The recent controversies relating to Zee Entertainment and Dish
TV both involve investors holding significant stakes attempting to
convene general meetings of shareholders through which they seek to
replace certain directors on the existing boards. The shareholders
in these cases are Invesco Developing Markets Fund
(“Invesco“) and OFI Global China Fund
LLC (“OFI“) in the case of Zee
Entertainment, and Yes Bank in the case of Dish TV. In both cases,
the existing boards of directors have declined to convene such
meetings.

We first consider a purely legal question related to the
circumstances under which can a company’s board decline a
request from the company’s shareholders to convene a
shareholders meeting. We then consider whether the grounds on which
the boards of Zee Entertainment and Dish TV have rejected the
investors’ requests are valid.

The legal standard for refusing to convene a General
Meeting

The relevant provision under the Companies Act, 2013
(“Companies Act”) is Section 100.

Section 100(2) of the Companies Act provides that: “the
Board shall at the requisition made by
such number of members who hold, on the date of the receipt of the
requisition, not less than one-tenth of such of the
paid-up share capital of the company…call an
extraordinary general meeting of the company within the period
specified in sub-section (4)”.

Section 100(4) further provides that “if the Board does
not, within twenty-one days from the date of receipt of a valid
requisition in regard to any matter, proceed to call a meeting
for the consideration of that matter on a day not later than
forty-five days from the date of receipt of such requisition, the
meeting may be called and held by the requisitionists themselves
within a period of three months from the date of the
requisition“.

A reading of Section 100 suggests that the board of directors
does not have the power to examine the matters that are proposed to
be voted upon. They must proceed with convening a general meeting
so long as the shareholders who have sent such requisition hold 10%
of the company’s share capital. In the event that the board
fails to do so, the members have the option of convening such
meeting on their own.

Courts have, however, previously taken differing views on how
the expression “a valid requisition” in Section 100 needs
to be interpreted.

In the case of Cricket Club of India v. Madhav
Apte,¹ one of the parties to the dispute had
attempted to convene a general meeting to amend the articles of
association of the Cricket Club of India. The Bombay High Court
held that the proposed amendments themselves were illegal but that
the board of directors were nevertheless obliged to convene an EGM
if the shareholders who had sought to convene the general meeting
fulfilled the 10% threshold set out under the Companies Act. In
other words, the word “valid” under Section 169 of the
Companies Act, 1956 (which corresponds to Section 100 of the
Companies Act) should have no reference to the object of the
requisition but rather to the requirements of the section itself.
If the requirements of the section are satisfied (i.e., that the
person(s) requisitioning the shareholders’ meeting hold(s) at
least ten percent of the paid-up share capital of the company),
then the requisition must be regarded as a valid requisition
on which the directors must act. It would then be up to the
chairperson of the meeting and the shareholders to determine the
course to be adopted at such meeting.

A contrary view was taken by the Madras High Court in the case
of Sivaraman v. Egmore Benefit Society
Limited.² In this case, certain persons were
elected as directors at a company’s annual general meeting.
Shortly after the meeting, the persons who had lost the election
sought to requisition another general meeting for the removal of
the elected directors. The Court held that the removal of duly
elected directors shortly after a general meeting was not a valid
reason for convening a general meeting and the board was not
obliged to convene such a meeting merely on account certain
shareholders being able to fulfil the 10% threshold.

Taking into account these differing views, we think that the
correct legal standard should be that if the object of the proposed
general meeting is illegal on the face of it or cannot legally be
given effect to by the board (for instance on account of repugnancy
with the Companies Act or the articles of association of the
Company), or is an attempt to usurp the powers vested in the board,
it should not be necessary for a board to convene such a meeting.
As another instance, if the object of the meeting is to authorize
the company to engage in a criminal enterprise, the board can
obviously not be compelled to convene such a meeting.

Grounds for Rejection

Turning to the facts of Zee Entertainment and Dish TV cases:

1. Pursuant to a requisition letter dated September 11, 2021,
   Invesco and OFI requested the board of Zee Entertainment to convene
   a meeting of the company’s shareholders to remove three
   existing directors (including the managing director and CEO, Mr.
   Punit Goenka) and appoint six independent directors. Two of the
   existing directors resigned from the board citing personal reasons
   shortly after; rendering the requests for their removal
   unnecessary. On October 1, 2021, the board of directors unanimously
   declined to convene the shareholders’ meeting to consider the
   appointments and the resignation of Mr. Punit Goenka.




