Zee board rejects Invesco's demand to hold EGM to remove Punit Goenka

Taking a confrontational stand against its largest shareholder, the Zee Entertainment Enterprises (ZEE) board on Friday rejected Invesco Fund’s demand to hold an extraordinary general meeting (EGM) to remove current Managing Director and Chief Executive Officer Punit Goenka and induct its six nominees.

“In its meeting held on 1st October 2021, the Board has arrived at a conclusion that the requisition is invalid and illegal; and has accordingly conveyed its inability to convene the Extraordinary General Meeting to Invesco Developing Markets Funds and OFI Global China Fund, LLC,” ZEE said in a statement after the board meeting.

Both funds, backed by Oppenheimer Holdings, own 18 per cent in ZEE and, in a letter dated September 11, had asked the ZEE board to remove two directors Manish Chokhani and Ashok Kurien for corporate governance lapses. While both directors quit a day before the annual general meeting on September 13, Goenka continued to remain on the board. Within days, Zee announced a merger deal with rival Sony Pictures with the latter getting a majority stake and this led to stake dilution for all Zee shareholders. The promoters, Subhash Chandra family, however, retained their stakes in the merged entity at 4 per cent after receiving an additional 2 per cent from Sony as non-compete.

In its statement on Friday, Zee said its board arrived at decision by referring to various non-compliances under multiple laws, including the Securities and Exchange Board of India (Sebi) guidelines, Ministry of Information and Broadcasting guidelines, and key clauses under the Companies Act & Competition Act, and after taking into account the interests of all the shareholders and stakeholders of the company.

This move, say legal experts, will escalate the legal war as Invesco has moved the National Company Law Tribunal (NCLT) and the court asked Zee board on Thursday to hold the meeting to consider the EGM.

The NCLT will hear the case again on Monday.

Bankers say the options before Invesco are to sell its shares to any other rival TV network company and let the incoming shareholder make a counter-offer to the Zee-Sony transaction. Invesco itself can make an open offer to take over the company, a lawyer said.

In its letter to Invesco, Zee said prior permission from the Ministry of Information and Broadcasting must be obtained for effecting any change in the CEO or board of directors. Besides, the company said Invesco’s proposal would result in non-compliance with the Sebi takeover code.

A proposed change of control of this nature would also result in non-compliance with the Competition Act, 2002, it said.

ZEE said the Sebi Listing Regulations mandated the board of directors of a listed entity have an optimum combination of executive and non-executive directors; and that not less than 50 per cent of the board would comprise non-executive directors. If the resolutions proposed by Invesco are put into effect, the board of directors of the company will comprise all non-executive directors. 

Thus carrying out the resolutions proposed by Invesco would be inconsistent with, and in contravention of, the Sebi listing regulations, the company said.