Nicco Parks And Resorts Ltd vs Vinod Kumar Kothari & Ors

Rajive Kaul ...Appellant

Versus Vinod Kumar Kothari & ors ...Respondents

For the Appellant: Mr. S.N.Mookherjee, Senior Advocate, Mr. Krishnendu Dutta, Mr. Arijit Mazumdar and Mr. Devesh Ajmani, Advocates.

For the Respondent : Mr. Sudipto Sarkar, Senior Advocate Mr. Anirudh Wadhwa, Mr.Lakshya Kampani, Advocate for R-1.

With Company Appeal (AT) (INS) No.224 of 2020

IN THE MATTER OF:

Nicco Parks and Resorts Ltd ...Appellant

Versus Vinod Kumar Kothari & ors. ...Respondents

For the Appellant: Mr. Ratnanko Banerjee, Senior Advocate, Mr. Nilanjan Bhattacharjee, Advocates. For the Respondent : Mr. Lakshya Kampani, Advocate for R-1.

With Company Appeal (AT) (INS) No.1518 of 2019

IN THE MATTER OF:

Pallavi Priyadarshini Kaul ...Appellant

Versus Vinod Kumar Kothari & ors ...Respondents 2

Present: For the Appellant: Mr. S.N.Mookherjee, Senior Advocate, Mr. Krishnendu Dutta, Mr. Arijit Mazumdar and Mr. Devesh Ajmani, Advocates.

For the Respondent : Mr. Sudipto Sarkar, Senior Advocate Mr. Anirudh Wadhwa, Mr.Lakshya Kampani, Advocate for R-1.

J U D G M E N T VENUGOPAL M.J.

1. The Appellants have focused the present Appeals as 'Aggrieved Persons' in

respect of the order dated 18.12.2019 in C.A.(IB) No. 669/KB/2019 in C.P

(IB) No. 03/KB/2017 passed by the Adjudicating Authority, the National

Company Law Tribunal, Kolkata Bench.

2. The Adjudicating Authority, while passing the impugned 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. 3

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 Director will have to be appointed as per

the agreement. Now, the Liquidator stands in the foot of the

Company, i.e. NICCO and therefore the liquidator has the

power to remove.

To stress his above said view, he cited two judgments.

Bombay High Court judgment reported in Smt. Farrel

Futado vs. State of Goa and Others on 3 September, 1992

and (2008) 1 CompLJ 283 Del, 2008 84 SCL 75 Delhi.

According to him, as per Section 169 (8)(b) nothing in this

Section shall be taken as derogative from any power to remove

the Director under other provisions of the Act and placed

reliance para 17 of the Delhi High Court Judgments. It reads

as under.

4

Para 17. "In view of the aforesaid, it is not in doubt that though

there is a mandate contained under section 284 of the said Act

that is not the only methodology for removing a Director. It is

noted in the judgment that there may be eventualities like

retirement, dismissal, removal or vacation of office voluntarily.

The present case is one of removal of the plaintiff. The judgment

makes it clear that where Articles of Association confer power

on the Board of Directors to remove a director, such power is

not affected by the provisions of Section 284 of the said Act. I

am in full agreement with this view. The Articles of Association

are in the nature of an agreement between the shareholders

who are the joint owners of the company. If some specific

methodology is devised by consent, nothing precludes the

members/shareholders from doing so. The question to be

considered is whether the present Articles of Association do

provide for such a procedure." and ultimately held that the

'Liquidator' has the power to remove the 'Nominee Directors'

and can nominate 'Directors' and that the Fifth Respondent

(NICCO Parks and Resorts Limited) is bound to act upon the

proposals of replacement of existing 'Nominee Directors' of

Corporate Debtor and direct R-2 and R-2 'Rajive Kaul and

Pallavi Priyadarshini Kaul', to forthwith vacate their offices as

Nominee Directors of the Corporate Debtor, with the further 5

direction to the Fifth Respondent (NICCO Parks and Resorts

Limited) to accept the proposal/decision of the Liquidator in

regard to nomination of Directors and shall cooperate with him

providing necessary details asked for enabling him to sell the

shares held by the Corporate Debtor in the Fifth Respondent.

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 as Nominee Director of the NICCO Corporation Ltd (Corporate Debtor)

on the Board of NICCO Parks and Resorts Ltd. in the year 2004 and

subsequently, during 2008, 2010, 2012, 2014, 2016 and 2018, when she had

retired by rotation, offered herself for reappointment and was appointed by the 6

NICCO Parks and Resorts Ltd. (NPRL). On every occasion, in its Annual General

Meeting' in accordance with Art 140 of the Articles of Association of 'NICCO Parks

and Resorts Ltd,'. Furthermore, on such appointments, the Appellant ceased to

be a Nominee or Representative Director of the Corporate Debtor (NICCO

Corporation Ltd.)

5. The Learned Counsel for the Appellants brings to the notice of this Tribunal that

the shareholders of NICCO Parks and Resorts Pvt. Ltd. other than NICCO being

the Government of West Bengal and the Public shareholders (since NPRL is a

listed Company) account for approximately 66 per cent of the total shareholding

of 'NPRL'. In this connection, it is represented on behalf of the Appellants that

apart from 'NICCO', the shareholders of 'NPRL'(including the Government of West

Bengal and members of the Public) who hold approximately 75 per cent of the

shareholding of 'NPRL'. And therefore, the Appellants (in both the Comp. Appeals

(AT) 44/2020 and Comp. Appeal (AT) 1518/2019 were appointed as Directors of

'NPRL' by the majority members (including the Public).

