M/S Morepen Laboratories Ldt vs Union Of India

[Arising out of order dated 06.10.2021 passed by the National Company Law Tribunal, Chandigarh Bench, Chandigarh in CA Nos. 785/2019 & 1207/2019 in CP No. 4/2005 (Disposed of)]

IN THE MATTER OF:

1. M/s Morepen Laboratories Ltd. 4th Floor Antriksh Bhawan, 22K G Marg, New Delhi-110001 ....... Appellant No. 1. 2. Sh. Suhsil Suri, Chairman & Managing Director C-40, Ground Floor, Anand Niketan, Delhi, 110021. ........ Appellant No. 2. 3. Sh. Sanjay Suri, Wholetime Director HIG-78, Sector-4, Parwanoo, Solan, HP-173220. ........ Appellant No. 3. 4. Sh. Arun Kumar, Wholetime Director MIG 144 Delux Sector-4, Parwanoo, Dist. Solan, HP-173220. ........ Appellant No. 4. 5. Sh. Manoj Joshi, Director D-36, 2nd Floor, Hauz Khaz, New Delhi-110016. ........ Appellant No. 5.

Versus

Union of India Room No. 535, 'A' Wing, Shastri Bhawan, Dr. Rajendra Prasad Road, New Delhi- 110001. ...... Respondent. 2

WITH

Company Appeal (AT) No. 05 of 2022

[Arising out of order dated 06.10.2021 passed by the National Company Law Tribunal, Chandigarh Bench, Chandigarh in CA Nos. 785/2019 & 1207/2019 in CP No. 4/2005 (Disposed of)]

IN THE MATTER OF:

M/s Morepen Laboratories Ltd. 4th Floor Antriksh Bhawan, 22K G Marg, New Delhi-110001. ....... Appellant. Versus

Union Of India Room No. 535, 'A' Wing, Shastri Bhawan, Dr. Rajendra Prasad Road, New Delhi- 110001. ...... Respondent. Present: For Appellant: Mr. Atul Anand, Sr. Advocate with Ms. Rameeza Hakeem, Ms. Vartika Aggarwal, Advocates. For Respondent:- Mr. Kamal Kant Jha, Senior Penal Counsel for GOI.

JUDGMENT

(25th April, 2023)

Justice Anant Bijay Singh;

Company Appeal (AT) No. 04 of 2022

This Appeal under Section 421 of the Companies Act, 2013 has been

preferred by the Appellants being aggrieved and dissatisfied by the order dated

06.10.2021 passed by the National Company Law Tribunal, Chandigarh Bench, Company Appeal (AT) Nos. 04 and 05 of 2022 3

Chandigarh in CA No. 1207/2019 in CP No. 4/2005 (Disposed of) whereby

application filed by the Union of India against M/s Morepen Laboratories Ltd.

and four others under Section 425 of the Companies Act, 2013 read with the

provisions of the Contempt of Courts Act, 1971 seeking issuance of contempt

proceedings against the Respondents (the Appellants herein) for continuous non-

compliance and wilful disobedience of the order dated 01.07.2005 passed in CP

No. 04 of 2005 which was upheld upto the Hon'ble Supreme Court of India. By

which order, the Tribunal passed the following orders:

"23. The submissions made by the learned senior counsel

appearing for the respondent-contemnors are unsustainable. It

is to be seen that the Hon'ble Apex Court while disposing of the

Civil Appeal neither modified the orders of the NCLT/CLB nor

issued any fresh directions. Therefore, the decision cited by the

learned senior counsel have no application to the facts of the

present case.

24. In these circumstances, issue notice to the respondents.

25. List on 24.11.2021."

2. Company Appeal (AT) No. 05 of 2022

This Appeal under Section 421 of the Companies Act, 2013 has been

preferred by the Appellant- M/s Morepen Laboratories Ltd. being aggrieved and

dissatisfied by the order dated 06.10.2021 passed by the National Company Law

Tribunal, Chandigarh Bench, Chandigarh in CA No. 785/2019 in CP No. 4/2005

(Disposed of) whereby application filed by the Appellant - M/s Morepen

Laboratories Ltd. seeking modification of the order dated 01.07.2005 to the Company Appeal (AT) Nos. 04 and 05 of 2022 4

extent that the appointment of two Government Directors/Government Nominee

Directors is not necessary and is not required in light of the subsequent

developments and events that have been placed herein, was dismissed by the

Tribunal.

3. Both the instant Appeals were heard together.

4. The brief facts giving rise to the instant Appeals are as follows:

i) The Appellant No. 1 - Morepen Laboratories (the "Company") had filed CA

No. 785 of 2019 seeking modification of the original order dated 01.07.2005

passed by the CLB directing appointment of two Government Directors on the

Board of Morepen (the CLB order dated 01.07.2005) has been dismissed. The

aforesaid application was filed by the Appellant No. 1 specifically in terms of the

liberty granted by the Hon'ble supreme Court vide order dated 09.07.2019 to

place subsequent developments before the authority (negating the continued

necessity for appointment of Government Directors on the Appellant No. 1's

Board) these being inter alia the subsequent undisputed financial turn-around

of the company, payment of monies to the erstwhile Fixed Deposit holders etc.

all of which constituted subsequent facts/events negating any need now for such

Government directors.

ii) When notice of motion was issued in CA 785 of 2019 and the Respondent

instead of filing a response to the said application preferred CA 1207 of 2019 for

initiation of contempt proceedings against the Appellants for alleged willful

disobedience of the order dated 01.07.2005 passed by the Hon'ble CLB. The

impugned order dated 06.10.2021 the NCLT has issued notice of contempt to

the Appellant No. 1 -Company and its officers i.e. Appellant Nos. 2, 3, 4 and 5 Company Appeal (AT) Nos. 04 and 05 of 2022 5

who are the Respondents-Contemnors in CA 1207 of 2019 (Filed by the Union of

India seeking initiation of contempt proceedings against the company and its

officers for willful non-compliance/disobedience of the CLB order dated

01.07.2005). It is against the issuance of notice in the initiation of the aforesaid

contempt proceedings that the Appellants have preferred the present appeal. The

Appellant No. 1 has also separately filed appeal against dismissal of CA 785 of

2021 vide impugned order dated 06.10.2021.

iii) The Appellant No. 1 in both the Appeals was incorporated on 01.12.1984

as a private limited company, became a public company on 16.3.1992 and

thereafter, in 1993, was listed on the National Stock Exchange, the Bombay

Stock Exchange, and various other stock exchanges such as Delhi, Ahmedabad,

Jaipur, Ludhiana, and Calcutta. Today the Appellant No. 1 is a public limited

company listed on the National Stock Exchange and the Bombay Stock Exchange

having its registered office at Morepen Village, Nalagarh Road, Near Baddi,

District Solan - 173 205, Himachal Pradesh. The 156 public listed

pharmaceutical companies in India, the Appellant No. 1 is ranked 46th amongst

them in terms of market capitalization of approximately Rs. 2,450 Crores. This

despite the Appellant No. 1's struggles of the early 2000s when present-day

Indian pharmaceutical giants like Sun Pharmaceuticals, Divis Lab, Dr. Reddy's

Lab etc. all had their growth spurt.

iv) The Appellant No. 1 is engaged in the manufacturing of pharmaceuticals

inter alia bulk drugs, formulations, over-the-counter drugs, home health devices,

etc. In the year 1993, the Appellant No. 1 started working on new generation

Company Appeal (AT) Nos. 04 and 05 of 2022 6

high value molecules viz. Ketorolac (used for short term relief of moderately to

severe pain in adults usually before or after medical procedures of after surgery),

Omeprazole (a proton pump inhibitor used to treat stomach and oesophagus

problems such as acid reflux and ulcers by reducing the amount of acid

production in the stomach), Cisapride (is a gastroprokinetic agent that increases

motility in the upper gastrointestinal tract), and Loratadine (an antihistamine

used to treat symptoms such as itching, runny nose, watery eyes, and sneezing

from allergies). In order to fund the requisite investments in plant and

machinery, the Appellant No. 1 (like any other company would availed of loans

(from the then nascent debt market in India), including short-term finance at

very high interest rates from several banks and financial institutions. The

Appellant No. 1 apart from borrowing from banks and financial institutions also

invited fixed deposits from various individual investors in order to fund its

expansion.

v) With time, the Appellant No. 1 moved to production of various

Pharmaceutical Ingredients (APIs) comprising of Fexofenadine (an antihistamine

used to treat symptoms such as itching, runny nose, watery eyes, and sneezing

from allergies), Atorvastatin (a statin medication used to prevent cardiovascular

disease), Montelukast (is a leukotriene inhibitor that is used to prevent asthma

attacks in adults and children over 2 years of age), Csapride (is a gastroprokinetic

agent that increases motility in the upper gastrointestinal tract), and Zafirlukast

(is a leukotriene receptor antagonist used for chronic treatment of asthma). With

the above developments, the Appellant No. 1 expanded its business profile by

moving into production of intermediates both for regulated and free markets and Company Appeal (AT) Nos. 04 and 05 of 2022 7

developed a progressive lineage of high-quality generic drugs and

pharmaceutical formulation backed by a strong R&D, regulatory, and global

marketing team. During such time, the Appellant No. 1 managed to set up three

(3) state-of-the-art manufacturing plants Parwanoo, Baddi, and Masulkhana in

Himachal Pradesh to meet its growing production needs. In its rise to the top,

the Appellant No. 1 became the youngest Indian company to have approval of

the United States Food & Drug Administration (the USFDA) (the gold standard

in certification as it essentially allows drugs to be exported to the USA but also

many other countries that accept USFDA certification including Canada) in the

year 1999 (within 15 years of incorporation) for the product Loratadine. By the

late 90s, the Appellant No. 1 was primed to become one of India's biggest

pharmaceutical companies. While the Appellant No. 1 was expanding its core

business of bulk drugs and formulations, it also expanded its clinical devices

business which was at that time almost non-existent in India. To make a real

push in the clinical devices business, the Appellant No. 1 entered into an

exclusive joint venture/partnership in India for sales, service, and support of

many reputed multinational companies like Immucor GMBH, Diagnostik

Germany (for immunohematology), Beurer GMBH, Germany (blood pressure

monitors, heating pads, etc.), Taidoc Technology Corporation, Taiwan

(glucometers), Microlife, Switzerland (blood pressure monitors), MSI, United

States of America (weighing scales), and IND Diagnostics, People's Republic of

China (blood banking). By 2001, the Appellant No. 1 made some path breaking

advancements by introducing its over-the-counter brand Dr. Morepen which was

received well in the market.

