Zee Vs Invesco: Punit Goenka Argues His Ouster Would Violate SEBI Regulations

There cannot be a time lag between directors' appointments and approval of the Ministry of Information and Broadcasting, Senior Advocate Zal Andhyarujina appearing for Punit Goenka argued before the Bombay High Court on Thursday. And, that, removing Goenka from the company board would violate SEBI regulations.

Goenka is managing director and chief executive officer of Zee Entertainment Enterprises Ltd.

The high court is hearing an appeal by Invesco Developing Markets Fund against the single judge's order which granted an interim injunction in favour of Zee Entertainment.

The submissions were made before a division bench of Justice SJ Kathawalla and Justice Milind N Jadhav.

On Oct. 26, the single judge bench of Justice Gautam Patel 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, together holding a 17.88% stake in the media company, and are locked in a dispute with Zee's board and Goenka.

The two funds are seeking to oust Goenka and appoint six new independent directors via an EGM. Invesco and Zee Entertainment wrapped up their submissions in December and February respectively.

Andhyarujina's arguments were twofold - one, that the shareholders' resolution is in violation of the MIB guidelines, and two, removing Goenka would be violative of the Securities and Exchange Board of India's listing regulations.

In December, before the division bench, Invesco had argued that the right of the shareholders to remove directors at a requisitioned general meeting is not affected by the regulations.

Countering this, Aspi Chinoy for Zee Entertainment said that the requirement to obtain prior permission from MIB before effecting a change in the board is key.

Adding to this argument, Andhyarujina argued that under the Companies Act, the appointment of a director takes place immediately once the general meeting is held and the resolution is passed. He argued that the ministry's permission must be sought before the resolution seeking to appoint/remove a director is put to vote in the general meeting.

Further, Andhyarujina told the court, SEBI's regulations require every listed company to have an optimum combination of executive and independent directors. If the shareholders' resolution is voted in entirety, Goenka, who is a whole-time director may be removed. And, six new independent directors would be appointed.

This would result in the board having only independent directors, which is against the SEBI guidelines, he argued.

To recap, Justice Patel, in his October order had ruled that Goenka cannot be removed as a director because it would leave a "managerial void" as he is the only whole-time director on the board, which also has six other independent directors.

After Andhyarujina concluded, Invesco's counsel Janak Dwarkadas began with rejoinder submissions.

The court will next hear the matter on March 11.