Rizwan Ahmad & Anr vs Sojitz India Private Limited & Anr

IN THE MATTER OF: Rizwan Ahmad & Anr. .. Appellants Vs. M/s Sojitz India Private Limited and Anr. .. Respondents

Present: For Applicants: Mr. Arun Kathpalia, Senior Advocate with Mr. V. Rajasekaran, Mr. Akshay Sachthey, Advocates. For Respondents: Mr. Viraj Datar, Senior Advocate with Mr. Abhishek Vikram, Mr. A. Muralidharan, Advocates. -2-

Contempt Case (AT) No. 14 of 2019 in Company Appeal (AT) (Ins.) No. 170 of 2019

JUDGMENT

[1st August, 2022]

(Per Hon'ble Mr. Justice M. Satyanarayana Murthy)

This application is filed under Section 425 of Companies Act

and Rule 11 of the National Company Law Appellate Tribunal, Rules

2016 read with Sections 12 & 14 of Contempt of Courts Act.

The applicant herein was an applicant in an application filed

under Section 9 of IBC filed against Respondent No. 3 on 22.09.2018

before National Company Law Tribunal, Chennai, as the 3rd

Respondent committed default in payment of debt due to the

applicant.

This Petition Interlocutory Application No. 1854 of 2019 along

with above Contempt Case is filed by the same Petitioner. The petition

in Interlocutory Application No. 1854 of 2019 is filed under Rule-11,

read with Rule 31 of NCLAT Rules to recall the order dated

11.03.2019 passed by this Tribunal in CA (AT) (Insolvency) No. 170 of

2019.

Since both the Contempt and the present petition are filed

based on same contention raised by both the Petitioner and the

Respondents, we therefore find it appropriate to decide both Contempt

and Interlocutory Application by a common judgment. -3-

Contempt Case (AT) No. 14 of 2019 in Company Appeal (AT) (Ins.) No. 170 of 2019

The application was admitted by the Tribunal by its order dated

12.02.2019, a Resolution Professional was appointed in respect of

Respondent No.3 to take over the management of its affairs and

exercise all other statutory powers under IBC.

Respondent Nos. 1 & 2 in their capacity of directors of

Respondent No.3 filed Comp. App. (AT) (Ins.) No. 170 of 2019 before

this Tribunal, challenging the order dated 12.02.2019. On 20.02.2019

during the course of hearing, Respondent Nos. 1 & 2 expressed their

readiness to settle the dispute with the Applicant herein. This

Tribunal recording the submissions of Respondent Nos. 1 & 2,

permitted them to settle the matter, as Committee of Creditors was

not constituted, while, directing CIRP not to constitute the Committee

of Creditors until the next date of hearing, to enable the parties to

arrive at settlement.

In view of the order passed by this Tribunal, the parties

proceeded to settle the dispute, entered into a Settlement Agreement

dated 08.03.2019 wherein it was agreed that the respondents would

pay an amount of Rs. 24,27,64,004/- (Rupees Twenty-Four Crores

Twenty Seven Lakhs Sixty Four Thousand and Four Only) to the

applicant, in four installments as stipulated in the Settlement

Agreement. As per the terms of the settlement agreement, the 1st

installment of Rs.7,00,00,000/- (Rupees Seven Crores only) was

payable on 08.04.2019. This Tribunal was pleased to take on record

the Settlement Agreement.

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Contempt Case (AT) No. 14 of 2019 in Company Appeal (AT) (Ins.) No. 170 of 2019

This Tribunal by order dated 11.02.2019 recorded Clause 1.1 of

Settlement Agreement which set out the payment schedule for the

Respondent No. 3 to pay installments of settled amount.

This Tribunal also directed parties viz., Respondent Nos. 1 & 2

to comply with the Settlement Agreement as stipulated. It is also

further stipulated in the order that in case, the terms of the settlement

agreement were not complied in letter and spirit, it is open to the

applicant to file an application for contempt, against the Respondents

for willful disobedience of the order and also granted liberty to the

applicant to revive the prayer of corporate insolvency resolution

process with a request to recall the order, for non-compliance.

Respondent Nos. 1 & 2 filed affidavits before this Tribunal

undertaking their liability while affirming that they would adhere to

the terms and conditions set out in the Settlement Agreement. The

Respondent Nos. 1 & 2 categorically stated in the affidavits that, in

case of non-payment of any installments as per the terms stipulated

in the Settlement Agreement, the applicant shall be entitled to deposit

the post dated cheques drawn by the Respondent No. 1 on his

personal account to discharge the obligation of respondents to make

payment to the applicant.

The respondents counsel, on 04.02.2019 addressed a letter to

the counsel for the applicant seeking extension of time for making

payment of 1st installment due on 08.04.2019. The applicant through -5-

Contempt Case (AT) No. 14 of 2019 in Company Appeal (AT) (Ins.) No. 170 of 2019

its counsel informed the respondent that no extension would be

granted and that the respondent should comply with the directions of

this Tribunal as per the orders. As Respondents failed to make

payment of the 1st installment amount of Rs. 7,00,00,000/- (Rupees

Seven Crores only) on the due date i.e. 08.04.2019 the applicant in

strict adherence of Clause 2.3 of the settlement agreement, therefore,

deposited the post dated cheque to realize the amount due as 1st

installment with the banker on 09.04.2019, but, the cheque was

returned unpaid/dishonored by the banker due to insufficiency of

funds. Thus, the respondents not only failed to pay the 1st

installment, on due date stipulated in the settlement agreement but

also failed to maintain balance in the account. The respondents have

repeatedly and blatantly disobeyed the directions of this Tribunal and

as such the Respondent Nos. 1 & 2 committed willful breach of

undertaking given to this Tribunal and disobeyed the order dated

11.03.2019, willfully and intentionally.

