Rajan Chadha vs Sanjay Arora

3. The facts, in brief, giving rise to the present appeal are

as under:

3.1 One company by the name of “RBT Private Ltd.” carried

out the business of dyeing, printing and trading of fabrics.

1 Rajan Chadha, Rajiv Chadha, Sanjay Arora and Sumit Gupta

were the shareholders as well as Directors of the company.

Rajan Chadha and Rajiv Chadha (Appellants) had a combined

shareholding of 51.36%, Sanjay Arora (Respondent) had 25%

and Sumit Gupta had 23.64%.

3.2 On 21st December 2019, a Memorandum of

Understanding (MoU) was made and executed by and between

the company, Appellants, Respondent, Sumit Gupta and one

Shilpa Gupta. The MoU was entered into for transfer of

shareholding in the company and to re-organize the company’s

management. In-effect, the Respondent was to purchase the

entire shareholding of the Appellants and thereafter, the

Respondent was responsible to run the affairs of the company.

The MoU also provides that in case of any claim, dispute or

difference, the parties shall seek to resolve the same by mutual

consultation and negotiation. In the event, the parties are

unable to reach a resolution, the dispute is to be settled by

arbitration.

3.3 Alleging that the Respondent has failed to discharge

his obligation under the MoU inasmuch as the Respondent has

started operating another entity from the premises of the

2 company, is siphoning off plant and machinery which was

owned by the company and is defaulting in paying instalments

of the term loan – the Appellants issued a legal notice to resolve

the issues.

3.4 On receiving no reply from Respondent, the Appellants

issued a notice in terms of Section 11 of Arbitration and

Conciliation Act 1996 (hereinafter, “Arbitration Act”), on 17th

March 2020. Pursuant thereto, the sole arbitrator was

appointed by the company.

3.5 The Appellants, thereafter, filed a petition in the High

Court under Section 9 of Arbitration Act inter-alia praying for

a direction to restrain the Respondent from disposing

off/alienating, siphoning off or in any manner creating any 3rd

party interest or charge in the assets of the company, to

restrain the Respondent from using the premises of the

company for business operations of any other entity, etc.

3.6 On 11th June 2020, a learned Single Judge of the High

Court disposed of the petition under Section 9 of the

Arbitration Act by recording the submissions of the parties and

by appointing a new arbitrator.

3.7 On 17th June 2020, before the arbitrator, the

3 Appellants contended that the application filed before the High

Court under Section 9 of the Arbitration Act be treated as an

application under Section 17 of the Arbitration Act. The

Respondent objected to the conversion of the application and

its maintainability. The arbitrator, while giving time to the

Respondent to file a reply, recorded that the statements made

by the counsel for Respondent before the High Court (recorded

in the order dated 11th June 2020) will be binding upon the

Respondent.

3.8 On 1st July 2020, the arbitrator on a prima facie

reading of the terms of the MoU observed that certain amount

had to be infused into the loan account of the company by the

Respondent and there is nothing on record to show that it has

been done. It was further observed that the collateral security

for the loan is a house which is jointly owned by the Appellant

No. 1 and his wife. It was further observed that if, the EMI qua

the loan account is not discharged by the company, the

account would become a Non-Performing Asset (NPA) and

would then be subject matter of SARFESI1 Act 2002. The

arbitrator, therefore, being of the view that the apprehension

1 The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest. 4 of the Appellant has been prima facie established directed that,

till the disposal of the petition, the Respondent shall continue

to pay the EMIs into the loan account of the company as per

the terms and conditions of the loan account.

3.9 The Appellants, thereafter, alleging that the

Respondent is not complying with the order of the arbitrator

and is removing the assets of the company illegally, filed an

application before the arbitrator under Section 26 of the

Arbitration Act inter-alia for a Local Commissioner to be

appointed and to prepare an inventory of assets lying at the

factory premises of the company. The same was allowed by the

arbitrator on 16th December 2020.

3.10 On 22nd December 2020, the report of the Local

Commissioner was received. As per the said report, all the

machines were present and operational at the premises of the

company except one – a Flat Bed Printing Machine.

3.11 Aggrieved by the findings of the Local Commissioner so

also by the fact that the Respondent till that point of time had

not deposited any amount of EMIs in the loan account, the

Appellants filed a Contempt Petition bearing CONT. CAS(C) No.

