TaxTMI 
TaxTMI 
2023 (4) TMI 1201
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.... whereby application filed by the Union of India against M/s Morepen Laboratories Ltd. and four others under Section 425 of the Companies Act, 2013 read with the provisions of the Contempt of Courts Act, 1971 seeking issuance of contempt proceedings against the Respondents (the Appellants herein) for continuous noncompliance and wilful disobedience of the order dated 01.07.2005 passed in CP No. 04 of 2005 which was upheld upto the Hon'ble Supreme Court of India. By which order, the Tribunal passed the following orders: "23. The submissions made by the learned senior counsel appearing for the respondent-contemnors are unsustainable. It is to be seen that the Hon'ble Apex Court while disposing of the Civil Appeal neither modified the orders of the NCLT/CLB nor issued any fresh directions. Therefore, the decision cited by the learned senior counsel have no application to the facts of the present case. 24. In these circumstances, issue notice to the respondents. 25. List on 24.11.2021." 2. Company Appeal (AT) No. 05 of 2022 This Appeal under Section 421 of the Companies Act, 2013 has been preferred by the Appellant- M/s Morepen Laboratories Ltd. being a....
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....appeal. The Appellant No. 1 has also separately filed appeal against dismissal of CA 785 of 2021 vide impugned order dated 06.10.2021. iii) The Appellant No. 1 in both the Appeals was incorporated on 01.12.1984 as a private limited company, became a public company on 16.3.1992 and thereafter, in 1993, was listed on the National Stock Exchange, the Bombay Stock Exchange, and various other stock exchanges such as Delhi, Ahmedabad, Jaipur, Ludhiana, and Calcutta. Today the Appellant No. 1 is a public limited company listed on the National Stock Exchange and the Bombay Stock Exchange having its registered office at Morepen Village, Nalagarh Road, Near Baddi, District Solan - 173 205, Himachal Pradesh. The 156 public listed pharmaceutical companies in India, the Appellant No. 1 is ranked 46th amongst them in terms of market capitalization of approximately Rs. 2,450 Crores. This despite the Appellant No. 1's struggles of the early 2000s when present-day Indian pharmaceutical giants like Sun Pharmaceuticals, Divis Lab, Dr. Reddy's Lab etc. all had their growth spurt. iv) The Appellant No. 1 is engaged in the manufacturing of pharmaceuticals inter alia bulk drugs,....
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....pproval of the United States Food & Drug Administration (the USFDA) (the gold standard in certification as it essentially allows drugs to be exported to the USA but also many other countries that accept USFDA certification including Canada) in the year 1999 (within 15 years of incorporation) for the product Loratadine. By the late 90s, the Appellant No. 1 was primed to become one of India's biggest pharmaceutical companies. While the Appellant No. 1 was expanding its core business of bulk drugs and formulations, it also expanded its clinical devices business which was at that time almost non-existent in India. To make a real push in the clinical devices business, the Appellant No. 1 entered into an exclusive joint venture/partnership in India for sales, service, and support of many reputed multinational companies like Immucor GMBH, Diagnostik Germany (for immunohematology), Beurer GMBH, Germany (blood pressure monitors, heating pads, etc.), Taidoc Technology Corporation, Taiwan (glucometers), Microlife, Switzerland (blood pressure monitors), MSI, United States of America (weighing scales), and IND Diagnostics, People's Republic of China (blood banking). By 2001, the Appella....
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....ut a doctor's prescription which meant that it was not covered by insurance anymore. Behind the scenes, it was the powerful insurance lobby in USA that had pushed the change through as the insurance providers were previously paying approximately USD 1 Billion every year for allergy drugs. Anybody who felt like they had allergies could walk to a nearby convenience store (not even a pharmacy) and buy Claritin. The USFDA classified it as an over-the-counter drug without any prior intimation or cooling off period which caused a bloodbath. Notably this was the first such move by the USFDA under pressure from the insurance lobby. Overnight Loratadine which sold for approximately USD 8,000/- per kg (roughly Rs. 3,82,000 Lacs) came down to USD 1,800/- per kg (roughly Rs. 86,000/-). This represented a drop of over 78% in prices. This was a setback to the Appellant No. 1 that it could not immediately weather and it sent the Appellant No. 1 into a tailspin which led to severe liquidity problems which in turn led to the Appellant No. 1 defaulting in its debt obligations to lenders including default in refund to its fixed deposit holders. ix) By October, 2002, the Appellant No. 1 r....
