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The National Company Law Tribunal directed Zee Entertainment on September 30 to consider a requisition made by the company’s top investors to call an extraordinary general meeting and comply with Section 100 of the Companies Act.
Although the NCLT direction places the onus on Zee Entertainment to call the EGM, there is little clarity on what happens next.
Invesco Developing Markets Fund and OFI Global China Fund, which together hold a 17.88 percent stake in Zee Entertainment, approached the NCLT on September 29, more than two weeks after seeking the EGM to push for the ouster of three directors including Punit Goenka, MD and CEO and a member of the promoter family.
It’s not clear how shareholders will be affected by Zee’s planned merger with Sony Pictures Networks India with Goenka at the helm, which was announced last week.
But the NCLT’s direction is clear. The board has to call the EGM in two-three days, said Shriram Subramanian, founder of InGovern Research Services, a proxy advisory firm.
“Section 100 of the Companies Act allows the board not to convene an EGM and allows the investor to convene the meeting. Now, the NCLT seems to have said that the board cannot not call the EGM, so the board has to call for an EGM,” Subramanian explained.
“NCLT has clearly upheld the demand for the EGM made by Invesco and OFI,” said Anupam Shukla, a counsel at Pioneer Legal, a law firm.
“NCLT asked Zee’s board to positively consider the requisition by Invesco and OFI and call the EGM within the period prescribed under the law. If the board fails to do so, NCLT will surely pass suitable orders in this matter when it hears the matter again on October 4.”
However, JN Gupta, founder of Stakeholders Empowerment Services, a proxy advisory firm, pointed out that Section 100 of the Companies Act doesn’t prescribe any mandate or force that can be used to call for an EGM.
“If tomorrow the NCLT were to pass an order ordering Zee to conduct an EGM, it would be open to challenge in the National Company Law Appellate Tribunal,” said Gupta.
What if Zee doesn’t call the EGM?
According to Shukla, if the board fails to call the EGM without a valid reason even after the NCLT’s directions, the tribunal itself may order the meeting to be held under powers available to it in Section 98 of the Companies Act.
Gupta noted that if Zee doesn’t call the EGM, there will be an issue to discuss on October 4, when the NCLT has called the matter for consideration.
“The issue to discuss will be who should be forced to call an EGM. The law gives freedom to the requisitionists (Invesco and OFI) to themselves call for an EGM, the result of which will be binding on both sides. The issue is what assistance do they (Invesco and OFI) need to call for an EGM,” added Gupta.
Senior advocate Mukul Rohatgi, who represented Invesco before the NCLT, said Invesco and OFI cannot conduct the EGM because they don’t have the details of the public shareholders. There is a possibility that the tribunal will ask Zee to provide the list and details of shareholders to Invesco and OFI.
Zee has said it will take steps as per the law within the statutory period.
According to Gupta, if Zee calls the EGM, it will show the company’s corporate governance in a better light. Concerns over corporate governance had been the main reason for the investors seeking the EGM.
“The advantage of Zee calling the EGM would be that communication would be in their control. If the requisitionists were to call for an EGM, then the communication will be in their control,” said Gupta.
Bone of contention
While proxy advisory firms questioned Invesco’s decision to move the NCLT, Rohatgi said during the hearing that the Zee board had not acknowledged the requisition and claimed that it was finding ways to not call the EGM.
“Invesco and OFI were savvy in their reading of the tea leaves. Arguments put forth by Zee’s counsel during the hearing today indicate that Zee was not very keen to call the EGM,” said Shukla.
However, Subramanian said he was surprised why Rohatgi said the board had not acknowledged Invesco’s call for the EGM.
Gupta concurred, saying Zee had filed the investors’ letter to the stock exchanges and that was acknowledgement enough.
According to a legal expert, procedural matters apart, corporate democracy has to prevail.
“The shareholders meeting being called is one thing and the resolutions being passed is quite another,” said Avanti Chandele, a partner at Mind Legal, a law firm. “Corporate democracy will determine the ultimate result in such tussles. Whoever has the majority votes will prevail.”