TaxTMI 
TaxTMI 
2026 (5) TMI 1605
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....run Mitra, Member (Technical) The present appeal, preferred under Section 61 of the Insolvency and Bankruptcy Code, 2016 ('IBC' in short), arises from the order dated 16.02.2026 (hereinafter referred to as the 'Impugned Order') passed by the Adjudicating Authority (National Company Law Tribunal, Mumbai Bench-1) in Contempt Application No. 39 of 2025 and Contempt Application No. 41 of 2025 filed in C.P. (IB) N0.1137 (MB) 2017. By the said Impugned Order, the Adjudicating Authority has disposed of both Contempt Application Nos. 39 & 41 of 2025 filed by Respondent No. 1-Jyoti Structures Ltd. and Respondent Nos. 2 and 3-Shareholders of Corporate Debtor by directing the Appellants to release the rolled over BG limits failing which they would be subject to one day simple imprisonment in civil prison. Aggrieved by the impugned order, the Appellants - Lender Banks have preferred the present appeal. 2. Coming to the brief factual matrix of the present case at hand, the relevant points which require to be noticed are as follows:- • The Adjudicating Authority had admitted the Corporate Debtor-Jyoti Structures Ltd. ('JSL' in short) into Corporate Insolvency Resolution Proces....
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....Authority was challenged by the Appellants before this Tribunal. This Tribunal however dismissed the appeal filed by the Appellants on 09.12.2024 (hereinafter referred to as 'December 9 NCLAT order') and confirmed the August 20 NCLT order. While upholding the order of the NCLT, this Tribunal also observed that the clauses of the NFB Agreement have to be read in a manner to give effect to the plan and not make any clause of the plan otiose and unworkable, the plan having been approved by the lenders themselves wherein a conscious decision was taken to roll-over NFB facilities by the existing lenders. • On 18.02.2025, the Shareholders of the Corporate Debtor had submitted an OTS proposal which was followed by OTS proposal from the Corporate Debtor for Rs. 507 Cr. to the Appellants as an alternative to the release of NFB Limits which proposal also mentioned that if the same is not accepted by the Joint Lenders Meeting ('JLM' in short) of the Lenders on or before 31.03.2025, the OTS proposal shall stand withdrawn. While there was some discussion on the quantum of the OTS proposal during the JLM meeting held on 03.06.2025, majority of the Appellant Banks were in favour of r....
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.... 1 and Shri Abhijeet Sinha, Ld. Sr. Counsel appeared on behalf of the Respondents No. 2 and 3. All the parties were heard at length extensively. At the very outset we would like to observe that the arguments canvassed and documents relied upon by Respondent No. 1 to 3 being common and overlapping, we propose to conjointly record their submissions for reasons of convenience. 4. Making submissions on behalf of the Appellants, Ld. Solicitor General submitted that the Contempt Application Nos. 39 & 41 of 2025 filed in CP (IB) No. 1137 of 2017 before the Adjudicating Authority under Section 425 of the Companies Act, 2013 and Section 12 of the Contempt of Courts Act, 1971, suffered from inherent infirmity since the contempt applications were filed by the Respondents without identifying or implicating any individual as the alleged contemnor. It was vehemently contended that in the absence of individuals being specifically named for having wilfully disobeyed the directions of the court, the present contempt order imposing one day simple imprisonment is not sustainable in the eyes of law. It was contended that the impugned order was vitiated in law because the Adjudicating Authority had ....
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....ce of the directions of the Court. Following paragraphs from the impugned order were adverted to: "37.However, the issuance of fresh sanction letter for rolling over the existing exposure cannot be considered to the disobedience of the order of this Tribunal so long as the limits are made available in accordance with the approved Resolution Plan as observed by us in the order dated 20.08.2024. 38. It is not clear to us whether the Corporate Debtor was availing NFB limits under consortium financing arrangement. However, if the Corporate Debtor was availing the earlier NFB limits under consortium financing arrangement, the stipulation of consortium before release of rolled over limits cannot said to be contrary to the approved Resolution Plan even in view of clause 2.2 of NFB agreement providing for individual obligation on part of each Respondent dehors performance of such obligation by one or more Respondents. On the contrary, in case the Corporate Debtor was not availing the earlier NFB limits under consortium financing arrangement, the stipulation of consortium before release of rolled over limits certainly results into disobedience of the order of this Tribunal....