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....ing the period 19.8.2003 to 31.1.2004 in keeping with the re-payment scheme to the fixed deposit holders. Conscious of the gravity of the default, the management of the Appellant No. 1 held a meeting on 20.2.2004 and passed a board resolution resolving that the Appellant No. 1 would issue equity shares to its fixed deposit holders in lieu of the outstanding amounts. This was a decision taken with the utmost good faith by the Board of Directors to ensure fixed deposit holders were provided a liquid and immediately redeemable option while counter-weighing it with the Appellant No. I's best interest in view of the liquidity situation. xi) On 11.3.2004, the Appellant No. 1 approached the Corporate Debt Restructuring Cell [hereinafter "CDR Cell"] of the Reserve Bank of India for restructuring its debt towards the bank and financial institutions and to take a view on sponsoring the proposal. After considering the matter at length, the CDR Cell suggested that the Appellant No. 1 bring the matter to the attention and for the consideration of the Hon'ble High Court of Himachal Pradesh (it having requisite territorial jurisdiction) by way of a petition under Section 391 of t....
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....estructuring package. By this debt restructuring, package all the banks and financial Institutions agreed to waive the interest with effect from 1.1.2003 to 30.6.2006 on the outstanding debt of the Appellant No. 1 and required the Appellant No. 1 to infuse funds to the tune of Rs. 10 Crores (which in fact was done by the Appellant No. 1). It may be noted that the CDR Call's approval was in fact a vindication of the Appellant No. 1's position that the Bank of Nova Scotia had acted in haste in approaching, the Hon'ble DRT. A copy of the CDR approval for the debt restructuring, package dated 27.7.2006 is marked and annexed herewith as ANNEXURE A-11. xiii) In view of the fact that the S. 391 Revival Scheme was severable between various classes of creditors, the Appellant No. 1 through negotiations and also under the corporate debt restructuring mechanism evolved under the guidelines of the Reserve Bank of India restructured its debts with various banks/financial institutions by making payment to some of the banks/financial institutions under a One Time Settlement and further rescheduling the debts of the remaining banks/financial institutions, which envisaged the b....
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....he fixed deposit holders. After the aforesaid allotment, the Ld. Division Bench of the Hon'ble High Court of Himachal Pradesh on 27.8.2009 allowed the Appellant No. 1 to implement the S. 391 Revival Scheme subject to its final orders (but implementation of the 5. 391 Revival Scheme had already taken place). As such the 9,24,90,413 (Nine Crore Twenty-Four Lac Ninety Thousand Four Hundred and Thirteen) shares allotted to 82,231 fixed deposit holders were listed on the National Stock Exchange and the Bombay Stock Exchange. However, in September, 2010 (one year after the allotment of shares pursuant to the S. 391 Revival Scheme) the order dated 4.8.2009 passed by the Ld. Single Judge of the Hon'ble High Court of Himachal Pradesh came to be finally set aside by the Ld. Division Bench of the Hon'ble High Court of Himachal Pradesh vide its order dated 14.09.2010. Vide the same order dated 14.09.2010 the matter was remanded back to the Ld. Single Judge of the Hon'ble High Court of Himachal Pradesh on the ground that the Respondent i.e. Union of India herein had not been heard during the adjudication before the Ld. Single Judge of the Hon'ble High Court of Himachal Prade....
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....pondent herein wrote to the SEBI on multiple occasions such as 7.10.2010, 11.10.2010, and 18.10.2010 requesting a delisting of the 9,24,90,413 (Nine Crore Twenty-Four Lac Ninety Thousand Four Hundred and Thirteen) shares that had been issued to the 82,231 (Eighty-Two Thousand Two Hundred and Thirty-One) fixed deposit holders and the SEBI vide its letters dated 29.10.2010 and 11.11.2010 informed the Appellant No.1 that it was not possible to delist allotted shares for various reasons, chief amongst which was the shares were being traded by the fixed deposit holders. In this regard a copy of the letter dated 7.10.2010 issued by the Respondent herein to the Securities and Exchange Board of India seeking delisting of shares issued to fixed deposit holders. xviii) This Hon'ble Tribunal, however, took a different view and, inter alia, dismissed the appeal of the Appellant No. 1 on 23.7.2019 and directed the cancellation of the shares allotted to the fixed deposit holders in lieu of money in three (3) months except in those cases where the shares had been traded already by the fixed deposit holders. Since the Appellant No. 1 had no intention of shying away from refunding moni....
