Delhi High Court
Ved Prakash Abbot vs Kishore K. Avarsekar & Ors on 9 August, 2019
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on : 17.05.2019
% Pronounced on : 09.08.2019
+ CONT.CAS (C) No.579/2017
VED PRAKASH ABBOT ..... Petitioner
Through: Mr. Dayan Krishnan, Senior Advocate
with Mr. Ankit Agarwal, Advocate.
versus
KISHORE K. AVARSEKAR & ORS ..... Respondents
Through: Mr. Jawahar Raja, Advocate.
CORAM:
HON'BLE MS. JUSTICE JYOTI SINGH
JUDGMENT
JYOTI SINGH, J.
C.M. Appl. No.3887/2019 (for delay)
1. This is an application seeking condonation of delay of 9 days in
filing rejoinder.
2. For the reasons stated in the application, the same is allowed
and the delay of 9 days in filing the rejoinder is condoned.
C.M. stands disposed of.
C.M. Appl. No. 19227/2019 (for delay)
3. This is an application seeking condonation of delay of 34 days
in filing reply.
4. For the reasons stated in the application, the same is allowed
and the delay of 34 days in filing the reply is condoned.
C.M. stands disposed of.
CONT.CAS (C) No.579/2017
5. The present contempt petition has been filed by the petitioner
under Sections 10 and 12 of the Contempt of Courts Act, 1961 read
with Article 215 of the Constitution of India, seeking a direction to
punish respondent No. 7 and its key officers/directors (respondent
Nos. 1 to 6) for willful disobedience of the undertaking dated
21.04.2017 given on behalf of respondent No. 7, in respect of a
settlement under Order 23 Rule 3 CPC as also for violation of order
dated 10.07.2017, whereby, in view of the settlement, a compromise
decree has been passed.
6. When the matter came up on 21.8.2017 the learned senior
counsel for the petitioner sought liberty to implead respondent No. 6,
which is the Authorised Representative of the respondent no.7-
Company and filed a corrected memo of parties. Liberty was granted
by this Court and in terms thereof amended memo of parties was filed
wherein the Authorised Representative of the Company was
impleaded as respondent No. 6.
7. The brief and relevant facts as averred by the petitioner are that
on 19.10.2016, Jai Enterprises, a sole proprietorship of the petitioner
filed a suit being CS No.59041/2016 before the Trial Court for
recovery of a sum of Rs.15,81,420/- against respondent No. 7. On
21.04.2017, a joint application for settlement under Order 23 Rule 3
CPC was filed by the parties with the following terms:
(a) Defendant No. 1 will make payment of the
principal sum of Rs.10,19,763/- (Rupees ten lakh
nineteen thousand seven hundred and sixty three
only) in full and final settlement of the plaintiffs
claims in the present suit;
(b) This payment will be made in five monthly
installments with the first installment being paid on
02.05.2017 and every subsequent installment being
paid on the second of every month;
(c) No installment shall be less than Rs.1,50,000/8-
(Rupees one lakh fifty thousand and paise nil only);
(d) On payment of the above five monthly installment
of the total principal sum of Rs.10,19,763/-
(Rupees ten lakh nineteen thousand seven hundred
and sixty three only) the plaintiff shall forego all
other claims made in the suit;
(e) On default in payment of any installment the
Defendant No. 1 undertakes to pay the plaintiff
interest at the rate of 12% per annum on the
defaulted sum till the date of payment;
(f) On payment of all five installments plaintiff
undertakes to withdraw all proceedings instituted
by them against the Defendant No. 1 and its
directors including criminal complaints filed, and
to communicate such withdrawal to the Defendant
No. 1.
(g) Defendant has no objection to the plaintiff
applying and receiving refund of court fees paid in
the present suit."
8. Pursuant to the said settlement, on 04.05.2017, the cheque given
by respondent No. 7 for Rs.1,50,000/- towards the first installment,
was dishonored on the ground „account blocked‟. On being informed
of the dishonor, respondent No. 6 deposited Rs.1,50,000/- by RTGS
on 05.05.2017 and the cheque was to be used towards the second
installment.
9. On 14.06.2017, the cheque for Rs.1,50,000/- for the second
installment also bounced and a legal notice under Section 138 of
Negotiable Instruments Act, 1882 („NI Act‟), was sent to the
respondents on 08.07.2017, by the petitioner.
10. On 20.06.2017, IRP (Interim Resolution Professional) was
appointed by the National Company Law Tribunal (NCLT) in an
application filed by respondent No. 7 under Section 10 of the
Insolvency and Bankruptcy Code, 2016 (IBC). On 10.07.2017, the
Trial Court recorded the settlement between the parties and the suit
was disposed of by passing a compromise decree.
11. On 19.02.2018, during the course of proceedings, under Section
138 of the NI Act, a demand draft of Rs.1,50,000/- was given by the
authorized representative of respondent No. 7 to the petitioner.
12. On 20.03.2018, an application was filed by the IRP, inter alia,
stating that respondent No. 7 Company could not be revived and an
Official Liquidator be appointed.
13. On 16.04.2019, summons were issued against respondent No. 7
Company and respondent Nos. 1 to 5 in a complaint under Section 200
of the Cr. P.C. for offences under Section 420/406/120B/34 IPC.