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....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". (Emphasis supplied) 7. It was also asserted that even the resolution plan and the NFB Agreement expressly provided that the request of Respondents for issue of BGs/LCs was to be based on due consideration of the project by the issuing Lender and after taking into consideration of applicable laws and regulations to the satisfaction of the Lender. Attention was adverted to the relevant clause in the Plan as reproduced below: Resolution Plan (Schedule VI, Clause F(1) "The Proposed Investors have not sought any fresh BG/LC limits, but have only sought a roll-over, utilisation/issuance of the BG/LC limits to the extent of the current exposure of financial creditors as on the date on which the CoC votes on this Final Resolution Plan. Provided however that any such utilisation/issuance of the BG/LC will be done based on due consideration of the project by such creditor issuing the LC/BG and subject to applicable laws and regulations for such issuance / utilisation. However, the approval for the same will n....
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....Lender to prepare, amend, renew or extend such Letter of Credit or Bank Guarantee, including details pertaining to the project including but not limited to the client, location, and project funding while requesting for issue of rolled over BG/LC, for its evaluation. ... 2.4(a)(iii) Any such utilisation/issuance of a Bank Guarantee or Letter of Credit will be done based on (a) due consideration of the Borrower and the project by such Lender issuing the Bank Guarantee or Letter of Credit and subject to applicable laws and regulations for such issuance / utilization, to the satisfaction of the Lender. However, the issuance of the same will not be unreasonably withheld by the relevant Lender issuing the Bank Guarantee or Letter of Credit. Also, prior to issuance / utilisation of the Bank Guarantee or Letter of Credit, the issuing Lender will be provided with all details of the project including but not limited to the client, location, and project funding while requesting for issue of rolled over Bank Guarantee or Letter of Credit, for its evaluation and (b) the funding/ financial arrangements required for undertaking and completing the project (including any fund base....
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....nd shall be competent to raise flag at appropriate time in case of deviation and take corrective action at that time and company shall furnish information/documents required by the lenders for review of financial performance of the company after its first release". The NCLAT order had only prohibited the reassessment and reappraisal of the Borrower as a condition precedent for release of BGs/LCs and Appellants having adhered to this observation committed no breach of 09 December NCLAT order. However, incorporation of other conditions as provided for in the resolution plan and the NFB Agreement and incorporation of conditions arising out standard banking requirements had not been prohibited either by the 20 August NCLT or the 09 December NCLAT orders. 11. It was vehemently contended that it was misconceived on the part of the Respondents to contend that no fresh sanction letters could have been issued and that BGs/LCs limits were to be released to the Corporate Debtor Company by the Appellant Lenders unconditionally. It was also asserted that the conditions in the sanction letters issued by the Appellants were neither unreasonable not did it involve any evaluation or appraisal of....
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....wards perpetration of this unreasonable demand, they chose to file a contempt application while circumventing their own obligations to accept and act upon the sanction letters. Hence, while the Appellants having demonstrated their bonafide, the Borrowers by not accepting the sanction letters are disentitled from contending that the Appellants had wilfully disobeyed the orders of NCLT and NCLAT. 13. A lot of emphasis was laid by Ld. Solicitor General that the Appellants being bound by standard banking compliance requirements, issuance of sanction letters constituted an integral part of the standard banking norm for availing of BGs/LCs, the fundamentals behind issuance of sanction letters did not suffer from any impropriety. The issuance of sanction also cannot be objected to particularly so since sanction letters were issued to the Corporate Debtor even prior to its getting admitted into CIRP. It was further added that the Appellants are governed by RBI Regulations and these Regulations required periodical review of credit limits and adherence to internal policies relating to NFB facilities, which has also been recorded in the impugned order at para 33 (ix) which is as extracted ....
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....ded for consortium financing arrangement, such an arrangement now in the sanction orders cannot be said to be contrary to the resolution plan. Even if it is accepted for argument's sake that there was a condition of several liability on the Lenders, the very fact that Lenders have issued their respective sanction letters and have also confirmed their willingness to release their individual share of the NFB limits, there was no evidence of any violence being caused to the court directions. It was pressed hard that it not incumbent upon the Appellants to follow the course of action adopted by Bank of Baroda (BoB) and IDBI Bank of separate release of NFB limits by them whose exposure was distinguishably smaller in comparison to the limits of the other Appellants which ranged from Rs. 51 Cr. to Rs. 101 Cr. as against Rs. 3 Cr. to 3.75 Cr. in case of BoB and IDBI Bank. 16. It was also contended that when any order is susceptible to more than one interpretation, this amounts to ambiguity in the direction of the Court and it is a well settled legal precept that disobedience to an ambiguous order is a clear defence to contempt action as has been held in the judgement of Hon'ble Supreme ....