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....turn the shares and accept monies, the Appellant No. 1 has/had no way of coercing them to comply until they come forth and tender their shares voluntarily.Till date only 4953 out of the 32,927 eligible fixed deposit holders have come forth to accept monies in lieu of the shares. This despite the Appellant No. 1's best efforts to communicate the order of this Hon'ble Tribunal to the erstwhile fixed deposit holders. Sadly, the Hon'ble NCLT in the Impugned Judgment has faulted the Appellant No. 1 for not performing an impossible task and found the subsequent events to be not worthy of modification of the order dated 1.7.2005 passed by the Hon'ble CLB on account of the Appellant No. 1's alleged failure to perform the impossible. It is noteworthy that by periodic letters dated 6.11.2019, 4.2.2020, 27.4.2020, 9.12.2020, 19.12.2020, 18.1.2021, 25.5.2021, 9.7.2021, and 28.7.2021, the Appellant No. 1 kept informing the Respondent herein of the status of the fixed deposit cases and at no point did the Respondent raise any objection whatsoever. As seen from above, the maximum number of cases of FD holders which ventured to come forth was in July-October, 2020 in the immedi....
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....ed by the Hon'ble Company Law Board in Union of India v. Morepen Laboratories Limited and Ors., Company Petition No. 4/2005 directing appointment of two (2) government directors on the board of the Appellant No. 1. xxi) The Appellant No. 1 preferred an appeal against order dated 01.07.2005 before the Hon'ble High Court under Section 10F of the Companies Act, 1956 being Company Appeal No.3/2005. The Respondent also preferred an appeal against the CLB Order dated 01.07.2005 before the High Court of Himachal Pradesh at Shimla (the Hon'ble High Court) being Company Appeal No.6/2005 aggrieved by the fact that the Hon'ble CLB had permitted /directed the appointment of only two Government Directors instead of six as prayed for by the Respondent. A copy of the appeal preferred by the Appellant No. 1 to the Hon'ble High Court of Himachal Pradesh being Morepen Laboratories Limited v. Union of India, Company Appeal No. 3/2005.During the pendency of the aforesaid appeals before the Hon'ble High Court of Himachal Pradesh, the Appellant No. 1 filed an affidavit in April, 2007 to place on record facts to demonstrate that the then management of the Appellant No. 1 ....
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....ation to place on record subsequent events before the Hon'ble Supreme Court of India. Through this application, the Appellant No. 1 placed record material and actions taken by the Appellant No. 1 to pay off the debts to its fixed-deposit holders and becoming debt-free, dissipating the need for appointment of Government Directors on its Board. The Hon'ble Supreme Court of India on 9.7.2019 dismissed both Morepen Laboratories Limited v. Union of India, S.L.P. (C) No. 11189/2007 (converted to C.A. No. 3165/2010) and Union of India v. Morepen Laboratories Limited, S.L.P. (C) No. 15493/2007 (converted to C.A. No. 3166/2010) but however specifically granted liberty to the Appellant No. 1 to agitate such subsequent events before the appropriate forum (since the Hon'ble CLB no longer existed, the Hon'ble NCLT became the appropriate forum). At this stage it is pertinent to note that meanwhile the S. 391 Revival Scheme was set aside by this Hon'ble Tribunal vide its order dated 23.07.20219 (already annexed above as Annexure A-22 of the Appeal). xxiv) It is in the background of above facts, orders passed and liberty specifically granted by the Hon'ble Supreme ....
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....the Hon'ble Supreme Court and thus, the contention of the Respondent that the Appellants willfully disobeyed the order dated 01.07.2005 is without merit and legal force and especially given that order dated 09.07.219 granted liberty to the Appellant to agitate the subsequent events before the concerned forum i.e., the Hon'ble NCLT Chandigarh. On the other hand, the Respondent herein Union of India contends that the Hon'ble CLB Order dated 01.07.2005 has attained finality and ought to be complied with by the Appellants by appointing the two Government Directors nominated by it and by filing CA 785/2019 the Appellants willfully disobeyed the order dated 01.07.2005 by not complying with it. 5. The Ld. Sr. Counsel for the Appellant has taken grounds of challenge the impugned order, the NCLT has issued notice of contempt to the Appellants in CA 1207 of 2019 filed by the Respondent and has committed the following errors for which the impugned order is the subject matter of challenge in the present appeal i.e. Company Appeal (AT) No. 4 of 2022 on the following grounds: i) The CA 1207 of 2019 filed by the Respondent was not maintainable before it, as this had merged....