14. Learned senior counsel for the petitioner submits that there is a
willful disobedience by the respondents of the undertaking and the
settlement agreement dated 21.04.2017 as well as the compromise
decree passed by the Civil Court on 10.07.2017. He submits that the
respondents did not have any intention to abide by the terms of
settlement and willfully misled the Court to accept the same and
decree the suit on its basis. He submits that this is evident from the
fact that even prior to the appointment of the IRP by the NCLT on
20.06.2017, the respondents had already defaulted twice and the
cheques had bounced.
15. The next contention of the petitioner is that the payment of
Rs.1,50,000/- made by respondent No. 6 on 19.02.2018 indicates that
the Respondents had the capacity to pay but were only willfully
disobeying the decree. It is also submitted that the plea of the
respondents that respondent No. 7 could not have made any payment
after appointment of the IRP on 20.06.2017 is misplaced, inasmuch, as
payment of Rs.1,50,000/- was made by way of a demand draft by the
authorized representative of respondent No. 7 on 19.02.2018, i.e., after
seven months of the appointment of the IRP.
16. The next contention of learned senior counsel for the petitioner
is that a moratorium imposed under Section 14 of the Insolvency and
Bankruptcy Code, 2016, does not have any impact on the contempt
proceedings before this Court under Article 215 of the Constitution of
India and Contempt of Courts Act. The submission is that Section 14
has been interpreted by this Court in E.D. versus Axis Bank in
Criminal Appeal 143/2018, decided on 02.04.2019 and it has been
held that provisions of Section 14 IBC cannot come in the way of a
statutory authority conferred powers under Prevention of Money
Laundry Act (PMLA). He submits that though this judgment is under
PMLA, but the ratio would apply to a case where a moratorium has
been issued under Section 14 of IBC. He submits that Section 14 of
IBC, no doubt, categorically bars the filing of executing petitions but
the contempt petition would still be maintainable.
17. Learned senior counsel for the petitioner further submits that the
claim for money filed by the petitioner sole proprietorship, as
operational creditor under Section 15 of the IBC is irrelevant
inasmuch as the present proceeding has been filed seeking to punish
the respondents under Contempt of Courts Act and not for recovery of
the money due. In contempt proceedings, the Courts are required to
lift the Corporate veil and punish the Directors / Officers In-charge,
responsible for contempt by the Company. Learned senior counsel has
placed reliance upon the following judgments:
a) Delhi Development Authority v. Skipper
Construction Co. (P) Ltd. & Anr., (1996) 4 SCC
622 at paragraph 28;
b) Aligarh Municipal Board & Ors. v. Ekka Tonga
Mazdoor Union & Ors. (1970) 3 SCC 98 at
paragraph 6;
c) Jyoti Ltd. v. Kanwaljit Kaur Bhasin, 32 (1987)
DLT 198 at paragraph 21.
18. I quote hereunder the paragraphs cited and relied upon by the
learned senior counsel for the appellant:
"1. Delhi Development Authority v. Skipper Construction
Co. (P) Ltd. & Anr., (1996) 4 SCC 622.
28. The concept of corporate entity was evolved to encourage
and promote trade and commerce but not to commit illegalities
or to defraud people. Where, therefore, the corporate character
is employed for the purpose of committing illegality or for
defrauding others, the court would ignore the corporate
character and will look at the reality behind the corporate veil
so as to enable it to pass appropriate orders to do justice
between the parties concerned. The fact that Tejwant Singh and
members of his family have created several corporate bodies
does not prevent this Court from treating all of them as one
entity belonging to and controlled by Tejwant Singh and family
if it is found that these corporate bodies are merely cloaks
behind which lurks Tejwant Singh and/or members of his
family and that the device of incorporation was really a ploy
adopted for committing illegalities and/or to defraud people.
2. Aligarh Municipal Board & Ors. v. Ekka Tonga
Mazdoor Union & Ors. (1970) 3 SCC 98.
6. In regard to the appeal by the Municipal Board, it was
contended that the Board being a Corporation it acts through
natural persons and therefore, it cannot be convicted of
contempt of court. This submission is unacceptable. The law as
it exists today admits of no doubt that a Corporation is liable to
be punished by imposition of fine and by sequestration for
contempt for disobeying orders of competent courts directed
against them. A command to a Corporation is in fact a
command to those who are officially responsible for the conduct
of its affairs. If they, after being apprised of the order directed
to the Corporation, prevent compliance or fail to take
appropriate action, within their power, for the performance of
the duty of obeying those orders, they and the corporate body
are both guilty of disobedience and may be punished for
contempt. The appeal on behalf of the Municipal Board thus
also fails and is dismissed.
3. Jyoti Ltd. v. Kanwaljit Kaur Bhasin, 32 (1987) DLT
198.
21. Thus, it is clear that the law of contempt is conceived in
the public interest. In the present case, I have no doubt, the
corporate veil is being blatantly used as a cloak to wilfully
disobey the orders of the court--an improper purpose. Lifting
the corporate veil, in these circumstances, is imperative to
punish improper conduct. Public interest requires the corporate
veil must be lifted to find out the person who disobeyed the
order of the court."
19. It is thus submitted that respondent No. 7 Company as well as
its Directors/ Officers In-charge are guilty of willful disobedience and
should be punished under Section 12 of the Contempt of Courts Act.