In view of disobedience of order of this Court and breach of

undertaking by Respondent Nos. 1 & 2, Interlocutory Application No.

1285 of 2019 is filed seeking extension of time for compliance of terms

of settlement agreement. This Tribunal after hearing argument on

11.04.2019 disposed of the application, while holding that no case has

been made out for extension of time for payment. Thus, the

respondents have willfully disobeyed the order and committed breach

of undertaking before this Tribunal with an intention to avoid -6-

Contempt Case (AT) No. 14 of 2019 in Company Appeal (AT) (Ins.) No. 170 of 2019

insolvency resolution process. As such, the respondents are liable for

punishment as per the provisions of Contempt of Court Act.

In view of willful breach of undertaking and willful disobedience

of the order, the applicant requested to initiate contempt proceedings

against the Respondents and punish them for their willful and

deliberate disobedience of the order of this Tribunal and for willful

breach of the undertaking filed before this Tribunal as per the

provision of Contempt of Courts Act.

The Respondent filed a Reply Affidavit admitting about initiation

of proceedings under Section 9 of Insolvency & Bankruptcy Code by

Applicant, passing of orders, filing of an appeal before this Tribunal in

Comp. App. (AT) (Ins.) No. 170 of 2019 and Settlement Agreement

dated 08.03.2019 incorporating certain terms and conditions. The

respondents however, contended that Clause 1.1 of Settlement

Agreement deals with payment schedule, Clause 3.3 of the settlement

agreement stipulated that "RA and RK" (Respondent Nos. 1 & 2

herein) shall obtain the consent of Board of Directors of OREN to take

on record the settlement agreement and ratify the terms thereof within

5 days from the date of receipt of the order from NCLAT as outlined in

Clause 3.1 (e) of the settlement agreement. In obedience of Clauses

3.1 and 3.3 of the Settlement Agreement, the Board meeting was

convened on 13.03.2019 to obtain consent to take settlement

agreement on record and ratify the terms thereof. But the Board urged

to take steps immediately to raise the attachment over the bank -7-

Contempt Case (AT) No. 14 of 2019 in Company Appeal (AT) (Ins.) No. 170 of 2019

account of the company made by the Income Tax Corporate Circle-5,

Chennai and declined to take the settlement on record and ratify the

terms therein.

The respondents filed I.A. No. 1285 of 2019 in Comp. App. (AT)

(Ins.) No. 170 of 2019 seeking extension of time narrating the details

of income tax notice issued under Section 226 (3) of Income Tax Act,

annexed a copy of order passed by the High Court of Madras dated

03.04.2019 in Writ Petition Nos. 9789, 9925 of 2019 whereby the High

Court quashed the impugned order, notices, raised the attachment

over the bank account of the Respondent No.3. However, this Tribunal

dismissed the Interlocutory Application No. 1285 of 2019 by order

dated 11.04.2019.

Again meeting of Board of Directors was convened on

15.04.2019 to obtain consent of the board, to take Settlement

Agreement on record and ratify the terms. But, the Board of Directors

refused to give consent to the Settlement Agreement dated 08.03.2019

and ratify the terms. The Board of Directors raised serious objection

regarding liability, breach, relationship and jurisdiction in the meeting

and resolved to invoke arbitration clause.

On 22.02.2018 the applicant sent a mail which runs as follows:

"as discussed, we are monitoring Saudi‟s situation closely, since this will be a significant amount to reduce our standing amount. However, we don‟t have any intention for us to get this receivable from you. Anyway to maximize the collection, we do think below will be necessary for OREN" and the email continues. The information furnished by the National e-Governance -8-

Contempt Case (AT) No. 14 of 2019 in Company Appeal (AT) (Ins.) No. 170 of 2019

Services Ltd. (NeSL) dated 24.09.2018 indicates that the transaction between the Applicant and the Respondents is a loan transaction."

The email contents disclose that the transaction between the

applicant and the respondents is loan, thereby there is no operational

debt.

It is specifically contended that Clause 11 of the settlement

agreement dated 08.03.2019 deals with law and jurisdiction which is

as follows:

"11.1 - This Settlement Agreement shall be governed by and construed in accordance with the law of India.

11.2 - Any dispute arising out of or in connection with the Settlement Agreement, including any breach of the Settlement Agreement, any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration in New Delhi in accordance with the Arbitration & Conciliation Act, 1996 and all amendments thereto. 11.3 - The Parties agree that the Arbitral Tribunal shall comprise a Sole Arbitrator to be selected by OREN and RA from amongst three Arbitrators identified by SJI.

11.4- The seat of arbitration shall be at New Delhi."

In view of the clause, the Respondents sent a legal notice on

24.04.2019 invoking arbitration clause, to resolve the disputes arising

out of settlement agreement dated 08.03.2019 and a corrigendum

thereof on 27.04.2019, receipt of the same was acknowledged by the

applicant. Though 30 days‟ time had expired, the applicant did not

take any steps to appoint an arbitrator. Thus, as per Section 11 of

Arbitration and Conciliation Act, the respondent filed a petition before

the High Court of Delhi.

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Contempt Case (AT) No. 14 of 2019 in Company Appeal (AT) (Ins.) No. 170 of 2019

The Respondents entered into an agreement dated 26.02.2016

with Andhra Pradesh Mineral Development Corporation to purchase

1,80,000 MTs of "drilling grade 4.20 specific gravity" Barytes (A

Grade). The drilling grade 4.20 specific gravity offered for supply by

APMDC under the contract meant for serving the export contract or

orders of the respondents with the foreign buyers by the Respondents.

