Court upholds NCLT's jurisdiction over EGM requisition challenge, affirms shareholders' rights

The court held that the Civil Court lacked jurisdiction to entertain a suit challenging a requisition notice for an Extraordinary General Meeting (EGM) under the Companies Act, aligning with the NCLT's authority. It ruled the requisition valid, emphasizing shareholders' right to call an EGM. The court dismissed claims of illegalities in proposed resolutions, clarifying MIB Guidelines and Companies Act provisions. The appeal was allowed, setting aside the injunction and affirming corporate democracy and shareholders' statutory rights.

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Issues Involved:
1. Jurisdiction of the Civil Court.
2. Validity of the Requisition.
3. Alleged illegalities in the proposed resolutions.

Issue-wise Analysis:

1. Jurisdiction of the Civil Court:
The primary issue was whether the Civil Court had the jurisdiction to entertain the suit filed by Zee Entertainment Enterprises Limited (Zee) challenging the requisition notice issued by the shareholders for an Extraordinary General Meeting (EGM). The court examined Sections 98 and 100 of the Companies Act, 2013, and the bar under Section 430 of the Act. Section 430 states that no civil court shall have jurisdiction over matters which the National Company Law Tribunal (NCLT) is empowered to determine. The court concluded that the injunction granted by the Single Judge was in violation of Section 430, as the NCLT has jurisdiction over the matter under Sections 98 and 100 of the Act. The court emphasized that the statutory right of shareholders to call for an EGM cannot be restrained by a civil court, aligning with the Supreme Court's ruling in LIC vs. Escorts & Ors.

2. Validity of the Requisition:
The court examined whether the requisition notice issued by the shareholders was valid. It was noted that the requisitionists collectively held 17.88% of Zee's share capital, satisfying the numerical requirements under Section 100 of the Companies Act. The court referred to the Supreme Court's decision in LIC vs. Escorts & Ors., which held that a shareholder cannot be restrained from calling an EGM and that the reasons for the resolutions proposed are not subject to judicial review. The court also relied on the precedent set by Cricket Club of India vs. Madhav L. Apte, which stated that the validity of a requisition is limited to numerical and procedural compliance. Consequently, the court ruled that the requisition was valid and the Board of Zee was obligated to call the EGM.

3. Alleged Illegalities in the Proposed Resolutions:
The court addressed the alleged illegalities in the proposed resolutions under the requisition notice. Zee and Respondent No.2 argued that the resolutions would violate various laws, including the Ministry of Information & Broadcasting (MIB) Guidelines, the Companies Act, and SEBI Listing Obligations and Disclosure Requirements (LODR) Regulations.

a. MIB Guidelines:
The court interpreted Clause 5.10 of the MIB Guidelines, which requires prior permission from the MIB before effecting any change in the Board of Directors. The court found that the MIB's permission is required only for appointments, not for the removal or resignation of a director. The court noted that Zee had not sought MIB approval for the resignations of two directors, indicating that prior permission was not necessary for removals.

b. Procedure for Appointment of Independent Directors:
The court examined the provisions of the Companies Act related to the appointment of Independent Directors, including Sections 149, 150, and 152. The court concluded that there is no bar on shareholders proposing the appointment of Independent Directors. The court emphasized that Section 160 of the Act allows shareholders to propose candidates for directorship, including Independent Directors, and that the Board's refusal to act on the requisition was obstructive.

c. Regulation 17 of SEBI LODR:
The court addressed the argument that the removal of Mr. Punit Goenka, the only executive director, would result in non-compliance with Regulation 17 of SEBI LODR, which requires an optimum combination of executive and non-executive directors. The court found that Regulation 17 does not mandate a specific number of executive directors and that the resultant vacancy can be filled within six months as per Section 203(4) of the Companies Act.

Conclusion:
The court allowed the appeal, setting aside the Single Judge's judgment and ruling in favor of the appellants on all counts. The court held that the requisition was valid, the proposed resolutions were not illegal, and the Civil Court lacked jurisdiction to grant an injunction restraining the shareholders from calling and holding an EGM. The court emphasized the importance of upholding corporate democracy and the statutory rights of shareholders.

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