Company Appeal (AT) Nos. 04 and 05 of 2022 8

vi) The Appellant No. 1's foray into the over-the-counter business helped it to

understand new dimensions of business and thus created a new category called

Fast Moving Health Goods (the FMHG). The FMHG products in the Appellant No.

1's Morep portfolio include Burnol (India's top selling ointment for burns and

cuts), Lemolate Gold (for cold relief), Fibre-X Sat-Isabgol (natural laxative), Fever-

X (fever reducer), Option72 (emergency contraceptive), Dabgel (antacid), More

Vital+ (dietary supplement), Exygra (treatment for premature ejactulation),

QuickChek (pregnancy test kit), etc. The successful entry of the Appellant No. 1

into the clinical devices business and the development of the over-the-counter

brand Dr. Morepen energized the efforts of the Appellant No. 1 and sustained the

Appellant No. 1 through the liquidity crunch caused by the price crash of

Loratadine as explained below.

vii) By the late 90s, the Appellant No. 1 was focusing its energies on new

generation high value molecules and at the top of its list was Loratadine (an

antihistamine used to treat symptoms such as itching, runny nose, watery eyes,

and sneezing from allergies). The patent for Loratadine was owned by Schering-

Plough Corporation of United States of America (now merged with Merck & Co.).

The patent of Loratadine was supposed to expire in 2000. The Appellant No. 1

had secured USFDA approval in 1999 and had its eyes set on the looming

expiration of the Loratadine patent which would have enabled it to sell

exclusively in USA for a period of six (6) months. The same would have generated

used profits and enabled early repayment of debt and perhaps even made the

Appellant No. 1 debt neutral. However, on the eve of the expiry, in the year 2000,

Schering-Plough Corporation, the original patent holder of Loratadine, initiated Company Appeal (AT) Nos. 04 and 05 of 2022 9

legal proceedings seeking extension of patent expiry period for another term of

two (2) years and succeeded in its efforts. Thus, the Loratadine patent was

extended until December, 2002. This was a setback to the Appellant No. 1 but

one that was potentially weatherable.

viii) By 2002, Claritin (brand name by which Loratadine was sold in the USA)

was deemed as safe enough to be consumed without a doctor's prescription

which meant that it was not covered by insurance anymore. Behind the scenes,

it was the powerful insurance lobby in USA that had pushed the change through

as the insurance providers were previously paying approximately USD 1 Billion

every year for allergy drugs. Anybody who felt like they had allergies could walk

to a nearby convenience store (not even a pharmacy) and buy Claritin. The

USFDA classified it as an over-the-counter drug without any prior intimation or

cooling off period which caused a bloodbath. Notably this was the first such move

by the USFDA under pressure from the insurance lobby. Overnight Loratadine

which sold for approximately USD 8,000/- per kg (roughly Rs. 3,82,000 Lacs)

came down to USD 1,800/- per kg (roughly Rs. 86,000/-). This represented a

drop of over 78% in prices. This was a setback to the Appellant No. 1 that it could

not immediately weather and it sent the Appellant No. 1 into a tailspin which led

to severe liquidity problems which in turn led to the Appellant No. 1 defaulting

in its debt obligations to lenders including default in refund to its fixed deposit

holders.

ix) By October, 2002, the Appellant No. 1 repaid the matured deposits to all

its individual investors and the total outstanding due to fixed deposit holders as

on 30.9.2003 was Rs. 156.1929 Crores. However, in order to meets its sudden Company Appeal (AT) Nos. 04 and 05 of 2022 10

and unforeseen liquidity problem occasioned by the Loratadine price crash, the

Appellant No. 1 raised USD 15.25 Million (equivalent to Rs. 72.5 Crores) from

the international market through the issue of Global Depositary Receipts (GDRs).

Simultaneously, the management of the Appellant No. 1 ensured that no further

investments were made by the Appellant No. 1, its subsidiaries and a board

resolution was passed stating the same on 8.3.2003. The twin efforts were aimed

at resolving the liquidity crunch of the Appellant No. 1 and to ensure that the

fixed deposit holders are repaid. Unfortunately, before the GDR proceeds could

be released for use of the Appellant No. 1, the Hon'ble Debt Recovery Tribunal-

II, Delhi [hereinafter "DRT"] vide its order dated 29.4.2003 passed in O.A. No.

37/2003 restrained the Appellant No. 1 from dealing, transferring, or parting

which such GDR proceeds at the behest of The Bank of Nova Scotia (a Canadian

Bank which acted contrary to the interest of the Appellant No. 1, the other

lenders, and the fixed deposit holders).

x) Due to the financial and legal constraints outweighing the Appellant No.

1's efforts to ensure continued repayment of matured fixed deposits, the

Appellant No. 1 was unable to repay the matured FD amount to the fixed deposit

holders after October, 2002. Consequently, the CLB, upon receiving complaints

from some Fixed deposit holders took suo motu cognizance of the matter. On

12.6.2003, after due deliberations and hearings before the Hon'ble CLB, the

Appellant No. 1 submitted a repayment scheme/option to pay the dues to the

fixed deposit holders. This repayment scheme/option was duly considered by the

Hon'ble CLB on 8.8.2003 and repayment was ordered to the fixed deposit holders

in the manner provided by the CLB in its order dated 19.8.2003. On account of Company Appeal (AT) Nos. 04 and 05 of 2022 11

the Loratadine price crash and the restraint on the utilization of the GDR

proceeds but for which the Appellant No. 1 would have been cash rich or atleast

would have ensured continuous and timely repayment of matured fixed deposits,

the Appellant No. I was able to only pay a sum of Rs. 5.5544/- Crores out of the

total outstanding of Rs. 42.4866/- during the period 19.8.2003 to 31.1.2004 in

keeping with the re-payment scheme to the fixed deposit holders. Conscious of

the gravity of the default, the management of the Appellant No. 1 held a meeting

on 20.2.2004 and passed a board resolution resolving that the Appellant No. 1

would issue equity shares to its fixed deposit holders in lieu of the outstanding

amounts. This was a decision taken with the utmost good faith by the Board of

Directors to ensure fixed deposit holders were provided a liquid and immediately

redeemable option while counter-weighing it with the Appellant No. I's best

interest in view of the liquidity situation.

xi) On 11.3.2004, the Appellant No. 1 approached the Corporate Debt

Restructuring Cell [hereinafter "CDR Cell"] of the Reserve Bank of India for

restructuring its debt towards the bank and financial institutions and to take a

view on sponsoring the proposal. After considering the matter at length, the CDR

Cell suggested that the Appellant No. 1 bring the matter to the attention and for

the consideration of the Hon'ble High Court of Himachal Pradesh (it having

requisite territorial jurisdiction) by way of a petition under Section 391 of the

Companies Act, 1956 [hereinafter "the Old Act"] i.e. for a scheme of

arrangement/settlement with the creditors. On 20.3.2004, the Registrar of

Companies, Jalandhar/ the SIFO filed prosecution against the Appellant No. 1

and its officers before the Chief Judicial Magistrate, Solan for failure to comply Company Appeal (AT) Nos. 04 and 05 of 2022 12

with the directions contained in the order dated 19.8.2003 passed by the CLB.

Although the weight of such complaints has paled into insignificance given

subsequent events of undisputed financial turnaround, most of them relate to

alleged non -appointment of the Government Directors the grounds for which no

longer exists and some of such complaints them have been compounded, for the

purpose of completeness only. On 10/11.6.2004, the Appellant No. 1 filed Re:

Morepen Laboratories Limited, Company Petition No. 5/2004 under Section

391(1) of Old Act, in order to repay its debts, before Hon'ble High Court of

Himachal Pradesh at Shimla seeking directions for convening a meeting of

various classes of creditors i.e. lending banks & financial institutions (secured

creditors) and members of the Appellant No. 1 for approval of a scheme of

arrangement and compromise [hereinafter the "S. 391 Revival Scheme"]

between the Appellant No. 1 and its members, various classes of creditors i.e.

lending banks & financial institutions (secured creditors), fixed deposit holders,

vendors and others (unsecured creditors).

xii) The Hon'ble High Court of Himachal Pradesh vide order dated 28.6.2004

directed the Appellant No. 1 to convene meetings of various classes of creditors

i.e., lending banks & financial institutions (secured creditors), fixed deposit

holders, vendors, and others (unsecured creditors) and members of the Company

for the consideration and approval of the Section 391 Revival Scheme as

proposed by the Company with or without modification. On 2.8.2005, after

hearing the objections filed by some of the banks to the order dated 28.6.2004,

the Hon'ble High Court of Himachal Pradesh in the interest of various classes of

creditors and shareholders and the Company vide order dated 2.8.2005, Company Appeal (AT) Nos. 04 and 05 of 2022 13

convened a meeting of various classes of creditors for the consideration and

approval of the S. 391 Revival Scheme. Meanwhile, on 27.7.2006 the CDR

Empowered Group of the CDR Cell considered the final restructuring proposal

of the Appellant No. 1 and approved the debt restructuring package. By this debt

restructuring, package all the banks and financial Institutions agreed to waive

the interest with effect from 1.1.2003 to 30.6.2006 on the outstanding debt of

the Appellant No. 1 and required the Appellant No. 1 to infuse funds to the tune

of Rs. 10 Crores (which in fact was done by the Appellant No. 1). It may be noted

that the CDR Call's approval was in fact a vindication of the Appellant No. 1's

position that the Bank of Nova Scotia had acted in haste in approaching, the

Hon'ble DRT. A copy of the CDR approval for the debt restructuring, package

dated 27.7.2006 is marked and annexed herewith as ANNEXURE A-11.

xiii) In view of the fact that the S. 391 Revival Scheme was severable between

various classes of creditors, the Appellant No. 1 through negotiations and also

under the corporate debt restructuring mechanism evolved under the guidelines

of the Reserve Bank of India restructured its debts with various banks/financial

institutions by making payment to some of the banks/financial institutions

under a One Time Settlement and further rescheduling the debts of the

remaining banks/financial institutions, which envisaged the banks/financial

institutions foregoing their principal outstanding ranging from 55% - 65% and

the lending banks/financial institutions on implementation of CDR Scheme

becoming shareholders of the Appellant No. 1. It may be noted that the

commercial rationale for banks and lending institutions to agreeing to become

shareholders was simple - while the Appellant No. 1 was struggling on account Company Appeal (AT) Nos. 04 and 05 of 2022 14

of the unforeseen Loratadine price crash, its future prospect and fundamentals

remains strong and it could be turned around successfully thus ensuring that

the haircut taken initially could be recovered subsequently. Further, consequent

upon the said settlement with the lending banks/financial institutions, various

company appeals pending before Hon'ble High Court of Himachal Pradesh

against the orders dated 28.6.2004 and 2.8.2005 were disposed of as being

infructuous vide order dated 28.4.2008.