6. The Learned Counsel for the Appellants points out that the procedure for the

appointment of the Appellants' in all the aforesaid Annual General Meetings' was

mentioned under Sec 256 of the Companies Act, 1956 and/or Sec 152 of the

Companies Act, 2013.

7. The Learned Counsel for the Appellants contends that the First

Respondent/Liquidator's proposal for replacement of Nominee Directors was

deliberated in the Board Meeting of 'NICCO Parks and Resorts Pvt. Ltd.' that took

place on 3.1.2019, and the same was rejected by the Board. At this stage, the

Learned Counsel for the Appellants takes a stand that the Appellants (Rajive Kaul 7

and Pallavi Priyadarshini Kaul) had not participated in the discussions and they

abstained from voting on the Resolution.

8. The Learned Counsel for the Appellants contends that the Appellants in Comp.

Appeal (AT) 44/2020 and the Appellant in Comp. Appeal (AT)(Ins) 1518/2019

were appointed as 'Directors' in their individual capacity in the Thirtieth Annual

General Meeting 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 Companies Act, 1956 and Sec 169 of the

Companies Act, 2013 was noted in the judgment Delhi and District 8

Cricket Association v. Vinod Tihara and Others, reported in 2019 SCC

Online Delhi 9012.

10. The Learned Counsel for the Appellants submits that from the

perusal of the Joint Sector Agreement dated 23.2.2019, it is evident that

the parties to the Agreement are defined by name and such description of

them does not include the expressions that would typically include the

'Heirs' or 'Assigns' or 'Successors'. More importantly, it is represented on

behalf of the Appellants that the power to nominate the Managing Director

was given only to 'NICCO' and such exercise of 'Right of Nomination' is

the then pre-existing business relationship between the parties to the

aforesaid Agreement, viz., 'The Government of West Bengal' and 'NICCO'.

11. Yet another plea raised on behalf of the Appellants is that Clause 13

of the 'Joint Sector Agreement' exclusively restricts the Assignment of

Benefits or Burdens of the Agreement by any of the parties without the

consent of the other and in fact, the Agreement remains in force as long

as the 'parties' hold shares in proportion as mentioned in Clause 5 of the

Agreement. Therefore, it is the contention of the Appellants that the 'Right

to Nominate', being a 'Contractual Right' agreed between the parties is

essentially 'person in character' and the right being only to NICCO cannot

be exercised either by the Liquidator or any subsequent purchaser of the

'NPRL' shares.

12. To lend support to the plea that 'a contract of personal nature' or

which is based on a personal right cannot possibly assigned to another, 9

the Learned Counsel for the Appellants refers to Sec 40 of the Indian

Contracts Act, 1872 and also the decision Kapila Ben & Ors. V. Ashok

Kumar Jayantlal reported in 2019 SCC Online 1512 and the decision

of the Hon'ble Supreme Court in Khardah Company Ltd. v. Raymon &

Co. (India) Private Ltd., reported in AIR 1962 SC 1810 and added

further the 'Articles Of Association' of 'NPRL' provides the right to nominate

by name to 'NICCO' only vide 'Article 121' and the exercise of such rights

of nomination along with the right to nominate Managing Director of the

NPRL was given to only 'NICCO' and no other entity other than 'NICCO'

can exercise it.

13. The learned Counsel for the Appellants contends that the 'Liquidator

steps into 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.

10

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, 2013, by a

ordinary resolution passed by the shareholders of the Company.

16. The Learned Counsel for the Appellants forcefully contends that the

provisions of the I & B Code do not confer any power on a 'Liquidator' to

assert any right to manage or interfere with the management and business

of a separate Company, which is neither in liquidation nor part of the legal

proceedings. In fact, it is the stand of the Appellants that 'a Liquidator's

duty is only to assist the Corporate Debtor and to realise such 'sale

proceeds' of the shares for distribution of 'the proceeds' in discharge of his

obligation under the Code. The Learned Counsel for the Appellants

contends that the 'Liquidator' neither in his letter dated 3.11.2018 nor in

the course of his pleadings had shown as to how the removal of 'Directors'

from the Board of NPRL and the appointment of nominees of the Liquidator

on the 'Board of NPRL' is required for the beneficial Liquidation of the

Corporate Debtor. The Learned Counsel for the Appellants refers to the

Email of the Liquidator dated 4.4.2019 to IBBI and stated that the reasons 11

behind his inability to dispose of the shares of 'NICCO' in 'NPRL' and the

presence of the Appellants on the Board of NPRL was not one of them.

17. The Learned Counsel for the Appellants submits that the

Adjudicating Authority had directed the Appellant to vacate the office as

'Nominee Directors' of the 'Corporate Debtor' and such direction was

issued in spite of the fact that the Appellants were no longer Nominee

Directors of the Corporate Debtor and were appointed as Directors in their

individual capacity on the Board of 'NPRL' by the shareholders of NPRL, in

a duly convened Annual General Meeting in accordance with the

provisions of the Companies Act. In short, the directions issued by the

Adjudicating Authority were beyond its competence.

18. The Applicant/Appellant (Nicco Parks and Resorts Limited in

Company Appeal (AT) (Ins) No. 224 of 2020) filed I.A No. 585 of 2020

praying for condonation of 6/7 days in refiling the Appeal and on being

satisfied subjectively as to the reasons mentioned in the application, that

the defects were not noticed and they were unintentional, the delay in

question is condoned, to prevent an aberration of Justice.