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.....1 in this regard yet proceeded to digress from it without giving reasons and/or stating as to how the present facts would warrant application of a different law/judgment. [Para 22, 23, Pg. 15, 16 of the Impugned Order]. iii) The NCLT while noticing that the status quo order dated 16.07.2007/07.09.2007 was passed by the Hon'ble Supreme Court has ignored the fact that this status quo order was extended even when the SLP stood converted into Civil Appeal vide order dated 09.04.2010 which directed status quo order dated 16.07.2007 and 07.09.2007 to continue during the pendency of the appeals. Thus, there is/was no scope of either the Appellant No.1 or its officers i.e. Appellant No. 2, Appellant No.3, Appellant No.4 and Appellant No.5 being in contempt of the CLB Order as upheld by Hon'ble High Court and/or direction to appoint Government Director given the extension of the status quo by the Hon'ble Supreme Court during the pendency of the appeals, which appeals were decided only on 09.07.2019. The Respondent's mere assertion that the Appellants have been willfully disobeying the order dated 01.07.2005 is insufficient to attract punishment for civil contempt u....
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....ame order dated 09.07.2019. It is submitted in light of Indian Airports (supra) that when a particular interpretation of the Hon'ble Supreme Court's order is possible, acting in furtherance of such an interpretation would not constitute "wilful disobedience" of such order, rather such an act would be bonafide. vi) The NCLT has not given any reason for holding that submissions of the Appellants in the contempt petition being CA 1207/2019 are unsustainable and thus the order dated 06.10.2021 is non-speaking when notice of initiation of contempt proceedings is issued to the officers of Appellant No.1 i.e. Appellant No.2, Appellant No.3, Appellant No.4 and Appellant No.5. Without admitting that the Appellants are in contempt of the Hon'ble CLB order dated 01.07.2005, then on a co-joint reading of Section 425 of The Companies Act read with the provisions of The Contempt of Courts Act, 1971, the Respondent's application was barred by limitation as the very provisions of the Contempt of Courts Act 1971 provides for a limitation of one year from the date of the alleged contempt. If the Respondent is extending the time frame of such alleged contempt to cover the per....
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....n is unable to meet" has wrongly chosen to ignore, disregard and not give due weightage to the facts that such "state of affairs" now longer exists and that the company is no longer in need of a public confidence building exercise, which was the very essence of the liberty granted by the Hon'ble Supreme Court order and the very lis and material which has been placed before the NCLT by the Appellant for its consideration. iii) The NCLT has erroneously not appreciated that the Hon'ble CLB appointed Government directors also for the reason "the acts of directors/company have brought the affairs of a company to a slage wherein its existence is under threat due to financial difficulties", whereas such stage /affairs of the company/ ground/reason does not exist today given the financial turn-around of the Appellant under the existing management. Moreover, such financial turnaround of the Appellant was not even disputed by the Respondent and hence had to be taken the fact situation as of today. [Impugned Order-Para 5, Page 90 and Para 11, Page 96 of the Appeal Paper Book]. iv) The NCLT has noticed that while dismissing the application for approval of scheme of ar....
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....While accepting the plea of the Respondent that the debt owed by the Appellant was INR 156 crores., which was unsupported by evidence/financial data, the NCLT completely lost sight of the fact that the Appellant has been paying all those FD Holders who came forward to claim to surrender the shares held by them. vii) The NCLT also ignored the fact that Morepen could not have unilaterally cancelled shares allotted to FD Holders without there being an application from such FD Holders for surrender/cancellation of their shares, such shares being the valuable property/ issued security in the hands of such FD holder/shareholder. viii) There was no malice or deliberate default or wrongdoing on the part of the Appellant and it would only be natural that any shareholder who is holding shares which are trading at a higher/ favorable price would not come forth to surrender such shares at a lower price/ value. As stated in Para 43 of the present appeal the market price of the shares held by the FD Holders is much higher (BSE Weighted Average Price being Rs. 53.95 for October 2021 and NSE Weighted Average Price being Rs. 53.06 for October 2021) than the original issue price of....
