Bombay High Court asks Zee to Conduct EGM

In what could be a temporary setback for Zee Entertainment, the Bombay High Court has called upon Zee to conduct the EGM as requested by Invesco Fund. Invesco holds 17.88% in Zee and is the single largest shareholder. As per the Companies Act 2013, if shareholders having more than 10% holding call for an EGM, the board is legally bound to hold one.

Invesco holds 17.88% in Zee as against Subhash Chandra family holding of just about 3.44% in the company. Invesco had called the EGM to vote on the removal of Punit Goenka from the position of MD and CEO of the company. In addition, Invesco also wanted to nominate six of its own directors to the board and it also wants a rethink on the Zee-Sony merger deal.

Check - Invesco wants EGM to Replace Punit Goenka from the Post of MD & CEO

The Bombay High Court has ruled that not calling for an EGM at this stage would set a wrong precedent under the Companies Law. However, keeping the delicateness of the case, the single judge bench ruled that the any EGM resolution be kept in abeyance for a period of one week, giving Zee enough time to contest the legality and validity of the EGM request.

In addition, the single-judge bench of Justice G S Patel also proposed that a retired judge or a neutral person be asked to chair the EGM. Meanwhile, Zee has agreed to inform the court about the EGM date on 22nd October. The Judge also noted that in corporate democracy, the best way would be to put a proposal to vote and let the shareholders decide.

Invesco had serious concerns with the Zee-Sony deal due to the non-compete pay-out to the Subhash Chandra family. This was supposed to be in the form of a 2% stake in the merged entity forfeited by Sony in favour of Chandra family.

Check - Subhash Chandra Takes Up a Good Deal on his Zee Stake

Invesco was of the view that since Punit Goenka was to be the MD & CEO of the merged entity, there was no question of non-compete fee. Of course, the real reason Invesco is unhappy is that while their own stake would halve post-merger, Zee will hold 4% post-merger due to the non-compete fee.

Apart from being a high profile case, the outcome will also be important from the point of view of governance and the role of large global investors in corporate managements.

Also Read:- What does the Zee merger with Sony mean?