In the background, the respondent entered into MOU - Strategic

Business Alliance dated 23.06.2016 with M/s Sojitz Corporation, a

holding company of Respondent. As per the terms of memorandum of

understanding cum strategic business alliance dated 23.06.2016, the

parties agreed to become strategic partners to pursue collaboration

opportunities relating to the oil and gas field business, but Sojitz India

Pvt. Ltd. did not undertake study for investment activities with OREN,

the 3rd Respondent herein to develop further relationship between

OREN and Sojitz. However, there was correspondence within Sojitz

and APMDC for supply of varieties, for assignment of 38,000 MTs „A‟

grade Barytes in favour of the Applicant out of 1,80,000 MT under the

agreement dated 09.06.2016. As the supply is not for domestic sale as

per conditions of the agreement dated 20.06.2016, the applicant

cannot sell „A‟ Grade Barytes in India, as, such sale is prohibited in

terms of the agreement. Hence the claim of applicant is not

sustainable.

Later, the applicant sent email dated 22.02.2018 which runs as

follows:

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Contempt Case (AT) No. 14 of 2019 in Company Appeal (AT) (Ins.) No. 170 of 2019

"as discussed, we are monitoring Saudi‟s situation closely, since this will be a significant amount to reduce our outstanding amount. However, we don‟t have any intention for us to get this receivable from you. Anyway to maximize the collection, we do think below will be necessary for OREN‟ and the email continues. Copy of the email dated 22.02.2018 sent by Respondent is enclosed herewith as Annexure A-6".

In view of email referred above, the transaction between the

applicant and respondents is a loan transaction. Certain disputes

arose between applicant and respondents and the applicant had

approached NCLT claiming default in payment of 29,45,27,710/- filed

CP/1182/1B/2018 under Section 9 of IBC claiming as an operational

creditor. NCLT admitted the application.

Aggrieved by the order of NCLT, Chennai the Respondent Nos. 1

& 2 filed an appeal before this Tribunal bearing Comp. App. (AT) (Ins.)

No.170 of 2019 but it was settled between the applicant and

respondents. Under the settlement agreement dated 08.03.2019 with

certain terms and conditions set out therein. The same was filed

before this Tribunal on 11.03.2019.

In the light of the circumstances narrated above, the dispute

arose out of settlement agreement dated 08.03.2019 in respect of,

breach and validity including jurisdiction, the respondent invoked

arbitration clause, sent legal notice dated 24.04.2019 calling the

applicant to suggest the name of the arbitrator within 30 days, despite

service of notice no action was taken by the applicant, thereupon, the

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Contempt Case (AT) No. 14 of 2019 in Company Appeal (AT) (Ins.) No. 170 of 2019

respondents were constrained to file application under Section 11 of

arbitration conciliation act before High Court of Delhi.

Thus, there was no willful disobedience of the order dated

11.03.2019, willful breach of settlement agreement dated 08.03.2019,

but due to the circumstances narrated above and consequently

requested to dismiss the contempt case.

Based on the above contentions, this Tribunal framed two

charges and called for reply from the Respondent Nos. 1 & 2/

Contemnors. The Respondent Nos. 1 & 2/Contemnors denied the

charges while reiterating the allegations made in the reply to the

contempt application. The charges consist of two parts, one is willful

breach of settlement agreement and second is willful disobedience of

order of this Tribunal dated 11.03.2019.

During hearing the learned Senior Counsel Sri Arun Kathpalia

demonstrated as to how respondents/contemnors violated the

undertaking and willfully disobeyed the order referring certain

documents which will be discussed at appropriate stage while

deciding the issue of contempt.

Whereas the learned Counsel for the Respondent Sh. Viraj

Datar would contend that mere default in compliance of order is not

sufficient to punish the respondents/contemnors, it must be a willful

disobedience and willful breach of undertaking. It is further contended

that the Respondent made every endeavor to comply the order of this

Tribunal but unsuccessful, therefore the disobedience or breach of

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Contempt Case (AT) No. 14 of 2019 in Company Appeal (AT) (Ins.) No. 170 of 2019

undertaking cannot be said to be willful and consequently not liable

for punishment, requested to dismiss the contempt case holding these

respondents not guilty.

Both the learned counsel filed their written-submissions and

those submissions will be considered in detail at appropriate stage.

Considering rival contentions, perusing the material on record,

the sole point that arises for consideration is:

"Whether the Respondent Nos. 1 & 2/ Contemnors committed breach of settlement agreement dated

08.03.2019 and disobeyed the order of this Tribunal dated 11.03.2019 willfully? If so, are the Respondent Nos. 1 & 2/Contemnors liable for punishment as per Section 12 of Contempt of Court Act?"

The undisputed facts are that the applicant herein filed petition

to initiate CIRP under Section 9 of IBC against the Respondent No. 3

on 22.09.2018. An interim resolution professional was appointed to

take over the management of its affairs under the Code. Respondent

Nos. 1 & 2 are the Directors of Respondent No. 3, filed Comp. App.

(AT) (Ins.) 170 of 2019 before this Appellate Tribunal challenging the

order of NCLT, Chennai. While the appeal is pending, the claim of the

applicant was settled and parties to the appeal entered into settlement

agreement on 08.03.2019, wherein the Respondent Nos. 1 & 2 agreed

to pay Rs.24,27,64,004/- (Rupees Twenty Four Crores Twenty Seven

Lakhs Sixty Four Thousand and Four Only) in four installments. The

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Contempt Case (AT) No. 14 of 2019 in Company Appeal (AT) (Ins.) No. 170 of 2019

1st installment was to be paid on 08.04.2019 but the same was not

paid, however, cheques were issued to the Applicant in terms of

settlement agreement for encashment to present the cheque to realize

the debt as 1st installment, in the event of failure to pay the

installments. Accordingly, the Applicant presented the cheque for

collection, which was dishonored. There was correspondence between

the parties but no amount was paid in terms of the settlement

agreement and direction issued by this Tribunal on 11.03.2019.

