NCLT Can Punish For 'Civil Contempt' Of Its Orders U/S 425 Of Companies Act Read With S. 12 Of Contempt Of Courts Act: NCLT Ahmedabad

Background Facts

By the order dated 17.01.2025, the Tribunal held Respondent No. 2/Contemnor guilty of contempt for disobeying the direction of the Tribunal under section 425 of the Companies Act r/w. section 12 of the Contempt of Courts Act. Respondent No. 2/Contemnor, Director of Respondent No. 1 company had alienated the assets, the immovable property of Respondent No. 1 in non-compliance of the directions of the Tribunal and without notice to the Applicant

Observations

The Tribunal observed that under section 425 of the Companies Act, it has the same jurisdiction, powers and authority in contempt matters as the High Courts under the Contempt of Courts Act. It noted that section 12 of the Contempt of Courts Act empowers the Tribunal to punish the contemnor with simple imprisonment for a term up to six months or a fine up to Rs. 2000 or both. It held that in case of contempt of any order passed under the IBC or the Companies Act, the Tribunal has the power to punish the contemnor by following the procedure prescribed under the Contempt of Courts Act.

The Tribunal also noted that Section 469 of the Companies Act, 2013 vests in the Central Government the authority to "makes rules" for carrying out the provisions of this law, by notification, clarifying by sub-section (2) that such enabling power confers the jurisdiction to make rules "for all or any of the matters which by this Act are required to be, or may be, prescribed or in respect of which provision is to be or may be made by rules”. The Central Government framed the NCLT Rules, 2016 by virtue of the power conferred under section 469 by issuing notification G.S.R. 716(E) in the official Gazette on 21.07.2016.

The Tribunal observed that non-compliance with the order of the Authority is civil contempt, for which two elements are required to be established, i.e.,

(i) Disobedience of any judgment, decree, directions, orders or other process of court.

(ii) Disobedience or breach must be wilful, deliberate and intentional.

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 Authority. The element of 'willingness' is an indispensable requirement to amount to 'civil contempt' in view of the decision in Anil Ratan Sarkar & Ors. vs. Hirak Ghosh & Ors. Likewise, in Indian Airports Employees' Union vs. Ranjan Chatterjee, the Supreme Court held that: “Disobedience of orders of 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.”

The Tribunal noted that in Kapildeo Prasad Sah & Ors. vs. State of Bihar & Ors. also it was clearly stipulated that disobedience should be wilful and should be a clear violation of court's order with the knowledge of contemnor. It also recorded that initiation of contempt proceeding is not a substitute for execution proceedings though at times purpose may also be achieved.

Further, the Supreme Court in U.N. Bora versus Assam Roller Flour Mills Ass. had elaborately dealt with the issue as what amounts to 'civil contempt' and how it is to be proved:

“ The Contempt of Courts Act, 1971 explains a civil contempt to mean a willful disobedience of a decision of the Court. Therefore, what is relevant is the “willful” disobedience. Knowledge acquires substantial importance qua a contempt order. Merely because a subordinate official acted in disregard of an order passed by the Court, a liability cannot be fastened on a higher official in the absence of knowledge. When two views are possible, the element of willfulness vanishes as it involves a mental element. It is a deliberate, conscious and intentional act. What is required is a proof beyond reasonable doubt since the proceedings are quasi-criminal in nature. Similarly, when a distinct mechanism is provided and that too, in the same judgment alleged to have been violated, a party has to exhaust the same before approaching the court in exercise of its jurisdiction under the Contempt of Courts Act, 1971. … While dealing with a contempt petition, the Court is not expected to conduct a roving inquiry and go beyond the very judgment which was allegedly violated.”

The Tribunal noted that Respondent No. 2/Contemnor had a history of non-compliance and was previously penalized for similar disobedience. The contemnor persistently disregarded judicial directives. It held that the acts of Respondent No. 2 that intended to undermine the administration of justice cannot be disregarded. The Tribunal referred to observations of the Supreme Court in Commissioner, Karnataka Housing Board vs. C. Muddaiah that once a direction is issued by a competent court, it has to be obeyed and implemented without reservation. If a party against whom such order is made grievance, the only remedy available to him is to challenge the order by taking appropriate proceedings known to law.

The Tribunal sentenced the contemnor to simple imprisonment for six months and to pay a fine of Rs. 2000 within seven days; and in the event of default in payment of fine, to undergo a simple imprisonment for one month. The Tribunal directed the contemnor to surrender before the Chief Judicial Magistrate, Ahmedabad on 25.02.2025 for detention in Sabarmati Central Jail, Ahmedabad to serve the sentence of imprisonment.

Case Title: Kumar Jivanlal Patel (Makadia) Vs. Patel Oils & Chemicals Pvt. Ltd. and Ors.

Case Number: Cont.A. - 6/2017

Click Here To Read/Download The Order