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TMI Blog2019 (12) TMI 1290X X X X Extracts X X X X X X X X Extracts X X X X ..... rectors shall extend full cooperation to the liquidator in discharge of his functions and duties. Here, in this case they have failed in co-operating with the liquidator and also were reluctant to vacate the office as the nominee directors of CD in R-5. The Articles of Associations were entered into with express consent of the parties. The eventualities arising out of retirement, dismissal, removal or vacation of office voluntarily are dealt with in the agreement. Truly, eventualities like discharging authority conferred on nomination upon force of law is not dealt with in the agreement or in the Article of Association. But it appears to us that as per section 238, provisions of the Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law to override other laws. That being the legal position as of now, there is notice of discharge to the nominee directors of the CD in R-5 as per section 33(7) of the Code. The application filed by the Liquidator deserves consideration. It has come out in evidence that RI and R2 acted against the interest of the liquid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olkata (hereinafter referred to as Respondents 1,2,3,4 and 5 respectively). Respondent No. 5/NPRL, is the Company presently under Joint Control of the Corporate Debtor and 2(Two) West Bengal Government entities, in terms of the Joint Sector Agreement. 2. The relevant facts for deciding the points are the following:- a) The corporate debtor/ Nicco Corporation Limited was ordered to be liquidated for the reason of non availability of resolution plan under section 33 (1) (a) (l) of the Code vide order dated 17th October, 2017. Mr. Vinod Kumar Kothari, was appointed as the liquidator and while continuing the liquidation process he filed this application for the reason of his failure in nominating directors at his own choice in exercise of his alleged power under the provisions of Joint Sector Agreement (JSA) dated 23.09.1990 ( Annexure - A). b) The corporate debtor holds 25% shares in Respondent No. 5, a company formed as a joint-venture of the Corporate Debtor, and West Bengal Tourism Development Corporation along with West Bengal Industrial Development Corporation. The Board of Directors of Respondent No. 5 include 3 nominee directors i.e. the Respondents 1 to 3 herein, repr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of beneficial liquidation of the assets of the Corporate Debtor. (iv) To direct the Respondents to take on record and act on the decision of Applicant for replacement of nominees of the Corporate Debtor on the board of Respondent No. 5, and note the induction of new nominees nominated by the Applicant vide decision dated 03.11.2018. 3. Respondent Nos. 1 2 vide their reply dated 30th April, 2019 and 1st May, 2019 stated that the notice and directions to step down as Directors of NPRL is ultra-vires the powers, authorities and sanctions as a Liquidator and contrary to the provisions of applicable law and the Articles of Association, and it would not be possible for them to vacate their Board seat as directed by the Liquidator. 4. Mr. Rajive Kaul, Respondent No. 1 in this application filed his affidavit in opposition through his Son Mr. Siddhant Narayan Kaul, as his duly authorized representative, who has deposed that after reading the copy of the application of the Liquidator, he found the application as misconceived, not maintainable in law and prayed that the application might be dismissed in limine with exemplary costs. It is submitted by him that the powers, rights, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should be rejected. 9. Similarly, Respondent No. 2 Ms. Pallavi Priyadarshini Kaul has also filed affidavit in opposition through her brother Mr. Siddhant N?rayan Kaul as her duly authorized representative who has deposed that the stand and defence taken by Respondent No. 2 is more or less the same as that of Respondent No. 1. Respondent No. 2 has denied the contents of the application as misconceived and not maintainable in law. 10. It is submitted that Respondent No. 2 is a non-executive Director in Respondent No. 5/NPRL and participation of Respondent No. 2 on the Board of Respondent No. 5/NPRL is in no manner prejudicial to the interest of Respondent No. 5 Company or its stakeholders or Corporate Debtor in liquidation. Respondent No. 2 has denied that the action of the Respondent No. 2 in refusing to step down is bad in law or malafide or discloses any conflict of interest. It is further submitted that Respondent No. 2 has been a Director of Respondent No. 5/NPRL for the last 15 years and was re-elected on the Board of Respondent No. 5/NPRL at its 29th Annual General Meeting held on 28th September, 2018. On 28th September, 2018, and also again in 26th July, 2019, Responde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. 15. It is further denied that Respondent Nos. 1, 2 or 3 are acting against the interest of the Corporate Debtor or are exceeding their powers or duties as Directors. It is stated that the applicant has failed to substantiate the alleged conflict of interest and that there is no basis for making such an allegation, and all the allegations against Respondent Nos. 1,2, 3 5 are mere speculative in nature and the applicant has failed to substantiate any such allegation. 16. It is denied that Respondent Nos. 1 or 2 should be restrained from interfering with the management of NPRL/Respondent No. 5. The Respondent further submits that the instant proceedings do not relate to the affairs of Respondent No. 5, its management or administrative and therefore, no relief can be granted as prayed in the applicant. 17. It is submitted that the contractual right sought to be exercised under section 7 of the JSA and Article 121 of the Articles of Association is not a shareholders right in a Company and is not a right which shall travel with the shares or capable of being sold and therefore cannot be termed to be a right that can be transferred along with the transfer of a shareholding. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) Whether the liquidator has the right to remove a nominee director of the CD in R-5, and make appointment in his place?. iv) Whether the nomination of the directors in R-5, stand automatically discharged as per section 33(7) of the Code?. If so, can the liquidator appoint nominee directors in R-5?. 22. Point No. i ii. Both these points are taken together for convenience and for avoiding repetition of facts. 23. Holding 25% shares by the CD in R-5 as per the terms and conditions in the Joint Sector Agreement (JSA) is an admitted fact. R-5 was also admittedly formed by executing the JSA between West Bengal Tourism Corporation Limited and the West Bengal Industrial Development Corporation Limited on the one hand, and the National Insulated Cable Company India Limited (Nicco) / CD on the other hand. The R-5 Company is known under the name and style of Nicco Park and Resorts Limited is having an authorized share capital of Rs. (Rupees Ten Crore Only) divided into Equity shares of ₹ 10/- each. By way of clause 5, 15% shares will be subscribed by the West Bengal Tourism Corporation Limited and 11% to be subscribed by the West Bengal Tourism Development Corporation Limit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e current scenario where the control over NCL/CD has been shifted to the Liquidator, balancing their own interest as substantial shareholders, with those of NCL/CD may be fraught with conflicts of interest and there does not remain justification for them to continue as nominees of NCL/CD which is presently under control of the Liquidator. He further would submit that the Liquidator has got the power to deal with sale of the shares held by the CD in R-5 along with the power of nomination and since his effort to sell without replacing the existing delinquent nominees RI and R2, no prospective buyers would turn up and, therefore, this application deserves to be allowed for the interest of maximization of value of shares. 27. Ld. Counsel for RI and R2 and Ld.Sr.Counsel for the R5 seriously objected to the said submission and submitted that Respondent No. 2 is a non-executive Director in Respondent No. 5/NPRL and participation of Respondent No. 2 on the Board of Respondent No. 5/NPRL is in no manner prejudicial to the interest of Respondent No. 5 Company or its stakeholders or Corporate Debtor in liquidation. According to them, the action of the Respondent No. 2 in refusing to step d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 36 of the Code deals with Liquidation Estate. The relevant sub section describing the inclusion shares in the liquidation assets read as follows:- 36(3) (a) any assets over which the corporate debtor has ownership rights, including all rights and interests therein as evidenced in the balance sheet of the corporate or an information utility or records in the registry or any depository recording securities of the corporate debtor or by any other means as may be specified by the Board, including shares held in any subsidiary of the corporate debtor; (d) intangible assets including but not limited to intellectual property, securities (including shares held in a subsidiary of the corporate debtor) and financial instruments, insurance policies, contractual rights; 31. So, no doubt the shares held by the CD in R-5 falls in the liquidation assets of the CD. That being so the liquidator shall hold the shares as the liquidation estate as a fiduciary for the benefit of all creditors. In view of his power to hold the shares as the liquidation estate, let us examine the powers of the liquidators in dealing with sale of the shares hold by the CD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the liquidation of the said company. It is made clear that the liquidator has got the right to deal with the 25% shares in R-5 and can take control over the nominee nominated by the CD in the Board of R-5. In view of the said factors it appears to us that if the CD has the right to sell the shares and if it is freely transferable, what is attached to the shares also is freely transferable. 35. The Ld. Sr. Counsel for the liquidator further would submit that as per Section 35 of the Code, the Liquidator is entitled to replace the existing nominees of the said Company in liquidation, in the Board of NPRL/CD and to appoint his own nominees. This is more so, in-as-much as:- i) The nominees of the said company in liquidation in the Board of the NPRL are the delinquent promoter directors of the said company in liquidation. ii) The Respondent Nos. 1 2 were the promoters/directors of NICCO Corporation Limited/CD. The said promoter/directors of NICCO Corporation Limited/CD being responsible for the dissolution/liquidation of the said company cannot be permitted to reap the benefits of their own misdeeds by remaining in the management and control of NPRL/CD as the nominee of the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tated if there is a transitional change in nominees . 38. The Ld. Counsel further submitted that directors of R-5 are from the Government Officers on the Board of Respondent No. 5/NPRL who have been elected by shareholder in its AGM. According to the Ld. Counsel, it is not a Group Company nor a subsidiary of Company of NICCO Corporation. So, according to the respondents, the liquidator cannot remove or replace the existing directors of R-5. 39. Ld. Sr. Counsel for the liquidator referred to sub clause 4 of Article 140 of the Articles of Association to stress his submission that as West Bengal Government can nominate and withdraw according to its own discretion but, liquidator cannot do that when West Bengal does so, is an argument could not be raised on the side of R-5 in view of the very same power vested in the Article of Association, when The West Bengal Government has exercised the said right of nomination. According to him Section 169 of the companies Act,2013 is not a bar to the West Bengal Government for exercising its right of nomination as per the clauses in the agreement but would stand in the way when the liquidator does so, is an inconsistent argument. He also ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide Notification No: - WBlDC/CA/NPRL/749 dated 25th July, 2019, to hold office upto the ensuing Annual General Meeting of the Company, subject to the approval of the members at the ensuing AGM. (1) Mr. Ajit Ranjan Bardhan, IAS, (ii) Mr. Surendra Gupta, IAS, and (iii) Mr. Chinna Murugan, IAS have ceased to be Nominee Directors of the Company w.e.f. 26th July, 2019, vide Notification No. WBIDC/CA/NPRL/749 dated 25th July, 2019. The Board of Directors of the Company on the recommendations of Nomination Remuneration Committee, at the meeting held today i.e. July 26, 2019, has also re-appointed, Mr. Abhijit Dutta, Managing Director CEO for a further term of two years with effect from January 1, 2020 upto 31 st December, 2021, subject to the approval of the members at the ensuing AGM. For Nicco Parks Resorts Limited Sd/- Rahul Mitra Senior Vice President Company Secretary. 