2023 (10) TMI 1456 - SC - Companies Law

Supreme Court orders NCLAT to pay Rs 1 crore for willfully defying court orders on judgment deferment

SC disposed of contempt proceedings against NCLAT for willful defiance of court orders. NCLAT proceeded with judgment delivery on 13 October 2023 despite ... Willful defiance of a superior court's order - contempt jurisdiction under Contempt of Courts Act, 1971 - exercise of power under Article 142 of the Constitution - duty of tribunals to comply with orders of the Supreme Court - judicial censure and acceptance of apology as mitigation - remedy of setting aside impugned tribunal judgment and fresh hearing - sanctions by way of payment to Prime Minister's Relief Fund for misuse of processWillful defiance of a superior court's order - exercise of power under Article 142 of the Constitution - remedy of setting aside impugned tribunal judgment and fresh hearing - Whether the judgment pronounced by the NCLAT on 13 October 2023 in Company Appeal (AT) No.64/2020, delivered despite the Supreme Court's earlier direction, should be set aside and what consequential relief should follow. - HELD THAT: - The Court found from the CCTV recording and transcript that the NCLAT Bench was duly apprised in the post-lunch session on 13 October 2023 of the Supreme Court's morning order directing that NCLAT pronounce its judgment only after being apprised that the AGM result had been declared. Notwithstanding this, the Bench proceeded to pronounce the judgment. Such conduct amounted to willful defiance of the Supreme Court's directions. In extraordinary circumstances and to preserve the dignity and authority of the Court, the Supreme Court, invoking its plenary power under Article 142, set aside the NCLAT judgment of 13 October 2023 without expressing any view on the merits and directed that the appeal be heard afresh by a Bench presided over by the Chairperson of the NCLAT. [Paras 21, 24, 26, 31]The NCLAT judgment dated 13 October 2023 is set aside and the appeal shall be reheard afresh by a Bench presided over by the Chairperson of the NCLAT.Contempt jurisdiction under Contempt of Courts Act, 1971 - willful defiance of a superior court's order - judicial censure and acceptance of apology as mitigation - Whether the two Members of the NCLAT who constituted the Bench are prima facie liable to contempt proceedings for having purportedly defied the Supreme Court's directions, and what action should be taken. - HELD THAT: - The Court concluded prima facie that the Members (Mr Rakesh Kumar, Member (Judicial), and Dr Alok Srivastava, Member (Technical)) had failed to disclose material facts to the NCLAT Chairperson and had proceeded to pronounce judgment despite being apprised of the Supreme Court's order. The Court issued notices to show cause to both Members under its contempt jurisdiction to explain why they should not be proceeded against for willful disobedience of the Supreme Court's directions. However, having received an unconditional apology from the Technical Member and having regard to that apology, the Court accepted it and declined to pursue the matter further against him. The conduct of the Judicial Member was censured on the record; his affidavit was found to be contrary to the record and the Court noted his resignation from office. [Paras 23, 24, 26, 27, 29]Notice to show cause issued to both Members; apology of the Technical Member accepted and matter not pursued further against him; the Judicial Member publicly censured and resignation recorded; both to be present and respond as directed.Duty of tribunals to comply with orders of the Supreme Court - sanctions by way of payment to Prime Minister's Relief Fund for misuse of process - Whether the Scrutiniser and the beneficiary (Mr Deepak Kishan Chhabria) acted improperly in withholding or delaying declaration of the AGM result contrary to the Supreme Court's directions and what consequential sanctions should be imposed. - HELD THAT: - The Court found that in the wake of the Supreme Court's order vacating the interim direction and directing that any action on the AGM resolution be subject to the pending appeal, the Scrutiniser nonetheless sought legal opinion after voting had concluded and withheld declaration of the result. The Court concluded that the Scrutiniser acted in concert with the beneficiary to delay declaration, thereby frustrating the Supreme Court's direction. The conduct was held to merit firm action to deter misuse of court process for partisan commercial advantage. In exercise of its powers, the Court ordered monetary payments to the Prime Minister's Relief Fund as punitive/consequential measures, while noting unconditional apologies tendered by the Scrutiniser and by Mr Chhabria. [Paras 25, 26, 28, 30]Mr Deepak Kishan Chhabria directed to pay a sum to the Prime Minister's Relief Fund and the Scrutiniser directed to pay a lesser sum to the same fund within four weeks; unconditional apologies recorded.Duty of tribunals to comply with orders of the Supreme Court - placing of orders and procedure before tribunals - Whether the procedure followed by the NCLAT Bench in refusing to permit mentioning or to accept the Supreme Court order on record was adequate, and