The Respondents admitted about their failure to comply with

the terms and conditions of the settlement agreement while pleading

that the breach is not willful, it is only on account of paucity of funds

and for the reasons beyond their control. Moreover, the respondents

have also raised a strange contention that the relationship between

the Applicant and the Respondents was only a business partnership,

but there is no subsisting legal liability. The specific plea of the

Respondents is that the default or their failure to adhere to the terms

and conditions of settlement agreement is not willful for the reason

that the agreement was not taken on record by the Board of Directors,

not ratified, despite, holding meeting twice and the Respondents

invoked arbitration Clause and filed petition before Delhi High Court

under Section 11 of Arbitration and Conciliation Act.

In view of undisputed facts narrated above, it is apposite to

extract relevant terms and conditions of the Settlement Agreement

between the Applicant and the Respondents.

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Contempt Case (AT) No. 14 of 2019 in Company Appeal (AT) (Ins.) No. 170 of 2019

Clause 1 deals with settlement amount and 1.1 specified the schedule of payment and the same is extracted hereunder:

"OREN hereby undertakes and confirms that it shall, and RA and RK hereby undertake and assure SJI that they shall take all such actions as may be necessary to ensure that OREN pays an amount of INR 24,27,64,004 ("Settlement Amount") to SJI, without any deductions, reductions or set-offs whatsoever, in the respective amounts set out in the second column of the following table (each such amount being referred to as an „Installment‟) and on the scheduled dates set out against each instalment in third column of the following (each such amount being referred to as an "Due Date"):

S. No. Installment (INR) Due Date 1. 7,00,00,000/- („First Installment‟) 8 April 2019 2. 6,00,00,000/- („Second Installment‟) 8 May 2019 (if such day is not a business day for banks in New Delhi (Business Day) then the next Business Day 3. 6,00,00,000/- („Third Installment‟) 7 June 2019 (if such day is not a business day for banks in New Delhi then the next Business Day 4. 5,27,64,004/- („Final Installment‟) 8 July 2019 (if such day is not a business day for banks in New Delhi then the next Business Day

Clause 2.4 permits the applicant to present cheques for

collection given a security in case the installment amount is not paid.

Clause 3 deals with conditions precedent, Clause 3.1 (c) & (d)

runs as follows:

(c) RA and RK shall file affidavits (substantially in form and substance acceptable to SJI) before the NCLAT with an undertaking to the NCLAT to unconditionally pay SJI the Settlement Amount and each installment on or before the respective Due Date in terms of this Settlement Agreement;

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Contempt Case (AT) No. 14 of 2019 in Company Appeal (AT) (Ins.) No. 170 of 2019

(d) each of RA and RK shall file with the NCLAT all such affidavits/ documents/ applications (substantially in form and substance acceptable to SJI) as may be required to place on record this Settlement Agreement with the NCLAT and if directed by the NCLAT, with the NCLT Chennai;

According to Clause 3.3 the respondents herein shall obtain

consent of OREN (Applicant) to take on record the settlement

agreement and ratify the terms thereof within a period not later than 5

days from the date of order of NCLAT.

Clause 11.2 says that in case of any dispute arising out of or in

connection with this Settlement Agreement, including any breach of

the Settlement Agreement, any question regarding its existence,

validity or termination, shall be referred to and finally resolved by

arbitration in New Delhi in accordance with the Arbitration and

Conciliation Act, 1996 and all amendments thereto.

Based on the settlement agreement, the respondents herein

invited an order dated 11.03.2019, this Appellate Tribunal recording

submissions of counsel, taking the settlement agreement on file

without going into the relationship between the parties, issued the

directions as follows:

"7. In the circumstances, while we direct the parties particularly the Appellants to comply with the „Terms of Settlements‟ dated 8th March, 2019 and pay the amount within the period as mentioned therein, we set aside the impugned order dated 12th February, 2019 passed by the Adjudicating Authority and dispose of the application under Section 9 filed by the „Operational Creditor‟ as withdrawn.

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Contempt Case (AT) No. 14 of 2019 in Company Appeal (AT) (Ins.) No. 170 of 2019

8. In effect, order (s), passed by the Adjudicating Authority declaring moratorium and action, if any, taken by the „Interim Resolution Professional‟ all such orders and actions are set aside. The „Corporate Debtor‟ (Company) is released from all the rigour of law and is allowed to function independently through its Board of Directors with immediate effect.

9. The matter is remitted to the Adjudicating Authority for determination of the fee of the „Interim Resolution Professional‟ the „Corporate Debtor‟ will pay the same.

10. We make it clear that in case agreement is not complied with in its letter and spirit, it will be open to the Respondents not only to file a petition for contempt for flouting the direction of this Appellate Tribunal, it will be open to the Respondents to revive the prayer for any proceeding under „Corporate Insolvency Resolution Process‟ and request this Appellate Tribunal to recall the order and to dismiss the appeal for non-compliance."

It is an undisputed fact that, respondent failed to comply with

the direction in terms of settlement agreement dated 08.03.2019, but

filed notarized undertaking affidavits of Respondent No. 1 &

Respondent No. 2 dated 27.03.2019. The specific undertaking in para

2 (a), (b) is also relevant for deciding the issue, it runs as follows:

(a) That the Appellant No. 1 will adhere to the terms and conditions set out in the settlement agreement annexed hereto and take all such actions as may be necessary to pay an amount of INR 24,27,64,004 to the Respondent No. 1 and pay each Installment on or before the respective due date as specified in the settlement agreement dated 08.03.2019, failing which, Respondent No. 1 shall be entitled to deposit the post-dated cheques issued by the Appellant No. 1 corresponding to such non-payment.

(b) In the event of any breach of the terms and conditions of the settlement Agreement, Deponent confirms and affirms that the

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Contempt Case (AT) No. 14 of 2019 in Company Appeal (AT) (Ins.) No. 170 of 2019

Corporate Insolvency Resolution Process under CP/1182/IB/2018 filed by Respondent No. 1 will be revived automatically as per the provisions of the Insolvency and Bankruptcy Code, 2016.

