2026 (1) TMI 333 - HC - IBC

Breach of consent terms in insolvency case: contempt must be filed before issuing tribunal u/s 425; petition dismissed

The dominant issue was whether the HC could entertain a contempt petition alleging breach of consent terms recorded by the NCLT in IBC proceedings, or ... Maintainability of the Contempt Petition in this Court to punish for contempt of an order passed by the NCLT under the IBC - whether this Court can exercise contempt jurisdiction in respect of an alleged breach of Consent Terms recorded by the NCLT in proceedings under the IBC or whether such jurisdiction vests exclusively with the Tribunal itself? - HELD THAT:- It is well settled law that contempt jurisdiction is extraordinary, penal and coercive in nature and such power cannot be exercised on considerations of equity or convenience nor can it be assumed by implication. The authority to punish for contempt must be clearly traceable to a constitutional or statutory source and must be exercised strictly within those limits. Section 425 of the Companies Act, 2013 categorically stipulates that the Tribunal (NCLT) and the Appellate Tribunal (NCLAT) shall have the same jurisdiction, powers and authority in respect of contempt of themselves as the High Court has and for this purpose exercise powers under the Contempt of Courts Act, 1971 subject to specified statutory modifications. The contempt jurisdiction under Section 425 is plenary and self-contained. It is neither conditional nor limited by the source of jurisdiction exercised by the Tribunal. Once contempt powers are conferred by statute, they vest in the Tribunal as an institution and apply to all proceedings (emphasis supplied) before it irrespective of whether the Tribunal is exercising jurisdiction under the Companies Act, the IBC, or any other law for the time being in force. It is pertinent to note that Rule 11 of the National Company Law Tribunal Rules, 2016 expressly saves the inherent powers of the Tribunal to pass such orders as may be necessary for meeting the ends of justice or to prevent abuse of the process of the Tribunal. Though inherent powers cannot substitute statutory contempt powers however they underscore the legislative intent that the Tribunal must remain an effective and authoritative adjudicatory body. In view of the clear statutory power conferred under Section 425 of the Companies Act, 2013, read with the decisions of the Supreme Court, the NCLT and the NCLAT have independent and effective jurisdiction to punish for contempt of their own orders, including orders passed while exercising jurisdiction under the IBC. Hence, once such contempt jurisdiction is vested in the Tribunal, this Court ought not to exercise parallel contempt jurisdiction under Section 10 of the Contempt of Courts Act, 1971. It is therefore clear that entertaining contempt petitions directly before the High Court would allow parties to bypass the forum expressly empowered by the statutes. As regards the jurisdiction of this Court is concerned, it is clarified that any supervisory intervention if required can be exercised only under Articles 226 and 227 of the Constitution of India. However, such supervisory jurisdiction is distinct from contempt jurisdiction and cannot be invoked by filing a Contempt Petition - the present Contempt Petition is not maintainable at the threshold and is liable to be dismissed. The Contempt Petition is dismissed. 1. ISSUES PRESENTED AND CONSIDERED 1) Whether a contempt petition is maintainable before the High Court to punish alleged non-compliance with consent terms recorded and made part of an order passed by the NCLT while exercising jurisdiction under the IBC, or whether contempt jurisdiction vests with the NCLT/NCLAT. 2) Whether Section 425 of the Companies Act, 2013 confers contempt jurisdiction on the NCLT/NCLAT in respect of orders passed in proceedings under the IBC, notwithstanding that the IBC does not expressly provide for contempt powers. 3) Whether, once the NCLT/NCLAT have statutory contempt jurisdiction over their own orders, the High Court should refrain from exercising 'parallel' contempt jurisdiction under Section 10 of the Contempt of Courts Act, 1971 for alleged breach of such NCLT orders; and whether supervisory jurisdiction under Articles 226 and 227 can be invoked through a contempt petition. