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TMI Blog2020 (4) TMI 244X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 Meet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed order on 18.12.2019 at paragraph 52 to 56 had observed the following: The Ld. Counsel has further referred to Section 27 of the Companies Act and Section 149 (6) and Explanation to Section 149(7) whereby it is stated that one may not be a shareholder in a Company and even then he can be placed as a Director, the same way these nominee Directors can be removed. They have been nominated by way of some understanding and Articles of Association. It is stated that nominee Directors have nothing to do with shareholding. If it was a family Company, one of the members of the family would be a nominee Director. It is stated that the Memorandum and Articles of Association have sanctity attached to it and, therefore, will have to be acted according to that. It is stated that there is a separate nominee Directors , which category does not find place in Section 169. It is stated that very often whole time Directors are employees of the Company. Section 169(6) deals with independent Directors. It is stated that Section 169 exists because of Sections 161 162 whereby the appointment has to be rectified by the Board who appoints will have the power to remove. The nominee Direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Counsel for the Appellants (Comp. Appeal (AT)(Ins) 44/2020 and Comp Appeal (AT) 1518/2019) submits that the Appellant (Rajive Kaul) was appointed as Nominee Director of the Corporate Debtor on the Board of NICCO Parks and Resorts Limited and further that the Appellant (in Comp. Appeal (AT) (Ins) No.1518/2019 was appointed as Nominee Director of the Corporate Debtor (NICCO) on the Board of NICCO Parks and Resorts Ltd. in 2004 and that the Appellant (Rajive Kaul) on every occasion, following the inception of Joint Sector Agreement dated 23.2.1990 when he had retired by rotation, offered himself for reappointment by the NICCO Parks and Resorts Ltd. (Appellant in Comp. Appeal (AT)(Ins) No.224 of 2020 in its Annual General Meeting in accordance with Art. 140 of the Articles of Association of NICCO Parks and Resorts Pvt. Ltd. and his appointment was converted and confirmed by NPRL, the Appellant (Rajive Kaul) ceased to be a Nominee Director of the NICCO Corporation Ltd. (Corporate Debtor). 4. The Learned Counsel for the Appellant in Comp. Appeal (AT)(Ins) 1518/2019 brings to the notice of this Tribunal that the Appellant (Pallavi Priyadarshini Kaul) appointed as Nominee Direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lace on 27.9.2019 and in the Twenty-ninth Annual General Meeting that took place on 28.9.2018 by 99.30 per cent votes and by 71.51 per cent votes respectively. Significantly, it is pointed out on the side of the Appellants, the First Respondent/Liquidator had not voted in the Thirtieth Annual General Meeting and the Twenty-ninth Annual General Meeting despite prior notice and further had not opposed the appointment of the Appellants. As such, it is projected on the side of the Appellants that the Appellants were continuously appointed as Directors on the Board of NPRL and when they being not the Nominee Directors of the Corporate Debtor (NICCO). 9. Advancing his arguments, the Learned Counsel for the 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. At this juncture, the Learned Counsel for the Appellants proceeded to point out that the distinction between the provisions of Sec 284 of the Companies Act, 195 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oes of NICCO after Liquidation , and that the Liquidator is only to carry out Beneficial Liquidation of the Corporate Debtor as opposed to interfering and attempting to manage the affairs of another Company which is a separate entity neither in Liquidation nor part of Liquidation Proceedings . 14. The Learned Counsel for the Appellants submits that the Articles of Association is a Commercial or Business document which is required to be interpreted to give efficacy to the same and in the exact manner in which the parties to it would have truly intended and meant to do as per decision IL FS Engineering and Construction Ltd. v. Vardha Power, reported in 1076 ComCas 156. 15. The Learned Counsel for the Appellants comes out with an argument that the powers of a shareholder are not inclusive of the power to remove a Director from the Board of a Company as per his/her whims and fancies. Also that, save as provided by the Companies Act, 2013, the powers of a shareholder are not to participate in the business or management of the Company and therefore, any removal of a Director from the Board of a Company can only be as per Sec 169 of the Companies Act, 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Ltd. (NICCO) is under Liquidation, as per order dated 17.10.2017, holds 1,17,00,000 shares in NICCO Parks and Resorts Pvt. Ltd. and this is 25% of the shareholding of NPRL . In this regard, the Learned Counsel for the Appellants takes a plea that NPRL is a Listed Company and shares can be sold in the market and NICCO has other properties (including immovable properties) which the Liquidator from 17th October 2017 took steps to sell and had realized the sale value of many such properties. Furthermore, it is projected on the side of the Appellant that sale proceeds were distributed to the Creditors and workmen of the Corporate Debtor . Apart from that, it is brought to the notice of this Tribunal that the shares of NPRL as well as any other Companies are all required to be sold by the Liquidator and that the Liquidator had already sold shares in some other Companies. 