NICCO Corporation (NICCO) is holding a twenty-five percent share in NICCO Parks and Resorts Pvt. Ltd.(NPRL) and NICCO have power as per Article of Associate of NPRL to nominate a Director on the board of NPRL. The NICCO Corporation (NICCO) is under Liquidation, in accordance with the order dated 17th October 2017, holds 1,17,00,000 shares in ‘NICCO Parks and Resorts Pvt. Ltd.(NPRL)’ and this is twenty-five percent of the ‘shareholding of NPRL’.

‘NICCO Parks and Resorts Ltd.’ was incorporated on 17th March 1989 and on 23rd February 1990, it was converted into a ‘Joint Sector Undertaking’ between ‘NICCO’ and two State-owned Corporations, West Bengal Tourism Development Corporation Ltd. and West Bengal Industrial Development Corporation Ltd., by means of a Joint Sector Agreement dated 23rd February 1990. As a matter of fact, the shareholding of ‘NPRL’ was split between ‘NICCO’ (twenty-six percent), the State-owned Corporations (twenty-six percent) and the remaining ‘Capital’ was partly with the Public, partly with the ‘Kauls’ and partly with some other shareholders.

Clause Seven of the ‘Joint Sector Agreement’ recognizes the right of ‘NICCO’ as also the Two State-owned Corporations to nominate three Directors each on the Board of ‘NPRL’. Moreover, Pursuant to the right ‘NICCO’ to nominate Mr. Rajiv Kaul (Appellant), 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’.

The Adjudicating Authority had directed the Rajive Kaul (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.

Issues

The issue in the instant matter is whether Liquidator has the power to replace or remove the NomineeDirectors of the Corporate Debtor on the board of other companies.

Judgment

The National Company Law Appellate Tribunal (NCLAT) held that it is an axiomatic principle in law that a company in liquidation acts through the liquidator and the liquidator steps into the shoes of the board of directors of the company under liquidation for the purpose of discharging its statutory duties. It was further held that the liquidator is armed with requisite powers to remove the nominee directors and is entitled to nominate the directors, and the company is enjoined to act upon the replacement proposal of the existing nominee directors.

The National Company Law Appellate Tribunal (NCLAT) also observed that Section 19 of the Code is similar to Section 284 of the Companies Act, 2013. Section 19 imposes an obligation on the promoters and personnel of a corporate debtor to extend all cooperation and assistance that the insolvency resolution professional may require in the management of the affairs of the corporate debtor. It clarified that the word "personnel" refers to directors, key managerial personnel, mangers, designated partners, and employees if any, of the corporate debtor by means of Section 5(23) of the Code.

It was further held that Section 19(2) empowers a resolution professional to file an application before the adjudicating authority to seek necessary directions where any person does not cooperate or assist and that the adjudicating authority shall issue directions to such defaulting personnel. If any personnel of the promoter or corporate debtor does not render cooperation or assistance to the resolution professional, the adjudicating authority is to pass appropriate orders and any instructions or directions issued by an adjudicating authority with regard to an application filed under Section 19 (2) of the Code, shall be binding on such person or others, as the case may be.