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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
G.S. Patel, J.
Zee Entertainment Enterprises Ltd - Appellant
Versus
Invesco Developing Markets Fund & Ors. - Respondents
Interim Application (L) No. 22525 of 2021 In Suit (L) No. 22522 of 2021
Decided On : 26-10-2021
Zee Entertainment Enterprises Ltd. v. Invesco Developing Markets Fund & Ors. - COMPANIES ACT, 2013 - SECTIONS 100, 149, 150, 168, 430 - SEBI (LISTING OBLIGATIONS AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2015 - SEBI (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) REGULATIONS, 2011 - MINISTRY OF INFORMATION & BROADCASTING (MIB) GUIDELINES - COMPETITION ACT, 2002 - SUIT FOR DECLARATION THAT REQUISITION NOTICE ISSUED BY INVESTORS IS ILLEGAL, ULTRA VIRES, INVALID, BAD IN LAW AND INCAPABLE OF IMPLEMENTATION - JURISDICTION OF COURT - VALIDITY OF PROPOSED RESOLUTIONS - EFFECTIVENESS OF PROPOSED RESOLUTIONS - INJUNCTION AGAINST INVESTORS FROM ACTING IN FURTHERANCE OF REQUISITION NOTICE - HELD, COURT HAS JURISDICTION TO EXAMINE THE VALIDITY OF THE PROPOSED RESOLUTIONS - INJUNCTION GRANTED RESTRAINING INVESTORS FROM TAKING ANY ACTION OR STEP IN FURTHERANCE OF THE REQUISITION NOTICE.
Fact of the Case:
Zee Entertainment Enterprises Ltd. (Zee) is a well-known media enterprise. Invesco Developing Markets Fund and OFI Global China Fund LLC (Invesco) are investors in Zee and among its shareholders. Invesco holds about 17.88% of Zee's equity. Zee's promoter and promoter group hold or control about 3.99% of its equity shareholding. The remainder is held by the public, including Invesco. Invesco issued a Requisition Notice on 11th September 2021, seeking to remove the Managing Director and Chief Executive Officer, and two other directors, and to appoint six named individuals as independent directors. Zee refused to call the requisitioned EGM, stating that the proposed resolutions were illegal, ultra vires and invalid. Invesco filed a Company Petition before the NCLT under Sections 98(1) and 100 of the Companies Act against Zee, the directors and the registrar and share transfer agent, seeking an order to call and hold an EGM. Zee filed a suit seeking a declaration that the Requisition Notice was illegal, ultra vires, invalid, bad in law and incapable of implementation, and an injunction against Invesco from acting in furtherance of the Requisition Notice.
Finding of the Court:
1. The Court held that it has jurisdiction to examine the validity of the proposed resolutions, even before the EGM is called and held. 2. The Court found that the proposed resolutions were in the teeth of statutory and regulatory requirements, and that a court is not forbidden, either expressly or by necessary implication, from intervening. 3. The Court granted an injunction restraining Invesco from taking any action or step in furtherance of the Requisition Notice.
Issues: 1. Whether the Court has jurisdiction to examine the validity of the proposed resolutions before the EGM is called and held. 2. Whether the proposed resolutions are illegal, ultra vires and invalid.
Ratio Decidendi: 1. The Court held that it has jurisdiction to examine the validity of the proposed resolutions, even before the EGM is called and held. The Court relied on the following principles: (a) A court is not precluded from considering the legality of the proposed resolutions. (b) The question of whether or not a certain resolution is legal must be left to the general body. (c) The Court would not be restricted to considering the directors' reasons for not calling the meeting, but would be deciding the issue itself. 2. The Court found that the proposed resolutions were in the teeth of statutory and regulatory requirements, and that a court is not forbidden, either expressly or by necessary implication, from intervening. The Court relied on the following provisions: (a) Section 100 of the Companies Act, 2013, which provides for the calling of extraordinary general meetings. (b) Section 149 of the Companies Act, 2013, which deals with the appointment and qualifications of directors. (c) Section 150 of the Companies Act, 2013, which prescribes the manner in which independent directors are selected. (d) Section 168 of the Companies Act, 2013, which deals with the removal of directors. (e) Regulation 17 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, which provides for the composition of the Board of Directors of a listed company. (f) Regulation 19 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, which requires a listed company to have a Nominations and Remuneration Committee. (g) Clause 5.10 of the MIB Guidelines, which requires a company under those guidelines to seek prior permission from MIB before effecting any change to the CEO or Board of Directors. (h) Regulation 2(1)(e) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, which defines control.
