In our previous update regarding Zee vs Invesco case (which can be seen here ), we had examined the order (Impugned Order) passed by the single bench of Bombay High Court (Court) which granted an injunction restraining Invesco Developing Markets Fund (Invesco) from calling for and holding an Extraordinary General Meeting (EGM) of Zee Entertainment Enterprises Limited (Zee) and had discussed the lacunae therein.

This Impugned Order was challenged by Invesco before the Division Bench of the Court. Recently, the Division Bench of the Court allowed the appeal filed by Invesco against the Impugned Order rightfully stating that said jurisdiction is before the National Company Law Tribunal (NCLT) and not with civil court.

This post now analyses the Division Bench Order which re-affirms the principles of corporate democracy and shareholder supremacy.

Section 100 of the Companies Act 2013 (Act)

Vide the Impugned Order, the Single Judge concluded that the resolutions proposed by Invesco, if allowed, would result in a situation where Zee would be in violation of various statutory compliances. Further, a distinction was required to be drawn in regard to resolutions proposed at a requisitioned EGM that are irregular, undesirable or unpalatable to the Board and those that are illegal. In this regard, it was held that the question was not about the interpretation of the expression ``valid resolution`` in Section 100(4) of the Act, but rather about ``whether what is sought to be done is plainly an illegality``.

The Division Bench of the Court set aside the findings contained in the Impugned Order, relying upon the various judgements passed by the Supreme Court of India which has held that every shareholder of a company has the right, subject to statutorily prescribed procedural and numerical requirements, to call an extraordinary general meeting in accordance with the provisions of the Act.

Further, the Court held that no discretion had been conferred upon the board of a company to sit in judgment over ``any matter`` for consideration of which the meeting is requisitioned. As such, the board of a company is mandatorily obliged to requisition a meeting if the requirements specified in sub-sections (2) and (3) of Section 100 are satisfied. The Court explicitly held that the language used in the Section 100 aids corporate democracy and protects the rights of shareholders, since the same provides shareholders with an additional right to proceed to call for and hold an EGM despite an unwilling board.

In view thereof, the Court held that the expression ``valid requisition`` in Section 100(4) of the Act is restricted to numerical and procedural compliances with the requirements of Section 100 and nothing more. Even if the requisition was illegal or invalid, the Court held that the Board was still obliged to call for the meeting.

The division bench thereafter proceeded to analyse the resultant consequences of allowing civil courts, in certain cases, to grant an injunction restraining the shareholders of a company from exercising their statutory right to call for and hold an EGM. In this regard, the Court held the resultant consequences would be that any unwilling board of a company, which intends to obstruct its shareholders from exercising their statutory right and calling for and holding an EGM, will resolve that the company file a suit in a civil court. In such civil suit, the company will move an interim application, praying for an injunction from acting upon the proposed resolutions alleging ``resultant illegalities``. Till such time as adjudication of the ``illegalities`` is completed, to balance equities, the civil court will injunct the holding of the meeting. Such decision of the civil court would then be subject to multiple rounds of appeal.

The Court held that if the aforesaid approach were to be adopted, the same would, in turn, open flood gates of litigation where corporate democracy would be ``rendered nugatory``. The Court thus held that it could not lay down a precedent resulting in such drastic consequences, derailing the democratic functioning of companies across India, owing to the non-cooperative and obstructive conduct of the board of directors.

Section 430 of the Act

The Court held that Section 430 of the Act provides for two contingencies: first, that no civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which the NCLT or the NCLAT is empowered to determine by or under the Act or any other law for the time being in force, and second, that no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act, or any other law for the time being in force, by the NCLT or the NCLAT.

In view of the absolute bar on the jurisdiction of civil court as contained in Section 430 of the Act, the Single Judge could not have granted an injunction against Invesco. Further, given the scheme of Sections 96 to 100 of the Act, the Court held that the issue between Zee and Invesco would squarely fall within the jurisdiction of the NCLT. As such, the Court held that a civil court could not interfere with the jurisdiction of the NCLT by granting an injunction, which would effectively prevent the NCLT from considering Invesco`s prayer.

MHCO Comments: The Division Bench rightfully set-aside the findings of the Impugned Order on all counts, thereby reaffirming and upholding the settled legal position on corporate democracy and shareholder supremacy in India.

This update was released on 28 Apr 2022.

The views expressed in this update are personal and should not be construed as any legal advice. Please contact us directly on +91 22 40565252 or for any assistance.

Legal Update Team
Advocates, Solicitors and Notaries
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