Based on the Settlement Agreement dated 08.03.2019, the

respondents/contemnors invited an order from the Court dated

11.03.2019. Thus, it is clear that the respondents gave an

undertaking to pay Rs. 24,27,64,004/- as per the schedule

mentioned in Clause 1.1 of the settlement agreement, extracted

above. At the same time, the order passed by the Court dated

11.03.2019 permitted the Applicant to file a application for contempt

and to take steps to revive the prayer for CIRP. Thus, this Tribunal in

anticipation of such violation, cautiously permitted the Applicant to

file contempt in the event of failure to comply with the undertaking

and directions issued by this Tribunal, the order became final.

The Respondent did not dispute non-compliance of the order

dated 11.03.2019 and failure to honor the undertaking but explained

the reasons to support their contention that their failure is not willful.

Before going to decide the real controversy, it is necessary to

advert to the definition of Civil contempt under Section 2 (b) of

Contempt of Court Act and it is extracted hereunder:

"civil contempt‟ means willful disobedience to any judgment, decree, direction, order, writ or other process of a Court or willful breach of an undertaking given to a court"

The Apex Court defined „Contempt‟ as disorderly conduct of

contemnor causing serious damage to the institution of justice

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Contempt Case (AT) No. 14 of 2019 in Company Appeal (AT) (Ins.) No. 170 of 2019

administration. Such conduct, with reference to its adverse effects

and consequences, can be discernibly classified into two categories

one which has a transient effect on the system and/or the person

concerned and is likely to wither by the passage of time while the

other causes permanent damage to the institution and administration

of Justice (Vide: Kalyaneshwari vs. Union of India and others1)."

The Apex Court time and again discussed about the standard of

proof in a contempt proceeding, concluded that the standard of proof

is almost identical to the standard of proof in a criminal case since

the proceedings in contempt is quasi criminal in nature.

The main endeavor of respondents is that the applicant failed to

establish that the violation of the order is willful, in the absence of

any material to establish that the violation is willful this Tribunal

cannot find the respondents guilty for contempt to punish in terms of

Section of 12 of the Contempt of Court Act. No doubt, the proceedings

in contempt are quasi criminal in nature and the standard of proof is

almost identical to the standard of proof in criminal cases. In Kanwar

Singh Saini Vs. High Court of Delhi2 the Apex Court held that

contempt proceedings being quasi criminal in nature, the standard of

proof requires in the same manner as in other criminal cases. The

contemnor is entitled to the protection of all safe guards/ rights which

are provided in criminal jurisdiction including the benefit of doubt. In

1 (2011) 6 SCALE 220

2 (2012) 4 SCC 307

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Contempt Case (AT) No. 14 of 2019 in Company Appeal (AT) (Ins.) No. 170 of 2019

Mrityunjoy Das vs. Sayed Hasibur Rahman3, U. N. Bora vs.

Assam Roller Flourmills4, Rama Narang Vs. Ramesh Narang5,

Debarata Bandhopadhyay Vs. State of West Bengal6 the Apex

Court reiterated the same principal.

The power of contempt is conferred on the courts and Tribunals

only to uphold the dignity of courts and to see that the orders passed

by the Courts and Tribunals shall not be disobeyed and to avoid

substantial loss to the parties. If no such power is conferred on the

courts and Tribunals, courts and tribunals will remain as a "paper

tigers", therefore, the legislature thought it fit to provide claws and

jaws to prevent abuse of process of the justice system. Thus, the

courts and Tribunals are conferred power of contempt to punish the

party who disobeyed the order of the Court or Tribunal.

While dealing with the application for the contempt of the court,

the court cannot travel beyond the order. It cannot test the

correctness or otherwise of the order or give additional directions or

delete any directions. That could be exercising review jurisdiction

while dealing with an application filed in contempt proceedings. The

same would be indefensible, as held in Prithawi Nadh Ram vs. State

of Jharkhand7. The Contempt jurisdiction is not conferred on the

Subordinate Courts and it is only conferred on the Court of record and

Tribunals, in view of Article 215 of the Constitution of India and

3 (2001) 3 SCC 739 4 (2022) 1 SCC 101 5 (2009) 16 SCC 600 6 1969 SCR (1) 304 7 AIR 2004 SC 4277

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Contempt Case (AT) No. 14 of 2019 in Company Appeal (AT) (Ins.) No. 170 of 2019

Section 425 of Companies Act. According to it, the High Court shall be

a Court of record and shall have all the powers of such a Court,

including the power to punish for contempt of itself, at the same time

this Tribunal is also competent to exercise such power in terms of

Section 425 of Companies Act. The jurisdiction of contempt is

independent jurisdiction of its original nature. Therefore, this Tribunal

is competent to exercise such power to punish a person, who is guilty

of contempt and this jurisdiction is enjoyed by this Tribunal, is only

for the purpose of upholding the jurisdiction of the judicial system

that exists. While exercising this power, the Tribunal must not react

by the emotion, but must act judicially.

Contempt proceedings are intended to ensure compliance of the

orders of the Court, Tribunals and strict adhering of rule of law.

Once, the essentials for initiation of contempt proceedings are

satisfied, the Court shall initiate action, uninfluenced by the nature of

direction in a pending lis before the Court vide judgment of Apex

Court in Priya Gupta and others vs. Additional Secretary,

Ministry of Health and Family Welfare and others8.

Contempt jurisdiction enjoyed by the Courts is only for the

purpose of upholding the majesty of judicial system that exists. While

exercising this power, the Courts must not be hyper sensitive or

8 JT 2013 (1) SC 27, 2012 (12) SCALE 289

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Contempt Case (AT) No. 14 of 2019 in Company Appeal (AT) (Ins.) No. 170 of 2019

swung by emotions, but must act judicially (Vide: Chairman, West

Bengal Administrative Tribunal vs. SK. Monobbor Hossain9).

