2018 (1) TMI 876 - HC - Companies Law

Court upholds NCLT jurisdiction in contempt case, dismisses writ petitions challenging orders

The court dismissed the writ petitions challenging the orders of the National Company Law Tribunal (NCLT), finding no merit in the petitioners' arguments ... Disregard to the law and the principles of natural justice by NCLT - application seeking initiation of contempt proceedings - not framing the formal charge or not communicating in any manner the gravamen of the allegations on which the petitioners are to answer the charge of contempt - Held that:- Undoubtedly, after the facts have been gathered and process initiated and particularly in the event of cognizance eventually being taken of contempt under the Contempt of Courts Act, the NCLT will be within its jurisdiction and power to enforce appearance and attendance. In absence of separate rules to govern the procedure to be followed by NCLT for exercise of power to punish for contempt, the NCLT is to follow the general rules. The statute and the rules, as extracted earlier, permit and authorize NCLT to “regulate” its own procedure [S. 424] and “be guided by the principles of natural justice” [see S. 424 read with Rules 11, 34 and 51]. There is no merit whatsoever in the grievance raised by the petitioners that the NCLT has flouted the law and the principles of natural justice by not framing the formal charge or not communicating in any manner the gravamen of the allegations on which the petitioners are to answer the charge of contempt. At the cost of repetition, one may say that the stage where formal charge (or notice of accusations) would require to be framed so as to inform the party in question of the allegations he is required to meet or the conduct he is required to explain, is yet to arrive. The procedure envisaged in Section 17 of Contempt of Courts Act, quoted earlier, would kick-in after and in the event of NCLT recording a finding that prima facie case of contempt is made out and thereby taking formal cognizance and summoning the parties in question to stand trial. NCLT, rather than acting in hurry or undue haste, as is alleged, has taken the neutral course of treating the application seeking initiation of contempt proceedings or for the parties in question to be asked to purge, merely as an application filed in the wake of its order dated 13.07.2017. The decision as to whether or not a prima facie case of willful disobedience, defiance or commission of any act constituting contempt is made out, would undoubtedly be taken by the NCLT after it has secured the replies and considered the contentions having heard the parties in question. The argument that NCLT has acted arbitrarily, or with bias, is without basis. By giving opportunity to show cause, it has instead acted in most fair manner, following the spirit of the rules. [Rule 59]. As regards the grievance that some of the parties shown in the list of contemnors were not even properly served and yet proceeded ex parte, all that needs to be said is that, if such were the facts, it is a matter of irregularity of the proceedings. This court is confident that if any such lapse has occurred, and brought to the notice of NCLT, it would take suitable corrective action and pass the necessary orders in terms of rules. [Rule 49(2)]. This, by itself, cannot be allowed to be used by the petitioners to impel this court to interdict in exercise of the writ jurisdiction. The petitioners have not been able to show violation of the principles of natural justice in the proceedings thus far conducted by NCLT on the contempt application. As noted above, the said proceedings cannot be said to be without jurisdiction. There is no element of arbitrariness as necessitates the writ court’s intervention. Thus, this court declines exercise of writ jurisdiction. Issues Involved:1. Legality and constitutionality of the notification of Section 425 of the Companies Act, 2013.2. Framing of rules to regulate proceedings under Section 425 of the Companies Act, 2013.3. Validity of orders dated September 5, 2017, and September 26, 2017, issued by the National Company Law Tribunal (NCLT).4. Propriety of the writ jurisdiction of the High Court at the stage of show cause notice.5. Alleged bias and procedural impropriety by NCLT in the contempt proceedings.Detailed Analysis:1. Legality and Constitutionality of the Notification of Section 425 of the Companies Act, 2013:The petitioners initially sought to declare the notification of Section 425 of the Companies Act, 2013, as ultra vires and unconstitutional. However, during the proceedings, prayers (a) and (b) of the writ petition, which included this issue, were withdrawn. Therefore, this issue was not pressed further and dismissed as withdrawn.2. Framing of Rules to Regulate Proceedings under Section 425 of the Companies Act, 2013:The petitioners also initially requested the framing of rules to regulate proceedings under Section 425 of the Companies Act, 2013. This request was similarly withdrawn along with prayer (a), and thus, it was not considered further by the court.3. Validity of Orders Dated September 5, 2017, and September 26, 2017, Issued by NCLT:The petitioners challenged the orders issued by NCLT on the grounds of procedural impropriety and bias. The court noted that the NCLT had only issued a show cause notice to the respondents to explain why contempt proceedings should not be initiated. The NCLT was still at the stage of preliminary inquiry and had not yet taken formal cognizance of contempt. The court held that the NCLT was within its jurisdiction to proceed ex parte against parties who chose not to cooperate by either not appearing or not responding. The court found no merit in the argument that the NCLT had acted with bias or in undue haste. The NCLT followed the rules of the National Company Law Tribunal’s Rules, 2016, which permitted service of notice through counsel for the opposite party. The court also noted that any irregularity in service could be rectified by NCLT if brought to its notice.4. Propriety of the Writ Jurisdiction of the High Court at the Stage of Show Cause Notice:The court examined whether the writ petitions were maintainable against the impugned orders of NCLT. It referred to the settled law that judicial review under Articles 226 and 227 of the Constitution of India cannot be taken away. The court held that since the impugned orders were only at the threshold scrutiny and no party had been punished for contempt, the remedy of appeal was not available. Therefore, the judicial review could not be denied.5. Alleged Bias and Procedural Impropriety by NCLT in the Contempt Proceedings:The petitioners argued that the NCLT had shown bias and procedural impropriety by not awaiting the decision of NCLAT on the appeals and by not issuing formal notices through its Registry. The court rejected these arguments, noting that the NCLT was still gathering facts and had not yet taken formal cognizance of contempt. The court emphasized that the NCLT had acted fairly by giving the respondents an opportunity to show cause. The court also rejected the argument that parties who were not part of the original lis could not be proceeded against in contempt proceedings, stating that strangers to the proceedings could be proceeded against if they had knowledge of the judicial orders and shared the guilty intent.Conclusion:The court dismissed the writ petitions, finding that the grievances raised by the petitioners were unfounded and reflected paranoia rather than substance. The court vacated the interim orders and disposed of the pending applications as infructuous.