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....mation has been held against the Appellant to dismiss the application (Impugned Order-Para 15, @Page 98 of the Appeal). In absence of asking/requiring the Appellant to "furnish the details of the fixed deposit receipts which were converted into equity shares and those equity shareholders who approached the company for refund of the fixed deposits and those equity shareholders who have not approached the company for refund of their original fixed deposits is unacceptable", as betrayed from various orders passed by the Hon'ble NCLT in the matter from time to time, the Hon'ble NCLT has held this fact against the Appellant without giving it an opportunity of hearing in this regard which is against the principles of natural justice. [Impugned Order-Para 16, @Page 98 of the Appeal]. xiii) The NCLT Chandigarh completely ignored the fact that the Hon'ble CLB Order dated 01.07.2005 was passed for a specific purpose and in light of the subsequent events, the substratum of the Hon'ble CLB's order stands completely extinguished. Thus, the order dated 1.7.2005 passed by the CLB directing appointment of Government Directors was for a specified purpose, which consider....
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....g of the present Appeal, a share of the Appellant is valued at Rs. 54.70/- (Rupees Fifty- Four Only and Seventy Paise). The same is a 7x growth in share price and increase in public confidence while also repaying debts, expanding businesses, applying for, and receiving new patents, and growing as a pharmaceutical company. xv) The Impugned Order fails to appreciate that considering the financial growth of the Appellant, the Appellant was in a position to and was ready and willing to repay all its depositors who came forth with the shares. It is relevant t state in this regard that the Appellant had filed an application under Section 391 of the Old Act. In terms of the order dated 23.7.2019 passed by this Hon'ble Tribunal, the Appellant was directed to cancel the shares that had been issued to the fixed deposit holders and in lieu of the cancellation repay the monies with a period of three months. An exception in this regard had been carved out for those shares that already had been traded. The Appellant, thus, made multiple advertisements including on 15.8.2019 and 27.7.2020 with their details and sought repayment of fixed deposit dues in lieu of cancellation of t....
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....ked the Hon'ble NCLT with sufficient power to modify and correct the CLB Order which in today's time given the financial turn-around of the Appellant would be incorrect. [Impugned Order-Para 17, @Page 99 of the Appeal]. 7. The Ld. Sr. Counsel for the Appellant during the course of argument and in the memo of appeals along with combined written submissions submitted that vide order dated 01.07.2005 passed in the matte of Union of India v. M/s Morepen Laboratories Limited & Ors (CP No. 4 of 2005) had directed the appointment of two government nominee directors on the board of the Appellant- Company for a period of 3 years to monitor and assist the Appellant-Company. The primary reason for such appointment was the Appellant's (then) noncompliance with order of the Ld. CLB dated 19.08.2003 [i.e. for the payment of FD dues] and to protect the interests of the investors. The more important consideration for the appointment of government directors back in 2005 was that the Appellant-Company was then suffering heavy financial losses, under debt restructuring and the appointment of government directors was needed to instil public confidence. 8. It is further submitted that....
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....he FD holders) and pay cash in exchange as per the CLB order dated 19.08.2003. In compliance with the said directions of the NCLT, the Appellant approached and communicated the scheme/ offer to its balance shareholders to surrender their allotted equity shares and get refund of FD dues. Subsequently, 4953 shareholders approached the Appellant- Company for their cash dues amounting to a total of Rs. 18.84 crores. 11. It is further submitted that the remaining shareholders were not willing to surrender their shares to the Appellant-Company as per the scheme of the CLB, since at the time the market value of the shares had increased significantly, to 50-60% more than the value they would receive as per the scheme [i.e. Rs. 36 per share vs. Rs. 54 per share]. Therefore, FD holders have exercised their right to such choice/ option and cannot be compelled to incur loss by returning the shares at a lower price to the Appellant as per the scheme. Similarly, the Appellant had issued 75 lakh equity shares in the year 2008 to more than 20 banks as part of debt settlement as per CDR at Rs. 20 per share (more than 75% premium compared to issue price for FD holders which was Rs. 11.32). The Ba....