20. Per contra, learned counsel for the respondents at the outset
submitted that there is at best a compromise arrived at between the
parties and there is no categorical undertaking given by the
respondents to a Court. In such a case, the contempt petition does not
lie and at best the petitioner would have a right to enforce the
compromise decree through the process of execution. In support of
his submission on the maintainability of the petition, the learned
counsel has relied upon a judgment of the Apex Court in the case of
Babu Ram Gupta Vs. Sudhir Bhasin (1980) 3 SCC 47. I quote the
relevant para as under:-
"There is a clear-cut distinction between a compromise arrived
at between the parties or a consent order passed by the court at
the instance of the parties and a clear and categorical
undertaking given by any of the parties. In the former, if there
is violation of the compromise or the order no question of
contempt of court arises, but the party has a right to enforce the
order or the compromise by either executing the order or
getting an injunction from the court."
21. Learned counsel for the respondents, further submits that the
respondents are not in willful disobedience or willful breach of any
settlement or undertaking or order of any Court. It is contended that
the petitioner being a sole proprietor of Jai Enterprises has been in
business of supplying building material to contractors for construction
of residential complexes, hospitals, etc., at various sites. Respondent
No. 7 is a Public Limited Company, which had entered into a building
contract for re-development plan for Lady Hardinge Medical College
and Associated Hospitals. The petitioner had supplied building
material for the project to respondent No. 7 between April 2013 and
September 2015. Some outstanding amount remained due towards the
petitioner and the petitioner had filed a suit against respondent No. 7
for the said outstanding amount of Rs.10.2 lakhs. It is submitted that
in April 2017, respondent No. 7 settled with the petitioner and
undertook to make the balance payment. The contention is that the
petitioner has supplied the building material to respondent No. 7 and
not to any past or present Directors of respondent No. 7, and thus
respondent Nos. 1 to 6 have been wrongly arrayed in this petition. The
petitioner had not arrayed respondent Nos. 1 to 6 in the suit and this
would be evident by a bare perusal of the memo of parties in the
plaint. It is submitted that even the undertaking was given by
respondent No. 7 and not respondent Nos. 1 to 6.
22. Learned counsel submits that on 05.05.2017, respondent No. 7
made payment of the first installment but his business suffered
mounting debts. On 18.05.2017, ICICI Bank, one of respondent No.
7‟s significant financial creditors recalled its financial assistance to
respondent No. 7, amounting to Rs.412 crores and on 30.05.2017, the
ICICI Bank issued notice under Section 13(2) of the SARFAESI Act.
23. On 20.06.2017, respondent No. 7 applied under Section 10 of
the IBC requesting for Insolvency Resolution process to be set in
motion, giving a full and true account of all its assets and liabilities. It
is further submitted that alongwith the application, a list of respondent
No. 7‟s creditors viz. 25 Financial Creditors and 954 operational
creditors were filed, to whom respondent No. 7 owed approximately
3146.23 crores and 42.9 crores respectively. It is submitted that the
petitioner was listed at Serial No. 341 of the list of operational
creditors and the debts towards him was stipulated at 14.44 lakhs, i.e.,
the decretal amount plus interest in the suit.
24. It is further stated by the counsel for the respondents that on
20.06.2017, the NCLT admitted respondent No. 7‟s petition and
appointed an Interim Resolution Professional (IRP) to take over its
management. With the appointment of the IRP, the powers of the
Board of respondent No. 7 stood suspended by virtue of Section 17
IBC and the management vested in the IRP. Thus, the Board of
Directors lost control of respondent No. 7.
25. The IRP constituted a Committee of Creditors under Section 21
of the IBC and floated several schemes for revival of the Company,
but no success was achieved. Finally, on 20.03.2018, after going
through the statutory processes, the IRP applied to NCLT to liquidate
the Company and reported that respondent No. 7 owed sums to the
tune of Rs.2000 crores and he had received claims from various
financial and operational creditors employees, statutory authorities,
etc.
26. Based on the above stated chronology of facts, learned counsel
for the respondents contends that the respondents had certainly not
benefited from the Company going under the IBC process as they
actually lost control of the Company with the appointment of the IRP.
After the undertaking given by respondent No. 7, in April 2017, the
respondents had never disputed or denied its liability towards the
petitioner. However, the petitioner is now entitled to the satisfaction of
the decree only through the route of IBC proceedings. It is submitted
that the petitioner is in a queue as one of the 328 operational creditors
and cannot be allowed preferential treatment by breaking the queue.
27. It is further contended that by the present contempt proceedings
the petitioner is seeking execution of his decree outside the IBC
proceedings, which would be against the process under the Insolvency
and Liquidation mandated by the IBC.
28. As regards the payment of amount of Rs.1,50,000/- by demand
draft on 19.02.2018 is concerned, it is submitted that respondent Nos.
2, 3 and 4 were accused in complaint case under Section 138 of the
Negotiable Instruments Act and paid the said amount to compound the
complaint in terms of the judgment of the Apex Court in Damodar S.
Prabhu vs. Syed Babu Lal, (2010) 5 SCC 663. Moreover, the demand
draft was paid by these respondents from their personal account and
not from the account of respondent No. 7.
29. Learned counsel contends that from what has been stated above,
it is clear that the respondents are not in willful disobedience or willful
breach as it is the process under the IBC proceedings which is
preventing them from satisfying the decree of the petitioner. Law does
not permit the respondents to give preferential treatment to the
petitioner as he is only one of the operational creditors and that too,
way down in the seriatim. Learned counsel relies upon the judgment
of the Apex Court in Ashok Paper Kamgar Union vs. Dharam Dhoda
& Others, (2003) 11 SCC 1, for the proposition that the word „willful‟
in section 2 of the Contempt of Courts Act means an act or omission
done voluntarily and intentionally with the specific intent to do
something the law forbids or with an intent to omit to do something,
that the law requires to be done. In order to constitute contempt, the
order of the Court must be of such a nature which is capable of
execution in normal circumstances.
