Zee-Invesco dispute: Bombay HC to pronounce order on Tuesday

As Invesco has proposed to appoint six directors on the board of Zee, it would tantamount to taking control of the company, says Zee's counsel

The Bombay High Court on Friday said it will pronounce its order in the Zee versus Invesco dispute on Tuesday after Zee Entertainment Enterprises said that it will not be able to call an extraordinary general meeting of shareholders as it would be 'illegal'.

Zee’s senior counsel, Gopal Subramanium, said Invesco is a foreign investor and has shares in multiple listed companies in India. As Invesco has proposed to appoint six directors on the board of Zee, it would tantamount to taking control of the company, he said. “The common sense is that there are six directors nominated, but they are not independent. The Companies Act has stringent criteria for independent directors. The NRC (nomination and remuneration committee) proposes the independent directors on the board. The board then takes a view on appointment or rejection. There is no concept of an independent director being suggested by shareholders. This is also supported by the SEBI's LODR regulations of 2015,” Subramanium said.

Even in India, the courts have taken the view in earlier cases that the board of directors has jurisdiction to appoint directors. Subramanium said, in any listed company, if a group of shareholders want to appoint a majority of directors, then it will be a matter of taking control. The appointment of six directors means joint control.  Appointing them would be a hard-core wholesale illegality, he said.

"Without an agreement or special rights of nomination, if someone wants to bring in six independent directors,  then it is an attempt to take control. The current regulations say that the investor has to make a public offer for change in control," he added. Invesco, which owns 18 per cent stake in Zee, has not made any open offer as yet. But on September 11, it asked the board to call an extraordinary general meeting of shareholders to remove three directors, including CEO and MD, Punit Goenka, and appoint six of its nominees. After Zee board rejected the EGM requisition, Invesco moved the NCLT while Zee also moved the Bombay High Court.

In the hearing, Zee counsel said the current law has made it obligatory on the part of the company to take prior permission from the Ministry of Information and Broadcasting before making any change in CEO or in the Board. “This contemplates a prior permission before even an attempt to change the Board is undertaken,” Subramanium said.

Subramaniam said control includes controlling the affairs or management, and now it appears that this is not simply a resolution. It has everything to do about a merger between two companies, he said while referring to the Sony deal.  "The critical words are - control the management or affairs of another enterprise. It’s a more watchdog clause. The board of directors cannot say that I will completely overlook this,"  he said.

Justice G S Patel said as per Zee, Invesco is forcing the company into a series of violations.

The current laws say that the board can refuse to act on requisition though that refusal triggers Invesco’s right to call for a meeting. "But that doesn’t deny Zee’s right to come to court to call for an injunction. You (Invesco) are injuncting the company from coming to Court. This procedure gives Invesco operational control of ZEE and it will give its order on Tuesday," the judge said.