Case Note & Summary
The litigation arose from a suit filed by Zee Entertainment Enterprises Ltd, a listed public company, against two institutional investors, Invesco Developing Markets Fund and OFI Global China Fund LLC (collectively Invesco), and Zee's Managing Director and CEO, Punit Goenka. Zee sought declarations that a shareholder requisition notice dated 11 September 2021 issued by Invesco was illegal, ultra vires, invalid, bad in law and incapable of implementation, and that Zee's refusal to act on the notice was valid. It also sought permanent and temporary injunctions restraining Invesco from acting in furtherance of the notice. The interim application was heard by a single judge of the Bombay High Court. The factual background showed that Invesco held about 17.88% of Zee's equity, while the promoter group held only about 3.99%. Invesco issued a requisition notice demanding an extraordinary general meeting (EGM) to consider certain resolutions. Zee contended that these resolutions violated the Companies Act, 2013, the SEBI Listing Regulations, 2015, the SEBI Takeover Regulations, 2011, guidelines of the Ministry of Information and Broadcasting, and the Competition Act, 2002. Zee argued that shareholders' rights to requisition an EGM did not extend to demanding illegal acts. Invesco countered that the company and its board could not decide the validity of proposed resolutions; the shareholders would decide in general meeting, and if a resolution was ineffective it would be still-born. Invesco also raised a jurisdictional objection under Section 430 of the Companies Act, 2013, asserting that the NCLT had exclusive jurisdiction. The court addressed three core questions: whether its jurisdiction was ousted by Section 430; whether the court could examine the validity of proposed resolutions before the EGM was held; and whether the board was obligated to call the meeting despite alleged illegality. The court noted that Section 100 of the Companies Act, 2013 allowed shareholders with at least 10% shareholding to requisition an EGM, and the board had to call the meeting within 21 days, but this obligation arose only on receipt of a valid requisition. The court observed that Section 100 itself contemplated the board's refusal or failure to act, and the requisitionists could then call the meeting themselves, but that did not make the requisition immune from judicial scrutiny. The court rejected Invesco's jurisdictional argument. It held that Section 430 did not oust the court's jurisdiction when the NCLT lacked the power to grant the declaratory and injunctive relief. The court found Zee's argument compelling that no court or tribunal could be entirely powerless when proposed resolutions were in the teeth of statutory and regulatory requirements. The court also rejected the contention that shareholder-proposed resolutions were more sacrosanct than board-proposed ones. It reasoned that if the board could not propose infirm resolutions, shareholders could not either, and that the source of the resolutions was immaterial. The court held that it could, and must, consider whether the proposed resolutions would be ineffective or illegal before the EGM. The final operative order was not included in the provided text, but the court's findings clearly favoured judicial scrutiny of the resolutions.
Headnote
A) Company Law - Extraordinary General Meeting - Validity of Shareholder Requisition - Companies Act, 2013, Section 100 - The dispute arose from a requisition notice dated 11 September 2021 by shareholders holding 17.88% equity seeking an EGM to consider resolutions allegedly in violation of statutory and regulatory provisions. The court examined whether the board of directors must call the meeting when the proposed resolutions are illegal or ultra vires. Held that the board's obligation to call a meeting under Section 100 applies only to a valid requisition, and shareholders cannot demand acts of illegality or non-compliance with statutes. (Paras 3-6) B) Civil Procedure - Jurisdiction of Civil Court versus NCLT - Section 430 of Companies Act, 2013 - Interim Application - Invesco contended that the court's jurisdiction was ousted by Section 430 and the matter lay before the NCLT. Zee argued that the NCLT had no power to decide the validity of proposed resolutions and that no forum should be unable to decide the question. Held that the court's jurisdiction is not ousted because the NCLT cannot grant the declaratory and injunctive relief sought, and the court must be able to consider whether proposed resolutions would be ineffective or illegal before the EGM. (Paras 8, 12) C) Company Law - Corporate Governance and Indoor Management - Judicial Scrutiny of Shareholder Resolutions - Companies Act, 2013, Section 100 - Invesco argued that corporate governance principles and indoor management barred pre-EGM judicial intervention and that if a resolution is ineffective it is still-born. The court rejected this, holding that shareholder-proposed resolutions are not more sacrosanct than board-proposed resolutions and that no greater immunity attaches to shareholders; if the board cannot propose infirm resolutions, neither can shareholders. (Paras 5, 11) D) Company Law - Statutory and Regulatory Compliance - SEBI Listing Regulations, SEBI Takeover Regulations, Competition Act, 2002 - The court noted Zee's contention that the proposed resolutions would put it in the teeth of statutory and regulatory requirements, including SEBI regulations and the Competition Act, and that the court would be effete if it could not intercede. The court found this argument compelling and observed that no court or tribunal can be forced to be entirely powerless in such circumstances. (Paras 3, 10)
Issue of Consideration
Whether the jurisdiction of the High Court is barred by Section 430 of the Companies Act, 2013; whether the court can examine the validity of shareholder-proposed resolutions before an extraordinary general meeting is called and held; whether shareholders have an absolute right to requisition an EGM under Section 100 of the Companies Act, 2013 irrespective of the legality of the proposed resolutions.
Final Decision
The High Court held that its jurisdiction is not ousted by Section 430 of the Companies Act, 2013 and that it can consider the validity of shareholder-proposed resolutions before an EGM is held. The court rejected Invesco's argument that shareholder-proposed resolutions are beyond judicial scrutiny and held that shareholders have no greater immunity than the board of directors. The court found that the proposed resolutions, if passed, would be in the teeth of statutory and regulatory requirements and that it must examine their legality. The final operative order on the interim application is not included in the provided text, but the court's findings indicate that it would proceed to assess the resolutions and grant appropriate relief.
Law Points
- Shareholders' right to requisition an extraordinary general meeting under Section 100 of the Companies Act
- 2013 is not absolute and is subject to the legality of the proposed resolutions
- the court can examine the validity of proposed resolutions even before the meeting is held
- Section 430 of the Companies Act
- 2013 does not oust the jurisdiction of the High Court when the NCLT has no power to decide the question
- resolutions proposed by shareholders have no greater immunity than those proposed by the board of directors
- a court is not powerless when proposed resolutions would be illegal
- ultra vires
- or ineffective
- the board's obligation to call a meeting under Section 100 arises only on a valid requisition
- and validity includes compliance with law.