19. The Learned Counsel for the Appellant( in Company Appeal (AT) (Ins)

No. 224 of 2020) submits that the NICCO Corporation 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 12

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 'Two Directors' on 'Board of NPRL'. The Learned Counsel for the

Appellant points out that the ultimate duty of the 'Liquidator' is to apply

for 'Dissolution of the Corporate Debtor' before the 'Adjudicating Authority'

and thereafter, the Corporate Debtor is to be dissolved as per Sec 54 of the

I & B Code, 2016.

21. The Learned Counsel for the Appellant submits that the impugned

order of the Adjudicating Authority is beyond the ambit of the Code,

especially Sections 35, 36, 37 and 40 of the I & B Code. Moreover, the

Government of West Bengal who owns 26% of the shareholding of NPRL as

well as Public shareholders (total public shareholding is 40%

approximately) had voted for appointment of both the proforma R-4 and 13

R-5 and that the proforma Fourth Respondent had obtained 71.5% votes

to be appointed as Director and the proforma Fifth Respondent had

secured 99.30% of votes to be appointed as Directors.

22. The Learned Counsel for the Appellant takes a legal plea that by

virtue of Sec 6 of the Companies Act, 2013, the provisions of the Companies

Act, 2013 overrides the 'Articles of Association' and that 'the Adjudicating

Authority' is not to permit the 'Liquidator' to remove Directors of another

Company or to direct the Liquidator to appoint its Nominees on the Board

of another Company which is neither in Liquidation nor is a part of

Liquidation Process. Besides this, no casual link exists as to why the

appointment of Nominee Directors in another Company will be required

for the purpose of selling the shares held in that Company and no casual

link was shown.

First Respondent Submissions

23. The Learned Counsel for the First Respondent (Liquidator) contends

that 'NICCO Parks and Resorts Ltd.' was incorporated on 17.3.1989 and

on 23.2.1990, it was converted into a 'Joint Sector Undertaking' between

'NICCO' and two State-owned Corporations, (1) West Bengal Tourism

Development Corporation Ltd. and (2) West Bengal Industrial Development

Corporation Ltd., by means of a Joint Sector Agreement dated 23.2.1990.

As a matter of fact, the shareholding of 'NPRL' was split between 'NICCO'

(25%), the State-owned Corporations (26%) and the remaining 'Capital'

was partly with the Public, partly with the 'Kauls' and partly with some 14

other shareholders. The Learned Counsel for the First Respondent

submits that Clause 7 of the 'Joint Sector Agreement' recognises 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 their re-appointment, they retained their

status as 'Nominees' as per Art. 140(4) of NICCO Parks and Resorts

Limited. Furthermore, as on 8.1.2018, the Nominees of NICCO on the

Board of NPRL included Rajive Kaul and Ms. Pallavi Kaul. 15

24. The Learned Counsel for the First Respondent/Liquidator brings it

to the notice of this Tribunal that the First Respondent/Liquidator, after

his appointment as Liquidator of Corporate Debtor had made numerous

endeavours to inform Rajive Kaul and Ms. Pallavi Kaul and Abhijit Dutta

(Managing Director of 'NPRL') that due to their status of Nominees of

NICCO on the Board of NPRL, they were legally obligated to follow the

terms of 'Joint Sector Agreement' and 'Articles of Association', including

among other things, sharing certain information relating to 'NPRL' with a

view to enabling the Liquidator to effectively carry out the Liquidation

Process of 'NICCO'. But the said requests were made with unwarranted

resistance from Rajive Kaul and Ms. Pallavi Kaul who refused to cooperate.

25. The Learned Counsel for the First Respondent contends that

because of the non-cooperation and unresponsive attitude of the

Appellants and bearing in mind the apparent conflict in Kauls being

disqualified from holding any office conferred by the Corporate Debtor and

ineligible in terms of Sec 29A of the I & B Code, 2016, to hold or enjoy any

part of the 'Estate of the Corporate Debtor' at the behest of the Monitoring

Committee of NICCO (consisting of the Creditors of 'NICCO') perforced to

exercise on behalf of 'NICCO' the rights attached to 25% of shares held by

NICCO in NPRL and remove the Appellants as 'Nominees of NICCO on the

Board of NPRL' as per notice dated 3.11.2018. In fact, neither the

'Appellants' nor 'NPRL' had adhered to the notice dated 3.11.2018 in spite

of several follow-ups made by the Liquidator and through Emails dated 16

30.4.2019 and 1.5.2019, Rajive Kaul and Pallavi Kaul had refused to

vacate the Board seats occupied by them as 'Nominees of NICCO'. Hence

the First Respondent/Liquidator filed CA(IB)669/KB/209 in June 2019

before the Adjudicating Authority (NCLT, Kolkata) seeking removal of the

'Appellants' from the Board of 'NPRL' which had culminated in the

impugned order being passed on 18.12.2019.

26. Expatiating his submission, the Learned Counsel for the First

Respondent submits that the shares of NPRL owned by NICCO 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)© of the 'Articles of Association of

NPRL' as well as Clause 7 of the 'Joint Sector Agreement', the First 17

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 which is brought to the notice of this Tribunal by the First

Respondent/Liquidator is that it is quite evident from the compliance

intimation dated 26.7.2019 sent by 'NPRL' to the Bombay and Kolkata

Stock Exchanges. The Appellants allowed the State Corporations to

exercise their rights under the 'Articles of Association of NPRL' by allowing

them to replace their Nominees on the Board of NPRL. But, at the same

time, they had illegally and with malafides prevented "NICCO' from

exercising the same right on the completely unfounded pretext that

provisions of Sec 169 of the Companies Act, 2013 are to be complied with

for removal of the 'Nominee Directors'. Furthermore, Rajive Kaul and

Pallavi Kaul do not have a right independent of them being 'Nominees of

NICCO to be Directors' on the Board of NPRL'. Also that from a perusal of

the 'Annual Report of NPRL' for the Financial Year 2017-18, Rajive Kaul

and Ms. Pallavi Kaul were (as on 31.3.2018) continuing on the Board of

NPRL as Nominees of 'NICCO' and not as Independent Directors of NICCO

Park and Resorts Pvt. Ltd.