20. The Learned Counsel for the Appellant submits that based on Joint Sector Agreement entered into between the Government of West Bengal and NICCO dated 23.2.1990 and on the basis of Articles of Association of NPRL, the Liquidator , during this period of Liquidation , wants to nominate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the right of NICCO as also the Two State-owned Corporations to nominate three Directors each on the Board of NPRL . Furthermore, it provides that the right to nominate the Chairman is with the State-owned Corporations and the right to nominate the Managing Director and in his absence, the CEO, is of NICCO and that these provisions of the Agreement are incorporated and reflected in the Articles of NPRL (vide Artt 121, 140(4) , 147(1) and 147(8c) of the Articles of Association of NPRL . The Learned Counsel for the First Respondent points out that pursuant to the right NICCO to nominate Mr. Rajiv Kaul (Appellant in Comp. App.(AT)(Ins) 44/2020), being the Promoter of NICCO , as one of the first Directors on the Board of NPRL , and later Pallavi Kaul and Abhijit Dutta were appointed as the other two Nominee Directors of NICCO on the Board of NPRL . In this connection, it is pointed out by on behalf of the First Respondent that the Companies Act, 1956 and 2013 has always provided for rotation and potential re-appointment of Directors every three years, and that the Kauls were re-appointed as Nominees of NICCO on the Board of NPRL from time to time and in fact, by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s well as the right attached to their said shares form part of the Liquidation Estate as per Sec 36 of the I B Code. The Learned Counsel for the First Respondent refers to the definition of Liquidation Estate as mentioned in the I B Code which includes shares held in any subsidiary of the Corporate Debtor (Sec 36(3)(a)) and intangible assets including contractual rights (Sec 36(3)(d). Continuing further, it is the version of the First Respondent/Liquidator that he stepped into the shoes of NICCO (under Liquidation) and acts on behalf of the Company to effectively carry out the Liquidation Process. 27. The Learned Counsel for the First Respondent advances an argument that the right to appoint nominees carries also a right to withdraw such nomination as per decision Farrel Futato v State of Goa 1992 SCC Online Bom 336. And apart from that, in the light of specific provisions of Artt 120, 140(4), 147(8) of the Articles of Association of NPRL as well as Clause 7 of the Joint Sector Agreement , the First Respondent/Liquidator is entitled to remove Kauls as Nominees of NICCO on the Board of NPRL and replace them with Nominees of its choice. Another aspect wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CCO which they are otherwise barred to possess under the Code. In fact, Sec 19 r/w Sec 33 of the Code is to provide assistance and cooperation to the Liquidator of NICCO as may be required by him in order to carry out the Liquidation Process and hence the Appellants serving as Nominees of NICCO on the Board of NPRL constitute a clear violation of Sec 29A and Sec 19 r/w Sec 33 of the I B Code, 2016. 30. The Learned Counsel for the First Respondent/Liquidator submits that the Articles of Association of a Company is part of its very Constitution, and represents a binding contract between the shareholders , company as well as the shareholders inter se. The Learned Counsel for the First Respondent refers to Sec 44 of the Companies Act, 2013 and points out that the shares, debentures or other interests of a shareholder in a Company shall be movable property transferable in the manner provided by the Articles of the Company. Also, that, Sec 2(7) of the Sale of Goods Act, 1930 defines Goods meaning every kind of movable property other than actionable claims and money; and includes stocks and shares. Moreover, the Learned Counsel for the First Respondent submits that the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o contractual rights may arise where the contract involved depends upon the individual skill or competency of the promisor but in the present case, the rights attached to the shares held by NICCO in NPRL are clearly not personal in nature and that they are in the nature of class rights annexed to the shares and flowing from the Articles of NPRL and they are inseparable from the shares and are thus transferable and assignable with the shares. The Learned Counsel for the First Respondent comes out with the plea that the ingredients of Sec 238 of the I B Code have an overriding effect in respect of other Laws. Further, in the instant case, the rights attached to the shares of NPRL or not merely contractual rights but arising out of holding the property, i.e., the shares of NPRL and that upon liquidation of NICCO, the rights attached to the holding of NICCO in NPRL cannot be said to disappear and that the First Respondent/Liquidator cannot be held Not to have such a right as the rights are attached to the shares itself. The Learned counsel for the 1st Respondent/Liquidator cites the decision of Hon ble Supreme Court Assistant Commissioner, Ernakulam V. Hindustan U ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive directions regarding the property. It does not imply that the right of the Company to exercise the right to vote on the basis of the shares of another company held by it at the meeting of such other company becomes automatically suspended. Thus, whatever may be the other powers of a Receiver dealing with the property which is in custodia legis while in his custody, he is not to be construed as either an assignee or beneficial owner of such property. The privileges of a member of the Company can be exercised by only that person whose name is entered in the Register of members. A Receiver whose name is not entered in the Register of Members cannot exercise any of those rights unless in a proceeding to which the Company concerned is a party and an order is made therein. 