xiv) In June 2008, the Appellant No. 1 moved Re: Morepen Laboratories

Limited, C.A. No. 23/2008 u/s 391(1) of the Old Act read with Rule 9 of the

Company Court Rules, 1959 for modification of the scheme of arrangement

proposed earlier (necessitated by the fact that the banks and financial

institutions had been settled and paid under corporate debt restructuring (CDR)

package and were therefore out of the scope of any further compromise or

arrangement). While the earlier scheme was composite in that it sought a

restructuring of debts qua both the fixed deposit holders and the banks and

financial institutions, the later one only related to fixed deposit holders and

proposed issuance of equity shares to the said deposit holders wherein each

deposit holders would forego 25% of his/her principal and the accrued interest

and would receive shares for 75% of the principal with the share price for

allotment being determined as per the Securities and Exchange Board of India

(Disclosures and Investors Protection) Guidelines, 2000. The S. 391 Revival

Scheme itself came to be sanctioned by a Ld. Single Judge of the Hon'ble High

Court of Himachal Pradesh on 4.8.2009. However, the Respondent herein

Company Appeal (AT) Nos. 04 and 05 of 2022 15

preferred an appeal against the same being Union of India v. Morepen

Laboratories Ltd., Company Appeal No. 2/2009.

xv) Meanwhile, pursuant to the order dated 12.8.2009, the Board of Directors

of the Appellant No. 1 had already approved the allotment and shares were

issued to the fixed deposit holders. After the aforesaid allotment, the Ld. Division

Bench of the Hon'ble High Court of Himachal Pradesh on 27.8.2009 allowed the

Appellant No. 1 to implement the S. 391 Revival Scheme subject to its final orders

(but implementation of the 5. 391 Revival Scheme had already taken place). As

such the 9,24,90,413 (Nine Crore Twenty-Four Lac Ninety Thousand Four

Hundred and Thirteen) shares allotted to 82,231 fixed deposit holders were listed

on the National Stock Exchange and the Bombay Stock Exchange. However, in

September, 2010 (one year after the allotment of shares pursuant to the S. 391

Revival Scheme) the order dated 4.8.2009 passed by the Ld. Single Judge of the

Hon'ble High Court of Himachal Pradesh came to be finally set aside by the Ld.

Division Bench of the Hon'ble High Court of Himachal Pradesh vide its order

dated 14.09.2010. Vide the same order dated 14.09.2010 the matter was

remanded back to the Ld. Single Judge of the Hon'ble High Court of Himachal

Pradesh on the ground that the Respondent i.e. Union of India herein had not

been heard during the adjudication before the Ld. Single Judge of the Hon'ble

High Court of Himachal Pradesh. While the above matter re fresh adjudication

on approval of S. 391 Revival remained pending before the Ld. Single Judge of

the Hon'ble High Court of Himachal Pradesh, the 9,24,90,413 (Nine Crore

Twenty-Four Lac Ninety Thousand Four Hundred and Thirteen) shares allotted

to 82,231 (Eighty-Two Thousand Two Hundred and Thirty-One) fixed deposit Company Appeal (AT) Nos. 04 and 05 of 2022 16

holders were held onto by the fixed deposit holders and in a large number, traded

freely on the stock exchanges. It is reiterated at this stage again that the S. 391

Revival Scheme had been affected already.

xvi) Eventually, with the enactment of the Companies Act, 2013 and the

constitution of the NCLT, the matter pending before the Ld. Single Judge of the

Hon'ble High Court of Himachal Pradesh came to be transferred to the Hon'ble

NCLT which vide its order dated 12.3.2018 dismissed the Appellant No. 1's S.

391 Revival Scheme. The Appellant No. 1 was directed to cancel the 9,24,90,413

(Nine Crore Twenty-Four Lac Ninety Thousand Four Hundred and Thirteen)

shares that had been issued to the 82,231 (Eighty-Two Thousand Two Hundred

and Thirty-One) fixed deposit holders and had been listed on the stock exchanges

and in lieu of cancellation repay monies to the fixed deposit holders within three

months. An exception, however, was carved out for those shares that had already

been traded/transferred in by the recipients. This despite the Appellant No. 1

repeatedly contending that fixed deposit holders would not come forth as they

were sitting on gains and even some fixed deposit holders coming forth stating

they did not want to return their shares. The Appellant No. 1 was constrained to

approach this Hon'ble Tribunal against the Hon'ble NCLT's judgment dismissing

the S. 391 Revival Scheme and this Hon'ble Tribunal was pleased to stay the

effect and operation of the judgment of the Hon'ble NCLT vide its order dated

27.4.2018.

xvii) It is important to note that the Appellant No. 1's case before this Hon'ble

Tribunal was always that it was an impossibility to cancel shares of the fixed

Company Appeal (AT) Nos. 04 and 05 of 2022 17

deposit holders automatically and unless the fixed deposit holders came forward

to exchange the said shares, the Appellant No. 1 was powerless. The Appellant

No. 1 was supported in its contentions by the Securities and Exchange Board of

India [hereinafter "SEBI"] inasmuch as even the Respondent herein wrote to the

SEBI on multiple occasions such as 7.10.2010, 11.10.2010, and 18.10.2010

requesting a delisting of the 9,24,90,413 (Nine Crore Twenty-Four Lac Ninety

Thousand Four Hundred and Thirteen) shares that had been issued to the

82,231 (Eighty-Two Thousand Two Hundred and Thirty-One) fixed deposit

holders and the SEBI vide its letters dated 29.10.2010 and 11.11.2010 informed

the Appellant No.1 that it was not possible to delist allotted shares for various

reasons, chief amongst which was the shares were being traded by the fixed

deposit holders. In this regard a copy of the letter dated 7.10.2010 issued by the

Respondent herein to the Securities and Exchange Board of India seeking

delisting of shares issued to fixed deposit holders.

xviii) This Hon'ble Tribunal, however, took a different view and, inter alia,

dismissed the appeal of the Appellant No. 1 on 23.7.2019 and directed the

cancellation of the shares allotted to the fixed deposit holders in lieu of money

in three (3) months except in those cases where the shares had been traded

already by the fixed deposit holders. Since the Appellant No. 1 had no intention

of shying away from refunding monies of fixed deposit holders, it seeking to

respectfully attempting to implement the judgment of this Hon'ble Tribunal and

started writing individual letters to the fixed deposit holders at their last known

addresses in the records of the Appellant No. 1 (it may be noted that once shares

were issued, there was no cause for the fixed deposit holders to update their Company Appeal (AT) Nos. 04 and 05 of 2022 18

addresses in the records of the Appellant No. 1). Additionally, the Appellant No.

1 published a public notice in in two leading newspapers viz., Financial Express

(English) and Jansatta (Hindi) on 15.8.2019. Given the poor turnout, a further

public notice was published on 27.7.2020 in two leading newspapers viz.,

Financial Express (English) and Jansatta (Hindi). After keeping the exercise of

cancellation of shares of eligible Fixed Deposit Holders open for nearly two years,

the Appellant No. 1 also published public notice dated 28.7.2021 in two leading

newspapers viz., Financial Express (English) and Jansatta (Hindi) announcing

the closure of such exercise. Through individual communications as well as the

public notice, the shareholders were informed that the shares as held by them

were liable to be cancelled and they were entitled to monies in lieu thereof in

terms of the judgment of this Hon'ble Tribunal. As a further matter of spreading

the information about the judgment of the Hon'ble Tribunal, the Appellant No. 1

updated its website (www.morepen.com) and added a tab "FD Holders" for the

purpose of ease and ready reference of fixed deposit holders.

xix) Despite the three-month period granted by this Hon'ble Tribunal having

elapsed and only a few Fixed Deposit Holders coming forward for

surrender/cancellation of shares, the Appellant No. 1 kept the option of

cancellation of shares in lieu of monies open in the interest of the Fixed Deposit

Holders to allow all (eligible) Fixed Deposit Holders to come forth and surrender

their shares for cancellation. At this stage it is submitted that given that the

value of the shares grew/is growing further on account of the Appellant No. 1's

turnaround and increasing reserves and profits year-on-year and the stock

markets are at an all-time high, there is/was a natural reluctance of (eligible) Company Appeal (AT) Nos. 04 and 05 of 2022 19

Fixed Deposit Holders to come forward and surrender their shares. Thus, while

it may be a matter of law that they ought to come forth and return the shares

and accept monies, the Appellant No. 1 has/had no way of coercing them to

comply until they come forth and tender their shares voluntarily.Till date only

4953 out of the 32,927 eligible fixed deposit holders have come forth to accept

monies in lieu of the shares. This despite the Appellant No. 1's best efforts to

communicate the order of this Hon'ble Tribunal to the erstwhile fixed deposit

holders. Sadly, the Hon'ble NCLT in the Impugned Judgment has faulted the

Appellant No. 1 for not performing an impossible task and found the subsequent

events to be not worthy of modification of the order dated 1.7.2005 passed by

the Hon'ble CLB on account of the Appellant No. 1's alleged failure to perform

the impossible. It is noteworthy that by periodic letters dated 6.11.2019,

4.2.2020, 27.4.2020, 9.12.2020, 19.12.2020, 18.1.2021, 25.5.2021, 9.7.2021,

and 28.7.2021, the Appellant No. 1 kept informing the Respondent herein of the

status of the fixed deposit cases and at no point did the Respondent raise any

objection whatsoever. As seen from above, the maximum number of cases of FD

holders which ventured to come forth was in July-October, 2020 in the

immediate aftermath of the first wave of COVID-19 which had hit the entire stock

market and also after the second public notice and round of individual letters

being sent out. However, once the stock market started seeing a recovery, the

cases of fixed deposit holders coming forth for cancellation of shares in lieu of

monies reduced to zero in 2021. The upward revision in the share price of the

Appellant No. 1 - Company from March 2021 onwards would have also deterred

the FD Holders from coming forward for surrender the shares held by them. Company Appeal (AT) Nos. 04 and 05 of 2022 20

The following chart shows the price differential between the market price of the

shares held by FD Holder (On BSE) [March 2021 to October 2021] and the price

offered by the Appellant No.1 upon surrender for cancellation of shares.