28. The Learned Counsel for the First Respondent contends that the

Minutes of the Twenty-Ninth Annual General Meeting of 'NPRL' and

Thirtieth Annual General Meeting of NPRL clearly point out that the

Resolutions passed therein were for the 'reappointment' as Nominees of

NICCO on the Board of 'NPRL'. It is the specific contention of the First 18

Respondent that the 'Kauls' had only offered themselves for reappointment

on the Board of NPRL as seen from the notices of Twenty-Ninth and

Thirtieth Annual General Meetings of NPRL and as such they could not

have been appointed as Directors of 'NPRL' in their individual capacities.

As such, the Kauls' contention that the Agenda in the notices for the

Twenty-Ninth and Thirtieth Annual General Meetings of NPRL being

identical to the Agendas in the notices for the Twenty-Fifth and Twenty-

Sixth Annual General Meetings of NPRL were for their reappointment as

Directors of NPRL in their individual capacities and not as 'Nominees of

'NICCO'' on the 'Board of NPRL', is misconceived and a clear afterthought.

29. The Learned Counsel for the First Respondent contends that the

Appellants being ineligible under Sec 29A of the Code cannot be allowed

to enjoy any advantage or benefit arising out of the 'Liquidation Estate of

NICCO' or to enjoy the usufructs of an asset of 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 19

'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 'shares' being in the nature of movable

property carry with them all the attributes of such property and further

represent a bundle of rights including inter alia, the right to exercise the

voting rights attached to the shares, right to elect Directors and thus to

participate in the management through such Directors. As per decisions

LIC of India v Escorts Ltd. & Ors., (1986) 1 SCC 264 (vide paragraph

72, 74, 78-80, 84, Vodafone International Holdings v UOI, (2012) 6

SCC 613 vide paragraphs 160, 240, 269-274; Borland's Trustee v Steel

Brothers & Co. Ltd., (1901) 1 Ch. 279 at paragraphs 9-13.

31. The Learned Counsel for the First Respondent points out that Sec

43(a)(ii) of the Companies Act, 2013 read with Rule 4 of the Companies

(Share Capital and Debenture) Rules, 2014 corresponding to Sec 2(46) and

Sec 86 of the Companies Act, 1956 allows a Company to issue Equity

Shares with 'differential rights' as to dividend, voting or otherwise'. In this

connection, the Learned Counsel for the First Respondent contends that 20

25% 'NICCO Parks and Resorts Pvt. Ltd' held by 'NICCO' carry with them

several differential rights, including among other things, the right to

appoint three Nominees on the Board of Trustees of NPRL and in his

absence, the CEO of NPRL. Furthermore, it is the contention of the First

Respondent that these differential rights are not just personal to NICCO

but are in the nature of class rights that are inextricably attached to the

said shares held by NICCO in NPRL vide Cumbrian Newspapers Group

Ltd. v Cumberland & Westmorland Herald Newspaper & Printing Co.

Ltd., (1986) 3 WLR 26 pages 34, 37(d-h), 38(b-e), 42(g); Bushell v.

Faith, (1970) 2 WLR 272 page 10 Paras 2,3.

32. The Learned Counsel for the First Respondent advances an

argument that the special/differential rights enjoyed by NICCO in respect

of the shares held by it in NPRL flowing from the Articles of 'NPRL', are

attached to the shares themselves and are in the nature of 'class rights' as

defined under Sec 43(a)(ii) of the Companies Act, 2013. Apart from that,

these rights cannot be severed from the shares themselves and must

continue to flow with the said shares at all times (as per decision

Radhakrishnan & Ors. V. P.R. Ramakrishnan, 1992 SCC Online Mad

115 at Paras 27,28,30,33,35,37-39,41-46). The Learned Counsel for the

First Respondent submits that the issue of assignability as to 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 21

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 Urban Infrastructure Limited and ors. (2015) 3 SCC at page

745 at spl. Page 748 wherein it is inter alia observed as under:

"........ An Official Liquidator (i) derives his authority from the

provisions of the 1956 Act; (ii) acts on behalf of the Company in liquidation

for the purposes prescribed by the 1956 Act; (iii) is appointed by and i9s

under the control and supervision of the court while discharging his duties".

33. The Learned counsel for the 1st Respondent refers to the decision of

Hon'ble Supreme Court Balkrishan Gupta and Ors. V. Swadeshi Polytex 22

Ltd. and another (1985) 2 SCC at page 167 at special page 169 wherein it

is observed and held as under:

" In the Companies Act the expressions 'a member',

'a shareholder' or 'holder of a share' are used as

synonyms to indicate the person who is recognized by a

Company as its owner for its purposes. The ownership

denotes the relation between a person and any right that

is vested in him and that which he owns in this sense is a

right. The right of ownership comprises benefits which may

be curtailed by the disadvantages in the form of burdens

attached to it. An owner may be divested of his claims etc.,

arising from the right owned to such an extent that he may

be left with no immediate practical benefit. He remains the

owner nonetheless because his interest will outlast that of

other persons in the thing owned. The owner possesses

that right which ultimately enables him to enjoy all rights

in the thing owned by attracting towards himself those

rights in the thing owned which for the time being belong

to others, by getting rid of the corresponding burdens. The

different kinds of rights of ownership flowing from the

ownership of a right depend upon the nature of the rights

owned.

