Executive directors replaceable with independent directors if conditions u/s 100 are met: HC

Case Details: Invesco Developing Markets Fund v. Zee Entertainment Enterprises Ltd. - [2022] 137 taxmann.com 216 (Bombay)[22-03-2022]

Judiciary and Counsel Details

• • S.J. Kathawalla and Milind N. Jadhav, JJ.
  • Janak Dwarkadas, Ravi Kadam, Sharan Jagtiani, Sr. Advs. Somasekhar Sundaresan, Cyrus Ardeshir, Gaurav Mehta, Ms. Rishika Harish, Bhavik Mehta, Kingshuk Banerjee, Tomu Francis, Ms. Praktruti Joshi, Zacarias Joseph, Ritvik Kulkarni and Ms. Tikshata Modi for the Appellant.
  • Aspi Chinoy, Navroz Seervai, Pesi Modi, Birendra Saraf, Zal Andhyarujina, Sr. Advs. Prateek Sakseria, Nitesh Jain, Atul Jain, Adrish Guha, Ms. Vatsala Kumar, Ms. Ritika Ajitsaria, Brihad Ralhan, Suhail Nathani, Ms. Mumtaz Bhalla, Manendra Singh, Chanakya Keswani, Neeraj Malik, Nausher Kohli and Ms. Maithili Parikh for the Respondent.

Facts of the Case

In the instant case, appellants filed an appeal against the impugned order of the Civil Judge restraining the shareholders of the Company from calling for and holding an Extra Ordinary General Meeting as requisitioned by them.

The appellants issued a Requisition (“Requisition”) to Zee in terms of Section 100(2)(a) of the Companies Act, 2013 calling for an Extra-Ordinary General Meeting. By this Requisition, the Appellants requisitioned the convening of an Extraordinary General Meeting to inter-alia remove 3 non-independent directors of the Company. The Requisition further sought the appointment of 6 Independent Directors on the Board of Zee “subject to the approval of the Ministry of Information and Broadcasting”.

The appeal lied on two grounds:

a) Whether the Civil Court can injunct the calling of a requisitioned EGM or not?

b) Whether the shareholders can pass the resolution to replace all executive directors with independent directors?

It was submitted that Appellants had already filed an application under Section 98 i.e., the NCLT Petition, it was only the NCLT that was empowered to decide whether or not to call, hold or conduct a meeting.

High Court Held

The Bombay High Court held that it cannot interfere with the statutory right of a shareholder to call for an EGM. It was also submitted that the jurisdiction of a Civil Court to entertain a challenge to the Requisition issued under Section 100 of the Act as being invalid/illegal/contrary to the law was not affected by the bar contained in Section 430 of the Act.

In terms of Section 430 of the Companies Act, 2013, Civil Court cannot injunct the calling of a requisitioned EGM if the shareholder’s requisition meets numerical &procedural requirements of section 100 of the Companies Act,2013. The company is obliged to act on the shareholder’s requisition u/s 100 if it meets the numerical and procedural requirements.

Moreover, a shareholder can propose that all executive directors be replaced with independent directors. Neither section 149 of the Companies Act,2013 nor Regulation 17 of SEBI LODR bar the company from having only independent directors on its board of directors. The limit is only placed by statute with reference to the proportion of Executive Directors on the Board. There is no limit placed on the number/proportion of Non-Executive and Independent Directors.

For all of the reasons aforesaid, the court concluded that the proposed resolutions contained in the Requisition are neither illegal nor incapable of being lawfully implemented and consequently, set aside all of the findings in this regard.