Zee Entertainment: Top Investors Seek Punit Goenka's Ouster Even As Chokhani, Kurien Step Down

Two directors of Zee Entertainment Enterprises Ltd. have stepped down and now the fate of managing director and chief executive Punit Goenka hangs fire.

On Sept. 13, Zee Entertainment informed stock exchanges that Ashok Kurien and Manish Chokhani, both non-executive, non-independent directors of the company, resigned with immediate effect.

According to the filing, Chokhani resigned "due to changed life circumstances and perspective post Covid," whereas Kurien cited "pre-occupation" as the reason for his resignation.

In a separate filing, the company also disclosed that in a letter dated Sept. 11, two institutional investors—Invesco Developing Markets Fund and its subsidiary OFI Global China Fund LLC—had requisitioned an extraordinary general meeting of shareholders to vote on:

• Removal of Punit Goenka as director.

• Removal of Manish Chokhani as director.

• Removal of Ashok Kurien as director.

• Appointment of six new independent directors.

The two funds own 17.88% of Zee Entertainment. As much as 96% of the company is owned by public shareholders, of which foreign portfolio investors are the largest stakeholders with 57.46%. Indian mutual funds own 8.1% and insurers hold 10%—of which state-run Life Insurance Corp. of India has the largest chunk of 4.89%.

Only 3.99% is owned by promoter Subhash Chandra and his family, including son Goenka, after they had to sell down to repay loans taken by other companies in the family-owned Essel Group.

Both filings were published on the Bombay Stock Exchange website well after 9 pm on Sept. 13. The letter from the two institutional investors is dated Sept. 11 which Zee said it received it on Sept. 12.

This raises two questions:

Did Kurien and Chokhani step down for the reasons espoused in Zee's filing or because of investor pressure?

Why did it take so long for critical disclosures to be made public?

The Storm's Been Brewing: Proxy Action

These developments come barely days after proxy advisory firm Institutional Investor Advisory Services recommended that at the company's Sept. 14. annual general meeting, shareholders vote against:

• The adoption of financial accounts for 2020-21.

• Reappointment of Kurien as non-executive, non-independent director.

• Appointment of Chokhani as non-executive, non-independent director.

The e-voting on these and five other resolutions closed on Sept. 13 at 5.00 p.m. Shareholders can also vote at the AGM.

As for the recommendation to vote against Kurien, founder of the Zee Group, IiAS said in its report:

• It continued to classify him as promoter as the company had not filed for reclassification nor sought shareholder approval for the same.

• As a member of the audit committee in fiscal year 2019-20 he was accountable for losses on account of related party transactions as well as governance concerns raised by previous independent directors.

• As a member of the nomination and remuneration committee he was accountable for allowing Goenka’s remuneration to rise by 46% in FY21- higher than what was approved by shareholders - and at a time when employees were given no raise.

The proxy advisory firm recommended shareholders vote against Chokhani because:

• Earlier as an independent director and member of the audit committee in FY20 he was accountable for losses on account of related party transactions.

• As a member of the NRC he failed to professionalise the board even though promoter shareholding had fallen below 5%. He was also accountable for remuneration management.

Responding to IiAS' comments, Zee Entertainment said in a statement to BloombergQuint on Sept. 9 that:

• It had strongly rebutted the views of the proxy advisor in relation to the re-appointment of certain directors.

• The NRC finalised the overall remuneration framework after a structured evaluation process and implemented it with board approval.

• The audit committee introduced various policies to strengthen governance standards.

• the two directors have played an active role in institutionalising governance standards.

• The NRC and the board—comprising of majority independent directors— unanimously recommended re-appointment of the directors.

• Other credible proxy advisors, including international firms, have recommended to vote in support of the appointments.

Given the late hour of the most recent filings by the company, a fresh comment has not been received yet from the company.

The Storm's Been Brewing: Investor Action

Under the company law, shareholders holding not less than 10% of paid-up share capital can requisition an extraordinary general meeting. Invesco Developing Markets Fund (7.74%) and OFI Global China Fund (10.14%) together own 17.88% of Zee Entertainment.

On receiving a valid requisition, the company, as per law, has to hold an EGM within 45 days, failing which the meeting may be called by the shareholders (requisitionists) themselves within three months.

Besides seeking the removal of Goenka, Kurien and Chokhani, the two shareholders have also sought the appointment of six new independent directors—Surendra Singh Sirohi, Naina Krishna Murthy, Rohan Dhamija, Aruna Sharma, Srinivasa Rao Addepali, Gaurav Mehta, subject to approval from the Ministry of Information and Broadcasting.

The AGM on Sept. 14 will offer clues on what course of action Zee Entertainment's board and minority promoter intend to take. And whether Punit Goenka can hold on to his family's flagship firm for much longer.

An earlier version of this story has been slightly amended to clarify that OFI Global China Fund LLC is a subsidiary of Invesco Developing Markets Fund.