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2020 (4) TMI 244 - AT - Companies LawAggrieved Persons - removal of nominee director of the Corporate Debtor - powers of Directors in a Compulsory Liquidation - Section 169 of the Companies Act, 2013 - Appellants contends that the Appellants can only be removed by adhering to the procedure specified in terms of Sec 169 of the Companies Act, 2013. Also, it is the plea of the Appellants that the ingredients of Sec 169 of the Companies Act, 2013 restrict the powers of removal of PR to those provided under the Act - HELD THAT - It cannot be lost sight of that a Director removed under Section 169 of the Companies Act, is not deprived of his right to receive compensation for the loss of office if he is otherwise entitled to it, as per the Act 2013 and by virtue of his term of appointment, a removal a Director in terms of the Article of Associations is not a defective one - As per section 169 (8) of the Companies Act, 2013 (old Section 284(7) of 1956 Act) enjoins that compensation or damages in the case of wrongful removal of a Director and the same can be claimed not only in respect of the termination of the Office but also any other offence which all terminate along with the office like that of Managing Director . When a Corporate Debtor is Liquidated, the Liquidator shall file an Account of Liquidation exhibiting in what manner it was conducted and how the Corporate Debtor s Assets were Liquidated. A Final report shall form part of Application for dissolution of a Corporate Debtor to the Adjudicating Authority, to be filed under Section 54 of the Code - In terms of Regulation 38 of the Liquidation process regulations 2016 a Liquidator with the permission of Adjudicating Authority, may distribute among the stakeholders the assets that are to be readily or gainfully sold because of its peculiar character or other circumstances. As a matter of fact, the application praying for permission before the Adjudicating Authority under sub-Regulation shall identify the assets provide, a value of asset, mentioning the endeavours to sale the assets if any and to provide reasons for such distribution. There is no simmering doubt that the Directors of a Company appointed by the shareholders in the Annual General Meeting are to be removed as per Ordinary Resolution passed in the General Body Meeting . - There is no different opinion on this well settled proposition. It cannot be gained said that the Appellant ( Nicco Parks and Resort Pvt. Ltd ) is bound by the terms of Agreement and the Appellant is bound by the proposal and is to present the same before the Annual General Meeting for its accord/approval, without any iota of doubt. As a matter of fact, the proposal submitted by the Liquidator in terms of the power bestowed on him under the I B Code, read with Rule, Article 140 (4) of the Articles of Associations cannot be ignored and a self-serving decision being arrived at in this regard. The Appellant ( Nicco Parks and Resorts Pvt. Ltd ) is not required to be informed of the reasons behind the replacement of existing Nominee Directors by the Liquidator , although the said Directors were elected as Directors because of the fact that they had secured the shares of Nicco Parks and Resorts Pvt. Ltd , in an individualistic manner. No wonder, unless and until the Liquidator permits the Nominee Directors to continue, they do not have any right in this regard. The Appellants in Company Appeal (AT) (Ins) No.1518 of 2019 and Company Appeal (AT) (Ins) No.224 of 2020 had acted against the Liquidator, the impugned orders passed by the Adjudicating Authority in discharging their Nominee Directors position w.e.f. 17.10.2017 etc., are free from any legal flaws - Appeal dismissed.
Issues Involved:
1. Power of Liquidator to remove and replace Nominee Directors. 2. Validity of appointments of Nominee Directors as individual Directors. 3. Compliance with Articles of Association and Joint Sector Agreement. 4. Applicability of Section 169 of the Companies Act, 2013. 5. Rights attached to shares held by Corporate Debtor in another company. Issue-wise Detailed Analysis: 1. Power of Liquidator to Remove and Replace Nominee Directors: The Tribunal upheld that the Liquidator has the power to remove Nominee Directors and nominate new Directors. This power is derived from the Articles of Association of the company and the Joint Sector Agreement. The Liquidator steps into the shoes of the Corporate Debtor and acts on behalf of the company to effectively carry out the liquidation process. The Tribunal referenced multiple judgments to support the Liquidator's authority, including the decision in Farrel Futato v. State of Goa, which stated that the right to appoint nominees carries the right to withdraw such nominations. 2. Validity of Appointments of Nominee Directors as Individual Directors: The Tribunal found that the Appellants’ contention that they were appointed as Directors in their individual capacities in the Annual General Meetings was misconceived. The evidence showed that they were reappointed as Nominees of NICCO on the Board of NPRL. The Tribunal noted that the resolutions passed in the 29th and 30th Annual General Meetings were for their reappointment as Nominees of NICCO, not as independent Directors. 3. Compliance with Articles of Association and Joint Sector Agreement: The Tribunal emphasized that the Articles of Association and the Joint Sector Agreement have sanctity and must be adhered to. Article 140(4) of the Articles of Association specifies that if a Director representing NICCO retires by rotation, their position must be filled by a Director nominated by NICCO. The Tribunal also noted that the Articles of Association of NPRL do not impose a restriction on the transfer of shares held by NICCO along with the rights attached to them, subject to a right of first refusal by the state-owned corporations. 4. Applicability of Section 169 of the Companies Act, 2013: The Tribunal clarified that Section 169 of the Companies Act, 2013, which deals with the removal of Directors, does not restrict the Liquidator's power to remove Nominee Directors. The Tribunal referenced the decision in Delhi and District Cricket Association v. Vinod Tihara, which distinguished between the provisions of Section 284 of the Companies Act, 1956, and Section 169 of the Companies Act, 2013. The Tribunal concluded that the Liquidator's actions were within the scope of his powers under the I&B Code and the Articles of Association. 5. Rights Attached to Shares Held by Corporate Debtor in Another Company: The Tribunal held that the rights attached to the shares held by NICCO in NPRL, including the right to appoint Nominee Directors, form part of the liquidation estate. These rights are not merely contractual but are class rights attached to the shares themselves. The Tribunal referenced several decisions, including Radhakrishnan & Ors. v. P.R. Ramakrishnan, to support the view that these rights are inseparable from the shares and must continue to flow with the shares at all times. The Tribunal also noted that Section 238 of the I&B Code has an overriding effect on other laws, ensuring the maximization of the liquidation estate's value. Conclusion: The Tribunal dismissed the appeals, affirming that the Liquidator has the requisite powers to remove and replace Nominee Directors and that the Appellants' appointments as individual Directors were not valid. The Tribunal emphasized the importance of adhering to the Articles of Association and the Joint Sector Agreement and clarified the applicability of Section 169 of the Companies Act, 2013, in the context of liquidation proceedings. The Tribunal also upheld that the rights attached to the shares held by NICCO in NPRL form part of the liquidation estate and are transferable with the shares.
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