xx) During the pendency of the Section 391 Revival Scheme, the Respondent

preferred the instant petition i.e. CP No. 4 of 2005 on 07.01.2005 under Section

408 along with sections 397 & 398 of the Act, before the Hon'ble CLB for

appointment of six Government appointed Directors on the Board of the

Company. At this stage it is pertinent to note that in these proceedings, the

Appellant No. 1 itself without prejudice to the rights and contentions also gave a

proposal for inducting independent [non- Government nominee] Directors. The

Appellant No. 1 has thus, always acted bonafide and according to the demands

of the time within the four corners of law. A copy of the proposal for appointment

of additional independent directors submitted by the Appellant No. 1 before the

Hon'ble Company Law Board in Union of India v. Morepen Laboratories Limited

and Ors., Company Petition No. 4/2005. The CLB vide judgment dated 1.7.2005

partially allowed the prayer of the Respondent herein and directed appointment

of two (2) government directors rather than the six (6) prayed for. Thus, even the

Hon'ble CLB was of the view that a majority of government directors is not

required on the board of the Appellant No. 1 and two (2) directors to monitor and

supervise the (then) affairs was sufficient. Pursuant to the aforesaid judgment,

the Respondent herein vide communication dated 25.7.2005 purported to

furnish the names of persons to be appointed as two (2) directors on the board

of the Appellant No. 1 for a period of three (3) years or until further orders. A

copy of the judgment dated 1.7.2005 passed by the Hon'ble Company Law Board Company Appeal (AT) Nos. 04 and 05 of 2022 21

in Union of India v. Morepen Laboratories Limited and Ors., Company

Petition No. 4/2005 directing appointment of two (2) government directors on

the board of the Appellant No. 1.

xxi) The Appellant No. 1 preferred an appeal against order dated 01.07.2005

before the Hon'ble High Court under Section 10F of the Companies Act, 1956

being Company Appeal No.3/2005. The Respondent also preferred an appeal

against the CLB Order dated 01.07.2005 before the High Court of Himachal

Pradesh at Shimla (the Hon'ble High Court) being Company Appeal No.6/2005

aggrieved by the fact that the Hon'ble CLB had permitted /directed the

appointment of only two Government Directors instead of six as prayed for by

the Respondent. A copy of the appeal preferred by the Appellant No. 1 to the

Hon'ble High Court of Himachal Pradesh being Morepen Laboratories Limited v.

Union of India, Company Appeal No. 3/2005.During the pendency of the

aforesaid appeals before the Hon'ble High Court of Himachal Pradesh, the

Appellant No. 1 filed an affidavit in April, 2007 to place on record facts to

demonstrate that the then management of the Appellant No. 1 was able to turn

around the Appellant No. 1 and the need for government directors, if any, stood

dissipated. The Hon'ble High Court of Himachal Pradesh was also apprised of

the fact that the CDR Cell had approved the corporate debt restructuring of the

Appellant No. 1 and an international investor had agreed to purchase the

secured debts of the Appellant No. 1. The said actions had buoyed the share

price of the Appellant No. 1 showing market confidence. However, the Hon'ble

High Court vide its order dated 17.5.2007 dismissed both the Company Appeal

No. 3 of 2005 (filed by the Appellant No. 1 -Company) and Company Appeal No. Company Appeal (AT) Nos. 04 and 05 of 2022 22

6 of 2005 (filed by the Respondent-Union of India). Vide this order dated

17.05.2007, the Hon'ble High Court directed the Appellant No. 1 to hold a

meeting of Board of Directors within two months from the date of the said

udgment and appoint the two Government Directors (the Hon'ble High Court

Order).

xxii) Being aggrieved the Appellant No. 1 challenged the order and judgment

dated 17.05.2007 passed by the Hon'ble High Court before the Hon'ble Supreme

Court in SLP No. 11189 of 2007. The Respondent also similarly preferred SLP

No. 15493 of 2007, being aggrieved that against their prayer for appointment of

6 Government Directors, only two Government Directors were directed to be

appointed. These two SLPs were clubbed together for hearing. The Hon'ble

Supreme Court vide its order dated 16.07.2007 passed in SLP No. 11189 of 2007

(filed by the Appellant No. 1) directed maintenance of status quo in respect of

appointment of Government Directors, which was extended further vide order

dated 07.09.2007. The status quo order dated 7.9.2007 passed by the Hon'ble

Supreme Court of India in Union of India v. Morepen Laboratories Limited, S.L.P.

(C) No. 15493/2007. Vide order dated 09.04.2010, leave was granted leave in

both the aforesaid SLPs and the status quo ordered by orders dated 16.07.2007

and 07.09.2007 were directed to be continued during the pendency of these

appeals.

xxiii) During the pendency of the above appeals before the Hon'ble Supreme

Court with a status quo order, i.e., no government directors on board of the

Appellant No. 1, the Appellant No. 1 successfully turned itself around and

Company Appeal (AT) Nos. 04 and 05 of 2022 23

accordingly to apprise the Hon'ble Supreme Court of India of the same, the

Appellant No. 1 filed an application to place on record subsequent events before

the Hon'ble Supreme Court of India. Through this application, the Appellant No.

1 placed record material and actions taken by the Appellant No. 1 to pay off the

debts to its fixed-deposit holders and becoming debt-free, dissipating the need

for appointment of Government Directors on its Board. The Hon'ble Supreme

Court of India on 9.7.2019 dismissed both Morepen Laboratories Limited v.

Union of India, S.L.P. (C) No. 11189/2007 (converted to C.A. No. 3165/2010)

and Union of India v. Morepen Laboratories Limited, S.L.P. (C) No. 15493/2007

(converted to C.A. No. 3166/2010) but however specifically granted liberty to the

Appellant No. 1 to agitate such subsequent events before the appropriate forum

(since the Hon'ble CLB no longer existed, the Hon'ble NCLT became the

appropriate forum). At this stage it is pertinent to note that meanwhile the S.

391 Revival Scheme was set aside by this Hon'ble Tribunal vide its order dated

23.07.20219 (already annexed above as Annexure A-22 of the Appeal).

xxiv) It is in the background of above facts, orders passed and liberty specifically

granted by the Hon'ble Supreme Court vide its order dated 09.07.2019, that on

18.09.2019, the Appellant No. 1 filed the CA 785 of 2019 before the Hon'ble

NCLT, Chandigarh placing on record the new material and subsequent events to

demonstrate that there was no longer any rationale in law or necessity in fact for

the continued direction of appointment of Government Directors under Section

408 of the Companies Act, 1956 and such basis no longer existed. Thus, through

the CA 785 of 2019, it was prayed that in light of the subsequent facts and

financial turn-around negating the need for appointment of Government Company Appeal (AT) Nos. 04 and 05 of 2022 24

Directors, the Hon'ble CLB order dated 01.07.2009 be accordingly modified. It is

relevant to note that not only did the Appellant No. 1 make out a specific case

that there was longer any rationale/ necessity to have the Government Directors

appointed but even as far as the repayment of monies to the erstwhile FD holders

were concerned, even this has been completed by the Appellant No. 1. The

Appellant No. 1 specifically placed on record its statutory auditor's report dated

14.07.2018 reflecting its updated (zero) debt status as on date of filing of the CA

785/2019. On 30.07.2019 the Respondent issued communication furnishing the

names of two persons to be appointed as Government Directors on the board of

the Appellant No. 1. This was duly responded to by the Appellant No. 1 vide its

letter dated 09.08.2019 explaining that the Appellant No. 1 intended to place on

record subsequent events before the Hon'ble NCLT, Chandigarh in terms of the

liberty granted by the Hon'ble Supreme Court vide order dated 09.07.2019.

xxv) In light of the above facts the dispute between the parties pertains to

direction of the Hon'ble CLB in its order dated 01.07.2005 and whether such

order can be said to be necessary view of the subsequent developments/ changed

circumstances as they enure on date and whether such order having merged

with the final order dated 09.07.2019 passed by the Hon'ble Supreme Court, the

CA 1207/2019 was even maintainable before the Hon'ble NCLT. It is the specific

case of the Appellants that the Respondent also appealed the order dated

01.07.2005 passed by the Hon'ble CLB right uptill the final proceedings before

the Hon'ble Supreme Court. Thus, the original order dated 01.07.20005 merged

with the final order dated 09.07.2019 passed by the Hon'ble Supreme Court and

thus, the contention of the Respondent that the Appellants willfully disobeyed Company Appeal (AT) Nos. 04 and 05 of 2022 25

the order dated 01.07.2005 is without merit and legal force and especially given

that order dated 09.07.219 granted liberty to the Appellant to agitate the

subsequent events before the concerned forum i.e., the Hon'ble NCLT

Chandigarh. On the other hand, the Respondent herein Union of India contends

that the Hon'ble CLB Order dated 01.07.2005 has attained finality and ought to

be complied with by the Appellants by appointing the two Government Directors

nominated by it and by filing CA 785/2019 the Appellants willfully disobeyed the

order dated 01.07.2005 by not complying with it.

