TaxTMI 
TaxTMI 
2019 (12) TMI 1290
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....s. Pallavi Priyadarshini Kaul, Ex-Director of the Corporate Debtor, (3) Mr. Abhijit Dutta, Managing Director of Nicco Parks & Resorts Limited, (4) Mr. Rahul Mitra, Company Secretary of Nicco Parks & Resorts Limited and (5) M/S. Nicco Parks and Resorts Limited (NPRL), a Company incorporated under the Companies Act, 1956 having its Registered Office in Kolkata (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 (....
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.... offices as directors of Respondent No. 5, and to co-operate with the Applicant and all prospective buyers in such manner as may be required. (iii) To direct Respondent No. 1 and Respondent No. 2 to refrain from any active obstruction, or failure to provide cooperation to the Applicant and abide by such instructions as given by the Applicant in course of and as required for the purpose 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 appli....
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....been impacted or any encumbrance has been created or magnified by him or that he has any personal interest or that there is any clash with the interest of stake holders. It is further submitted that R-1 being the representative of NPRL/Respondent No. 5 and has been directed by the Board of Directors to do so and the Liquidator cannot have any objection to the same and has prayed that the application 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 Responde....
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....ll the right which it had while it was a going concern. It is further denied that the shares of Respondent No. 5/NPRL or the amounts to be paid by a potential buyer would have any relation to control as alleged. The potential buyer cannot expect to be in "control" of NPRL and no administration or management of NPRL would be exercisable by any potential buyer of the shares of NPRL/Respondent No. 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 ....
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.... i) Whether the shares held by the corporate debtor(CD) in respondent No.5 (R-5) /Nico parks and Resorts Limited (NPRL) would include in the Liquidation Estate?. If so whether the liquidator is entitled to sell the shares with the power to nominate as per the provisions of JSA/Article of Association?. ii) Whether the shares held by the CD in R-5 are freely transferable with the right to nomination?. lii) 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 Com....
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....his application. 26. According to the Ld.Sr.Counsel for the liquidator, Mr. Rajive Kaul (R-1) and Ms. Pallavi Kaul (R-2) along with their connected parties/persons were holding substantial number of shares in Respondent No. 5/NPRL which is approximately 4.61% of the total shareholding of NPRL and there was potential conflict, as the Kauls were nominated on the NPRL when the management of NCL/CD was with them but under the 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.Co....
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....s, Non-Independent Director, Nominee of Nicco/CD and R3 is Managing Director & CEO, and Nominee of Nicco/CD. 30. In the light of the above-said proved facts, it is necessary to notice the relevant provisions of the Code and JSA so as to understand the powers of the Liquidator to deal with the shares of the CD in R-5. First of all let me examine as to whether the shares held by the CD in R-5 is the Liquidation Assets. Section 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 (includi....
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....t all under challenge in the case in hand. What is under challenge is power of replacing the nominee shares in order to exercise the right of CD in the Board meeting of the R-5. 34.Section 35 (1) (b) referred to above empowers the liquidator to take control all the assets of the CD. So, as on 17.10.2017, the liquidator becomes the custodian of all the assets and properties including the 25% of shares in R-5 of the company in liquidation, and has the right to manage, administer and control such properties and assets in connection with 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 ....
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....oint Directors in Respondent No. 5/NPRL is not a part of the Liquidation process of NICCO Corporation and Liquidator has no right to interfere in the affairs of Respondent No. 5. The Ld. Counsel for Respondent No. 1 submitted that the Liquidator himself in his letter dated 3^rd November, 2018 in para 11 submitted as under:- "It is felt that the replacement of non-executive directors who are nominated by NCL is unlikely to have any impact on the corporate governance of NPRL. It is felt that the potential disposal of NPRL shares may only be facilitated 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 withdr....
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....d July 26, 2019 on the captioned subject. We write to inform you that pursuant to the recommendations of Nomination & Remuneration Committee, the Board at its meeting held today i.e. July 26, 2019, was pleased to appoint: A. Mr. Dipankar Chatterji, as a Non-Executive Independent Director, to hold office upto the ensuing Annual General Meeting of the Company, subject to the approval of the members for a period offive years. B. (1) Mr. Atri Bhattacharya, IAS, (ii) Ms. Vandana Yadav, IAS & (iii) Mr. Tanmay Chakrabarty, IAS, as Nominee Directors, vide 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. A....
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....ls to pay any call made on him in respect of shares of the Company held by him, whether alone or jointly with others within six months from the last date fixed for the payment of call unless the Central Government has by notification in the Official Gazette removed the disqualification incurred by such failure or; e) He accepts or holds any office or space of profit under the Company or any subsidiary thereof is held in contravention of Section 314(2) of the Act and the Director shall have been deemed to have vacated office in terms of the said section; f) He (whether by himself or by any person for his benefit or on his account) or any firm 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 o....
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....res are sold, the Company will stand liquidated. The relevant paragraphs of the judgment are reproduced below:- "Pacific Brands' case is that the sub-licence was assigned to it and as a consequence it stood in the shoes of Sara Lee. Plainly this is incorrect. In the absence of novation it is not possible to bring about a substitution of parties to a contract. One reason is that in the absence of consent it is not possible to transfer the burden of a contract, although in certain instances a party's performance may be delegated to a third party: The British Wagon Company and the Parkgate Wagon Company v Lea & co. (1880) 5 QBD 149, 153. On the other hand, it is usually possible to assign 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 actio....
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....ing Society (1998) 1 WLR 896, 915. There the House of Lords held that a right to rescind a mortgage for misrepresentation of breach of duty is not a chose in action capable of assignment, but if the mortgaged property was itself assigned the right to rescind for an act which occurred before the assignment of the property might go with it. 46. The attempt on the side of the Ld.Sr.Counsel for the Respondents is that what are the rights arising under a contract alone can be assigned to a third party and personal right of a shareholder is non-transferable. According to him, the agreement does not give the Liquidator any right to either nominate or remove any of the Directors in Respondent No. 5. He would further 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 a....
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.... and financial instruments, insurance policies, contractual rights." 51. The Ld. Sr. Counsel also sought to compare the provisions of new Companies Act and corresponding provisions in the old Act side by side, to reply to the main set of the arguments of the Ld. Counsel for RI, R2 & R-5. Ld. Counsel submitted that there is no change in the law as stated by the Ld. Counsel for R-5. It is stated that Section 6 of the new Act is absolutely para materia with Section 9 of the old Act and Section 169 is para materia with Section 284 of the old Act and that there is no change under the law as stated by Ld. Counsel for R-5. The Liquidator of NICCO has the power to remove the Director in R-5 who had been nominated 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 fam....
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....that the Delhi Cricket Association case being the latest, it would be relied upon by us. According to him submission of Ld.Sr.Counsel for the liquidator is contrary to the legislation i.e. Section 284 & 169. The Ld. Sr. Counsel for the liquidator submits that when there are two judgments by two single Judges of coordinate benches, who are differing in their views, then the first judgment will prevail and not the 2 nd one. If the 2 nd one differs with the first one, then it must go to the larger Bench. Since the 2 nd one has not been referred to a larger Bench, the first judgment would prevail. We find some force in the submission on the side of the liquidator. 55. 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 a....