[Zee v. Invesco] Bombay High Court grants interim injunction in favour of Zee

The Bombay High Court on Tuesday granted an interim injunction in favour of Zee Entertainment Enterprises Limited in the civil suit moved by Zee challenging the requisition notice sent by its largest shareholder Invesco Developing Markets Fund to convene an extraordinary general meeting (EGM)..Invesco and OFI Global China Fund have been restrained from taking any action in furtherance of their September 2021 requisition notice for Zee to hold an EGM. .Zee had filed a suit seeking a declaration that the requisition notice by Invesco was illegal and invalid. In an interim application allowed today, Zee had sought for a stay on the requisition notice till the pendency of the suit. .The order passed by the High Court today stated,"... there will be an injunction in terms of prayer clause (a) of the Interim Application, restraining Defendants Nos. 1 and 2 [Invesco and OFI Global China Fund] (including their employees, agents and anyone acting by, through or under them) from taking any action or step in furtherance of the Requisition Notice dated 11th September 2021, including calling and holding an EGM under Section 100(4) of the Companies Act, 2013.".The single-judge bench of Justice GS Patel pronounced the interim order this afternoon. .The Judge found that, contrary to Invesco's stance, the Court's jurisdiction in the matter is not ousted. The Judge has opined that the Court is not barred from examining the legality of what is proposed in a requisition made by a shareholder.."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 said..The Court further said it was inclined to agree with Zee's contention that the resolutions proposed by Invesco are illegal. .Notably, the resolutions proposed by Invesco are stated to be intended for the removal of Punit Goenka as Managing Director and the appointment of independent directors. ."I am inclined to agree with Mr Subramaniam on all counts. I do not see how Goenka can be removed at all, leaving a managerial void only to be possibly later filled. His removal causes an immediate vacancy and non-compliance. How this is to be done without prior permission of the MIB is also unclear. I see no method of circumventing the NRC or directly proposing named persons as ‘independent directors’", Justice Patel said. .Appearing for Zee, Senior Advocate Gopal Subramanium had argued that the notice was illegal since Invesco had not taken a prior approval from the Ministry of Information & Broadcasting (MIB).He also stated that the notice was in violation of various rules and guidelines issued by the Ministry, SEBI and the Competition Commission of India.He further submitted that Invesco was attempting to remove the present Managing Director and Chief Executive Officer Punit Goenka and wanted to appoint independent directors.The shareholders are saying the Listing Obligations and Disclosures Requirements (LODR) Regulations are merely guidelines which is incorrect, Subramanium emphasized..Appearing for Goenka, Senior Advocate Kapil Sibal had supplemented Subramanium’s arguments by highlighting that a listed company could not have a board of directors without a managing director.Relying upon the provisions of the Companies Act, he stated that there was a fiduciary duty towards the shareholders and the board was bound to act only in the interest of the shareholders.He also emphasised that it cannot be assumed that the company seeking requisition was innocent and had come to the Court with clean hands.Invesco’s sudden and abrupt issuance of notice seeking Goenka’s removal from the Board reeked of maladies and motivated action, Sibal contended..Subramanium and Sibal had prayed for a status quo on the demand for calling of a meeting till the validity of the such a notice could be finally decided..On the other hand, Senior Advocate Janak Dwarkadas, appearing for Invesco, opposed the plea, stating it was not maintainable.Citing Section 430 of the Companies Act, he argued that civil court had no jurisdiction to entertain a proceeding on a matter which could be adjudicated by the National Company Law Tribunal or the National Company Law Appellate Tribunal."I am not asked to issue any such injunction against a court. The injunction is against Invesco", Justice Patel observed in his order, while addressing this contention. .Invesco had also contended, inter alia, that Zee's suit was premature and that the outcome of the EGM is not a foregone conclusion. If the proposed resolutions are unworkable, no effect would be given to them, Invesco had argued. Shareholders have an unfettered right to propose any resolution they choose at an EGM, the only requirement being having the necessary numbers and complying with the procedure of Section 100, Companies Act, it was submitted..Unconvinced, Justice Patel termed this stance doubtful and overbroad. "Taken to its logical extreme, this (Invesco's argument) means that a group of qualified shareholders can propose any sort of resolution, regardless of its legality, and force this to be considered by the general body at an EGM ... If the resolutions proposed are not such as can even be countenanced in law, then how does the question of putting them to vote at an EGM even arise? I am leaving aside for now the very serious considerations of the costs and logistics of calling an EGM with such a wide shareholding base ... ... If the inevitable consequence is going to be something effete — incapable of effective action — why compel the meeting at all? Or, more accurately, why not interdict something that is shown well in advance to end in an utterly useless and sterile result?", the Court added in its order. .In a prior hearing, Justice Patel had suggested that Zee consider the requisition notice and call for an EGM as it was premature to assume that a resolution was going to be passed..He suggested that a neutral chairperson, like a retired judge, could chair the meeting..He had also added that even after a meeting has convened and a resolution is passed, the same could be kept in abeyance for a week in order to enable the concerned parties to approach Courts..On October 22, after hearing all counsel, Justice Patel had reserved his order on the interim application..[Read Order]