5. The Ld. Sr. Counsel for the Appellant has taken grounds of challenge the

impugned order, the NCLT has issued notice of contempt to the Appellants in CA

1207 of 2019 filed by the Respondent and has committed the following errors for

which the impugned order is the subject matter of challenge in the present

appeal i.e. Company Appeal (AT) No. 4 of 2022 on the following grounds:

i) The CA 1207 of 2019 filed by the Respondent was not maintainable before

it, as this had merged into the order of the Hon'ble Supreme Court order dated

09.07.2019. This is because the order dated 01.07.2005 was upheld by the

Hon'ble High Court of Himachal Pradesh Shimla vide common order and

judgment dated 17.05.2007 which dismissed the appeals filed by the Petitioner

- Union (Company Appeal No. 6 of 2005) as well as the appeal filed by the

Respondent-company (Company Appeal 3 of 2005). Subsequently, Special Leave

Petitions preferred by both parties (i.e. SLP 15494/2007 filed by the Petitioner-

Union of India and SLP 11189/2007 by the Respondent-company). On these, the

Hon'ble Supreme Court passed a status quo order dated 16.07.2007 which was

Company Appeal (AT) Nos. 04 and 05 of 2022 26

reiterated on 07.09.2007. These Special Leave Petitions were converted into Civil

Appeals after grant of leave vide order dated 09.04.2010 [CA 3166/2010 filed by

the Petitioner - Union of India and CA 3166/2019 filed by the Respondent -

company] and again the status quo order came to be continued. These

proceedings came to be finally disposed off by the Hon'ble Supreme Court vide

order dated 09.07.2019 and applying the doctrine of merger, the erstwhile order

dated 01.07.2005 passed by the Hon'ble CL.B stood fully merged with the final

order dated 09.07.2019 passed by the Hon'ble Supreme Court. Hence (assuming

while denying that there is any contempt of court by the Appellants) contempt,

if any, is that of the final order dated 09.07.2019 passed by the Hon'ble Supreme

Court and not of the NCLT thereby denuding the NCLT from any jurisdiction in

the matter. It is settled law that the power to punish for its own contempt is

exclusive to the Supreme Court under Article 129 read with Article 142 of the

Constitution of India [Supreme Court Bar Association v. Union of India (1998)

4 SCC 409 Para 21, 38// R.P. Vaghela v. State of Gujarat & Ors (Full Bench)

2002 SCC Online Guj. 34- Para 38,40,41,61// Vitusah Oberoi v. Court of Its

Own Motion (2017) 2 SCC 314- Para 10,12].

ii) The NCLT failed to appreciate that while relying on doctrine of merger, the

Appellant No.1 herein had made out a specific case of lack of inherent

jurisdiction of the NCLT to issue notice regarding initiation of contempt

proceedings, which has been legally settled in the judgments cited by the

Appellant No.1. To make matters worse the NCLT has noticed this settled

position of law and submissions of the Appellant No.1 in this regard yet

proceeded to digress from it without giving reasons and/or stating as to how the Company Appeal (AT) Nos. 04 and 05 of 2022 27

present facts would warrant application of a different law/judgment. [Para 22,

23, Pg. 15, 16 of the Impugned Order].

iii) The NCLT while noticing that the status quo order dated

16.07.2007/07.09.2007 was passed by the Hon'ble Supreme Court has ignored

the fact that this status quo order was extended even when the SLP stood

converted into Civil Appeal vide order dated 09.04.2010 which directed status

quo order dated 16.07.2007 and 07.09.2007 to continue during the pendency of

the appeals. Thus, there is/was no scope of either the Appellant No.1 or its

officers i.e. Appellant No. 2, Appellant No.3, Appellant No.4 and Appellant No.5

being in contempt of the CLB Order as upheld by Hon'ble High Court and/or

direction to appoint Government Director given the extension of the status quo

by the Hon'ble Supreme Court during the pendency of the appeals, which

appeals were decided only on 09.07.2019. The Respondent's mere assertion that

the Appellants have been willfully disobeying the order dated 01.07.2005 is

insufficient to attract punishment for civil contempt under the Contempt of

Courts Act 1971. The Hon'ble Supreme Court has held that the key ingredient

of civil contempt as defined under Section 2(b) of the Contempt of Courts Act,

1971 is deliberate flouting of orders of the Court i.e. "wilful" disobedience. It has

been held by the Hon'ble Supreme Court in "Indian Airports Employees' Union

v. Ranjan Chatterjee, (1999) 2 SCC 537" held as follows:

"7. It is well settled that disobedience of orders of the court, in

order to amount to "civil contempt" under Section 2(b) of the

Contempt of Courts Act, 1971 must be "wilful" and proof of mere

disobedience is not sufficient (S.S. Roy v. State of Orissa). Company Appeal (AT) Nos. 04 and 05 of 2022 28

Where there is no deliberate flouting of the orders of the court

but a mere misinterpretation of the executive instructions, it

would not be a case of civil contempt (Ashok Kumar Singh v.

State of Bihar)."

iv) It is settled that even if there is a misinterpretation of executive

instructions it would not be a civil contempt. The Hon'ble Supreme Court in

Indian Airports (supra) held that action based on an interpretation of its own

order cannot be said to amount to "wilful disobedience" of the orders of this

Court. The relevant paragraph is reproduced below:

"11. In our view, these rival contentions involve an

interpretation of the order of this Court, the notification and other

relevant documents. We are not deciding in this contempt case

whether the interpretation put forward by the respondents or

the petitioners is correct. That question has to be decided in

appropriate proceedings. For the purpose of this contempt case,

it is sufficient to say that the non- absorption of these six

sweepers was bona fide and was based on an interpretation of

the above orders and the notification etc. and cannot be said to

amount to "wilful disobedience" of the orders of this Court."

v) The NCLT also failed to appreciate that Respondent Union of India in Para

6 of CA 1207/2019 alleged and contended that because the Respondents have

misinterpreted the order dated 09.07.2019 passed by the Hon'ble Supreme Court

to mean that liberty has been granted to the Respondents to agitate the

subsequent events before the appropriate, they have rendered themselves liable Company Appeal (AT) Nos. 04 and 05 of 2022 29

to be punished for contempt for willful disobedience of order dated 01.07.2005

which attained finality vide the very same order dated 09.07.2019. It is

submitted in light of Indian Airports (supra) that when a particular interpretation

of the Hon'ble Supreme Court's order is possible, acting in furtherance of such

an interpretation would not constitute "wilful disobedience" of such order, rather

such an act would be bonafide.

vi) The NCLT has not given any reason for holding that submissions of the

Appellants in the contempt petition being CA 1207/2019 are unsustainable and

thus the order dated 06.10.2021 is non-speaking when notice of initiation of

contempt proceedings is issued to the officers of Appellant No.1 i.e. Appellant

No.2, Appellant No.3, Appellant No.4 and Appellant No.5. Without admitting that

the Appellants are in contempt of the Hon'ble CLB order dated 01.07.2005, then

on a co-joint reading of Section 425 of The Companies Act read with the

provisions of The Contempt of Courts Act, 1971, the Respondent's application

was barred by limitation as the very provisions of the Contempt of Courts Act

1971 provides for a limitation of one year from the date of the alleged contempt.

If the Respondent is extending the time frame of such alleged contempt to cover

the period of subsequent litigation, then the Respondent by itself is applying the

doctrine of merger in which case, the Hon'ble NCLT has no jurisdiction in law to

test the allegation of alleged contempt, as set out above.

vii) The NCLT while issuing notice to the Appellant No.1, Appellant No.2,

Appellant No.3, Appellant No.4 and Appellant No.5, far from identifying and

describing, each of their role in alleged willful disobedience of the CLB Order

dated 01.07.2005 lost sight of the fact that such initiation of contempt Company Appeal (AT) Nos. 04 and 05 of 2022 30

proceedings was time-barred and hit by the limitation period prescribed under

Section 20 of the Contempt of Courts Act, 1971. Resultantly the Impugned Order

has been passed in derogation of the provisions of the Contempt of Courts Act,

1971 and the Contempt of Courts (CAT) Rules, 1992.

6. The Ld. Sr. Counsel for the Appellant has taken grounds of challenge the

impugned order, the NCLT has dismissed CA 785 of 2019 filed by the Appellant

and has committed the following errors for which the impugned order is the

subject matter of challenge in the present appeal i.e. Company Appeal (AT) No.

5 of 2022 on the following grounds:

i) The Impugned Order is incorrect in law and on facts. It completely ignores

the law attendant to Section 408 of the Old Act, its own role as a custodian of

the companies, the subsequent events placed on record before it by the

Appellant, and how the aforesaid aspects cumulatively lead to a clear conclusion

that no purpose will be served by implementation of the Hon'ble CLB's order

dated 1.7.2005.

ii) The Impugned Judgment is passed without any application of mind and

based on incorrect premises, equivalences, and conjectures. The NCLT wholly

fails to address the issues raised, diverts itself with issues never raised, and

leaps to unfounded conclusions that are completely unwarranted and to the

prejudice of the Appellant which is a well-run and notable public listed

pharmaceutical company. The NCLT has while noticing the fact that the CLB

order dated 01.07.2005 was passed because "the state of affairs of a company on

the date of the presentation of the petition" were found prejudicial to the interest

of the Company and also noticing that the Government directors were ordered to Company Appeal (AT) Nos. 04 and 05 of 2022 31

be appointed "with the view to build a public confidence in a company due to its

unsatisfactory financial position is unable to meet" has wrongly chosen to ignore,

disregard and not give due weightage to the facts that such "state of affairs" now

longer exists and that the company is no longer in need of a public confidence

building exercise, which was the very essence of the liberty granted by the

Hon'ble Supreme Court order and the very lis and material which has been

placed before the NCLT by the Appellant for its consideration.

iii) The NCLT has erroneously not appreciated that the Hon'ble CLB appointed

Government directors also for the reason "the acts of directors/company have

brought the affairs of a company to a slage wherein its existence is under threat

due to financial difficulties", whereas such stage /affairs of the company/

ground/reason does not exist today given the financial turn-around of the

Appellant under the existing management. Moreover, such financial turnaround

of the Appellant was not even disputed by the Respondent and hence had to be

taken the fact situation as of today. [Impugned Order-Para 5, Page 90 and Para

11, Page 96 of the Appeal Paper Book].

iv) The NCLT has noticed that while dismissing the application for approval

of scheme of arrangement (U/s. 391-394) the NCLT in its order dated 12.03.2018

specifically ordered that such dismissal "will not affect the allotment of the shares

to the FD Holders who have traded the shares to the third parties or transferred

the allotted shares" and "company shall be bound to pay the outstanding amount

as per scheme approved by the Company Law Board, to the original FD holder

(except to those who have since traded/transferred)" but has chosen to ignore

this relevant fact while coming to the erroneous conclusion that the original debt Company Appeal (AT) Nos. 04 and 05 of 2022 32

of the company was INR 156 crores (which was the figure of debt in 2003)

whereas only Rs. 18 crores have been repaid to shareholders. Not only did this

ignore the fact that the Appellant could only make payment to those persons

who offered to surrender their shares but such finding also ignores the fact that

the shares which had been traded could not be included for calculating

outstanding payments as apart from such shares having been specifically kept

out of the ambit of re-payment by judicial order, a FD Holder who has since

traded its share (at a higher market price than issue price) is no longer the

shareholder, his share(s) cannot be surrendered and repayment made by the

Appellant and above all, such shareholder has been able to recover its deposit

amount if not more. [Impugned Order-Para 8 @Page 95, Para 12 @Page 96 of the

Appeal].

v) The NCLT failed to notice that on account of the exclusion of traded shares

from the scope of re- payments, and resultantly the amount of debt on account

of such shares, such quantum is/had to be excluded from the total debt that the

Appellant was to discharge. The NCLT has committed this fundamental error

despite the Appellant especially explaining in detail that the actual eligible Fixed