Keeping in view of the limits of contempt jurisdiction and

principles regarding standard of proof in contempt case, we would like

to analyze the pleas of both parties.

In the instant case, the respondents not only gave an

undertaking but also agreed to pay the amount as directed by this

Tribunal by order dated 11.03.2019. It is also an admitted fact that

the petitioner filed an I.A. No. 1285 of 2019 seeking extension of time

for compliance of order of this Tribunal, admittedly the Interlocutory

application was dismissed on 11.04.2019 holding that no case has

been made out to extend the time for compliance of terms of

settlement.

The respondents are aware about their obligation to comply with

the terms and conditions, so also their obligation to obey the

undertaking but did not comply with the order of this Court

11.03.2019 and did not obey the undertaking. However, the

Respondents contended that as per Clause 3.3, the Respondent Nos. 1

& 2 placed the settlement agreement before the Board of Directors of

OREN to take on record, the settlement agreement and ratify the

terms, on 13.03.2019, also on 15.04.2019 but the settlement

agreement was not taken on record, not ratified the terms therein.

Copy of resolutions dated 13.03.2019 and 15.04.2019 are placed on

9 (2012) 3 SCALE 534

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Contempt Case (AT) No. 14 of 2019 in Company Appeal (AT) (Ins.) No. 170 of 2019

record. As per resolution dated 13.03.2019 the Board of Directors

deferred the issue of taking up the settlement agreement on record

and ratify the same but not refused. However, in the meeting held on

15th April, 2019 meeting the Board of Directors did not agree to take

on the record, the settlement agreement but resolved as follows:

"RESOLVED THAT the Board of Directors hereby rejects the Settlement Agreement dated 8th March 2019, entered into with M/s Sojitz at New Delhi and hereby authorize the Chairman Mr. Rizwan Ahmad to invoke the Arbitration clause in the agreement and commence Arbitration proceedings with SOJITZ to resolve the issue."

It is evident from the resolution, Respondent No. 1 is the

Managing Director and Respondent No. 4 is another Director. Both

have signed on the settlement agreement but did not keep up the

undertaking. The resolution placed on record does not bare the

signatures of the Board of Directors attended the meeting. Therefore,

no value can be attached to such rejection as they are stopped to raise

such contention being the Managing Director and Director of 3rd

Respondent. Hence, the said contention is rejected.

If really, the Respondent Nos. 1 & 2 placed the settlement

agreement before the Board of Directors in the meeting dated

13.03.2019 the respondents ought to have mentioned the said fact in

I.A. No.1285/2019, the copy of the affidavit and petition in I.A.

No.1285/2019 are not placed on record to substantiate such

contention, hence the excuse pleaded by the respondent for non-

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Contempt Case (AT) No. 14 of 2019 in Company Appeal (AT) (Ins.) No. 170 of 2019

compliance of order of this Tribunal dated 11.03.2019 is hereby

rejected.

It is contended by the Applicant that the order passed by this

Tribunal dated 11.03.2019 is violated by the respondents consciously

though the respondents are aware about the consequences that flow

from such violation and it can be described as culpable/willful

disobedience of order of the Court. Filing of I.A. No.1285/2019,

inviting an order from the Court for extension of time to comply the

directions is strong ground to conclude that the respondents violated

the order willfully. Apart from the above facts, Respondent Nos. 1 & 2

filed affidavits before this Tribunal on 02.10.2019 during the

pendency of the contempt case, stating that the Respondent Nos. 1 &

2 paid Rupees One crore to the applicant, while requesting to grant

some more time to make further payment. Further time, till

31.12.2019, as they intend to pay full amount in terms of the order,

while tendering unconditional apology, till date no amount is paid.

The conduct of the Respondent Nos. 1 & 2 during the pendency of

contempt case prior to initiation of contempt case is sufficient to

conclude that the violation of order is willful and deliberate.

The Learned Counsel for the Applicant Sri Arun Kathpalia

contended that disobedience and breach of the orders by the

contemnors is a matter of serious concern. In such case, the Court

must deal with the contemnors sternly. It is settled law that while

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Contempt Case (AT) No. 14 of 2019 in Company Appeal (AT) (Ins.) No. 170 of 2019

considering the question of disobedience of an order, what must be

regarded is the letter and the spirit of the order, together with the

bonafides or genuine belief of the alleged contemnor as to such order.

The same has been enunciated by Hon‟ble Apex Court in the matter of

Lakshman Prasad Agarwal V. Syed Mohammad Kareem10, In

instant case the contemnors though agreed to pay Rs. 24,27,64,004/-,

invited several orders including main order dated 11.03.2019 and

orders dated 08.04.2019, 08.05.2019, 07.06.2019, 08.07.2019 during

pendency of contempt, agreeing to pay the amount in compliance of

the undertaking and directions issued by this court dated 11.03.2019

and on subsequent dates. However, the contemnors invented a

different plea to escape from their liability to comply the ordered which

are not accepted as discussed in earlier paragraphs. One of the

contentions of the respondents is that, they are are unable to pay the

debt and such inability cannot be described as wilful disobedience. He

further contended that mere inability to comply with the order,

because of financial condition should not be a reason for punishing

the respondents, in support of this contention the counsel relied on

the judgment of the Bombay High Court in Mrs. Pushpalata & Ors.

Vs. Bhimrao Dinkar Fadtare & Ors11, Such plea is not available to

the respondents for the reason that they were unable to pay debt due

to the applicant and later entered into the comprise agreed, to pay

Rs.24,27,64,004/- but failed to pay the same, such contention is

10 2009 (6) SCALE 413 11 C.P.No.97 of 2006 in W.P.No.767 of 2000 dated 15.09.2009

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Contempt Case (AT) No. 14 of 2019 in Company Appeal (AT) (Ins.) No. 170 of 2019

nothing but traversity of facts to circumvent law. Hence, the inability

of the respondents is not an excuse. Therefore, such conduct is

explicitly pointing out the malafides of the contemnors.

