TaxTMI 
TaxTMI 
2020 (4) TMI 244
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.... 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 Dire....
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..... 3. The Learned 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 ....
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....eting that took place 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 Com....
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....to the shoes 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....
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....ration 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 nom....
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.... 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, b....
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....as 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)(c) 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....
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.... NICCO 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....
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....ontractual 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 Urba....
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....t a Receiver may give 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....
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....es not permit unfairness in any actions of the state in 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 grante....
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....h manner as may be specified: Provided that the liquidator shall not sell the 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 Pa....
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....rights and liabilities contained in the contract, including the right to a certain sum of money." (viii) In Cumbrian Newspapers 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....
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....has been conferred upon the High Court to entertain certain types of proceedings or also withdraw certain types of proceedings by or against the company in liquidation 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....
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....ner beneficial to liquidation estate. (c) Stay on any change in shareholding of Respondent No.1 and 2 or entities owned or controlled by them or any other promotes of Respondent No.5, till the 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. F....
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....any other entity which is not the Corporate Debtor. 42. 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 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 ....
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....ve Kaul) and Ms. Pallavi Priyadarshni Kaul ('The Appellant' in Company Appeal (AT) (Ins) No. 44 of 2020 and Company Appeal (At) (INS) 158 of 2019 R-1 and R-2) were refusing to step down as nominees of the 'Corporate ' (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)....
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....regard it is worthwhile to make a relevant mention of Article 140 (1) of the 'Article of Association' which runs as under: "Article 140: (1) Not less than two thirds of the total number of Directors of 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 'Article....
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....ns whatsoever, in the considered opinion of this Tribunal. 58. As regards the aspect of assignability of 25% shares held by the Nicco in NPRL along with rights attached thereto, the same has not cropped up, inasmuch as 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 Resor....