30. Learned counsel also relies on the judgments in the case of
Niyaz Mohammad & Others vs. State of Haryana and Others, (1994)
6 SCC 332, where the Apex Court held that while the contemnors had
not obeyed the judgment and released the salary, but this disobedience
was not willful so as to amount to a civil contempt and the Court drew
a distinction between a Court executing an order and punishing for
contempt. I quote the relevant portion of the said judgment as under:
"The Civil Court while executing a decree against the judgment
debtor is not concerned and bothered whether the disobedience
to any judgment, or decree, was willful. Once a decree has been
passed it is the duty of the court to execute the decree whatever
may be consequences thereof. But .... Before any such
contemnor is held guilty and punished, the Court has to record
a finding that such disobedience was willful and intentional. If
...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."
31. Further reliance is placed on the judgment of Dushyant Somal
vs. Sushma Somal, (1981) 2 SCC 277 and I quote the relevant portion:
"... Where the person alleged to be in contempt is able to
place before the court sufficient material to conclude that
it is impossible to obey the order, the court will not be
justified in punishing the alleged contemnor."
32. Further reliance is placed on the judgment of the Apex Court in
Kanwar Singh vs. High Court of Delhi, (2012) 4 SCC 307, the
relevant portion of is as under:
"... Law does not permit to skip the remedies available
under Order XXI Rule 32 CPC and resort to the contempt
proceedings for the reason that the court has to exercise
its discretion under the Act 1971 when an effective and
alternate remedy is not available to the person
concerned. Thus, when the matter relates to the
infringement of a decree or decretal order embodies
rights, as between the parties, it is not expedient to
invoke and exercise contempt jurisdiction, in essence, as
a mode of executing the decree or merely because other
remedies may take time or are more circumlocutory in
character. Thus, the violation of permanent injunction
can be set right in executing the proceedings and not the
contempt proceedings."
33. It is thus submitted by the respondents that there is no willful
default and the present proceedings cannot be indirectly used by the
petitioner to execute the order in view of the pendency of the
proceedings under the IBC and thus prays that the contempt petition
be dismissed.
34. I have heard the learned counsel for the parties.
35. Before I decide on the issue whether the respondents are guilty
of contempt as alleged by the petitioner, the preliminary objection on
the maintainability of the contempt petition would have to be
addressed. The contention of the petitioner is that there is a
compromise decree in his favour and the same can be enforced by way
of contempt proceedings and no distinction can be drawn between a
decree passed on merit and a decree by way of consent. The
contention of the respondents on the other hand is that the compromise
decree does not contain any undertaking to the Court and mere non-
compliance of the terms of the compromise decree cannot be the basis
of a contempt petition. Only those consent or compromise orders
which are coupled with undertakings or injunctions can be the subject
matter of contempt jurisdiction.
36. Having given my thoughtful consideration to the preliminary
objection, I am of the view that the learned counsel for the
respondents is not correct in his submission that the contempt
proceeding is not maintainable. The Apex Court in the case of Babu
Ram Gupta (supra) has held that in the absence of an undertaking, the
non-compliance of a compromise decree or consent order would not
amount to contempt of Court. It was also held that it is only when
there is a breach of clear undertaking given to the Court that it
amounts to a contempt of Court and not otherwise. However, the
judgment in the case of Babu Ram Gupta (supra) was considered and
distinguished by the Apex Court in the case of Rama Narang vs.
Ramesh Narang & Ors. (2006) 11 SCC 114. The Apex Court in the
case of Rama Narang (supra) observed that the question which was
before the Apex Court in Babu Ram Gupta (supra) was limited to the
issue whether the appellant had given any undertaking to the Court
which he had violated, i.e. the question was limited to the second
category of cases mentioned under Section 2(b) of the Act. The Court
was not called upon to decide whether there was any contumacious
conduct as envisaged by the first category of cases under that Section.
The observations in Babu Ram Gupta (supra) were held to be obiter
by the Apex Court in the case of Rama Narang (supra). The Apex
Court further observed in the case of Rama Narang (supra) that if the
observations in the case of Babu Ram Gupta (supra) were to be
accepted as an enunciation of law, it would be contrary to the
language of the statute. The Court further observed that the Section
itself provides that willful violation of any order or decree etc. would
tentamount to contempt and a compromise decree is as much a decree
as any other decree passed on adjudication. In passing a decree by
consent, the Court adds its mandate to the consent and thus it is
composed of both a command and a contract. The provisions of Order
XXIII Rule 3 CPC require the Court to pass a decree in accordance
with the consent terms only when it is proved to the satisfaction of the
Court that the suit has been adjusted wholly or in part by any lawful
agreement. The Apex Court further held that merely because an order
or decree is executable, would not take away the Court‟s jurisdiction
to deal with a matter under the Contempt of Court‟s Act, provided the
Court is satisfied that the violation is such that it would warrant
punishment under Section 13 of the Act. Finally, the Apex Court held
that it would neither be in consonance with the Statute nor judicial
authority or principle or logic to draw any distinction between the
willful violation of the terms of a consent decree and a decree passed
on adjudication. The Court held that the decision in Babu Ram Gupta
(supra) would have to be limited to its own peculiar facts.
