ZEE- Invesco Case
Invesco- Zee dispute
Invesco Developing Markets Fund and OFI Global China Fund LLM , collectively holding 17.88% in ZEE Entertainment Enterprises Limited (“Zee”), had issued a requisition to Zee in terms of Section 100(2)(a) of the Companies Act, 2013 ("Act") calling for an Extra Ordinary General Meeting ("EGM"). The requisition had proposed the convening of an EGM to inter-alia remove 3 (three) non-independent directors of ZEE and further sought the appointment of 6 Independent Directors on the Board of Zee.
Invesco had filed a Company Petition under Section 98 (1) read with Section 100 of the Act before the National Company Law Tribunal, Mumbai Bench ("NCLT") seeking the relief of an order calling for the EGM to be called. The NCLT directed Zee to consider the Requisition. Pursuant to this, Zee's Board concluded that the Requisition was invalid/illegal and accordingly, recorded its inability to convene the EGM. Zee then moved to Bombay High Court (Single Judge Bench) seeking an injunction to restrain Invesco from taking any action in furtherance to the requisition. An injunction was granted which restrained Invesco from taking any action or step in furtherance of the Requisition including calling and holding an EGM under Section 100(4) of the Act.
Aggrieved by the said order, Invesco filed an appeal before the Bombay High Court (Division Bench) (”Court”) against the order. The judgement in case of Invesco Developing Markets Fund v. Zee Entertainment Enterprises Limited[1] (“Judgement”) allowed Invesco’s appeal against the abovementioned order.
Issues-
The Judgement has broadly considered two key issues-
1. Statutory right of shareholder of Zee Entertainment Enterprises Limited to call for a requisition for holding Extra Ordinary General Meeting as requisitioned by them
2. What will be the appropriate judicial forum for addressing such shareholders disputes
Analysis-
1. With respect to the first issue, the Court analyzed Section 98 and 100 of the Act and concluded that Single Judge Bench had erroneously restrained Invesco. The Court held that Section 98 empowers a member of a Company to approach the NCLT requesting it to pass an order calling for and holding an EGM. However, the power to be exercised by the NCLT is evidently discretionary.
Section 100(2) uses the expression "shall" casting a mandatory obligation on the Board to adhere to the requisition. Section 100(4) furnishes an additional right to members to proceed to call and hold a meeting themselves should the Board fail to call the requisitioned meeting. On a plain and literal reading of Section 100(4), the words "valid requisition" appear to mean numerical and procedural compliance and nothing further. The Court relied on the case of - Cricket Club of India vs. Madhav L. Apte [2] (reliance has been placed on section 169 of Companies Act, 1956 which broadly corresponds to section 100 of the Act)
“In other words, to put it shortly, all that is required to be seen before the provisions of sub-section (6) of section 169 become applicable would be to consider whether the requisition deposited was in accordance with the provisions of section 169 as to its contents, the number of signatories and similar matters, and it would not be open to the board of directors of a company to refuse to act on a requisition on the ground that, although such requisition was in accordance with the requirements of section 169, it was otherwise invalid.”
The said Judgment further states that the word or the adjective "valid" in section 169 has no reference to the object of the requisition but rather to the requirements in that section itself.
Further, the Court relies on the case of LIC v. Escorts[3] to hold that every shareholder of a company has the right, subject to statutorily prescribed procedural and numerical requirements, to call an extraordinary general meeting in accordance with the provisions of the Companies Act.
Relying on the above-mentioned precedents, the Court held that the words "valid requisition" as appearing in Section 100(4) of the Act are restricted to numerical and procedural compliance and nothing further. On a literal and plain reading of Sections 98 and 100, there is no discretion/power vested with the Board of a Company to sit in judgment over "any matter" for consideration of which the meeting is requisitioned. On a plain reading, the Board of a Company is mandatorily obliged to requisition a meeting if the requirements specified in sub-sections (2) and (3) of Section 100 are satisfied. Needless to state, whether or not the proposed requisition should be given effect to, is to be decided by the shareholders at the general meeting. even if the requisition was illegal or invalid, the Board was still obliged to call for the meeting.
The Court further observed that –
“In the present case itself, the Appellants, being shareholders of Zee, have been unable to call for and hold an EGM despite the Requisition being addressed as early as on 11th September, 2021, i.e., over 6 months ago. For the past 6 months, the contesting parties have been arguing the alleged illegalities contained in the Requisition, whilst shareholders of Zee suffer an injunction. We cannot lay down a precedent resulting in such drastic consequences derailing the democratic functioning of Companies across India owing to the non-cooperative and obstructive conduct of the Board of Director”
2. Concerning the second issue of appropriate forum for jurisdiction, the Court Relied on Section 430 of the Act which bars Civil Court's jurisdiction in respect of any matter, which the NCLT or NCLAT is empowered to determine. Secondly, it states that no Civil Court shall grant an injunction in respect of any action taken or to be taken by the NCLT or NCLAT in pursuance of any power conferred on them. In accordance with the bar prescribed under section 430, the Court held that the matter at hand would fall within the purview of NCLT and therefore Civil Court could not interfere in passing of such order of injunction. Thus, the Single Judge bench had no power in restraining Invesco from calling the requisition.