23

A Receiver appointed under Order XL, CPC, which ix made

applicable by Section 182-A (4) of the U.P.Land Revenue

Act, only holds the property committed to his control under

the order of the court but the property does not vest in him.

A Receiver appointed under Section 51, CPC will be able to

realise the amounts due from a garnishee and his powers

are akin to the powers of a Receiver appointed under Order

40, Rule 1,. But he would not have any beneficial interest

in the assets of the judgment-debtor. He collects the debts

not as his own but as an officer of the court. The authority

competent to appoint 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 24

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 Executor, on the other

hand derives his title from the will itself and the property vests in him from

the moment of the testator's death.

35. Besides the above, on behalf of the 1st Respondent the following

decisions are cited.

(i) In Morgan and another V. Gray and Ors. (Chancery Division)

(1952 M. 4591) it is observed as under:

"There is no enactment which provides that a shareholder of

a company, who is adjudicated bankrupt, but whose name

remains on the register, ceases to be a member and loses the

right to vote or tender a proxy at meeting of the Company

provided that the Company is not in liquidation.

A bankrupt can, accordingly, exercise such rights while his

name remains on the register, unless there is some express

provision to the contrary in the company's articles of 25

association. Such vote must be exercised in accordance with

the direction of the persons beneficially entitled."

(ii) In Smt. Farrel Futado V. State of Goa Thorough the Chief

Secretary and Ors. 1992 SCC Online Bom 336 wherein it is

among other things observed as under:

"........ the Articles of Association is merely an agreement

between the person who form the Company. The Appointment

of the petitioner under Article 68(1) is also based on

contractual rights which are given to the Administrator. In the

circumstances the entire matter falls in the realm of contract

and the impugned order of removal cannot be impuged by a

writ petition under Article 226 of the Constitution. The

learned counsel for the Petitioner, however, cited judgment of

the Supreme Court in (Kumari Shrilekha Vadyarthi V. State

of U.P), reported in (1991) 1 SCC 212: AIR 1991 Supreme

Court 537. The said case dealt with appointment of District

Government counsel by State Government. The question

arose as to whether removal en bloc of all districts

Government counsel by the State Government was ultra Vires

Article 14. The Supreme Court found that presence of public

element was attached to the office of District Government

Counsel and in the circumstances, it attracted Article 14 of

the Constitution. In that connection it was observed that 26

requirements of Article 14 of the Constitution. In that

connection it was observed that requirements of Article 14 and

contractual obligations are not alien concepts but both the

concepts can co-exist. The Constitution does 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 27

Articles of Association which cannot be granted in exercise of

jurisdiction under Article 226 of the Constitution etc.

(iii) In the Judgment dated 24.10.2019 in Company Appeal (AT)

No. 221 of 2018 Jindal Steel and Power Limited V. Arun

Kumar Jagatramka and another, this Appellate Tribunal at

Paragraph 8 to 11 had observed as under:

" In view of the aforesaid decision of this Appellate Tribunal in Y.

Shivram Prasad and S.C. Sekaran, we answer the first question in

affirmative, i.e., to say that in a Liquidation proceeding under I&B

Code, a petition under Section 230 to 232 of the Companies Act is

maintainable

9. The next question arises for consideration is as to whether 1st

Respondent-Arun Kumar Jagatramka (Promoter), can be said to be

ineligible under Section 29A of the I&B Code and can ask for

Financial Scheme of Comprise and Arrangement for itself in terms of

Section 230 and 232 of the Companies Act of the I&B Code.

10. As noticed above, the Hon'ble Supreme Court in Swiss Ribbons

Pvt. Ltd. & Anr. Vs. Union of India & Ors. - Writ Petition (Civil) No.99

of 2019 held that the 'primary focus of the legislation is to ensure

revival and continuation of the corporate debtor by protecting the

corporate debtor from its own management and from a corporate

death by liquidation'.

11. The aforesaid judgment makes it clear that even during the period

of Liquidation, for the purpose of Section 230 to 232 of the Companies 28

Act, the 'Corporate Debtor' is to be saved from its own management,

meaning thereby the Promoters, who are ineligible under Section 29A,

are not entitled to file application for Compromise and Arrangement

in their favour under Section 230 to 232 of the Companies Act. Proviso

to Section 35(f) prohibits the Liquidator to 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, quoted below: -

35. Powers and duties of Liquidator.--(1) Subject to the directions of

the Adjudicating Authority, the liquidator shall have the following

powers and duties, namely:-- xxx xxx xxx

(f) subject to section 52, to sell the immovable and movable property

and actionable claims of the corporate debtor in liquidation by public

auction or private contract, with power to transfer such property to

any person or body corporate, or to sell the same in parcels in such

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 29

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 individuals who are its

members. But the corporate veil may be lifted, the

corporate personality may be ignored and the

individual members, recognized in certain

exceptional circumstances. The classes of cases

where lifting the veil is permissible must necessarily

depend on the relevant statutory or other provisions,

the object sought to be achieved, the impugned

conduct, the involvement of the element of the public

interest, the effect on parties who may be effected

etc."