37. From a reading of the judgment of the Apex Court in the case of
Rama Narang , it is clear that a contempt petition would lie in case
there is a violation or non-compliance of a compromise or a consent
decree and merely because execution is one of the remedy available to
the decree holder, it cannot be said that the Court‟s jurisdiction to deal
with the matter under the Contempt of Courts Act is taken away.
Following the ratio of the judgment in the case of Rama Narang
(supra), the preliminary objection raised by the respondents regarding
the non-maintainability of the petition is rejected.
38. On merits, it is contended by the petitioner that there has been
a willful disobedience of the settlement agreement and the
compromise decree passed by the Civil Court. The respondents never
had any intention to make good the payment as even prior to the
appointment of the IRP, it had defaulted twice and the cheques had
bounced. The plea of the appointment of IRP raised by the
respondents is sought to be defended by the petitioner on the ground
that the payment was made by the respondent of an amount of Rs.
1,50,000/- on 19.02.2018, which was seven months after the
appointment of the IRP.
39. The respondents per contra has contended that there is no
"willful disobedience" or "willful breach" by the respondents. The
respondents have made every endeavor to pay the outstanding dues
but after making the payment of the first installment, the business of
respondent No. 7 suffered and there were mounting debts. The ICICI
Bank which was one of the significant financial creditors recalled its
financial assistance amounting to 412 Crores and notice was issued
under Section 13(2) of the SARFAESI Act. On 20.06.2017,
respondent No. 7 had applied under Section 10 of the IPC for
Insolvency Resolution Process to be set in motion and thereupon the
NCLT appointed an IRP to take over the management of respondent
No. 7. All attempts to revive the Company failed and on 20.03.2018,
the IRP applied to NCLT to liquidate the Company. The respondents
further contend that the petitioner is one of the 328 operational
creditors and the respondents cannot break the queue to satisfy the
decree.
40. Section 2(b) of the Contempt of Courts Act, 1971 which is
relevant for the adjudication of this case, reads as under:
"2. Definitions
In this Act, unless the context otherwise requires-
XXXXX
(b) "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;"
41. In the case of Niaz Mohammad & Ors. (supra), the Apex Court
has held that the framers of the Act while defining civil contempt have
said that it must be willful disobedience of any judgment, decree etc.
and therefore, before a contemnor is punished for non-compliance of a
direction of a Court, the Court must not only be satisfied about the
disobedience, but should also be satisfied that such disobedience was
willful and intentional. If from the circumstances of a particular case
the Court is satisfied that although there has been a disobedience, but
the disobedience is the result of some compelling circumstances under
which it was not possible for the contemnor to comply with the order,
the Court would not punish the alleged contemnor. The Apex Court in
the case of Dinesh Kumar Gupta vs. United India Insurance
Company Ltd. (2010) 12 SCC 770, while analyzing Section 29(b) of
the Contempt of Courts Act, 1971 held as under:
"17. This now leads us to the next question and a more
relevant one, as to whether a proceeding for contempt
initiated against the appellant can be held to be
sustainable merely on speculation, assumption and
inference drawn from facts and circumstances of the
instant case. In our considered opinion, the answer
clearly has to be in the negative in view of the well-
settled legal position reflected in a catena of decisions of
this Court that contempt of a civil nature can be held to
have been made out only if there has been a wilful
disobedience of the order and even though there may be
disobedience, yet if the same does not reflect that it has
been a conscious and wilful disobedience, a case for
contempt cannot be held to have been made out. In fact,
if an order is capable of more than one interpretation
giving rise to variety of consequences, non-compliance
with the same cannot be held to be wilful disobedience of
the order so as to make out a case of contempt entailing
the serious consequence including imposition of
punishment. However, when the courts are confronted
with a question as to whether a given situation could be
treated to be a case of wilful disobedience, or a case of a
lame excuse, in order to subvert its compliance,
howsoever articulate it may be, will obviously depend on
the facts and circumstances of a particular case; but
while deciding so, it would not be legally correct to be
too speculative based on assumption as the Contempt of
Courts Act, 1971 clearly postulates and emphasises that
the ingredient of wilful disobedience must be there before
anyone can be hauled up for the charge of contempt of a
civil nature.
xxx xxx xxx
23. Besides this, it would also not be correct to overlook
or ignore an important statutory ingredient of contempt
of a civil nature given out under Section 2(b) of the
Contempt of Courts Act, 1971 that the disobedience to
the order alleging contempt has to satisfy the test that it is
a wilful disobedience to the order. Bearing this important
factor in mind, it is relevant to note that a proceeding for
civil contempt would not lie if the order alleged to have
been disobeyed itself provides scope for reasonable or
rational interpretation of an order or circumstance which
is the factual position in the instant matter. It would
equally not be correct to infer that a party although acting
due to misapprehension of the correct legal position and
in good faith without any motive to defeat or defy the
order of the Court, should be viewed as a serious ground
so as to give rise to a contempt proceeding.
24. To reinforce the aforesaid legal position further, it
would be relevant and appropriate to take into
consideration the settled legal position as reflected in the
judgment and order delivered in Ahmed Ali v. Supdt.,
District Jail [1987 Cri LJ 1845 (Gau)] as also in B.K.
