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Zee Entertainment Enterprises Ltd on Friday rejected a demand from Invesco Ltd for a special shareholders’ meeting to oust its managing director Puneet Goenka, intensifying the standoff between the company and its largest investor.

This surprise move by the Zee board comes a day after the National Company Law Tribunal (NCLT) directed India’s largest publicly traded broadcaster to announce a date for an extraordinary general meeting by Sunday.

The next hearing of the case at NCLT is on Monday.

According to some executives and lawyers, the development could dash US fund manager Invesco’s efforts to force a board recast, as it could be drawn into a lengthy legal battle.

Zee told the exchanges on Friday that its board found the demand for a meeting seeking a recast of the board, including the removal of Goenka, to be “illegal and invalid".

“In the best interests of the company as a whole, including all its shareholders and stakeholders, we express our inability to convene the EGM on the lines requisitioned by you," said the Zee notice.

The board noted multiple violations of regulations if Invesco’s request were to be considered, including information and broadcasting ministry guidelines that mandate that ministry’s prior approval before making any changes to the board. It also violates takeover regulations that mandate that the appointment of one-half of the board would require the approval of the Nomination and Remuneration Committee (NRC) and the board.

“There is a reason why every board has NRC. It is the NRC that interviews every new director who needs to be inducted on the board. Now the request being made here (by Invesco) is somewhere trying to circumvent this entire process. And it is not only one or two directors but half of the board’s composition that will be changed. So it was a unanimous decision by the board that this demand is clearly not in accordance with the current laws," a lawyer privy to the development said, requesting anonymity.

The company added that the board came to this conclusion after taking the opinion of legal luminaries, including former judges of the Supreme Court.

Goenka recused himself from the board meeting and did not participate as he was an interested party in the discussions.

“This is on expected lines. For this reason, we brought it before NCLT yesterday (Thursday) and now we will present our case on Monday (4 October) that the company continues to delay this process by raising technical and flimsy excuses," said an executive, who is assisting the team of lawyers of Invesco.

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%.

“This could have been handled more smoothly by Zee. They are fully aware of Invesco’s rights as an 18% shareholder," said Ashok Mansukhani, a corporate lawyer and media specialist.

“Invesco’s concerns are not about the merger but corporate governance issues. That’s more the domain of Sebi, which must already be seized of the matter. We will have to await the 4 October hearing of NCLT."

Shares of Zee took a beating after the latest twist from Zee, closing 2.4% lower at 295 per share on Friday. “The stock had seen a 30% re-rating because of the announcement of the deal with Sony. The uncertainty around the deal will now have a big overhang on the stock. The stock could be in the range of 300-320," said Karan Taurani, an analyst at Elara Capital.

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