The Respondents Nos. 1 & 2 also tendered unconditional

apology while agreeing to comply with the directions issued by this

Tribunal 11.03.2019 by filing two separate notarised affidavits as

stated above. But tendering an apology is neither a weapon of defence

to purge the guilty of their offence nor it is intended to operate as

universal panacea as held in Patel Ranjikant Dhulabhai and Anr.

Vs. Patel Chandrakant Dhulabhai and Others12. In view of the

principles laid down in the above judgment, the unconditional apology

tendered by the respondents is not an excuse for non-compliance of

the order dated 11.03.2019, moreover, the respondents themselves

sought time to pay the amount in full to the applicant but not paid. As

such, non-payment of the amount even after granting three

adjournments is another strong circumstance to reject the defence of

Respondent Nos. 1 & 2. On the other hand, it appears that the

respondents are resorting to different methods to avoid payment to the

applicant, total conduct of respondents/ contemnors is blame worthy,

therefore, they are not entitled to raise any plea to justify their acts,

when they repeatedly flouted the order of this Tribunal many a times.

As there is no dispute about the jurisdiction of this Tribunal the

judgements relied on by the applicants counsel Sri Arun Kathpalia

12 2008 (10) SCALE 349

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Contempt Case (AT) No. 14 of 2019 in Company Appeal (AT) (Ins.) No. 170 of 2019

needs no further consideration, as such, those judgments relating to

jurisdiction are not discussed.

The Learned Senior Counsel for the Respondents Nos. 1 & 2

Sh. Viraj Datar contended that in view of the facts narrated in the

reply, the respondents did not disobey the order wilfully. In the

absence of a finding as to the intentional or wilful violation, holding

the respondents/ contemnors guilty for contempt is illegal. In support

of his contentions, he relied on judgment of the

Apex Court in Ram Kishan vs. Tarun Bajaj13, wherein it was held as

follows:

"10. Thus, in order to punish a contemnor, it has to be established that disobedience of the order is „wilful‟. The word „wilful‟ introduces a mental element and hence, requires looking into the mind of person/ contemnor by gauging his actions, which is an indication of one‟s state of mind. „Wilful‟ means knowingly intentional, conscious, calculated and deliberate with full knowledge of consequences flowing therefrom. It excludes casual, accidental, bonafide or unintentional acts or genuine inability. Wilful acts does not encompass involuntarily or negligent actions. The act has to be done with a "bad purpose or without justifiable excuse or stubbornly, obstinately or perversely". Wilful act is to be distinguished from an act done carelessly, thoughtlessly, heedlessly or inadvertently. It does not include any act done negligently or involuntarily. The deliberate conduct of a person means that he knows what he is doing and intends to do the same. Therefore, there has to be a calculated action with evil motive on his part. Even if there is a disobedience of an order, but such disobedience is the result of some compelling circumstances under which it was not possible for the contemnor to comply with the order, the contemnor cannot be punished. "Committal or sequestration will not be ordered unless involves a degree of default or misconduct."

In another judgment of Apex court in Bordeuri Samaj of Sri

Sri Maa Kamakhya Vs. Riju Prasad Sarma & Ors. has held that:

"9.... The contempt jurisdiction is always discretionary which should be exercised sparingly and with circumspection....

13 (2014) 16 SCC 204

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Contempt Case (AT) No. 14 of 2019 in Company Appeal (AT) (Ins.) No. 170 of 2019

However, it is always open for the petitioner to adopt appropriate proceedings for recovery of money."

In Mrs. Pushpalata & Ors. Vs. Bhimrao Dinkar Fadtare &

Ors. (referred supra) observed as under:

"....23. The main argument advanced on behalf of the Respondents is that merely because they are unable to comply with the orders because of the financial condition of the trust or the sugar factory that should not be a reason for punishing the Respondents for contempt. It is not wilful disobedience on their part, but it is their inability to comply with the orders of the court because of financial difficulties and inability to raise funds..................After going through the same I am satisfied that it is not a case of wilful disobedience, but financial difficulties is the main reason for non-compliance of the order of the court....."

The principles laid down in above judgment is not in quarrel,

but the conduct of the respondent directly established their intention

in disobeying the order of this Tribunal deliberately, the learned

counsel also relied on the judgment of Apex Court in Niaz

Mohammad & Ors. vs State of Haryana & Ors14, the Apex Court

observed that:

"9..... The Court while considering the issue as to whether the alleged contemnor should be punished for not having complied and carried out the direction of the Court, has to take into consideration all facts and circumstances of a particular case. That is why the framers of the Act while defining civil contempt, have said that it must be wilful

disobedience to any judgment, decree, direction, order, writ or other process of a court. Before a contemnor is punished for non compliance of the direction of a court the court must not only be satisfied about the disobedience of any judgment, decree, direction or

14 [1994] 6 SCC 332

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Contempt Case (AT) No. 14 of 2019 in Company Appeal (AT) (Ins.) No. 170 of 2019

writ but should also be satisfied that such disobedience was wilful and intentional.... But while examining the grievance of the person who has invoked the jurisdiction of the Court to initiate the proceeding for contempt for disobedience of its order, before any such contemnor is held guilty and punished, the Court has to record a finding that such disobedience was wilful and intentional. If from the circumstances of a particular case, brought to the notice of the court, the Court is satisfied that although there has been a disobedience but such disobedience is the result of some compelling circumstances which it was not possible for the contemnor to comply with the order, the Court may not punish the alleged contemnor."

The law laid down in the above judgement is not in controversy.