Kar v. High Court of Orissa [AIR 1961 SC 1367 : (1961)
2 Cri LJ 438] that mere unintentional disobedience is not
enough to hold anyone guilty of contempt and although
disobedience might have been established, absence of
wilful disobedience on the part of the contemnor, will not
hold him guilty unless the contempt involves a degree of
fault or misconduct. Thus, accidental or unintentional
disobedience is not sufficient to justify for holding one
guilty of contempt. It is further relevant to bear in mind
the settled law on the law of contempt that casual or
accidental or unintentional acts of disobedience under the
circumstances which negate any suggestion of
contumacy, would amount to a contempt in theory only
and does not render the contemnor liable to punishment
and this was the view expressed also in State of
Bihar v. Rani Sonabati Kumari [AIR 1954 Pat 513]
and N. Baksi v. O.K. Ghosh [AIR 1957 Pat 528]."
42. In the case of Jiwani Kumari Parikh vs. Satyabrata
Chakravorty (1990) 4 SCC 737, the Apex Court held as under:
"6. In our opinion, before a party can be committed for
contempt, there must be a willful or deliberate disobedience of
the orders of the court. In the present case, we do not find that
any such willful or deliberate or reckless disobedience of our
order dated January 16, 1990, has been committed by the
respondent to the contempt petition. Hence, the contempt
petition is dismissed....."
43. The occasion to interpret and analyse the effect of
Section 2(b) again arose in the case of Ashok Paper Kamgar Union
(supra). The Apex Court in the said case held as under:
"17. Section 2(b) of the Contempt of Courts Act defines
"civil contempt" and it means wilful disobedience to any
judgment, decree, direction, order, writ or other process
of a court or wilful breach of undertaking given to a
court. "Wilful" means an act or omission which is done
voluntarily and intentionally and with the specific intent
to do something the law forbids or with the specific
intent to fail to do something the law requires to be done,
that is to say, with bad purpose either to disobey or to
disregard the law. It signifies a deliberate action done
with evil intent or with a bad motive or purpose.
Therefore, in order to constitute contempt the order of the
court must be of such a nature which is capable of
execution by the person charged in normal
circumstances. It should not require any extraordinary
effort nor should be dependent, either wholly or in part,
upon any act or omission of a third party for its
compliance. This has to be judged having regard to the
facts and circumstances of each case. ..."
44. In the case of Gyani Chand vs. State of A.P. (2016) 15 SCC
164, the Apex Court reiterated that to hold somebody guilty of
contempt of Court, the concerned person must have willfully
disobeyed any judgment, decree etc. or should have willfully
committed breach of an undertaking given to a Court.
45. Very recently, a Division Bench of this Court has decided an
appeal under Section 19 of the Contempt of Courts Act, against an
order of the Single Judge, wherein the appellants had been held guilty
of contempt for non-compliance of an undertaking given to the Court.
The Division Bench while deciding the appeal has referred to various
judgments of the Supreme Court including the one in the case of
Rama Narang (supra). The Division Bench has, in great details,
analysed the meaning of the term willful disobedience. The Court has
also relied upon the judgment in the case of Bank of Baroda vs.
Sadruddin Hasan Daya (2004) 1 SCC 360. The relevant extract from
the judgment of the Apex Court is as under:
"14. The respondents had filed consent terms in this
Court but the same contained an undertaking that they
would not alienate, encumber or charge the properties to
anyone until the decree was satisfied. Acting upon this
undertaking and the consent terms, this Court passed the
decree whereunder the respondents (defendants) were
given the facility of depositing the amount in eight
quarterly instalments commencing from 1-11-1999 to 1-
8-2001. This Court, therefore, put its imprimatur upon
the consent terms and made it a decree of the court. The
violation or breach of the undertaking which became part
of the decree of the court certainly amounts to contempt
of court, irrespective of the fact that it is open to the
decree-holder to execute the decree. Contempt is a matter
between the court and the alleged contemner and is not
affected in any manner by the rights or obligations of the
parties to the litigation inter se.
15. Shri Nariman has referred to the affidavit filed by
Respondent 1 before the Debts Recovery Tribunal,
Bombay in the recovery proceedings initiated by Oman
International Bank, SAOD and has submitted that the
respondents have no money or assets apart from the
immovable property, which is lying under attachment, to
pay the amount. The learned counsel has also submitted
that the respondents have themselves tried their best to
secure a purchaser for the property at Versova which is
the only valuable property in order to pay the amount to
the petitioner. Copy of a letter sent to the Recovery
Officer, Debts Recovery Tribunal-II, Bombay on 10-10-
2003 by the solicitors of an intending buyer, who had
made an offer to purchase the said property for Rs 3
crores along with a demand draft of Rs 30 lakhs was also
placed before us. Shri Rohatgi, learned Additional
Solicitor General has, on the other hand, submitted that
apart from Oman International Bank, SAOD, one Shiraj
Taher Alli Lokhandwala has also obtained a money
decree against the respondents due to which several
problems have arisen in executing the decree and
realizing the amount. In the present proceedings we are
basically concerned with the violation or breach of the
undertaking given by the respondents. Shri C.A.
Sundaram, learned Senior Counsel, has submitted that
Respondent 2 was not personally present and the
undertaking was given by him through a power of
attorney. In our opinion, the mere fact that Respondent 2
was personally not present and the undertaking and the
consent terms were given through a power of attorney
will make no difference as he also got benefit under the
consent decree passed by this Court."