34. The Learned counsel for the 1st Respondent refers to the decision of the Hon ble Supreme Court Harsh Vardhan Lodha V. Devendra Kumar Mantri 2012 SCC Online Cal 8684 wherein it is held an administrator derives his title wholly from the Ecclesiastical Court . He has none until the letters of administration are granted and the property of the deceased vests in him only from the time of the Grant . An E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any sphere of activity (including in ma Hers of contract). There is no dispute regarding the ratio of the said decision. In the present case, there is no presence of public element attached to the office of non-rotational Director. Secondly, as mentioned hereinafter, we have come to the conclusion that reasons have been given in the show cause notice which warranted the Government to revoke the appointment of the Petitioner as a Chairperson prior to expiry of the Contract in 1995. The said reasons do not constitute grounds for removal of a Director under Section 284 of the Companies Act. The said reasons are only to terminate the contract before 1995 and accordingly we have come to the conclusion that the impugned order of removal is not punitive in nature as alleged. The Government had adequate material to terminate the contract before 1995. In the circumstances the ratio of the said judgment in the case of Kumari Shrilekha Vidhyarthi (Supra) do not apply to the present case. It may also be observed that the reliefs sought by the Petitioner in effect amounts to enforcement of the Articles of Association which cannot be granted in exercise of jurisdiction under Article 226 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... immovable and movable property or actionable claims of the corporate debtor in liquidation to any person who is not eligible to be a resolution applicant. (iv) In ArcelorMittal India Pvt. Ltd V. Satish Kumar Gupta and Ors. (2019) 2 SCC page 1 it is held as under: Held, though a shareholder is a separate legal entity from the Company in which he holds shares, but when it comes to a corporate vehicle that is set up for the purpose of submission of a resolution plan, it is not only permissible but imperative for the competent authority to find out as to who are the constituent elements that make up such company Further, where a statute itself lifts the corporate veil, or where protection of public interest is of paramount importance, or where a company has been formed to evade obligations imposed by the law, the court will disregard the corporate veil and this principle is applied even to group companies, so that one is able to look at the economic entity of the group as a whole. (v) In Life Insurance Corporation of India V. Escorts Limited and Others (1986) 1 SCC Page 264 it is held as under: A company has an independent and legal personality distinct from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apers Group Ltd V. Cumberland Westmorland herald newspaper Printing Co. Ltd. (the Weekly Law Reports 27th June, 1986) (Chancery Division), it is held that the special rights granted by the defendant s articles were rights that although not attached to any particular shares were conferred on the plaintiff in its capacity as shareholder in the defendant and were attached to the shares for the time being held by the plaintiff without which it was not entitled to the rights; that accordingly the plaintiff had rights attached to a class of shares and since section 125 of the Companies Act, 1985 provided that class rights could not be varied or abrogated without the consent of the class members the special rights enjoyed by the plaintiff could not be varied or abrogated without the consent of the plaintiff. That on the fact, the adoption of articles by the defendant conferring the special rights on the plaintiff was a condition precedent to the agreement between the parties and was not a contractual obligation of the defendant that, accordingly, it was not a term of the agreement between the plaintiff and the defendant that the plaintiff would have the benefit of the special rig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dation pending in any court and transfer to itself and to dispose of the same. Therefore, S. 446 (2) would enable the High Court to entertain an application of the nature filed by the Official Liquidator and to grant relief in the matter. The above view, is more in consequence with the principles underlying the grant of special jurisdiction to the Company Judge and power to the Liquidator to move, the Company Judge in matters like the one which has got a good deal of similarity with the facts in the instant case. 36. It is to be pointed out that the 1st Respondent/Applicant (Liquidator) before the Adjudicating Authority (NCLT Kolkata Bench) had filed C.A (IB) No. 669/ KB/ 2019 in CP(IB) No. 03/KB/2017 wherein the following final reliefs were sought for: (a) To direct Respondents to give full details of any transactions or trades that have happened in NPRL shares since the commencement of liquidation proceedings to the Liquidator or a person appointed by the Liquidator. (b) To direct Respondent No.1 and Respondent No.2 to act on the decision of Applicant and immediately vacate their offices as directors of Respondent No.5, and to co-operate with the Applicant and all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... application is disposed of. (d) Stay on any significant financial or operational decisions being made by the Board of Respondent No.5, which affects the value of the stake of the Corporate Debtor in Respondent No.5, till this Application is disposed of. (e) An injunction, restraining Respondent No.1 and /or Respondent No.2 from acting as representatives of Respondent No.5 in any general meeting of any companies in which shares may be owned by Respondent No.5. 