Ministry of Information and Broadcasting cannot sit in judgement of Zee Entertainment Enterprises Ltd.'s shareholders' rights, Invesco Developing Markets Fund argued on Friday before the Bombay High Court.
The shareholders' right to remove directors at a requisitioned general meeting is not affected by the MIB's regulations or approval.
"MIB guidelines don't prohibit shareholders from appointing or removing directors; it only requires prior permission before such appointment is made effective".- Invesco 's argument before high court
Invesco's argument came in response to Zee Entertainment's submission that prior MIB's approval should be obtained before effecting a change in the board.
These submissions were presented before a division bench of Justice SJ Kathawalla and Justice Milind Jadhav, which is hearing a challenge preferred by Invesco against the single judge's order granting an interim injunction in favour of Zee Entertainment.
On Oct. 26, the high court had granted an injunction in favour of Zee Entertainment restricting Invesco to act on its September requisition to call an extraordinary general meeting.
Invesco and OFI Global China Fund LLC, both foreign institutional investors that together hold a 17.88% stake in the media company, are locked in a dispute with Zee Entertainment's current board and Managing Director and Chief Executive Officer Punit Goenka. The two funds are seeking to oust Goenka and appoint six new independent directors via an EGM.
During the hearing, lawyers appearing for Invesco argued that the Securities and Exchange Board of India's listing regulations cannot supersede the provisions of the Companies Act.
The argument was in response to the single judge's acceptance of Zee's case that SEBI's Listing Regulations lay down a Nomination and Remuneration Committee-led process for the appointment and removal of directors, including independent directors.
Invesco submitted that shareholders don't need the NRC's approval as they have an absolute right in calling an EGM under company law.
The NRC's role is quite limited—it cannot curtail the rights of shareholders.Invesco
To make its case, Invesco relied on the Supreme Court's decision in the case of Escorts Ltd. In this case, a similar resolution was proposed by Life Insurance Corporation of India as the shareholder of Escorts, calling for the removal of few directors.
The apex court had held that LIC could not be restrained from calling an EGM to remove directors and that it was not bound to give reasons for proposing such resolutions.
The division bench reserved its order on Friday.
Invesco and Zee Entertainment had wrapped up their submissions in December and February respectively. Goenka concluded submissions in the first week of March.
Lawyers involved in the matter expect the final order by March 23 as Justice Kathawalla is set to retire on that day.
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