46. Traversing through the judgments referred to above, what
emerges is that in order to hold a person guilty of civil contempt, it has
to be established by the person alleging contempt that the alleged
contemner was guilty of a willful breach or a willful disobedience of
an order or a direction, decree etc. of any Court. The emphasis,
therefore, has to be on the word willful. The word „willful‟ means an
act or omission which is done voluntarily and with an intent to do
something which is forbidden by law or failing to do something which
the law requires to be done. The Apex Court in the case of Niaz
Mohammad & Ors. (supra) had the occasion to explain "willful
disobedience" as used in Section 2(b) of the Contempt of Courts Act.
It was held that before a contemnor is punished for non-compliance of
the direction of a Court, the Court must be satisfied not only of the
fact that there is disobedience of a judgment or decree or direction but
also must satisfy itself that such disobedience was willful and
intentional. The Civil Court in an execution proceeding is not
concerned whether the disobedience is willful or otherwise and once a
decree is passed, it is the duty of the Court to execute it. On the other
hand, while examining the grievance of a person who has invoked the
contempt jurisdiction, the Court has to record a finding of willful and
intentional disobedience. If from the circumstances of a particular
case, the Court is satisfied that there has been a disobedience but the
same is a result of some compelling circumstances, under which it was
not possible for the contemnor to comply with the order, the Court
may not punish the alleged contemnor.
47. In view of the law laid down by various judgments mentioned
above, it now needs to be examined whether the act of the alleged
contemnor can be termed as willful disobedience or not. The question,
therefore, that arises is whether by not paying the money to the
petitioner in terms of the compromise decree, the respondents have
willfully disobeyed the order, with an intent to do so or there are any
compelling circumstances, which has prevented the respondents from
paying the balance amount in terms of the compromise decree.
48. The defence of the respondents to the present petition is that the
respondents had initially made part payments in satisfaction of the
compromise decree but soon thereafter the business of the Company
suffered mounting debts. The ICICI Bank, one of its significant
financial creditors, recalled its financial assistance to the tune of 412
Crores and the Bank issued notice under the SARFAESI Act.
Respondent No. 7 thereafter applied under Section 10 of the IBC
asking for Insolvency Resolution process to be set in motion. An IRP
was appointed to take over the management and the powers of the
Board of respondent No. 7 were suspended. The IRP has applied to
the NCLT to liquidate the Company. Respondent No. 7 owes over Rs.
2000 Crores to various creditors. Respondent No. 7 has a list of
several financial creditors and operational creditors and the petitioner
is one of the operational creditors way down in the seriatim. The
respondents, are therefore, prevented by operation of law from
jumping the queue and paying the balance amount to the petitioner in
satisfaction of the compromise decree.
49. Let me now examine the defence of the respondents in the light
of the law and the facts, which are more or less undisputed. The
petitioner has not disputed or rebutted that the moratorium has been
issued, the IRP has been appointed and liquidation proceedings are
pending against respondent No. 7 in the NCLT. The power and
management of the Board of respondent No. 7 now vests in the IRP.
Respondents cannot, at this stage, break the queue and allow
preferential treatment to the petitioner, over the other financial and
operational creditors, to discharge their liability under the compromise
decree. Learned counsel for the respondents is thus right in his
contention that the disbursement of payments by the respondents to
clear the liabilities towards its creditors, including the petitioner,
would be governed by the proceedings under the IBC and thus the
respondents are prevented by law to satisfy the decree in favour of the
petitioner and there is no willful disobedience of the compromise
decree. No doubt that the petitioner has a compromise decree in its
favour and is entitled to the amount under the said decree, but until the
petitioner is able to prove that there is willful disobedience, the
respondents cannot be punished for civil contempt under the Contempt
of Courts Act.
50. The Apex Court has in several judgments drawn a clear
distinction between an Executing Court and a Court exercising
jurisdiction under the Contempt of Courts Act. As a Contempt Court,
one would have to examine the circumstances and come to a finding
that there is willful disobedience. In my view, the respondents have
been able to make out a case that the disobedience is neither willful
nor intentional. Pending the IBC proceedings, the respondents are
justified in not giving preferential treatment to the petitioner towards
satisfaction of the compromise decree. In my opinion, therefore, the
respondents cannot be held guilty of contempt under the Contempt of
Courts Act.
51. I also do not agree with the contention of the petitioner that
because some amount was paid initially through the cheques, there
was a malafide intent not to pay further, and therefore, a contempt is
made out. The chronology of dates and events shows that after the
initial installment was paid, the respondent No.7 suffered losses and
the ICICI Bank had issued notice under the SARFAESI Act and soon
thereafter, the IRP was appointed and liquidation proceedings started.
While this may be an unfortunate coincidence, but the fact of the
matter is that pending the insolvency proceedings, the respondents
cannot pay to the petitioner by jumping the queue. In response to the
contention of the petitioner that the representative of respondent No. 7
had given a Demand Draft of Rs. 1,50,000/- even after the
appointment of the IRP, and therefore, the rest of the money should
also be paid, the respondents have clarified that the petitioner had filed
a criminal complaint under Section 138 of the Negotiable Instruments
Act (NIA) against respondent No. 7 for the dishonor of the cheque
towards the second installment and some of the respondents were
named as accused in view of Section 141 of the NIA. It was in this
background that on 19.02.2018, a Demand Draft of Rs. 1.5 Lacs was
paid by respondent Nos. 2, 3 and 4 and this was not from the account
or the money of respondent No. 7.
