Bombay High Court’s single bench decision barring Invesco from calling for an extraordinary general meeting (EGM) of Zee Entertainment could set a bad precedent for shareholders’ rights in the long run, according to legal experts.

“This order may have the effect of diminishing the rights of shareholders in a company, by curtailing their unconditional and exclusive right to call for an EGM,” said Aditya Nayyar, Partner, Ortis Law Offices

Invesco had requested for an EGM, under section 100 of the Companies Act. According to experts, it is one of the few Indian laws which upholds and protects the democratic rights of these shareholders, who are in the minority.

Fair, democratic right

Rahul Kamerkar, Advocate, explained, “Section 100 of the Act is a fair and democratic right given to any group of shareholders having 10 per cent share capital to requisition an EGM. The courts do not have power (under the Companies Act) to curtail this right on the merits/legality of the proposed resolution even before it is put to vote. In my opinion, even a blatantly illegal proposed resolution will not empower the courts (under the Companies Act) to curtail the rights of minority shareholders under this section, anything less than that would open up a Pandora's Box wherein any Board will have the ability to get an injunction on any EGM requisitioned by a group, that too from a High Court, based on the merits/legality of the implementation of the proposed resolution, even before it is put to vote.”

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According to Kamerkar, allowing the judgment to stand might lead to an absurd situation wherein the Directors of Companies can use their company’s resources to hire the best counsel, and the minority investor group will have to match the same from their own pockets, simply to defend the merits of a proposed resolution which in most cases, minority shareholder usually lose the vote on.

Picky shareholders

Anupam Shukla, Partner, Pioneer Legal believes this could make minority shareholders pickier now on when it comes to taking up issues with the management, “such a decision by the court may result in activist shareholders being wary of picking fights with the management without careful deliberation and suitable preparation.”

“I don’t think the Bombay High Court’s single bench decision to bar Invesco from holding the EGM will set a precedent since it is likely to be overturned by the Division Bench or by the Supreme Court. Moreover, I don’t think this will become a precedent since all these matters are restricted to the facts of the Zee Invesco case,” said Milind Jha, Partner at Link Legal.

Invesco, who is the largest minority shareholder for Zee Entertainment Enterprises has currently appealed the single bench decision on October 26. The matter is being heard by the Division Bench of Justice SJ Kathawala and Justice Milind Jadhav at the Bombay High Court.