2. Similarly, in the case of Dish TV, through a letter dated
   September 21, 2021, Yes Bank requested the board of Dish TV to
   convene an EGM for effecting the (i) removal of five directors
   (including the managing director and CEO, Mr. Jawahar Lal Goel) and
   (ii) appointment of two non-independent directors and five
   independent directors. On October 13, 2021, the board of directors
   unanimously declined to convene the shareholders’ meeting to
   consider the appointments and the resignations.

In both cases, the respective existing boards have cited the
following reasons (among others) for rejecting the investors’
requests:

• Prior Permission of the Ministry of Information and
  Broadcasting
  (“MIB“)
  
  Both the Dish TV and Zee Entertainment boards have argued that
  changes to the companies’ boards required the prior approval of
  the MIB and that since the investors had not obtained such
  permission before writing to the companies’ boards, the boards
  cannot convene general meetings. It is, however, difficult to
  understand how the investors could have obtained such permissions
  since it is only the license holders (i.e., the companies) and not
  the investors who are capable of making such applications. Yes Bank
  has also acknowledged this in their requisition; they state that
  the proposed appointments of the new directors shall take effect
  only after the MIB’s approval is obtained and that Dish TV
  should seek the requisite MIB approval.




• Non-Compliance with the SEBI’s Takeover
  Regulations
  
  The existing board of directors of both companies argue, in
  essence, that by replacing over half of their board of directors,
  the investors are seeking to acquire “control” of the
  companies and that accordingly, the investors will need to comply
  with the provisions of the SEBI Takeover Code – that is, the
  investors will be required to make an “open offer” to the
  companies’ public shareholders. This contention is problematic
  on two counts. First, even if investors were not making an open
  offer although required to, it is a matter for the regulator, i.e.,
  the SEBI, to investigate and pass judgment on. The SEBI has the
  authority under the Takeover Regulations, in an appropriate case,
  to require an “acquirer” to make an open offer. It is not
  appropriate for the board of directors of the two companies to
  adjudicate such matter in the SEBI’s place. Second, almost all
  of the directors who the investors seek to appoint are proposed to
  be appointed as independent directors and not as investor nominee
  directors. It is therefore, in any event, arguable whether and to
  what extent the investors will have control over the respective
  boards if such appointments were to be made.

There are other arguments as well that have been made by the two
companies. For instance, the Dish TV board has also cited concerns
involving the Banking Regulation Act, 1949 and both the Dish TV and
Zee Entertainment boards have stated that replacing the
companies’ directors will require prior approval of the
Competition Commission of India. These concerns have not been set
out in detail in the companies’ public statements.

The underlying ethos of all of the above arguments is not a
substantive approach based on the relevant provisions of the
Companies Act but a reliance on the Indian regulatory framework
(and perhaps even a tendency to assume the role of regulators) to
cut across explicit shareholder/investor rights – it is not
the first time these type of arguments have been raised (similar
arguments have notoriously been raised on numerous occasions on the
basis of the Indian exchange control regulatory framework) and it
will not be the last.

Conclusion

In relation to Zee Entertainment, legal proceedings are
currently pending before the National Company Law Tribunal, the
National Company Law Appellate Tribunal and the Bombay High Court.
As regards Dish TV, legal proceedings could well be initiated soon.
In both cases, we consider the reasons put forward by the
respective boards to reject the requisition of general meetings to
be difficult to sustain.

Another twist in the tale is the amendments to the SEBI’s
Listing Obligations and Disclosure Requirements Regulations, 2015
which require that from January 1, 2022, any appointment or removal
of an independent director will require a special resolution (a 75%
majority vote) as opposed to an ordinary resolution (a 50% majority
vote) that is required at present.

The case of Zee Entertainment has also raised certain corporate
governance issues, which merit separate analysis.

Footnotes

1. (1974) 2 Comp LJ 173 (Bom)

2. (1992) 75 CompCas 198 (Mad)

This insight/article is intended only as a general
discussion of issues and is not intended for any solicitation of
work. It should not be regarded as legal advice and no legal or
business decision should be based on its content.