Tribunal allows liquidator to sell shares and appoint directors in liquidation estate

The Tribunal held that the shares held by the corporate debtor in respondent No. 5 are part of the Liquidation Estate, allowing the liquidator to sell them and nominate directors. The liquidator can remove existing nominee directors and appoint new ones post liquidation order. The liquidator's authority to manage and sell the shares, along with appointing new directors, was affirmed for the beneficial liquidation of assets. Respondents were directed to vacate their positions, and respondent 5 was instructed to cooperate with the liquidator's decisions. The application was disposed of, with certified copies to be issued upon compliance.

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Issues Involved:
1. Whether the shares held by the corporate debtor in respondent No. 5 (R-5) would include in the Liquidation Estate and whether the liquidator is entitled to sell the shares with the power to nominate as per the provisions of JSA/Article of Association.
2. Whether the shares held by the corporate debtor in R-5 are freely transferable with the right to nomination.
3. Whether the liquidator has the right to remove a nominee director of the corporate debtor in R-5, and make an appointment in his place.
4. Whether the nomination of the directors in R-5 stands automatically discharged as per section 33(7) of the Code, and if so, can the liquidator appoint nominee directors in R-5.

Issue-wise Detailed Analysis:

Issue 1 & 2: Inclusion of Shares in Liquidation Estate and Transferability with Right to Nomination
The Tribunal examined whether the shares held by the corporate debtor (CD) in R-5 are part of the Liquidation Estate and if the liquidator can sell these shares with the power to nominate directors. It was established that the CD holds 25% shares in R-5, formed under a Joint Sector Agreement (JSA). The shares held by the CD in R-5 are included in the liquidation assets as per Section 36(3)(a) and (d) of the Insolvency and Bankruptcy Code, 2016. The liquidator, therefore, holds these shares as part of the liquidation estate and has the authority to manage and control them. The liquidator's power to sell the shares is affirmed under Section 35 of the Code, which allows the liquidator to sell the shares by public auction or private contract, provided the buyer is eligible under Section 29A of the Code. The Tribunal concluded that the right of nomination attached to the shares is also transferable unless specifically barred by the Articles of Association.

Issue 3 & 4: Right to Remove and Appoint Nominee Directors
The Tribunal addressed whether the liquidator has the authority to remove the nominee directors of the CD in R-5 and appoint new ones. It was noted that the nominee directors of the CD in R-5 are bound by the directions of the liquidator as per Section 19 of the Code and Section 284 of the Companies Act, 2013. The Tribunal referred to Section 33(7) of the Code, which states that an order for liquidation is deemed to be a notice of discharge to the officers of the corporate debtor. Therefore, the nominee directors' positions are automatically discharged upon the liquidation order unless the liquidator decides otherwise. The Tribunal found that the liquidator has the power to remove the existing nominee directors and appoint new ones to ensure the beneficial liquidation of the CD's assets.

Conclusion:
The Tribunal concluded that the liquidator has the authority to manage, control, and sell the shares held by the CD in R-5, including the right to nominate directors. The existing nominee directors of the CD in R-5 are required to vacate their positions, and the liquidator's decision to appoint new nominee directors must be accepted by R-5. The application filed by the liquidator was allowed, directing the respondents to comply with the liquidator's instructions for the beneficial liquidation of the CD's assets.

Orders:
1. Respondents 1 and 2 are directed to vacate their offices as nominee directors of the CD.
2. Respondent 5 is directed to accept the liquidator's decision regarding the nomination of directors and cooperate by providing necessary details for the sale of shares.
3. The application (CA(IB) No. 669/KB/2019) is disposed of accordingly.
4. Certified copies of the order may be issued to all concerned parties upon compliance with requisite formalities.

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