Deposit Holders in terms of the judgment of this Hon'ble Tribunal's order dated

23.7.2019 (which affirmed the following judgment of the Hon'ble NCLT dated

12.3.2018) were only those who had not traded or dealt with their shares.

vi) Despite the above, the NCLT has only noticed that the debt owed by the

Appellant was Rs. INR 156 crores as on 30.09.2003 and has failed to appreciate

that this amount reduced from time to time given that payments made to the FD

Holders from 2003 onwards and would also exclude the amount of debt on Company Appeal (AT) Nos. 04 and 05 of 2022 33

account of shares that already stood traded. While accepting the plea of the

Respondent that the debt owed by the Appellant was INR 156 crores., which was

unsupported by evidence/financial data, the NCLT completely lost sight of the

fact that the Appellant has been paying all those FD Holders who came forward

to claim to surrender the shares held by them.

vii) The NCLT also ignored the fact that Morepen could not have unilaterally

cancelled shares allotted to FD Holders without there being an application from

such FD Holders for surrender/cancellation of their shares, such shares being

the valuable property/ issued security in the hands of such FD

holder/shareholder.

viii) There was no malice or deliberate default or wrongdoing on the part of the

Appellant and it would only be natural that any shareholder who is holding

shares which are trading at a higher/ favorable price would not come forth to

surrender such shares at a lower price/ value. As stated in Para 43 of the present

appeal the market price of the shares held by the FD Holders is much higher

(BSE Weighted Average Price being Rs. 53.95 for October 2021 and NSE

Weighted Average Price being Rs. 53.06 for October 2021) than the original issue

price of Rs. 11.32 (Para 118 of the Hon'ble NCLT Order dated 12.03.2018).

ix) The NCLT completely ignored the fact that the allegations made and

contentions raised by the Respondent Union of India were unsupported by any

evidence. Further, in absence of any dispute / disagreement re the financial

turnaround of the company much less any evidence countering the financial

turn-around of the Appellant, the Respondent's bald assertion that "the company

is still being run in a manner prejudicial to public interest" has no force/value in Company Appeal (AT) Nos. 04 and 05 of 2022 34

law and ought to have been outrightly dismissed as being such. [Impugned

Order-Para 15, @Page 98 of the Appeal].

x) The NCLT Chandigarh failed to appreciate that the Union of India raised

no dispute as regards the validity and veracity of the subsequent events placed

on record via the Modification Application by the Appellant before the Hon'ble

NCLT. In response to the CA 785 of 2019 moved by the Appellant to which the

Union of India filed reply only contending maintainability/lack of jurisdiction

and presence of circumstances warranting exercise of powers under Section 408

of the Companies Act, 1956 [Old Act] as on 1.7.2005 without a whisper about

present day circumstances.

xi) The Respondent never contested the details of financial turn-around, it

would thus have to be treated as an admitted position that the Appellant was/is

a profit-making company in that it is debt free, has a cash surplus, is profitable,

and has its current and future growth status are highly optimistic. Furthermore,

the promoters have infused funds, payouts have been made to lenders, and cases

pending before the Ld. DRT have been withdrawn; new patents have been

approved and the Appellant has entered the growing nutraceuticals business;

and the Appellant has broad-based its board of directors with 55% directors

being independent directors having a rich experience under whose leadership

the turnaround has been completed (See Para 61 of the present Appeal).

xii) The Appellant in a bona fide manner supplied the details of payments

made to its FD Holders by way of affidavits filed from time to time. However, at

no stage did the Hon'ble NCLT call upon/ direct that the Appellant provide details

of FD Holders who have not claimed their deposits back. Yet in the impugned Company Appeal (AT) Nos. 04 and 05 of 2022 35

order dated 06.10.2010, non- supplying of such information has been held

against the Appellant to dismiss the application (Impugned Order-Para 15,

@Page 98 of the Appeal). In absence of asking/requiring the Appellant to "furnish

the details of the fixed deposit receipts which were converted into equity shares

and those equity shareholders who approached the company for refund of the

fixed deposits and those equity shareholders who have not approached the

company for refund of their original fixed deposits is unacceptable", as betrayed

from various orders passed by the Hon'ble NCLT in the matter from time to time,

the Hon'ble NCLT has held this fact against the Appellant without giving it an

opportunity of hearing in this regard which is against the principles of natural

justice. [Impugned Order-Para 16, @Page 98 of the Appeal].

xiii) The NCLT Chandigarh completely ignored the fact that the Hon'ble CLB

Order dated 01.07.2005 was passed for a specific purpose and in light of the

subsequent events, the substratum of the Hon'ble CLB's order stands completely

extinguished. Thus, the order dated 1.7.2005 passed by the CLB directing

appointment of Government Directors was for a specified purpose, which

considering the positive developments had elapsed. It must be noted that the

Respondent herein had sought appointment of six (6) directors (i.e. a majority on

the board). However, the CLB granted the prayer qua only two (2). Thus, the role

of the government appointed directors was always to monitor and assist the

Appellant. It may be noted that even the Hon'ble Supreme Court of India had

granted a status quo order on 16.7.2007 in Morepen Laboratories Limited v.

Union of India, S.L.P. (C) No. 11189/2007 (which continued till 9.7.2019, i.e.

for almost 12 years) when no government directors had been inducted on Company Appeal (AT) Nos. 04 and 05 of 2022 36

account of the fact that there were two (2) nominees of Life Insurance

Corporation of India and the Industrial Development Bank of India on the board

of the Appellant and thus two (2) more government directors' value was not

visible. Today when the Appellant has turned around after undergoing corporate

debt restructuring and is debt free, has a cash surplus, and is profitable, no

need for such monitoring and assistance exists. The entire gamut of subsequent

events was placed before the NCLT; however, the NCLT chose to ignore it despite

the Respondent not even responding to the subsequent events.

xiv) The Impugned Order failed to observe that the order dated 1.7.2005

passed by the CLB was premised on facts, which ceased to exist as on the date

of passing of the order dated 9.7.2019 by the Hon'ble Supreme Court of India in

Morepen Laboratories Limited v. Union of India, S.L.P. (C) No. 11189/2007

(converted to C.A. No. 3165/2010) and Union of India v. Morepen Laboratories

Limited, S.L.P.C) No. 15493/2007 (converted to C.A. No. 3166/2010) and/or

filing of the Modification Application before the Hon'ble NCLT. While noticing that

order passed by the CLB appointing two directors by the Central Government

was on account of the fact that the public confidence in the Appellant-Company

was on low ebb and that Government Directors were being appointing to restore

such public confidence (Para 5/Impugned Order) the Hon'ble NCLT has

completely ignored the fact that today the public confidence in the Appellant-

Company is high. Today the public confidence stands fully restored inasmuch

as on the day the CLB passed the order, the share price of the Appellant closed

at Rs. 7.79/- (Rupees Seven and Seventy-Nine Paise Only) on the exchanges. As

of filing of the present Appeal, a share of the Appellant is valued at Rs. 54.70/- Company Appeal (AT) Nos. 04 and 05 of 2022 37

(Rupees Fifty- Four Only and Seventy Paise). The same is a 7x growth in share

price and increase in public confidence while also repaying debts, expanding

businesses, applying for, and receiving new patents, and growing as a

pharmaceutical company.

xv) The Impugned Order fails to appreciate that considering the financial

growth of the Appellant, the Appellant was in a position to and was ready and

willing to repay all its depositors who came forth with the shares. It is relevant t

state in this regard that the Appellant had filed an application under Section 391

of the Old Act. In terms of the order dated 23.7.2019 passed by this Hon'ble

Tribunal, the Appellant was directed to cancel the shares that had been issued

to the fixed deposit holders and in lieu of the cancellation repay the monies with

a period of three months. An exception in this regard had been carved out for

those shares that already had been traded. The Appellant, thus, made multiple

advertisements including on 15.8.2019 and 27.7.2020 with their details and

sought repayment of fixed deposit dues in lieu of cancellation of their shares.

Post the stipulated three-month period till date, 4953 deposit holders have come

forward with requisite particulars due to the sustained effort of the Appellant.

The Appellant has paid entire fixed deposit dues to all eligible fixed deposit

holders who approached the Company and submitted requisite documentation.

However, in its bonafide and on the directions of the board of directors who are

acting in the utmost good faith, the Appellant continued to receive and entertain

applications even post the time period stipulated by the Hon'ble NCLT and

affirmed by the Hon'ble NCLAT. Now, the Hon'ble NCLT has turned around and

faulted the Appellant for not ensuring all fixed deposit holders approached it an Company Appeal (AT) Nos. 04 and 05 of 2022 38

impossibility as far as the Appellant is concerned since it can only advertise and

request the eligible fixed deposit holders to come forth and cannot coerce them

to do so.

xvi) The Impugned Order fails to consider that this Tribunal had granted three

months' time vide its judgment dated 23.7.2019 for refund of monies to eligible

fixed deposit holders in lieu of cancellation of shares. Since the fixed deposit

holders have not come forth, the scheme so to speak has been kept open much

to the chagrin of the stock exchanges. Accordingly, on 28.7.2021 a final

advertisement was also issued for fixed deposit holders to come and take refunds

of their monies in lieu of shares. However, on 28.7.2021, the share of the

Appellant closed at Rs. 66.60/-. Thus, no fixed deposit holder had any reason to

return shares that were more valuable than their fixed deposit dues.

xvii) The Impugned Order does not appreciate the fact that the Appellant had

sent individual communication to each fixed deposit holder requesting them to

come forth. Failure of fixed deposit holder to come forth cannot fasten an

obligation on the Appellant of non-repayment. In any event, the Appellant

undertakes that in case any fixed deposit holder comes forth it is ready and

willing to repay the sums due to them and to that end the Appellant has made a

proposal herewith to show its utmost bonafide and be wholly transparent with

this Tribunal as well as the Respondent.

xviii) The NCLT has ignored the fact that the application was filed invoking its

inherent powers under Rule 11 which given the specific liberty granted by the

Hon'ble Supreme Court cloaked the Hon'ble NCLT with sufficient power to modify

and correct the CLB Order which in today's time given the financial turn-around Company Appeal (AT) Nos. 04 and 05 of 2022 39

of the Appellant would be incorrect. [Impugned Order-Para 17, @Page 99 of the

Appeal].

7. The Ld. Sr. Counsel for the Appellant during the course of argument and

in the memo of appeals along with combined written submissions submitted that

vide order dated 01.07.2005 passed in the matte of Union of India v. M/s

Morepen Laboratories Limited & Ors (CP No. 4 of 2005) had directed the

appointment of two government nominee directors on the board of the Appellant-

Company for a period of 3 years to monitor and assist the Appellant-Company.