what procedure should be followed in future. - HELD THAT: - The Court examined the practices and Rules of NCLAT (including provisions for placing Supreme Court orders on record and for the Court Master to receive documents before proceedings) and observed that, given the circumstances and that copies of the Supreme Court order were already with counsel and the purport had been communicated, the Bench should have permitted the order to be placed on record or deferred pronouncement to enable compliance with procedure. The failure to do so amounted to an unreasonable refusal to allow the Supreme Court's order to be brought to the Bench's attention and contributed to the contravention of the Supreme Court's direction. The Court emphasised that, if the Bench required formal production in accordance with rules, sufficient time ought to have been given. [Paras 19, 20]Recording that the Bench should have permitted the Supreme Court order to be placed on record or deferred pronouncement; procedural expectations clarified and used to justify setting aside the judgment and directing a fresh hearing.Final Conclusion: The Supreme Court, having found that the NCLAT Bench pronounced judgment in willful defiance of its direction, set aside the NCLAT judgment of 13 October 2023 and directed a fresh hearing before a Bench presided over by the NCLAT Chairperson; issued contempt show-cause notices to the two Members (accepting the Technical Member's apology and censuring the Judicial Member whose resignation was recorded); found the Scrutiniser and the beneficiary culpable in delaying the AGM result and directed quantified payments to the Prime Minister's Relief Fund; pending and interlocutory applications disposed of. Issues Involved:1. Validity of the interim order issued by the National Company Law Appellate Tribunal (NCLAT) on maintaining the status quo.2. Compliance with the Supreme Court's order regarding the declaration of the AGM results.3. Alleged defiance of the Supreme Court's order by the NCLAT.4. Conduct of the Scrutiniser in withholding the AGM results.5. Consequences for the parties involved in the defiance of the Supreme Court's order.Issue-wise Detailed Analysis:1. Validity of the Interim Order by NCLAT:The Supreme Court examined the interim order issued by the NCLAT on 21 September 2023, which directed maintaining the status quo as it was before the Extraordinary General Meeting (EOGM) dated 3 May 2019. The Court noted that the NCLAT provided no reasons for issuing this interim order, especially since no interim relief had been granted since the dismissal of the application for interim relief on 31 December 2019. The Supreme Court vacated the interim order, emphasizing that any action taken on the proposed resolution regarding the appointment of the Executive Chairperson would be subject to the outcome of the pending appeal before the NCLAT.2. Compliance with the Supreme Court's Order on AGM Results:The Supreme Court directed that the Scrutiniser should declare the results of the AGM held on 29 September 2023. The NCLAT was instructed to deliver its judgment in the pending appeal only after being informed that the AGM results had been declared. The Court observed that deferring the declaration of the AGM results until the NCLAT's judgment would defeat the mandate of its order.3. Alleged Defiance of the Supreme Court's Order by NCLAT:The Supreme Court noted that the NCLAT proceeded to deliver its judgment despite being apprised of the Supreme Court's order. The Court found that the NCLAT's actions constituted a defiance of its order. The Court directed an inquiry by the Chairperson of the NCLAT to verify the circumstances under which the judgment was pronounced despite the Supreme Court's directions. The inquiry revealed that the NCLAT Bench was informed of the Supreme Court's order before pronouncing its judgment, but the Bench chose to proceed regardless.4. Conduct of the Scrutiniser in Withholding AGM Results:The Supreme Court scrutinized the actions of the Scrutiniser, who withheld the AGM results following a legal opinion obtained by the company. The Court found that the Scrutiniser acted in concert with a party involved in the dispute, Mr. Deepak Kishan Chhabria, to delay the declaration of the AGM results, effectively breaching the Court's directions. The Court imposed a financial penalty on Mr. Chhabria and the Scrutiniser for their actions.5. Consequences for the Parties Involved:The Supreme Court set aside the NCLAT's judgment dated 13 October 2023, directing that the appeal be heard afresh by a Bench presided over by the Chairperson of the NCLAT. The Court issued a notice to show cause to the NCLAT members involved in the defiance of its order, while accepting the unconditional apology of the Member (Technical). The Court censured the conduct of the Member (Judicial) and noted the resignation of the Member (Judicial) from office. The Court also accepted the apologies tendered by the Scrutiniser and Mr. Chhabria.The Supreme Court concluded by reiterating its directions for the fresh hearing of the appeal and disposed of the contempt proceedings, emphasizing the need to maintain the dignity of the Court and ensure compliance with its orders.