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Appellant was to be allowed to submit fresh RP and EoI after BSE revoked debarment from Securities market: SC
In the instant case, the corporate debtor was under Corporate Insolvency Resolution Process (CIRP) and Resolution Professional (RP) was appointed. The RP received several resolution plans, with appellant's plan ultimately being approved by Committee of Creditors (CoC) with a 92.55 per cent voting share.
Later, the RP filed an application under section 31 of the Insolvency and Bankruptcy Code, 2016, to approve appellant's resolution plan. However, it was discovered that appellant was ineligible under section 29A(f) because it had been barred by SEBI from securities market at time of plan submission and approval.
The NCLT agreed with RP’s assessment, declaring appellant ineligible and dismissing appellant's request to clarify SEBI's position. Consequently, the appellant challenged NCLT’s order.
The NCLAT upheld NCLT’s order on ground that appellant was categorically debarred for reasons that it failed to comply with mandatory direction issued by SEBI in circular dated 10.10.2016 and 01.08.2017 by which appellant was repeatedly cautioned that if one of option was not exercised within time line prescribed, necessary action would be taken as prescribed in clause 6 of circular dated 10.10.2016
Further, NCLAT held that appellant was barred in list of BSE from accessing security market for 10 years and, when resolution plan was submitted on 28.01.2019, appellant was ineligible in view of section 29(A) (f) and, therefore impugned order did not require any interference as there was no merit in instant appeals and hence, same was to be dismissed.
Subsequently, an appeal was preferred before the Supreme Court. It was noted that BSE had revoked its recommendation on restraint status of appellant, as a consequence of which, prohibition on accessing securities market stood lifted. It was further noted that resolution plan submitted by appellant was submitted before NCLT and, no final orders had been passed.
The Supreme Court observed that since BSE lifted restrained status, it would be appropriate to permit appellants to submit a resolution plan and an expression of interest to CoC within thirty days.
The Supreme Court held that the bank guarantees and earnest money which were submitted by the appellant with their resolution plan were to be returned back to appellant, so as to facilitate the submission of a fresh resolution plan together with a fresh bank guarantee.
Is Nominee Director liable to retire by rotation?
Introduction
Companies Act 2013 ('the Act') provides for management of companies by the board of directors on behalf of shareholders. The Act also provides for appointment and retirement/resignation of directors. Generally speaking, all the directors are appointed by shareholders or even if appointed by board, then approved by the shareholders at general meetings. The only exception to this rule is, appointment of nominee director.
As per explanation to sub-section (7) of section 149 of the Act, Nominee director is a director who is appointed by the board on the recommendation of a financial institution, government or any other person to represent his interest[1].
Further as per sub-section (3) to section 161 board of directors have the power to appoint nominee director[2]. Therefore, the Act does not mandate requirement of obtaining shareholder approval for appointment of nominee director. Hence there arises a question that whether nominee directors are liable to retire by rotation like all other directors as provided under sub-section (6) of section 152 of the Act. In this article we shall try to find out an answer to this question.
Retirement by rotation – the Act[3]
Sub-section (6) of Section 152 of the Act says that unless articles of association provide for the retirement of all directors, a minimum of 2/3rd of the total directors, excluding independent directors, shall be liable to retire by rotation every year. An express exclusion from this section is provided only to the independent directors and no one else. Therefore, all directors, including nominee directors and excluding independent directors, shall be considered for calculating the number of directors liable to retire by rotation.
Retirement by rotation - Articles of association
As stated above, the appointment of a nominee director is subject to provisions of the Articles of Association ['AOA']. The AOA should have a provision relating to the appointment and retirement of the nominee director, and whether or not he shall be liable to retire by rotation shall depend on this provision. Suppose the AOA states that the nominee director appointed under sub-section (3) of section 161 of the Act shall not be liable to retire by rotation. In that case, the nominee director cannot be counted while calculating a total number of directors for calculating 2/3rd directors as it will be in violation of provisions of AOA. But if AOA is silent, then he will have to be considered in this calculation as the Act does not provide any express exemption to the nominee director.
Liable to retire by rotation - managing director/whole-time director vis a vis nominee director
Reliance on provisions of AOA in this regard gives rise to one more question. At times, AOA of the companies provide exemption to managing director or whole-time director from being liable to retire by rotation. In such a case, if the nominee director is not provided with such exemption as per AOA but MD/WTD is entitled to exemption, then the nominee director shall be liable to retire by rotation, whereas MD/WTD shall not be liable. But what if the articles provide this exemption to both the nominee director as well as MD/WTD and the remaining directors are less than 2/3rd in number? In such a situation, if all directors, excluding the nominee director and MD/WTD, are only made liable to retire by rotation, then compliance with AOA will result in non-compliance with the Act, which is not acceptable.
In such a case, the company will have to make MD/WTD liable to retire by rotation as he is appointed by shareholders, and the nominee director is appointed on the recommendation of an outsider pursuant to an agreement.
Conclusion
From all the above discussion, we can say that the Act does not provide any express exemption to nominee directors from being liable to retire by rotation, but such an exemption can be available to him by virtue of provisions in the company's AOA. If the AOA contains such a provision, then the nominee director is safe. Otherwise, if the AOA is silent, then he is also liable to retire by rotation like all other directors.
[1] Explanation. —For the purposes of this section, "nominee director" means a director nominated by any financial institution in pursuance of the provisions of any law for the time being in force, or of any agreement, or appointed by any Government, or any other person to represent its interest...
[2] Subject to the articles of a company the board may appoint any person as a director nominated by any institution in pursuance of the provisions of any law for the time being in force or of any agreement or by central government or the state government by virtue of its shareholding in a give...
[3] (6) (a) Unless the articles provide for the retirement of all directors at every annual general meeting, not less than two-thirds of the total number of directors of a public company shall-- (I) be persons whose period of office is liable to determination by retirement of directors by rota...
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