52. In my view, this fact also does not further the case of the
petitioner that the respondents are guilty of willful disobedience.
Learned senior counsel for the petitioner has relied upon the
judgments in the case of Skipper Contruction (supra), Aligarh
Municipal Board (supra) and Jyoti Limited (supra) to contend that
the Directors and the Officers of the respondent Company would also
be liable for contempt as the Courts have lifted the corporate veil and
on finding guilty, have punished the Directors/Officers In-Charge
responsible for the business. In my view, these judgments do not
apply to the present controversy which essentially revolves around the
alleged willful disobedience of the respondents in discharging the
liability under the compromise decree and the defence of the
respondents that they are being prevented in complying with the
decree, by operation of law.
53. Learned senior counsel for the petitioner has placed reliance on
the judgment of the Bombay High Court in the case of Tayal Cotton
Pvt. Ltd. vs. State of Maharashtra & Ors. in Criminal Writ Petition
No. 1437/2007 decided on 06.08.2018, to contend that when a
moratorium is issued under Section 14 of the IBC, it prohibits
institution of suits or execution against the judgment or a decree but
does not prohibit the criminal proceedings. The argument is that
moratorium issued under Section 14 of the IBC will not come in the
way of the contempt Court exercising its powers under Article 215 of
the Constitution of India and the Contempt of Courts Act. A bare
reading of the judgment in the case of Tayal Cotton (supra) shows
that in the said case a complaint under Section 138 of the NIA had
been filed against the Company and its Directors and in that context,
the question had arisen whether Section 14 of the IBC would come in
the way of those criminal proceedings. It was in this background that
the Court had held that criminal proceedings could continue despite a
moratorium under Section 14 of the IBC. The said judgment would
have no application in the present case as in this case, there are no
criminal proceedings and what is filed before this Court is a petition
under Sections 10 and 12 of the Contempt of Courts Act, read with
Article 215 of the Constitution of India and is in the nature of civil
contempt.
54. The next judgment relied upon by the learned senior counsel for
the petitioner is the judgment of a Single Bench of this Court in the
case of Deputy Director, Directorate of Enforcement, Delhi vs. Axis
Bank & Ors. in Criminal Appeal No. 143/2018 decided on
02.04.2019. In the said case, the Court was considering a challenge
to a decision of the Appellate Tribunal under the PMLA which had
held that SARFAESI, IBC and RDBA prevailed over the PMLA and
this Court had reversed the finding of the Appellate Tribunal holding
that these Acts operated in their own spheres. In reaching the said
finding, the Court found that even where there were assets in the name
of the persons against whom there was material to show complexity in
money laundering, the prerogative power of the State to act under
PMLA could not jeopardize the bonafide third party claimant‟s
interests in those assets. In my view, the said judgment is of no avail
to the petitioner. In fact, by following this judgment, the proceedings
under the IBC in which claims of third parties against respondent No.
7 are being adjudicated, are the appropriate proceedings for
determining whether the petitioner would get priority over the third-
party claimants. Any direction by this Court in contempt proceedings
would virtually amount to overriding the proceedings under the IBC
which are the appropriate proceedings for determining the settlement
of claims of the petitioner in the order of priority amongst the list of
claimants therein. I am afraid that in the present proceedings, no
direction can be given by this Court to the respondents to give any
preferential treatment to the petitioner and satisfy the decree. Neither
can an order be passed to punish the respondents in view of my
finding above that there is no willful disobedience.
55. In the absence of any willful disobedience by the respondents,
this Court cannot grant the relief sought for by the petitioner and I am
fortified in my view by the judgment of the Apex Court in Mohd.
Iqbal Khanday vs. Abdul Majid Rather (1994) 4 SCC 34 and K.L.
Arora vs. S.S. Prasad & Anr. (2000) 10 SCC 89. In the case of
Mohd. Iqbal (supra), the appellant did not comply with the orders
directing it to grant ad hoc promotion. The appellant contended that
the compliance could not be done as granting the promotion would be
contrary to a particular Rule. The Apex Court held as under:
".... In such a situation the insistence of the courts on
implementation may not square with realities of the situation
and practicabilities of implementation of the court‟s direction.
In our considered view, hooking a party to contempt
proceedings and enforcing obedience to such orders hardly
lends credence to judicial process and authority; more so, in the
peculiar facts and circumstances of the case. The court must
always be zealous in preserving its authority and dignity but at
the same time it will be inadvisable to require compliance of an
order impossible of compliance at the instance of the person
proceeding against for contempt. Practically, what the court by
means of the contempt proceedings seek is an execution which
cannot be approval."
56. In K.L. Arora (supra), the Apex Court had accepted the defence
of the respondent for non-compliance of the order directing payment
of compensation to the petitioner wherein the respondent claimed that
on account of pending departmental proceedings, the payment could
not be done as the charge was of misappropriation.
57. In view of the observations made above, the respondents cannot
be held guilty of the alleged contempt for the present. However, if in
future the respondent Company is revived or any fresh cause of action
arises in favour of the petitioner, this judgment will not come in the
way of the petitioner seeking a remedy available to him in law.
58. The present petition is hereby dismissed and the notice of
contempt is accordingly discharged.
JYOTI SINGH, J
AUGUST 9th, 2019
pkb/AK/rd