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....of government directors to assist or manage the appellant-company and the considerations for directing the same by the CLB vide its order dated 01.07.2005 including debt-restructuring, financial losses or interests of FD holders do not find any ground today. The Union of India has not disputed the above position. Further it is settled law that the power under Section 408 of the Companies Act, 1956, is a power that must be used sparingly in extraordinary circumstances: * M/s Sterling Holidays Resorts (India) Ltd. v. Central Government Secretary to Govt. of India, 2013-1-LW 596 / Para 11,15,19,20,21,23. * Kedar Nath Agarwal (dead) & Anr. v. Dhanraji Devi (dead) & Anr., (2004) 8 SCC 76/ Para 19 to 26. * Peerless General Finance & Investment Co. Ltd. v. Union of India, 1988 SCC OnLine Cal 285/ Para 27 to 30. * South India Viscose Ltd. & Anr. v. Union of India & Ors., 1981 SCC OnLine Del 144 / Para 20 & 22. 14. Further, the Ld. CLB's order dated 01.07.2005 had directed the appointment of two government directors on the Board of the Appellant- Company for a period of 3 years. Thereafter, 17 years have lapsed and now there exist no grounds which ....
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....ing in civil contempt is "deliberate flouting of orders" and not mere "misinterpretation" or "possible" interpretation of an order. An action based on a plausible interpretation of an order cannot be said to amount to 'wilful disobedience' of the orders of this court [Indian Airports Employees' Union v. Ranjan Chatterjee, (1999) 2 SCC 537, Para 7 & 11]. 18. The Ld. Counsel for the Respondent in both these appeals during the course of argument and in his Reply Affidavit submitted that the Respondent herein had initiated Contempt proceedings against the Appellant before the NCLT vide CA No. 1207 of 2019 wherein the NCLT vide the common impugned order was pleased to issue notice and the matter is now pending adjudication and was listed for hearing on 31.05.2022, thereafter subsequent dates. The Appellant is trying to take shelter of the order passed by the Hon'ble Supreme Court of India by misinterpreting it to its advantage that it has granted liberty to get the order dated 01.07.2005 recalled. In fact, the Hon'ble Supreme Court of India has in clear terms declined to interfere with the findings of facts recorded by the Hon'ble Himachal Pradesh High Court and did not c....
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....and now liability needs to be fixed for such criminal acts of the management of the company. 22. It is further submitted that the contemnors/appellants have committed contempt of the Ld. NCLT Court by refusing to comply with the order dated 01.07.2005 passed by the Ld. CLB by refusing the appointment of the Government nominated directors on the Board of the Appellant No. 1 Company. It is pertinent to mention that the erstwhile CLB had directed appointment of two Government nominated directors on the board of the Appellant No. 1 Company which was upheld by the Hon'ble Supreme Court vide order dated 09.07.2019. Accordingly, the Answering Respondent had, time and again passed various orders for appointment of Government Directors and the Company would simply refuse to comply with the same. Pursuant to order dated 09.07.2019 passed by the Supreme Court, the Answering Respondent, vide order dated 30.07.2019, nominated two directors on the board of Directors of the Company. However, the Company again refused to comply with the order passed by the Answering Respondent vide its letter dated 09.08.2019, thereby committing contempt of the Ld. NCLT. The net effect of the above clearly ....
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....read with Section 12 of the Contempt of Courts Act, 1971 and Section 425 of the Companies Act, 2013, the Answering Respondent has rightly approached the Ld. for seeking contempt proceedings against the Appellants. For the aforesaid reasons, the instant Appeals be dismissed. 26. We have perused the pleadings made on behalf of the parties and considered the submissions of the parties. 27. We observe that the Company Law Board vide order dated 01.07.2005 disposed of the Company Petition No. 4 of 2005 directing the Central Government to appoint two Directors on the board of the Company for a period of three years which relevant part of the order reads as hereunder: "9. The Central Government has sought for appointment of 6 directors with the view to have the majority on the Board. It is on record that the company has already two nominees of the financial institutions and therefore, I am of the view that appointment of 2 government directors would suffice to monitor and assist the company. Accordingly, I direct the Central Government to appoint two directors on the board of the company for a period of 3 years." 28. The Appellant-M/s. Morepen Laboratories Ltd. as well a....