The primary reason for such appointment was the Appellant's (then) non-

compliance with order of the Ld. CLB dated 19.08.2003 [i.e. for the payment of

FD dues] and to protect the interests of the investors. The more important

consideration for the appointment of government directors back in 2005 was that

the Appellant-Company was then suffering heavy financial losses, under debt re-

structuring and the appointment of government directors was needed to instil

public confidence.

8. It is further submitted that the Ld. CLB's order dated 01.07.2005 was

confirmed by the Hon'ble High Court of Himachal Pradesh vide order dated

17.05.2007 which was challenged by the Appellant before the Hon'ble Supreme

Court in SLP (C) No. 11189/2007. After passing of a status- quo order dated

16.07.2007 the Hon'ble Supreme Court vide order dated 09.04.2010 granted

leave, admitted the SLP converting it into C.A. No.3165/2010. These reasons/

considerations based on which the above orders were passed do not exist any

longer since the Appellant-Company has recovered financially and recorded

significant growth in the last 16 years. This was duly brought to the attention of Company Appeal (AT) Nos. 04 and 05 of 2022 40

the Hon'ble Supreme Court vide an application to bring on record subsequent

events via I.A. No.97153/2018 in C.A. No.3165/2010.

9. It is further submitted that the Hon'ble Supreme Court vide its order dated

09.07.2019 while dismissing the SLP, however specifically granted liberty to the

Appellant to agitate these subsequent events before the concerned forum.

Pursuant to this liberty granted by the Hon'ble Supreme Court, the Appellant

preferred C.A. No. 785/2019 in C.P. No. 4/2005 (Disposed of) before the NCLT,

Chandigarh. However, the said application preferred by the Appellant was

dismissed/ rejected by the NCLT vide its order dated 06.10.2021 without

considering the merits or the 'subsequent events' in terms of the directions of

the Hon'ble Supreme Court. Hence, the present appeals were preferred before

this Tribunal.

10. It is further submitted that the Appellant in terms of the arrangement

(under section 391 of the Companies Act, 1956) sanctioned by the Hon'ble High

Court of Himachal Pradesh vide order dated 04.08.2009 passed in C.P. No.5 of

2004, allotted equity shares as per the SEBI Regulations, worth Rs. 104.70

crores in the listed company (constituting 20% of the company) thereby

extinguishing the liability on account of dues to Fixed Deposit holders [FD

holders] as per the CLB order dated 19.08.2003. These shares were well received

by the FD holders which were converted into their DEMAT accounts and more

than 50% of shareholders have sold their shares, hence, realising their dues.

Thereafter, the Respondent preferred an appeal with the NCLT, Chandigarh,

which passed directions vide order dated 12.03.2018 to cancel the balance

shares (shares not traded/ sold by the FD holders) and pay cash in exchange as Company Appeal (AT) Nos. 04 and 05 of 2022 41

per the CLB order dated 19.08.2003. In compliance with the said directions of

the NCLT, the Appellant approached and communicated the scheme/ offer to its

balance shareholders to surrender their allotted equity shares and get refund of

FD dues. Subsequently, 4953 shareholders approached the Appellant- Company

for their cash dues amounting to a total of Rs. 18.84 crores.

11. It is further submitted that the remaining shareholders were not willing to

surrender their shares to the Appellant-Company as per the scheme of the CLB,

since at the time the market value of the shares had increased significantly, to

50-60% more than the value they would receive as per the scheme [i.e. Rs. 36

per share vs. Rs. 54 per share]. Therefore, FD holders have exercised their right

to such choice/ option and cannot be compelled to incur loss by returning the

shares at a lower price to the Appellant as per the scheme. Similarly, the

Appellant had issued 75 lakh equity shares in the year 2008 to more than 20

banks as part of debt settlement as per CDR at Rs. 20 per share (more than 75%

premium compared to issue price for FD holders which was Rs. 11.32). The

Banks readily accepted the shares and have sold them in the market recovering

their money at market price which was higher than the issue price. Furthermore,

the balance portion of debt outstanding as Preference Capital to the tune of Rs.

96 crores for which more than 75% of the Banks have provided written consent

for conversion (of the outstanding dues) to equity capital at the market rate of

Rs. 53.72/- per share (as per the SEBI Formula) which is nearly five times the

price at which the shares were issued to the FD holders.

12. It is further submitted that the financial recovery and growth of the

Appellant-company from financial year 2005 [FY 2005] till financial year 2021 Company Appeal (AT) Nos. 04 and 05 of 2022 42

[FY 2021] placed on record has not been disputed by the Union of India. A debt

of Rs. 750 crores were settled and paid by the Appellant [Rs. 114 crores of

outstanding debt i.e. Preference Capital is being converted to Equity]. The

revenue of the Appellant-Company had risen from Rs.132 crores in FY 2005 to

Rs. 1200 crores in FY 2021 and it recorded a profit of Rs.97 crores in FY 2021

as against the loss of Rs.41 crores in FY 2005. The exports of the Appellant-

Company have increased from Rs.75 crores in FY 2005 to Rs.476 crores in FY

2021 and the number of direct employees employed by the Appellant-Company

have increased from 750 employees in FY 2005 to 2500 employees in FY 2021.

The share price of the Appellant-Company was Rs.7 in FY 2005 and in FY 2021

it reached a high of Rs.75 while the net-worth of the Appellant-Company has

risen from Rs.236 crores in FY 2005 to Rs.445 crores in FY 2021. The Appellant-

Company has added new products and new businesses. including medical

devices and OTC brand, Dr. Morepen. The manufacturing plant of the Appellant-

Company acquired 3 more USFDA approvals and ISO-13485 certifications.

13. It is further submitted that in the last 17 years, the Appellant has settled

and paid all its debt and is a zero-debt company since the last 5 years with no

outstanding term loan or working capital loan from any bank (zero-debt

certificate dated 22.10.2021 at page 2478 of the Appeal). All liabilities or

outstanding dues of the Appellant-Company have been paid off from internal

cash accruals over the past years. The value of shares allotted to the FD holders

have increased 5 to 6 times from Rs.11.32 to Rs.75. Therefore, there exist no

cogent reasons for appointing of government directors to assist or manage the

appellant-company and the considerations for directing the same by the CLB Company Appeal (AT) Nos. 04 and 05 of 2022 43

vide its order dated 01.07.2005 including debt-restructuring, financial losses or

interests of FD holders do not find any ground today. The Union of India has not

disputed the above position. Further it is settled law that the power under

Section 408 of the Companies Act, 1956, is a power that must be used sparingly

in extraordinary circumstances:

• M/s Sterling Holidays Resorts (India) Ltd. v. Central Government

Secretary to Govt. of India, 2013-1-LW 596 / Para 11,15,19,20,21,23.

• Kedar Nath Agarwal (dead) & Anr. v. Dhanraji Devi (dead) & Anr.,

(2004) 8 SCC 76/ Para 19 to 26.

• Peerless General Finance & Investment Co. Ltd. v. Union of India,

1988 SCC OnLine Cal 285/ Para 27 to 30.

• South India Viscose Ltd. & Anr. v. Union of India & Ors., 1981 SCC

OnLine Del 144 / Para 20 & 22.

14. Further, the Ld. CLB's order dated 01.07.2005 had directed the

appointment of two government directors on the Board of the Appellant-

Company for a period of 3 years. Thereafter, 17 years have lapsed and now there

exist no grounds which would warrant the appointment of government directors

as per section 408 of the Companies Act, 1956.

15. As stated above these 'subsequent events' were placed before the Hon'ble

Supreme Court vide I.A. No.97153/2018 in C.A. No.3165/2010 and hence the

Hon'ble Supreme Court vide its order dated 09.07.2019 had directed that the

Appellant agitate the subsequent events before the concerned forum.

Subsequently, the Appellant placed on record the 'subsequent events' before the

Company Appeal (AT) Nos. 04 and 05 of 2022 44

NCLT, Chandigarh vide C.A. No.785/2019, C.A. No.467/2020 and C.A.

No.104/2021 which it failed to consider.

16. It is further submitted that there is no contempt of the Ld. CLB's order

dated 01.07.2005 as alleged. Applying the doctrine of merger of orders/

judgements the Ld. CLB's order dated 01.07.2005 stood merged with the final

order dated 09.07.2019 passed by the Hon'ble Supreme Court [Babloo Singh &

Ors. v. State of Uttar Pradesh & Ors., (2019) 12 SCC 403 / Para 9 //

Omprakash Verma & Ors. v. State of Andhra Pradesh & Ors., (2010) 13 SCC

158 / Para 47 to 49]. Therefore, assuming (for the sake of argument) contempt,

if any, would be that of the final order dated 09.07.2019 passed by the Hon'ble

Supreme Court and not of the Hon'ble CLB or NCLT. It is settled law that the

power to punish for its own contempt is exclusive to the Hon'ble Supreme Court

under Article 129 read with Article 142 of the constitution and such power

cannot be exercised by any other court of law [Supreme Court Bar Association

v. Union of India, (1998) 4 SCC 409 / Para 21 & 38 // R.P. Vaghela v. State

of Gujarat & Ors., (2002 SCC OnLine Guj 34 Para 38, 40, 41, 61 // Vitusah

Oberoi v. Court of its own motion, (2017) 2 SCC 314 / Para 10 & 12]. Hence,

the contempt proceedings initiated against the Appellant are not maintainable

in the eyes of the law.

17. It is further submitted that there is in fact no contempt of court by the

Appellant since the Hon'ble Supreme Court vide its order dated 09.07.2019

granted liberty to the Appellant to effectively seek modification of the order dated

01.07.2005 passed by the Ld. CLB especially since the said order would not hold

ground given the subsequent events. The Appellant conveyed the same stand/ Company Appeal (AT) Nos. 04 and 05 of 2022 45

position to the Respondent vide letter dated 09.08.2019. The key ingredient to

establish wilful disobedience, consequently resulting in civil contempt is

"deliberate flouting of orders" and not mere "misinterpretation" or "possible"

interpretation of an order. An action based on a plausible interpretation of an

order cannot be said to amount to 'wilful disobedience' of the orders of this court

[Indian Airports Employees' Union v. Ranjan Chatterjee, (1999) 2 SCC 537,

Para 7 & 11].