30

(vi) In Vodafone International Holdings BV V. Union of India and

Another (2012) 6 SCC at page 613 the Hon'ble Supreme Court

has observed that the Holding Company is a Company having

sufficient shares power to control the affairs of a subsidiary

including appointment of Directors, though holding Company

and subsidiary Company retain their independent and

separate legal existence. Further it is observed that a

subsidiary despite control exercised by parent/holding

company, retains its own legal existence and ownership of its

assets because Directors of subsidiary owe responsibility to

their own company rather than to the parent/holding

company and also that the assets of subsidiary, on winding

up, best in liquidator and not in parent/holding company etc.

Moreover, it is opined that a share, held, is a right to a

specified amount of share of a company and on incorporation,

corporate property i.e. assets of Company belong to company

and holding of shares confers no direct proprietary rights to

corporate property on shareholders, but merely to their shares

in Company, shares constitute items of movable property,

transferable ion manner provided by Article of Association of

the Company.

(vii) In Borlands Trustee V. Steel Brothers & Co. Limited (1990 B

1253) (Chancery Division), wherein it is observed that a Share 31

in a Company cannot properly be likened to a sum of money

settled upon and subject to executory limitations to arise in

the future; it is rather to be regarded as the interest of the

shareholder in the Company, measured, for the purposes of

liability and dividend, by a sum of money, but consisting of a

series of mutual covenants entered into by all the

shareholders inter se in accordance with section 16 of the

Companies Act, 1862, and made up of various 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 32

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 rights conferred on it by the articles, nor could such a

term be implied."

(ix) In *1099 Bushell Appellant V. Faith Respondent (House of

Lords) 1970 W.L.R. 272 1970 A.C 1099 wherein it is held that

Article 9 was valid and applicable, despite the provisions of

Section 184 (1), since Parliament was only seeking to make an

ordinary resolution sufficient to remove a Director and had

not sought to fetter a company's right to issue a share with

such rights or restrictions as it though fit and these need not

be of general application but could be attached to special

circumstances and particular types of resolution. Accordingly,

the resolution had been defeated."

(x) In Claude-Lila ParuLekar (SMT) V. Sakal Papers (P) Ltd and

Ors. 2005 11 SCC page 73 it is held that Articles of

Association constitute a contract not merely between

shareholders and company but between individual 33

shareholder also. Further, Articles or a source of power of

director, who can as a result exercised only those powers

conferred by the Articles in accordance therewith and any

action referable to the Articles and contrary thereto would be

ultra vires and on facts it is observed that transfer of certain

shares and the allotment of certain other shares to the

Respondents, both being in violation of Articles of Company

where void.

(xi) In V. Radhakrishnan and 3 Ors. V. P. R. Ramakrishnan and

ors. 1994 1 Law Weekly at page 163 it is observed and held as

under:

" As laid down by the Gujarat High Court in 43 Company

Cases, 131, S.446 of the Companies Act, 1956, provides that

the court which is winding up the company shall,

notwithstanding anything contained in any other law for the

time being in force, have jurisdiction to entertain, or dispose

of any claim made by or against the company; any question of

priorities or any other question whatsoever whether of law or

fact, which may relate to or arise in course of the winding-up

of the company. When the High Court is conducting winding-

up proceedings of a company ordered to eb wound up, its

jurisdiction is not confined to its ordinary jurisdiction but a

special jurisdiction is conferred upon it by S. 446 (2). Sub Ss. 34

(2) and (3) were incorporated in S. 446 by which special

jurisdiction 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 Respondent No.2 to act on the decision of

Applicant and immediately vacate their offices as directors of Respondent 35

No.5, and to co-operate with the Applicant and all prospective buyers in

such manner as may be required.

(c) To pass permanent injunction on respondent No.1 and Respondent and

direct them not to participate in Board Meeting of Respondent No.5 and

/or in the day to day running of Respondent No.5

(d) 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.

(e) To direct the Respondents to take on record and act on the decision of the

Applicant for replacement of nominees of the Corporate Debtor on the

board of Respondent No.5, and note the induction of a new nominees

nominated by the Applicant vide decision dated 03.11.2018.

(f) To direct the Respondents to refrain from interfering or obstruction the

Appellant from having possession, control or disposition of NPRL shares

in the manner considered expedient by the Appellant.

(g) To direct the Respondents to provide all the requisite document/

information to the Applicant and/or the potential buyers, as may be

required for the beneficial liquidation of the NPRL shares.

(h) To direct the Insolvency and Bankruptcy Board of India to file an

appropriate proceedings before special court to take cognizance of the

matter for any offences as may have been committed by the Respondents 36

under Section 70 and Section 235 A and other provisions of the Code or

any other law for the time being in force.

(i) To direct Respondent No.5 to use the earlies available opportunity in

disposing off the shares held by Respondent No.5 in NESL.

37. Furthermore, as interim reliefs the under mentioned reliefs were

prayed for:

(a) Directions to Respondent No.1 and 2 to immediately cease and desist from

participating in the day-to-day affairs and other executive management of

Respondent No.5;

(b) Instruction to Respondent No.3 and management of Respondent no.5 to

provide all possible assistance to potential buyers to carry out due

diligence to enable Applicant to cause sale of assets of the Corporate

Debtor in manner 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. 37

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 Adjudicating Authority shall issue directions to

such defaulting personnel. Moreover, any personnel of Corporate Debtor

or Promoter does not render assistance or cooperation to the Insolvency

Resolution Professional, the Adjudicating Authority ('NCLT') is to pass

appropriate orders. Any instructions/ directions issued by an Adjudicating

Authority cementing on an Application filed under Section 19 (2) of the

Code shall be binding on such personnel or others as the case may be.