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Maintainability of a High Court contempt petition for alleged breach of an NCLT order passed under the IBC Legal framework (as discussed by the Court): The Court examined the nature of contempt jurisdiction as 'extraordinary, penal and coercive,' requiring a clear constitutional or statutory source. It considered the statutory scheme governing the NCLT's powers, particularly Section 425 of the Companies Act, 2013, and distinguished contempt jurisdiction from supervisory jurisdiction under Articles 226 and 227 of the Constitution. Interpretation and reasoning: The Court treated maintainability as a threshold question and held that where a statute vests contempt jurisdiction in the Tribunal over contempt 'of themselves,' parties should not directly invoke the High Court's contempt jurisdiction as a parallel forum. The Court emphasised that permitting direct High Court contempt petitions would enable bypassing the forum expressly empowered by statute to punish contempt of its own orders. The Court further clarified that any High Court intervention, if required, lies in supervisory jurisdiction under Articles 226 and 227, which is distinct from contempt jurisdiction and cannot be triggered by filing a contempt petition. Conclusion: The contempt petition in the High Court was held not maintainable and was dismissed at the threshold. Issue 2: Whether the NCLT/NCLAT have contempt jurisdiction over orders passed under the IBC by virtue of Section 425 of the Companies Act, 2013 Legal framework (as discussed by the Court): The Court relied on Section 425 of the Companies Act, 2013, which confers on the Tribunal and Appellate Tribunal the same jurisdiction, powers and authority in respect of contempt of themselves as the High Court, to be exercised using the Contempt of Courts Act, 1971 (with specified modifications). The Court also referred to Section 408 (constitution and mandate of the NCLT to exercise powers under the Companies Act 'or any other law'), Section 60(5) of the IBC (wide jurisdiction in insolvency-related matters), and Rule 11 of the NCLT Rules, 2016 (inherent powers). Interpretation and reasoning: The Court rejected the argument that contempt powers under Section 425 are confined only to proceedings under the Companies Act. It held that Section 425 makes no distinction based on the source statute under which the NCLT is exercising jurisdiction, and reading such a limitation would amount to impermissibly adding words to the statute. The Court reasoned that the NCLT is a single adjudicatory institution constituted under the Companies Act and designated under the IBC as the adjudicating authority for insolvency matters; it cannot be attributed a 'split or fragmented personality' with contempt power under one statute and none under another. The Court considered that denying contempt powers in IBC matters would undermine enforceability of NCLT orders and frustrate the effectiveness of the insolvency framework. Conclusion: The Court conclusively held that the NCLT and the NCLAT have independent and effective jurisdiction to punish for contempt of their own orders, including orders passed while exercising jurisdiction under the IBC. Issue 3: Whether the High Court should exercise 'parallel' contempt jurisdiction and whether contempt can be used as a tool for enforcement of consent terms Legal framework (as discussed by the Court): The Court considered the existence of statutory contempt jurisdiction in the NCLT/NCLAT under Section 425 and the distinct character of High Court supervisory powers under Articles 226 and 227. It also addressed the proper scope of contempt proceedings. Interpretation and reasoning: Having found that contempt jurisdiction is vested in the Tribunal, the Court held that it 'ought not' to exercise parallel contempt jurisdiction under Section 10 of the Contempt of Courts Act, 1971 in relation to alleged non-compliance with NCLT orders, because doing so would permit bypassing the statutorily empowered forum. Separately, the Court clarified that contempt proceedings are not a substitute for execution/enforcement mechanisms or for resolving disputes arising from consent terms where compliance may depend on disputed facts or interpretation; in such situations, contempt jurisdiction 'may not be appropriate.' Finally, the Court held that if any High Court intervention is necessary, it can only be through Articles 226/227, but such supervisory jurisdiction cannot be invoked by filing a contempt petition. Conclusion: The High Court declined to exercise parallel contempt jurisdiction and dismissed the contempt petition as not maintainable, leaving the petitioner at liberty to pursue appropriate remedies in accordance with law.