How Zee thwarted Invesco and OFI's call for removal of Punit Goenka

The Zee Entertainment board said on Friday that the requisition to call the Extraordinary General Meeting (EGM) was invalid and illegal. Accordingly, it conveyed its inability to convene the AGM to Invesco Developing Markets Funds and OFI Global China Fund, LLC.

​​The requisition notice dated September 11, 2021, (received on September 12, 2021), had requested the company to call an EGM to pass the following resolutions as ordinary resolutions:

a. Item No.1 - Removal of Punit Goenka as Director;
b. Item No.2 - Removal of Manish Chokhani as Director;
c. Item No.3 - Removal of Ashok Kurien as Director;
d. Item No. 4 - Appointment of Surendra Singh Sirohi as an Independent Director;
e. Item No. 5 - Appointment of Naina Krishna Murthy as an Independent Director;
f. Item No.6 - Appointment of Rohan Dhamija as an Independent Director;
g. Item No.7 - Appointment of Aruna Sharma as an Independent Director;
h. Item No. 8 - Appointment of Srinivasa Rao Addepalli as an Independent Director; and
i. Item No. 9 - Appointment of Gaurav Mehta as an Independent Director;

In a letter sent to the two investors, Zee pointed out multiples legal infirmities in their requisition due to which it was turned down as invalid and illegal.

On the removal of Punit Goenka as Director, Zee referred to paragraph 5.10 of the Policy Guidelines for Uplinking of Television Channels from India framed on December 5, 2011 by the Ministry of Information and Broadcasting (MIB), which is applicable to the company.

The paragraph reads: It will be obligatory on the part of the company to take prior permission from the Ministry of Information & Broadcasting before effecting any change in the CEO/ Board of Directors.

Thus, 'prior permission' from MIB must be obtained for effecting any change in the CEO’s post or board of directors of the company, Zee said in the letter.

The investors had stated in their Requisition Notice that the resolutions proposed for the appointment of directors contemplate these proposed appointments to be subject to approval from MIB. Whereas the resolution proposed in Item No.1 for the removal of the managing director, is not contingent upon any prior approval from MIB, they said.

Countering this, Zee argued that putting the proposed resolution in Item No.1 to effect will be in direct contravention of paragraph 5.10 of the MIB Guidelines.

The resolutions listed at No. 2 and 3 were already effected in the AGM held on September 14, 2021, where Manish Chokhani and Ashok Kurien resigned from the board of directors.

Zee said that the resolutions proposed for appointment by the shareholders (Item Nos. 4 to 9) require prior permission of the MIB.

“The MIB Guidelines do not contemplate any resolutions being passed by the shareholders subject to approval of the MIB. In stark contrast, the MIB Guidelines mandate the condition of 'prior permission' of the MIB before effecting any change in the board of directors. The proposed appointments by the shareholders, if effectuated, will lead to the company effecting wide ranging changes in the board of directors without prior permission of the MIB and will result in violation of the MIB Guidelines,” the company said.

Zee said the investors’ proposal for making fundamental changes to the board of directors and key managerial personnel by seeking removal of the executive director and appointment of six new independent directors will result in non-compliance with SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 2011 (Takeover Regulations) in as much as they are proposing the appointment of one half of the board without the approval of the Nomination and Remuneration Committee (NRC) and the Board and without following the process laid down under Companies Act and Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (SEBI Listing Regulations) for the appointment of independent directors.

“This would result in you effecting a change in control of the Company without making an open offer,” Zee said. “A proposed change of control of this nature would also result in a non-compliance with the Competition Act, 2002,” it said.

Zee referred to Regulation 17 of the SEBI Listing Regulations, which mandates that the board of directors of a listed entity shall have an optimum combination of executive and non-executive directors; and that not less than 50% of the board of directors shall comprise of non-executive directors.

“If the resolutions proposed in Item Nos. 1, 4 to 9 of the Requisition Notice are effectuated, the board of directors of the Company will solely comprise all non-executive directors. Carrying out the resolutions proposed in Item Nos. 1, 4 to 9 of the Requisition Notice would thus be inconsistent with, and in contravention of, the SEBI Listing Regulations,” Zee added.

The company said calling an EGM pursuant to the Requisition Notice will result in the company and the board of the directors to act in dereliction of their duties under the SEBI Listing Regulations and the Companies Act.

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