39. Section 54 of the Code says that once the affairs of Corporate Debtor

were wound up and its assets were wholly Liquidated, the Liquidator shall

make an application before an Adjudicating Authority for 'Dissolution of

the Corporate Debtor'. In fact Section 54 of the Code is similar to Section

302 of the Companies Act, which deals with 'Dissolution of a Company'.

Section 290 of the Companies Act, 2013 has a provision like that of Section 38 35 of the I&B Code, which specifies the power of Liquidator in an exclusive

manner i.e. the Liquidator shall exercise his power subject to the

Directions of the Tribunal. As per Section 36 (3) of the Code, Liquidator

estate include both tangible and intangible assets. A Liquidator has only

sale power of a Liquidation estate as seen from the I&B Code, 2016.

40. Section 34 of the Code, deals with the appointment of a Liquidator

with a view to carry out the Liquidation process of the Corporate Debtor.

A Resolution Professional under Chapter -II of the Code shall act as

Liquidator of the Corporate Debtor and shall have all the powers of the

Board of Directors, Key Managerial Personnel. In Section 34 of the Code,

the term 'Vest' is synonymous with title and it is concerned with title as

per decision Daya Wanti Punj And Ors. vs New Delhi Municipal Committee

report in 1982 Del. 534. Proviso to Section 35(f) of the Code, fetters a

Liquidator to sell the immovable or movable property or actionable claims

of Corporate Debtor in Liquidation to any person who is not eligible to be

Resolution Applicant.

41. It is to be remembered that as per Section 35(1)(e)of the Code is to

carry on the business of the Corporate Debtor and not the business of 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 39

'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 filed under Section 54 of the Code.

44. 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.

40

45. As per Regulation 44 of the Liquidation process Regulations 2016,

the Liquidator shall Liquidate the Corporate Debtor within two years. If

the Liquidator fails to liquidate with Corporate Debtor within two years, he

shall file an application to the 'Adjudicating Authority' to proceed with the

liquidation along with a report specifying the reason for not completing the

liquidation process and to mention the further time require by filing an

Application before the Authority to continue.

46. In the decision Home Chaudhary(AK) V. National Textile Corporation

Uttar Pradesh Limited (1984) 48 Faclr page 96 at 101 (Allahabad), it is

observed that where the Articles of Association shower, powers on the

Board of Directors to remove the Managing Director or other Directors

such power is not affected by Section 284 of the Companies Act, 1956

(corresponding to Section 169 of the Companies Act, 2013).

47. Section 161(3) of the Companies Act, 2013 specifies that subject to

the articles of a Company, the Board may appoint any person as a Director

nominated by any institution in pursuant of the provisions of any law for

the time being in force or of any agreement or by the Central Government

or the State Government by virtue of its shareholding in a Government

Company.

48. In fact, there is no statutory provision which addresses the powers

of Directors in a 'Compulsory Liquidation' but in the decision Re Mawcon

Ltd (1969) 1 All E.R at page 188 it is observed that the 'Powers of Directors'

cease.

41

49. The real grievance of the 1st Respondent/Liquidator is that the

Appellant (Rajive 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) (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 Appellants were not

continue to hold the office of directors in Nicco Parks and Resorts Pvt. Ltd 42

(the Appellant) in Company Appeal (AT) (Ins) No. 224 of 2020 and hence,

they were ineligible in terms of Section 29A read with Section 33(7) of the

I&B Code, 2016. Also, that as per Section 166 of the Companies Act, 2013

the Appellants (Rajive Kaul & Pallavi Priyadarshni Kaul) they could not

place themselves in 'conflict of Interest' scenario and utilise the position

for an undue gain or benefit of self or family.

51. The 1st Respondent/Liquidator also averred in the Application before

the Adjudicating Authority that there was non-cooperation, active

obstruction, Breach of statutory duty of Director, Breach of Code of

Conduct by the two Appellants in Company Appeal (AT) (Ins) 44 of 2020

and Company Appeal (AT) (Ins) 1518 of 2019. The Appellants Code of

conduct for Directors and Senior management Personnel of Niccoo parks

and Resorts Limited viz. Article 121 was clearly violated by the Appellants

in Company Appeal (AT) (Ins) 44 of 2020 and Company Appeal (AT) (Ins)

No.1518 of 2019.

52. The Appellants in Company Appeal (AT) (Ins) No. 44 of 2020 and

Company Appeal (AT) (Ins) No.1518 of 2019 had denied the averments of

the Liquidator and according to them the allegations against them and the

Managing Director of Niccoo Parks and Resorts Ltd., and Niccoo Parks and

Resorts Ltd (Company) were speculative in character and they were not

proved. Continuing further, according to the Appellants in Company

Appeal (AT) (Ins) No. 44 of 2020 and Company Appeal (AT) (Ins) No.1518

of 2019, the instant proceedings do not pertain to affairs of Niccoo Parks 43

and Resorts Ltd., Appellant in Company Appeal (AT) (Ins) No. 224 of 2020

either in regard to management or administrative matters. In fact it is the

plea of the Appellants in Company Appeal (AT) (Ins) No. 44 of 2020 and

Company Appeal (AT) (Ins) No.1518 of 2019 that the Articles of

Associations of the Appellant in Company Appeal (AT) (Ins) No. 224 of 2020

(Niccoo Parks and Resort Pvt. Ltd) do not allow any entity other than the

Company from exercising any right as per Article 121 of the 'Article of

Associations'.