Final Decision: The Court granted an injunction restraining Invesco from taking any action or step in furtherance of the Requisition Notice.
JUDGMENT
G.S. Patel, J. - CONTENTS
A. PARTIES.................................................................................
B. FRAME OF THE SUIT.........................................................
C. THE QUESTIONS FOR DETERMINATION....................
D. SUMMARY OF FINDINGS..................................................
E. FACTUAL BACKGROUND.................................................
F. RIVAL SUBMISSIONS: INEFFECTIVENESS OR INVALIDTY OF THE PROPOSED RESOLUTIONS...................................................................
G. SECTION 100 OF THE COMPANIES ACT......................
H. SECTION 430: JURISDICTION........................................
I. FINAL ORDER....................................................................
A. PARTIES
1. The Plaintiff ("Zee") is a well-known media enterprise. It is a public limited and listed company. Defendants Nos.1 and 2 (collectively, "Invesco") are investors in Zee and among its shareholders. Invesco holds about 17.88% of Zees equity. Zees promoter and promoter group hold or control about 3.99% of its equity shareholding. The remainder is held by the public, including Invesco. Defendant No.3 ("Goenka") is Zees Managing Director and Chief Executive Officer.
B. FRAME OF THE SUIT
2. In this suit, Zee asks, first, for a declaration that a Requisition Notice dated 11th September 2021 issued by Defendants Nos.1 and 2 (collectively, "Invesco") is illegal, ultra vires, invalid, bad in law and incapable of implementation. Second, Zee seeks a declaration that its refusal to act on the Requisition Notice is in accordance with law, valid and justified. Third, it seeks an injunction against Invesco from acting in furtherance of the Requisition Notice in question. The Interim Application follows the third prayer. I am considering the Interim Application. Given that the matter has been argued at considerable length, this order is the final order on the Interim Application.
C. THE QUESTIONS FOR DETERMINATION
3. Zee contends that Invescos Requisition Notice contravenes various provisions of the Companies Act, 2013; the Securities & Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 ("the SEBI Listing Regulations"); the Securities & Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 201 ("the SEBI Takeover Regulations"); various guidelines by the Ministry of Information & Broadcasting ("MIB"); and the Competition Act, 2002. It says that the resolutions proposed by Invesco in the Requisition Notice are all illegal, ultra vires and invalid. If passed, they would put Zee afoul of a raft of controlling statutes and regulations. Shareholders rights, including the right to requisition an Extraordinary General Meeting ("EGM"), do not extend to allowing shareholders to demand acts of illegality and non-compliance with statutes. Therefore, Zee says, it is entitled to the two declarations mentioned earlier: that the Requisition Notice is illegal, invalid, ultra vires and bad in law; and that Zees action, through its Board of Directors, in refusing to call the requisitioned meeting was valid. Therefore, Zee claims, it is entitled to the consequential injunctions, both permanent and temporary.
4. Section 100 of the Companies Act lies at the heart of this controversy. The Board of Directors may call an EGM at any time. But shareholders who hold the qualifying equity (at least 10%) of a company that has a share capital may also requisition an EGM. The section says the Board shall call an EGM within the specified time, 45 days from the date of receipt of the requisition. The requisition must set out the matters to be considered at the EGM. The requisition must be signed by the requisitionists, and it must be sent to the registered office of the company. The Board has 21 days to call the requisitioned EGM. Time runs from the date a valid requisition is received. Should the Board not do so, i.e. should it not call the meeting with
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