Dish TV is in focus as Yes Bank has asked for the directors to be removed from the board and they have asked for the removal of the managing director as well. The question now is will the directors challenge this, the way forward. To discuss this in-depth, CNBC-TV18 spoke Amit Tandon, MD, Institutional Investor Advisory Services India Limited (IiAS), and HP Ranina, Corporate Lawyer.
Tandon said there has been an extended period of middling performance by the company and Subash Chandra, and the family owns a very miniscule amount of the shares in the company, while Yes Bank, which is a significant shareholder with its own set of challenges must be feeling the pressure. They must have felt that the best way to recover the money is to try and shake up the board and see what that leads to and take it forward from there.
For example, if one were to look back and see what had happened with Fortis -- there were a bunch of investors who were unhappy with the way the hospital board was being run. There too Shivinder and Malvinder Singh had a very minuscule amount of equity and were trying to control things through the board, said Tandon.
Yes Bank obviously is not too happy with the rights issue because for them, it will dilute their equity. The present board members seem to be saying that this rights issue was arrived at by a sub-committee that was appointed by the board and was seen as the best way forward for capital raising. So legally, can the rights issue go in abeyance? Yes Bank has asked for their proposal to oust the board members to be put to vote on September 27 - can that vote itself happen or not? Or can the present board members actually move court and stall that vote itself?
Answering the questions, Ranina said on the rights issue obviously this resolution will be put to vote and if Yes Bank together with other shareholders has enough support to vote against that resolution, in other words, they need of 51 percent majority, then the right issue will not go through. Otherwise, the right issue will go through if the majority of the shareholders agree to it. So while it may dilute the shareholding of Yes Bank that is not relevant. The shareholders have to ultimately agree at the AGM which is scheduled this month, he added.
With regards to the removal of directors is concerned that again, directors will come up for reappointment because they retire by rotation, said Ranina, adding that nowadays a five-year period is being allocated for each director. So as a managing director comes up for reappointment, the resolution will be put to vote before the shareholders at the annual general meeting (AGM), and then Yes Bank along with the other shareholders will decide. It again has to be passed by a simple majority of 50 percent and more. Therefore, this is all will be decided now, said Ranina.
Assuming that after AGM is over and they want to remove somebody, for that we have to go into the shareholders' agreement. “Is there a shareholders agreement between Yes Bank and Dish TV? If they have then we need to know the clauses of the shareholders' agreement. So, all that will have to be examined, and only then can a director be removed for certain reasons which are mentioned in the shareholders' agreement. You just cannot remove a director otherwise," explained Ranina.
Unless after the AGM, Yes Bank still wants to remove the director then again, they will have to call an extraordinary general meeting (EGM) and put the matter to vote. And if they have the majority shares and if Yes Bank has the support of the majority shareholders then they may go through, said Ranina, adding that otherwise, he did not see any way by which the existing directors can be just asked to leave. There is a certain procedure under the Companies Act and you have to follow it especially now that the AGM is on the horizon and will be held very shortly, said Ranina.
When asked can a similar story as Fortis probably play out with DISH TV, where we will see not just Yes Bank but other shareholders come forward and ask for an EGM so that there could be a removal of the current board?
Tandon said, “Absolutely. One of the things under the Companies Act is if you own more than 10 percent of the equity, you can call for a shareholder meeting, and you can propose certain items on the agenda. So it's under that clause that or that shareholding that Yes Bank has kind of proposed to call a meeting where they want a set of directors to be removed and then propose the slate of directors who need to be appointed in lieu of that. So we kind of saw something similar happened in the case of Fortis. What happened there was that of the set of directors, most of them resigned, between the time the notice was floated by the investors, and the AGM or the shareholder meeting actually took place with one of the directors, not getting sufficient votes and getting voted out and simultaneously, three new directors were appointed to the board.
“Yes Bank was a shareholder in Fortis, so they have kind of walked this path before. They have seen that you can effect change on the board. Now, why will they do that? I think one of the things is that now, again, if you look at photos, there were concerns about related party transactions, they were concerned about the integrity of the accounts, which were being presented, and therefore they feel that look, directors and the board, being one of the gatekeepers, will be able to ensure that some of these hygiene factors and some of these guardrails are put in place."
However, we need to remember that the board is just one element, which will deal with some of the consequences. The policy, the strategy, power of the company to address some of the challenges which it is facing and media is going through its own churn at a very rapid pace. So getting in the right leadership team, to drive the business is also going to be very critical. And that is something which at least the notice is silent on.
“So I presume that once they have a board, which is acceptable to more and more shareholders, they will kind of move on the second, which is having a leadership team in which they have comfort,” said Tandon.
For the entire discussion, watch the accompanying video