53. In this 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; 44

(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 that

the Appellants had permitted the state corporation to exercise their rights

in terms of the 'Articles of Associations' of the Nicco Parks and Resorts Pvt.

Ltd by permitting them to replace their nominees on the board of 'NPRL'.

55. It is an axiomatic principle in Law that a Company in liquidation

acts through the 'Liquidator' and the 'Liquidator' steps into the shoes in

the Board of the Directors of the Company under Liquidation for the

purpose of discharging is statutory duties. In reality, the property of the

Company forming part of Liquidation still remain vested in the Company.

56. The Promoters and Directors of the Corporate Debtor (Nicco) viz. the

Appellants in Company Appeal (AT) (Ins) No. 44 of 2020 and Company

Appeal (AT) (Ins) No.1518 of 2019 were appointed as nominees of Nicco on

the Board of the Appellant (Nicco Parks and Resorts Limited), Appellant in

Company Appeal (AT) (Ins) No. 224 of 2020 and they served before the

disputes arose and they refuse to vacate their office. As a matter of fact 45

the aforesaid Appellants, on account of ineligibility as per section 29 A of

the I&B Code, 2016 are not to be permitted to derive any benefit to gain

any advantage at the Liquation stage of Nicco (Corporate Debtor) or to

avail the fruits of an assets of Nicco. It cannot be brushed aside that the

contentions of the Appellants (Kauls) that they were nominees of Nicco on

the Board of NPRL only before the 29th and 30th Annual General Meetings

and Later in the aforesaid Annual General meeting they were appointed as

a Directors on the Board of Nicco Parks and Resort Pvt. Ltd, in a

personal/individual capacity can only be termed as an inconceived one.

57. It is to be remembered that the 30th Annual General Meeting of the

Appellant (Nicco Parks and Resorts Pvt. Ltd) took place only after the 1st

Respondent/Liquidator prefer the Application C.A (IB) 669 /KB/ 2019

before the 'Adjudicating Authority' praying for the removal of the Kauls

from the Board of 'NPRL'. Not lending an unstinted assistance and

cooperation to the 1st Respondent/ Liquidator of Nicco with a view to carry

out the liquidation process cannot be countenanced by any means

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 46

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 shares of Corporate Debtor (Nicco)

or transferrable subject to a right of 1st refusal of the stated owned

corporation. To put it succinctly, the shares held by the Corporate Debtor

(Nicco) in NPRL, together with class rights, in law can be assigned by the

1st Respondent/Liquidator with a rider being that the same is to be

exercised subject to the limitation mentioned in the 'Articles of NPRL'

(Appellant in Company Appeal (AT) (Ins) 224 of 2020).

60. It is relevant to point out that Section 238 of the I& B Code, 2016

has an 'overriding effect of other Laws'. The maximisation of value of

Liquidation estate can only be certain if the said shares of NPRL as held 47

by the Corporate Debtor (Nicco) together with the class rights or termed

as part of the Liquidation estate attached to it, are held to be forming part

liquidation estate and assignable, as enshrined in IBC, 2016. To take a

contra view, will have a deleterious effect on the value of said shares and

also will have a catastrophic effect on the Liquidation estate of Nicco as

opined by this Tribunal.

61. There is no simmering doubt that the Directors of a Company

appointed by the shareholders in the 'Annual General Meeting' are to be

removed as per 'Ordinary Resolution' passed in the 'General Body Meeting'.

There is no different opinion on this well settled proposition. The aspect of

a dismissal removal, retirement or one vacating the office voluntarily are

covered by the covenants of an Agreement, but Section 33(7) of the I& B

Code, 2016 speaks of deemed notice of discharge in respect of officers,

employees and workmen of the 'Corporate Debtor' etc. As per Section 33(7),

of the Code, the Directors concerned would stand discharged

automatically and in practice the procedure mentioned in Section 169 of

the Companies Act, 2013 need not be. Rule 39 of IBBI (Liquidation Process)

Regulation 2016, clearly spells out that a Liquidator shall make an attempt

to recover and realise all the assets and outstanding of a 'Corporate Debtor'

in a time bound manner for the purpose of 'Maximation of Value' of the

stakeholders.

62. It cannot be gained said that the Appellant ('Nicco Parks and Resort

Pvt. Ltd') is bound by the terms of Agreement and the Appellant is bound 48

by the proposal and is to present the same before the 'Annual General

Meeting' for its accord/approval, without any iota of doubt. As a matter of

fact, 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 powers

to remove the 'Nominee Directors' (in the present case, the Appellants in

Company Appeal (AT) (Ins) No. 44 of 2020 & Appellant in Company Appeal

(AT) (Ins) No. 1518 of 2019) and is entitled to nominate the 'Directors' and 49

the Appellant 'Nicco Park and Resorts Pvt. Ltd.' (in Company

Appeal(AT)(Ins) No. 224 of 2020/Respondent No.5 in C.A(IB)

669/KB/2019 is enjoined to act upon the replacement proposal of the

'Existing Nominee Directors' of 'Corporate Debtor'.

65. Looking from any point of view, the Appeals san merits and

accordingly, they are dismissed. There shall be no order as to costs.

Connected I. A Nos. 130, 131, 591, 592 of 2020, & I.A No. 4317 to 4319 of

2019 stand closed.

[Justice Venugopal M.] Member (Judicial)

(V. P. Singh) Member(Technical)

[Alok Srivastava] Member (Technical) New Delhi

20th March, 2020

RS