I want to call a meeting, and I have a right to call such meeting. The law does not give discretion to the board," Rohatgi stated..Dwarkadas clarified the merger angle, submitting that Zee had admittedly signed a non-binding term sheet with Sony and the same was also informed to the Stock Exchange. One of the conditions in the term sheet was that Goenka will continue to remain CEO and MD for the next 5 years at least and continue to hold the 3.99% share in the company that he still has. Hence, INVESCO's apprehension was that the board will not call for a meeting at all..Dwarkadas added that while INVESCO had no objection to the merger, they only wanted that "merger must be considered by a board shareholders think is right" as the merger could possibly have effects on the shareholdings of the other shareholders. "No heavens will fall if the meeting goes ahead, which is a matter of right, not discretion" Dwarkadas said in conclusion..Submissions by Zee Entertainment.Senior Advocate Gopal Subramanium made a statement to the Court that the board of director which also included 6 independent directors were holding a meeting today to consider the requisition by Invesco. Subramanium contended, "The board has to decide. They will come to a decision. If that goes against the law, there are recourse available"."Why should we assume the board will not act responsibly" he added. .Supplementing Subramanium's arguments, Advocate Arun Kathpalia submitted that the board consisted of 6 independent directors who were responsible and regarded in their respective fields. He requested the Court to consider passing an order only when the need for Court's intervention arose which was after completion of 120 days and not before that. .After hearing both sides of the arguments for a while, the Bench of Acting President Bhaskar Pantula and Technical Member CB Singh deemed it fit to wait to decide on the issue till Monday until after the board took a decision. In the meantime, they directed Zee and its board "to consider the requisition made by INVESCO under Section 100 and comply with provisions under Section 100" while considering the same..The matter is now posted for hearing on October 4, 2021.