However, in the facts of the present case the conduct of the

respondents/ contemnors directly established their intentional and

wilful disobedience of the order of this Tribunal dated 11.03.2019 and

subsequent orders referred in the earlier paras. Hence, applying the

principles laid down by the Apex Court, the respondents cannot be

exonerated from the contempt proceedings.

One of the contention raised by the respondents is that the

relationship between the applicant and respondents is business

partner in view of business Strategic Alliance and there was no

operational debt but the said contention need not be adverted, to

record any finding as to subsisting operational debt, in view of the

principle laid down by the Apex Court in judgment in Prithawi Nadh

Ram vs. State of Jharkhand (referred supra).

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Contempt Case (AT) No. 14 of 2019 in Company Appeal (AT) (Ins.) No. 170 of 2019

The other contention raised by the Counsel for the respondents

is that they invoked arbitration clause and filed an application under

Section 11 of Arbitration and Conciliation Act before the Delhi High

Court. Though, Clause 11.2 permits invocation of arbitration clause in

the settlement agreement in case of breach, that itself is not an excuse

to hold that the Respondent Nos. 1 & 2, not liable for contempt for

violation of the order dated 11.03.2019 passed by this Tribunal, as it

made clear that the applicant is at liberty to initiate contempt

proceedings in case the order is violated.

The breach of undertaking amounts to contempt as defined

under Section 2 (b) of Contempt of Court Act but a remedy is provided

in the Clause 11.2 of Settlement Agreement to invoke arbitration

clause in case of breach of undertaking. As the respondents invoked

arbitration clause and filed application under Section 11 of

Arbitration and Conciliation Act before the High Court of Delhi, since,

such remedy is available as per the term of the settlement agreement,

it is difficult to hold that the Respondent Nos. 1 & 2/ Contemnors

committed wilful breach of settlement agreement. Accordingly, we find

that Respondent Nos. 1 & 2 did not commit any willful breach of

Settlement Agreement dated 08.03.2019.

Considering totality of the facts and circumstances of the case,

we hold that the respondents 1 & 2 contemnors wilfully disobeyed the

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Contempt Case (AT) No. 14 of 2019 in Company Appeal (AT) (Ins.) No. 170 of 2019

order of this Tribunal dated 11.03.2019. Since the excuse pleaded by

the respondents is not bonafide.

In view of our foregoing discussion, we found that the

Respondent Nos. 1 & 2/ Contemnors are guilty for wilful disobedience

of order dated 11.03.2019, while holding that the Respondent Nos.

1 & 2/ Contemnors not guilty for wilful breach of settlement

agreement dated 08.11.2019.

Coming to the sentence to be imposed under Section 12 of

Contempt of Courts Act, the maximum sentence is simple

imprisonment for a term which may extend to six months or with fine

which may extend to Two Thousand rupees or with both. However,

the proviso to Section 12 obligates the Court or Tribunal to consider

the apology tendered by the Petitioner while considering the quantum

of punishment. We have already discussed the reasons for rejecting

the unconditional apology tendered by the Respondent Nos. 1 & 2. On

the other hand, they did not comply with the direction of this Tribunal

as agreed in the affidavit filed on 23.09.2019, 03.10.2019 before this

Tribunal, during the pendency of this contempt case also.

I.A. No. 1854 of 2019

The factual matrix not in dispute has already been narrated in the

earlier paragraphs and recorded the findings that the Respondent Nos. 1 & 2

disobeyed the order passed by this Tribunal dated 11.03.2019 based on the

compromise, but the respondents did not discharge their obligations under

the settlement agreement. Therefore, in view of clause 10 of the order dated

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Contempt Case (AT) No. 14 of 2019 in Company Appeal (AT) (Ins.) No. 170 of 2019

11.03.2019, granted liberty to file a petition for contempt for flouting the

directions of this Appellate Tribunal, and it is open to the Respondents to

revive the prayer for any proceeding under CIRP and request this Appellate

Tribunal to recall and dismiss the Appeal for non-compliance, as the

Respondent Nos. 1 & 2 failed to comply the order compromise is deemed to

be inoperative the order of this Tribunal dated 11.03.2019 is liable to be

recall, consequently, the Petitioner is entitled to revive with Corporate

Insolvency Resolution Process.

In view of foregoing discussion, we find that it is appropriate to

declare that the order dated 11.03.2019 passed by this Tribunal in CA (AT)

(Insolvency) No. 170 of 2019 is inoperative, revived Corporate Insolvency

Resolution Process, as requested by this Petitioner in terms of Clause 10 of

the Order dated 11.03.2019.

In the result, contempt case is allowed-in-part, finding the

Respondent Nos. 1 & 2/contemnors guilty for contempt of Court for

disobeying the order of this Tribunal dated 11.03.2019 wilfully.

Hence, sentenced the Respondent Nos. 1 & 2/ Contemnors imposing

fine of Rs. 2,000/- (Two Thousands only). The Respondent Nos. 1 &

2/ Contemnors are directed to pay fine of Rs. 2,000/- within two days

from the date of this order to the credit of Pay and Accounts, Officer,

Ministry of Corporate Affairs, in event of failure to pay fine they are

directed to appear before the Registry at 4.00 P.M. on 3rd August,

2022. On their appearance, the Registrar is directed to commit them

to civil prison on payment of necessary subsistence allowances.

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Contempt Case (AT) No. 14 of 2019 in Company Appeal (AT) (Ins.) No. 170 of 2019

In view of the above, the Petition is allowed to recall the order

dated 11.03.2019 passed by this Tribunal in CA (AT) (Insolvency) No.

170 of 2019 and revived Corporate Insolvency Resolution Process.

[Justice Ashok Bhushan] Chairperson

[Justice M. Satyanarayana Murthy] Member (Judicial)

[Barun Mitra] Member (Technical)

NEW DELHI SA