41. On a reading of the Article 140 and the updates referred to above, it has come out in evidence that in exercise of similar power vested in the West Bengal Government who is holding 26% of shareholding in R-5 had replaced existing nominee directors upon cessation of nomination in the Boa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in which he is a partner or any private company of which he is a Director accepts a loan or any guarantee or security for a loan from the Company in contravention of Section 295 of the Act, or g) He absents himself from three consecutive meetings of the Board of Director or from all meetings of the Board for a continuous period of three months, whichever is longer, without obtaining leave of absence from the Board, or h) He becomes disqualified by any order of court (as defined in the Act) under Section 203 of the Act or; i) He acts in contravention of Section 299 of the Act and by virtue of such contravention shall have been deemed under the Act to have vacated office or; j) He is convicted by a court of any offence involving moral turpitude and sentenced in respect thereof to imprisonment for not less than six months or; k) He having been appointed a Director by virtue of his holding office or other employment in the company ceases to hold such office or other employment in the Company. 43. On a reading of above referred articles, it is certain that the CD has got the right to maintain the required number of its nominated directors in R-5. Here in this case, by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gn the benefit of a contract, although the use of the word benefit in this context is somewhat misleading. Strictly speaking what is capable of assignment is a chose in action. According to English law all personal [property is] either in possession or in action. Colonial Bank v Whinney (1885) 30 Ch D 261, 285 per Fry U whose dissenting judgment was upheld by the House of Lords: (1886) 11 AC 426. A chose in action is a right of property which can only be claimed or enforced by action: Torkington v Magee (1902) 2 KB 429, 430. Thus, a chose in action includes a debt, a right of action on a contract and a right to damages for its breach: Loxton v Moir (1914) 18 CLR 360, 379. In relation to rights arising under a contract, it is sometimes helpful to keep in mind the distinction drawn by Lord Diplock between the primary obligations assumed by a party under a contract and those obligations which he referred to as the defaulting party's substituted or secondary obligations to pay monetary compensation (for example, damages) for the non-performance of a primary obligation: Photo Production Ltd v Securicor Transport Ltd [1980] AC 827, 848-849. Both primary and secondary obligations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther argue that it was a sort of personal right and would not travel or survive any change of the shareholding of the 3 rd party. The right of appointment or nomination does not survive if the shareholding is sold. It is submitted that the right to appoint or nominate directors will extinguish with the sale of the shareholding. 47. The facts in the said case are not exactly similar to the facts in the case in hand. One thing is certain. It is settled law that the terms in an agreement would prevail. If agreement provides right of nomination and a right of removal to a holder of shares of R-5, that right might go with sale/assignment. In view of the above said settled position of law, we have no hesitation in holding that right of nomination in law is capable of assignment unless it is specifically barred under the Article of Association. These points are answered accordingly. Point Nos. iii iv. These points also taken together for convenience and for avoiding repetition of facts. 48. Both Ld. Counsel for the respondents reiterated an argument that removal of nominee directors can only be done by ordinary resolution by R-5. Stressing their said argument, they have relied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by NICCO. 52. 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 category 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 Director will have to be appointed as per the agreement. Now, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with express consent of the parties. The eventualities arising out of retirement, dismissal, removal or vacation of office voluntarily are dealt with in the agreement. Truly, eventualities like discharging authority conferred on nomination upon force of law is not dealt with in the agreement or in the Article of Association. But it appears to us that as per section 238, provisions of the Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law to override other laws. That being the legal position as of now, there is notice of discharge to the nominee directors of the CD in R-5 as per section 33(7) of the Code. We are not asked to decide the right of elected directors from the shareholders of the R-5. The rights of elected directors from the shareholders by the General Body to continue till they were removed, and the nominee directors to continue the directorship appears to us are different. It also appears to us that the directors appointed by the shareholders in AGM, can be removed only by the shareholders by ordinary resolution passed in General Body. We ..... X X X X Extracts X X X X X X X X Extracts X X X X
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