Zee, Invesco battle to test Competition law on wresting corporate control

Zee says Invesco did not seek CCI approval for naming six nominee directors on its board; lawyers say consent not required for less than 10% stake acquisition

The corporate battle between Oppenheimer-backed Invesco Fund and the board of Zee Entertainment Enterprises will test the Competition law, which says the Competition Commission of India’s (CCI) approval is required if it leads to wrest control of the target company.

Invesco has not yet taken CCI’s approval for appointing six of its nominee directors on the Zee board. In the absence of CCI approval, Invesco is in violation of the Competition Act, 2002, according to Zee officials.

Invesco holds an 18 per cent stake in Zee Entertainment Enterprises and is litigating with Zee over the board’s decision to reject an extraordinary general meeting (EGM) of shareholders to appoint its nominee directors. Zee plans to make a complaint to the CCI about Invesco’s plan to acquire control.

“Any additional acquisition of shares or voting rights by Invesco in Zee, coupled with appointment of directors on Zee's board, will have to be notified to and approved by the CCI.  In India, the competition regulator assesses 'material influence' rather than 'decisive influence'. Invesco must analyse if they need to approach the CCI for approval to avoid inquiry and penalty for gun-jumping,” said Abhishek Singh Baghel, associate partner of corporate law firm, DSK Legal.

In corporate law parlance, “jumping the gun” refers to the initiation of actions that further transactions between merging parties prior to the approval of the CCI.

Lawyers said under the Competition Act, 2002, any acquisition of shares, control, voting rights or assets, which exceeds the prescribed asset or turnover thresholds, and to which no exemption is available, is required to be notified to the CCI for its nod.

“Under Item 1 of Schedule 1, an acquisition that does not lead to acquisition of control of the target company is exempted from securing an approval from the CCI. By attempting to exercise control over the Company, the benefit under Item 1 of Schedule 1 is no longer available to the investors and in absence of any approval from CCI, they (Invesco) are also in violation of the provisions of the Competition Act, 2002,” said another lawyer asking not to be quoted.