38. Section 19 of the I B Code, 2016 is similar to Section 284 of the Companies Act, 2013. Section 19 imposes an obligation on the personnel and promoters of Corporate Debtor to extend all assistance and cooperation with Insolvency Resolution Professional may require in the management of the affairs of the Corporate Debtor. The word Personnel refers to Directors, Managers, Key Managerial Personnel, Designated partners and Employees, if any, of the Corporate Debtor by means of Section 5(23) of the Code. Furthermore, Section 19(2) empowers a Resolution Professional to file an Application before the Adjudicating Authority to seek necessary directions where any personnel does not assist or cooperate and that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 decision Ravi Prakash Singh V. Venus Sugar Ltd, (2007) 140 Com cases Page 823. A permanent Director entitled under the Article of Associations of a Company is to hold office for Life can be removed from office as per decision Tarlok Chand Khanna V. Rajkumar Kapoor as per decision (1983) 54 com cases page 12 (Delhi). 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 . 43. 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 fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... porate (Nicco Corporation Ltd.) (Under Liquidation) and the same being bad in law mala fide and rife with conflict of interest on numerous grounds, inclusive of the fact that they were nominees and the provisions of the joint sector agreement. Further, Article 121 of the Articles of Association of Nicco Parks and resort Pvt. Ltd (Appellant in Company Appeal (At) (Ins) No. 224 of 2020 and the rudimentary law of nomination Directors leave no scope of any discretion on the part of nominees by the decision of the nominator in replacing the nominees. Moreover, it is not within the rights of the Appellants (in Company Appeal (AT) (Ins) No. 44 of 2020 and Company Appeal (AT) (Ins) 1518 of 2019, who were driven by their personal interest, whether such replacement and the rights under the Joint Sector Agreement or within the ambit of powers of Liquidator or not. 50. Apart from that, the Appellants in Company Appeal (AT) (Ins) 44 of 2020 and the Appellant in Company Appeal (AT) (Ins) No. 1518 of 2019 were erstwhile Directors and promoters of the Corporate Debtor viz. Nicco Corporation Limited. The crystalline stand of the 1st Respondent/Liquidator is that the aforesaid two Appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Company shall be persons whose period of office is liable to determination by retirement of Directors by rotation and, save as otherwise expressly provided in the Act and these Article, be appointed by the Company in general meeting. (2) the remaining Directors shall be appointed in accordance with the provisions of these Articles. (3) At every Annual General Meeting of the Company one third of such of the Directors for the time being as are liable to retire by rotation or if their number is not three or a multiple of three, then, the number nearest to one third, shall retire from office; (4) if and so often as a Director representing Government of West Bengal or Nicco as the case may be retires by rotation his position shall be filled in by a Director representing Government of West Bengal or Nicco as the case may be and duly nominated by Government of West Bengal or Nicco. 54. It is to be borne in mind that Article 140 (4) of the Articles of Associations is to be read along with the letter dated 26.07.2019 viz. the compliance intimation sent by the Nicco Parks and Resorts Pvt. Limited to the Stock Exchanges (Bombay and Calcutta Stock Exchanges) and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1st Respondent/Liquidator had not sold the said shares which formed part of the Liquidation estated. There is no two opinion of a prime fact that the Articles of Associations of a Company reflects a binding contract inter se between the shareholders and the Company etc. Shares, Debentures or other interests of a shareholders in a Company undoubtedly movable property, which can be transferred as per the Articles of Associations of the Company . To put it explicitly, the shareholders do have rights like voting, to elect Directors and to take part in the management through Directors. If, an agreement speaks of the rights of nomination and removal of a person who has shares of the Nicco Park and Resorts Limited then the said right may pass on by way of Assignment or selling. In case of any fetter pertaining to Nomination Right as per Articles of Associations , then the said right may not be assigned in a given case. 59. The Articles of Nicco parks and Resorts Ltd does not impose a restrain relating to the transfer of shares held by the Corporate Debtor (Nicco) in NPRL along with rights attached therein. In fact, the Articles of Associations clearly recognized that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act, 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. 63. In the backdrop of the foregoing detailed discussions and because of the fact that 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. 64. Further it is held that the Liquidator is armed with requisite powe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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