18. The Ld. Counsel for the Respondent in both these appeals during the

course of argument and in his Reply Affidavit submitted that the Respondent

herein had initiated Contempt proceedings against the Appellant before the

NCLT vide CA No. 1207 of 2019 wherein the NCLT vide the common impugned

order was pleased to issue notice and the matter is now pending adjudication

and was listed for hearing on 31.05.2022, thereafter subsequent dates. The

Appellant is trying to take shelter of the order passed by the Hon'ble Supreme

Court of India by misinterpreting it to its advantage that it has granted liberty to

get the order dated 01.07.2005 recalled. In fact, the Hon'ble Supreme Court of

India has in clear terms declined to interfere with the findings of facts recorded

by the Hon'ble Himachal Pradesh High Court and did not comment on the

subsequent events in the matter. The only liberty granted was and which reads

as under is:

"... it would be open for the appellant to agitate the subsequent

events before the concerned forum."

Company Appeal (AT) Nos. 04 and 05 of 2022 46

Meaning thereby that the Appellant herein can seek relief in regard to the

subsequent events after the passing of the order dated 01.07.2005 before the

right forum and not "seek modification of the said order".

19. It is further submitted that the Hon'ble Supreme Court had directed that

the proceedings be completed as far as possible within one year of the order. This

makes it clear that the Hon'ble Supreme Court has left no scope of

modification/rectification of the said order and has only granted the Appellant

liberty to agitate subsequent events. The Appellant has approached this

Appellate Tribunal with malicious intents to keep the reins of the management

of the Company in his hands and continue to do as he has been doing for the

last 15 years.

20. It is further submitted that in view of the above, the NCLT, Chandigarh

bench has observed and adjudicated on all necessary facts and circumstances

relevant to the Company Petition filed by the Appellant herein and thereafter,

has rightly passed the impugned order dated 06.10.2021. It is reiterated that the

order dated 01.07.2005 has been upheld by the Hon'ble Supreme Court and has

attained the finality. It is submitted that Appellant has misused the process of

law and has tried his best to circumvent the order passed by the CLB more than

14 years ago and now after dismissal of the SLP by the Hon'ble supreme Court

has devised a novel method to further disobey the dicta of the Court. The

subsequent event cannot be a ground in any eventuality for non-compliance of

the orders passed by the court of competent jurisdiction therefore the present

appeal is devoid of any merits and deserve to be dismissed with exemplary cost.

Company Appeal (AT) Nos. 04 and 05 of 2022 47

21. It is further noteworthy that criminal cases filed against the company and

its officers in default under provisions of section 58A and related provisions of

the Company Act, 1956 for failure to repay deposit from public are still pending

before concerned court. The appointment of government nominated directors is

extremely relevant in view of the fact that promoters of the company siphoned

company funds which resulted in deterioration financial position of the company

and now liability needs to be fixed for such criminal acts of the management of

the company.

22. It is further submitted that the contemnors/appellants have committed

contempt of the Ld. NCLT Court by refusing to comply with the order dated

01.07.2005 passed by the Ld. CLB by refusing the appointment of the

Government nominated directors on the Board of the Appellant No. 1 Company.

It is pertinent to mention that the erstwhile CLB had directed appointment of

two Government nominated directors on the board of the Appellant No. 1

Company which was upheld by the Hon'ble Supreme Court vide order dated

09.07.2019. Accordingly, the Answering Respondent had, time and again passed

various orders for appointment of Government Directors and the Company would

simply refuse to comply with the same. Pursuant to order dated 09.07.2019

passed by the Supreme Court, the Answering Respondent, vide order dated

30.07.2019, nominated two directors on the board of Directors of the Company.

However, the Company again refused to comply with the order passed by the

Answering Respondent vide its letter dated 09.08.2019, thereby committing

contempt of the Ld. NCLT. The net effect of the above clearly demonstrate that

the Appellant contemnors have willfully disobeyed the directions passed by the Company Appeal (AT) Nos. 04 and 05 of 2022 48

CLB, vide order dated 01.07.2005, which was subsequently upheld by the High

Court of Himachal Pradesh and thereafter by the Hon'ble Supreme Court of

India.

23. Further, even after dismissal of the SLP by the Hon'ble Supreme Court of

India, the Contemnors haven't taken any positive steps to comply with the order.

The above act of the Appellants itself clarifies that the disobedience was

completely wilful and intentional in the name of litigation. The Appellants are

trying to blow hot and cold in the same breath. On one hand, they are denying

compliance of the order passed by the erstwhile CLB and further upheld by the

Supreme Court but on the other hand are trying to justify the jurisdiction and

powers of this Tribunal in modifying the said order by using excerpts of the said

order and misinterpreting it in their favour.

24. Without prejudice to the above, it is submitted that the company was due

and payable of a total amount of Rs. 156 crores to various fixed deposits holders

as on 30.09.2003, even now the company is claiming that it has (aid a total

amount just a little more than 18 crores only as against the claims of Rs. 156

crores. It is further submitted that nothing has been placed on record before the

NCLT as well as this Appellate Tribunal regarding the balance fixed deposits

holder and whether the said fixed deposits were genuine or fake. It cannot be

said that either the original fixed deposit holders or any of their legal heir or

successors will sit quietly without claiming their fixed deposits irrespective of

issuance of any advertisement for this purpose.

25. Further, it was also observed by the High Court in its order dated

17.05.2007 that the no stay order was granted in the appeal filed by the Company Appeal (AT) Nos. 04 and 05 of 2022 49

Company even then, the Company had failed to accept two Directors appointed

by the Government. It was further held that since the Company has failed to

comply with the order of the CLB, the Company was directed to hold a meeting

of the board of Directors within two months from the date of the order in which

it shall associate the two Directors appointed by the Answering Respondent and

that the term of 3 years for the said Directors shall start from the day the first

meeting is held (at page 97 of appeal). Therefore, in lieu of section 10 read with

Section 12 of the Contempt of Courts Act, 1971 and Section 425 of the

Companies Act, 2013, the Answering Respondent has rightly approached the Ld.

for seeking contempt proceedings against the Appellants. For the aforesaid

reasons, the instant Appeals be dismissed.

26. We have perused the pleadings made on behalf of the parties and

considered the submissions of the parties.

27. We observe that the Company Law Board vide order dated 01.07.2005

disposed of the Company Petition No. 4 of 2005 directing the Central

Government to appoint two Directors on the board of the Company for a period

of three years which relevant part of the order reads as hereunder:

"9. The Central Government has sought for appointment of 6

directors with the view to have the majority on the Board. It is

on record that the company has already two nominees of the

financial institutions and therefore, I am of the view that

appointment of 2 government directors would suffice to monitor

and assist the company. Accordingly, I direct the Central

Company Appeal (AT) Nos. 04 and 05 of 2022 50

Government to appoint two directors on the board of the

company for a period of 3 years."

28. The Appellant-M/s. Morepen Laboratories Ltd. as well as Union of India

are aggrieved with the order of the Company Law Board dated 01.07.2005, filed

separate company appeals before the Hon'ble High Court of Himachal Pradesh

at Shimla. The Hon'ble High Court vide its common order dated 17.05.2007

dismissed both the appeals. Thereafter, the Appellant-M/s Morepen Laboratories

Ltd. as well as Union of India again challenged the order of the Hon'ble High

Court before the Hon'ble Supreme Court of India by filing two separate Special

Leave Petitions and the Hon'ble Supreme Court of India directed to maintain

status quo by orders dated 16.07.2007 and 07.09.2007 respectively and the said

status quo order continued till the disposal of the said SLPs. Further, the SLPs

were converted into Civil Appeal No. 3165 of 2010 and Civil Appeal No. 3166 of

2010, the Hon'ble Supreme Court vide its order dated 09.07.2019 dismissed the

said appeals and the said order reads as under:-

"Civil Appeal No(s) 3165/2010

We are not inclined to interfere with the finding of facts

recorded by the High Court in the impugned judgment with

respect to siphoning off the amount and the loss etc. It was

submitted by the learned counsel for the appellant that there

are subsequent events and liabilities have been cleared. We are

not commenting on the subsequent events in this matter. We

have examined the propriety of the decision of the High Court.

We are satisfied that no interference is called for. It would be Company Appeal (AT) Nos. 04 and 05 of 2022 51

open for the appellant to agitate the subsequent events before

the concerned forum. Let the proceedings be concluded as far

as possible within one year.

The appeal is dismissed.

C.A. No. 3166/2010

Since there are two directors, we are not inclined to

appoint six directors as prayed.

The appeal stands dismissed."

29. The NCLT has rightly considered the facts and circumstances of the case

that the order in CP No. 4 of 2005 dated 01.07.2005 was upheld upto the Hon'ble

Supreme Court of India and hence the NCLT cannot modify or cancel the same.

The observation of the Hon'ble Supreme Court of India while dismissing the civil

appeals to the extent that "it would be open for the appellant to agitate the

subsequent events before the concerned forum" cannot empower to the Tribunal

to modify the order which was upheld by the Hon'ble Supreme Court of India.

On the other hand, the observation "let the proceedings be concluded as far as

possible within one year" amounts to a direction for proper compliance of the

order dated 01.07.2005 passed in CP No. 4 of 2005.

30. Keeping in view the aforenoted discussion, we do not find any merit in both

these Appeals to interfere with the common order impugned dated 06.10.2021

passed by the National Company Law Tribunal, Chandigarh Bench, Chandigarh.

The impugned order dated 06.10.2021 passed by the National Company Law

Tribunal, Chandigarh Bench, Chandigarh in CA Nos. 785/2019 & 1207/2019

Company Appeal (AT) Nos. 04 and 05 of 2022 52

in CP No. 4/2005 (Disposed of) is hereby affirmed. The instant Appeals are

hereby dismissed. I.A., if any, stands disposed off. No order as to costs.

31. The Appellants in Company Appeal (AT) No. 04 of 2022 may appear before

the NCLT, Chandigarh and file their reply affidavit to the Contempt Application

and in light of the Hon'ble Supreme Court order passed in Civil Appeal No. 3165

of 2010 bringing in notice all the subsequent developments and events. The

NCLT, Chandigarh may consider and pass appropriate orders in accordance with

law.

32. Registry to upload the Judgment on the website of this Appellate Tribunal

and send the copy of this Judgment to the National Company Law Tribunal,

(Chandigarh Bench, Chandigarh), forthwith.

[Justice Anant Bijay Singh] Member (Judicial)

[Barun Mitra] Member (Technical)

New Delhi 25th April, 2023 R. Nath.

Company Appeal (AT) Nos. 04 and 05 of 2022