75/2021 before the High Court on 13th January 2021. The

5 Appellants inter-alia prayed that the Respondent be prosecuted

and punished; and to ensure the immediate compliance of the

order dated 11th June 2020 passed by the High Court and

orders dated 17th June 2020 and 1st July 2020 passed by the

arbitrator.

3.12 During the pendency of the Contempt Petition, the

National Company Law Tribunal (NCLT) Chandigarh admitted

a petition against the company under Section 9 of the

Insolvency and Bankruptcy Code 2016 (hereinafter, “IBC”),

initiated Corporate Insolvency Resolution Process (CIRP) and

declared a moratorium in terms of Section 14 of the IBC.

Resultantly, the arbitrator adjourned the proceedings sine die

by an order dated 13th July 2021.

3.13 On 5th December 2023, a learned Single Judge of the

High Court upon hearing the parties observed that the

Respondent has removed material from the premises of the

company and that though the Respondent was directed to pay

EMIs of the loan account, the same has also not been done. It

was further observed that the Respondent and the company

are distinct entities, and the undertaking was given by

Respondent. It was further observed that the Respondent is

6 not under liquidation and the Section 14 IBC moratorium will

not apply to the Respondent. The learned Single Judge of the

High Court, in the result, held that the Respondent is guilty of

intentionally and malafidely violating orders dated 11th June

2020 and 1st July 2020 and has committed contempt of the

orders of the Court. In light of the same, the learned Single

Judge of the High Court granted 4 weeks’ time to the

Respondent to purge the contempt failing which the

Respondent was directed to file an affidavit stating as to why

he should not be punished under the Contempt of Courts Act,

1971. The matter was next listed on 5th March 2024.

3.14 Thereafter another learned Single Judge of the High

Court, on change of roster, was seized of the contempt petition

filed by the Appellants.

3.15 On 3rd July 2024, the learned Single Judge of the High

Court by the impugned judgment and final order, came to the

conclusion that there was no willful and deliberate

disobedience by the Respondent of the order passed by the

High Court and the arbitrator. The show cause notice issued

to the Respondent was discharged.

3.16 Aggrieved thereby, the Appellants filed the present

7 appeal by way of special leave.

3.17 On 9th August 2024, this Court while issuing notice –

dispensed with the personal presence of the Respondent until

further orders.

4. We have heard Ms. Vibha Datta Makhija, learned

Senior Counsel appearing on behalf of the Appellants and Mr.

Shikhil Suri, learned Senior Counsel appearing on behalf of

the Respondent.

5. Ms. Vibha Datta Makhija, learned Senior Counsel

appearing on behalf of the Appellants, submits that the

approach of the learned Single Judge of the High Court in

passing the impugned judgment and order is totally in breach

of the settled legal position. It is submitted that once the

learned Single Judge of the High Court vide order dated 5th

December 2023, on merits, held that the Respondent was

guilty of intentionally and malafidely violating the orders dated

11th June 2020 and 1st July 2020 and, as such, had committed

the contempt of the orders of the Court, another learned Single

Judge of the High Court before whom the matter was

subsequently listed could not have reviewed the matter and

held the Respondent not to be guilty of contempt.

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6. Ms. Vibha Datta Makhija submits that the learned

Single Judge of the High Court vide the impugned judgment

and final order dated 3rd July 2024 has virtually sat in an

appeal over the order passed by another Single Judge of the

High Court dated 5th December 2023.

7. It is, therefore, submitted that the present appeal

deserves to be allowed and the impugned judgment and order

passed by the learned Single Judge dated 3rd July 2024 be

quashed and set aside.

8. Mr. Shikhil Suri, learned Senior Counsel appearing on

behalf of the Respondent, on the contrary, submits that the

learned Single Judge of the High Court after considering the

affidavit filed by the Respondent and all the subsequent

developments, by a well-reasoned order, has come to a

considered conclusion that there was no deliberate and willful

disobedience of the orders passed by the High Court and has

rightly dismissed the contempt petition.

9. Mr. Suri further submitted that the perusal of Sections

12 and 13 of the Contempt of Courts Act, 1971 would reveal

that the learned Single Judge while passing the impugned

judgment and final order has correctly considered the legal

9 provisions and held the Respondent not to be guilty. He,

therefore, submits that the present appeal warrants no

interference and should be dismissed.

10. With the assistance of the learned senior counsel for

the parties, we have perused the record.

