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A company court directed the board of Zee Entertainment Enterprises Ltd to call a special shareholders’ meeting by 3 October, handing a win to the company’s top investor, Invesco Developing Markets Fund, which is seeking to oust managing director Punit Goenka, citing mismanagement.

Zee’s counsel, Gopal Subramanium, told the Mumbai bench of the National Company Law Tribunal (NCLT) that independent directors will meet on Thursday to consider holding an extraordinary general meeting, and the company will inform shareholders of their decision by Friday.

After an hour-long argument by counsels of Invesco and Zee, a bench of Bhaskara Pantula Mohan and C.B. Singh said: “We hereby direct respondents (Zee) to consider the requisition positively and direct them to comply with Section 100 of the Companies Act".

The story so far
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The story so far

The tribunal has set the next hearing in the case on 4 October.

Under the rules governing listed firms, a company has three weeks to announce an EGM from the day it receives a request from an investor who holds at least 10% shares. Invesco’s 11 September letter, demanding an EGM, was received by Zee on the following day. Invesco wants shareholders to vote on its recommendations of sacking Goenka as a director and recasting the board.

As an EGM has to be called within 45 days of the receipt of the letter from a large shareholder, this implies that a shareholders’ meeting at Zee has to take place before 27 October.

A spokesperson for Zee said the company’s board is “scheduled to meet as per the statutory time allotted, in relation to the matter. The firm will continue to take all actions needed in the interest of the shareholders and as per law".

Invesco, the largest investor in Zee, owning 17.88% through Invesco Developing Market Fund and OFI Global China Fund Llc, has been unhappy with Zee founder Subhash Chandra and his son, Punit Goenka, who together own 3.99%. The twin developments on Thursday—NCLT directing Zee board to call an EGM and independent directors of Zee separately meeting to consider the issue—implies an EGM is a foregone conclusion, and the spotlight will be on how 78% of public shareholders vote.

For now, none of the large foreign shareholders, including Vanguard, BlackRock, Amansa and local investors such as Life Insurance Corp. of India, have spoken on this subject. Mint’s emails to Zee’s 10 largest shareholders over the past week have gone unanswered.

“The case is very simple," said Mukul Rohatgi, one of the two counsels representing Invesco. “My client believes the company is not running as smoothly as it should...this is a case of corporate democracy."

“Heavens will not fall if they call an EGM," argued Invesco’s second counsel, Janak Dwarkadas. “Let them call an EGM. They can convince shareholders in the meeting that these investors (Invesco) are the spoilers and so don’t vote in their favour. But allow the shareholders to say you are right, Mr. Goenka."

Significantly, Invesco’s counsel also explained why the US fund manager moved NCLT well before the three weeks ended. Invesco wants the regulatory body to direct Zee to hold an EGM, as it is impractical for Invesco to call a meeting with a large number of investors owning shares in the company.

“There are over 250,000 shareholders in Zee. We do not have the addresses of all shareholders to send a notice. So, it becomes impractical for us to call for an EGM," Dwarkadas said.

The arguments made by Invesco’s counsel underlined the investor’s displeasure with Zee’s owners. Invesco’s counsels said instead of acknowledging Invesco’s letter demanding an EGM, Zee went ahead and structured a transaction with Sony Pictures Networks. “Goenka will continue running the merged entity for five years. Our (Invesco) shareholding will dilute. But Goenka is assured of the current shareholding of 3.99%. He (Goenka) is sitting pretty. There is no adverse impact on him. We have invested over 5,000 crore in the company. We are worried...our investment will go down the drain," said Rohatgi.

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