11. At the outset, we clarify that we do not propose to go

into the merits of the matter. We are only considering the

correctness of the procedure adopted by the learned Single

Judge of the High Court while passing the impugned judgment

and order.

12. Undisputedly, the another learned Single Judge of the

same Court after considering the merits of the matter and

submissions of the rival parties had observed thus:

“19. For the said reasons, I am of the view that respondent No.1 is guilty of intentionally and malafidely violating the orders dated 11.06.2020 and 01.07.2020 and thus, has committed contempt of the orders of the Court.

20. 4 weeks are granted to the respondent to purge the contempt, failing which respondent No.1 shall file an affidavit as to why he should not be punished under the Contempt of Courts Act within 2 weeks thereafter.

21. List on 05.03.2024.”

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13. It can thus be clearly seen that the learned Single

Judge of the High Court, in unequivocal terms, held the

Respondent to be guilty of intentionally and malafidely

violating the orders dated 11th June 2020 and 1st July 2020

and thus committing contempt of the orders of the Court. The

learned Single Judge of the High Court vide the said order had

granted time to the Respondent either to purge the contempt

or failing which to file an affidavit as to why he should not be

punished under the Contempt of Courts Act.

14. It is thus clear that the matter was postponed only for

the purposes of enabling the Respondent either to purge the

contempt or in the event he did not purge the contempt, to file

an affidavit showing cause as to why he should not be

punished under the Contempt of Courts Act.

15. When the matter was listed before the another learned

Single Judge of the High Court after the change of roster, again

after considering the rival submissions, the learned Single

Judge of the same Court vide impugned judgment and final

order observed thus:

“38. Having given thoughtful

11 consideration to the facts and circumstances of the present case, and considering the material on record, it cannot be said that there is any wilful and deliberate disobedience by the respondents of the order passed by this Court and the learned Arbitrator. No merit is found in the present petition.

Accordingly, notice to show cause as to why the respondent No.1 should not be punished under the Contempt of Courts Act, is hereby discharged.

39. The present petition is dismissed, in the aforesaid terms.”

16. It is thus clear that the learned Single Judge of the

High Court while passing the impugned judgment and final

order dated 3rd July 2024 has reviewed the entire order of the

learned Single Judge dated 5th December 2023. After the order

was passed on 5th December 2023, another learned Single

Judge could have only considered whether the Respondent had

purged the contempt and if not purged the contempt, as to

whether he should be punished or not under the Contempt of

Courts Act, 1971. It was not permissible for the learned Single

Judge to have revisited the issue as to whether the Respondent

has in fact committed contempt or not.

17. If the Respondent was of the view that the order passed

by the learned Single Judge dated 5th December 2023 holding

12 him to be guilty of contempt was not correct in law, the only

option available to him was to file an appeal under the

provisions of Section 19 of the Contempt of Courts Act, 1971.

Having accepted the order dated 5th December 2023, the

Respondent could not have contended, or for that matter, the

learned Single Judge could not have held that the Respondent

has not committed contempt of the Court.

18. It is a different matter as to whether the Court while

considering the provisions of Sections 12 and 13 of the

Contempt of Courts Act, 1971 could have arrived at a finding

as to whether the Respondent was liable to be punished or not

or whether in the facts of the case he should be discharged or

the punishment awarded was liable to be remitted on apology

made to the satisfaction of the Court or not. In our view, the

order of the learned Single Judge of the High Court by holding

that the Respondent had not committed contempt amounts to

sitting in an appeal over the order passed by the coordinate

Bench dated 5th December 2023.

19. In our considered opinion, apart from this being in

excess of the jurisdiction, it is also contrary to the well settled

principles of judicial propriety. When one Judge of the same

13 Court has taken a particular view holding the Respondent to

be guilty of contempt, another Judge could not have come to a

finding that the Respondent was not guilty of contempt.

20. In that view of the matter, we are inclined to quash and

set aside the impugned judgment and final order. We order

accordingly. The matter is remitted back to the learned Single

Judge of the High Court for considering the issue from the

stage of the passing of the order dated 5th December 2023.

21. In the light of the aforesaid observations, the appeal is

allowed in the aforesaid terms. There shall be no order as to

costs.

..............................J (B.R. GAVAI)

…..………...............................J (AUGUSTINE GEORGE MASIH)

NEW DELHI;

APRIL 23, 2025

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