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.... identifying specific individuals and without notifying them the positive finding recording contempt having been committed by them and giving them an opportunity to be heard in their personal capacity. 18. Rebutting the arguments canvassed by the Appellants, the Ld. Counsels representing the interests on behalf of Respondents No. 1, 2 and 3 in unison defended the decision of the Adjudicating Authority holding the Appellants to be in contempt of their directions of 20.08.2024 which had been affirmed by this Tribunal on 09.12.2024. It is the contention of the Respondents that the Appellants as the assenting financial creditors of the Corporate Debtor Company in the CoC had themselves approved and consented to the resolution plan. Hence they were required to fulfil their reciprocal obligations under the resolution plan, particularly so, when the Investors/Shareholders of the Corporate Debtor had already complied with their part of obligations under the resolution plan of infusing funds. The Respondents as on the Closing Date had already infused Rs. 170 Cr. by way of equity in terms of the resolution plan and because the Appellants had not yet fulfilled their reciprocal obligations ....
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.... Recital C and D of the NFB Agreement read as under: "(C) In furtherance of the terms of the Approved Resolution Plan, the Borrower and the Lenders have agreed that the Lenders shall make available to the Borrower the Facilities up to an amount not exceeding an aggregate of their respective Limit in the manner stipulated in Schedule I hereto and upon the terms and conditions set out in this Agreement for existing or future projects to be undertaken by the Borrower. This Agreement sets out the terms and conditions of the Facilities sanctioned to the Borrower, as extended and modified by the Lenders." (Emphasis supplied) Also, Article 5 of the NFB Agreement provided that the Appellant were obliged to disburse the NFB limits effective as on Closing Date which is as reproduced below: "5.1 PRE-DISBURSEMENT CONDITIONS The obligation of the Lenders to disburse/permit it the utilization and/or Drawal of the Facilities under this Agreement shall be effective as on the Closing Date. Provided that this is without prejudice to the continuation of the any bank guarantee or letter of credit or indemnity issued by a Lender under the sanction letters and subsisting....
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....t of the Respondents for issue of BGs/LCs, the Shareholders had approached the Adjudicating Authority following which it issued clear directions on 20.08.2024 for immediate and several release of NFB limits by the Appellants at the first instance. The relevant orders are as extracted below: "7.7. ... Accordingly, we have no hesitation to hold that CoC was conscious of proposals in the Resolution Plan in relation to NFB limits and they voted on the Plan realising fully well that the said NFB limits are to be released, subject to project appraisal...... 7.9. ...However, we are of the considered view that the NFB limits ought to have been released at the first instance by the lenders as contemplated in the plan." 24. It was emphatically asserted that non-release of BGs/LCs had also been frowned upon by this Tribunal on 09.12.2024 by observing that the CoC while approving the plan had consciously decided to roll-over NFB facilities by the existing Lenders such conduct was akin to stopping the Corporate Debtor from carrying out its normal functions which was never the object of resolution plan. The relevant paragraph of the said order is as reproduced below: ....
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....attempt to create a new parent document to govern the relationship between the Appellants and the Corporate Debtor in a manner which was at variance from the original relationship envisaged under the resolution plan and the NFB Agreement and a contrived afterthought to resile from their obligations under the plan. Therefore, the intent was clearly to delay and/or avoid releasing of the NFB limits. The fresh sanction letters cannot be taken as an innocent, innocuous and harmless document but a strategised and calculated design to repudiate their committed obligations and obstruct the release of the NFB limits. This was clearly a wilful breach of the direction given by the Adjudicating Authority and this Tribunal in their respective orders of 20.08.2024 and 09.12.2024. 27. It is the case of the Respondents that it has been the consistent approach of the Appellants not to release the BGs/LCs which had been rolled over under the resolution plan in spite of multiple opportunities given to them. The same intransigence can be seen when the Appellants again failed to abide by the interim order dated 25.11.2025 passed by the Adjudicating Authority wherein the Appellants were directed to ....
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....of this Agreement." The approved resolution plan had also stipulated that the BG limits will be allowed to be used as LCs as per business needs. Clause 2.4 of the NFB Agreement under the caption 'Terms of the Facilities' also provided that the LC and BG facilities may be interchanged up to the extent as set out in Schedule I. 29. Once the Closing Date was achieved by which time the investors had already infused their share, the obligation of the NFB lenders to release/disburse the NFB limits severally and separately had become operational and having failed to release the same, they acted in contravention of the resolution plan and NFB Agreement. Further, the contention of the Appellants that release of NFB limits was joint was misplaced as it fails to explain how BoB and IDBI Bank had released the NFB limits on their own steam. It was also pointed out that merely because the comparative quantum of exposure of BoB and IDBI were not as large as much as of the Appellants, the margin of exposure cannot be a cogent ground not to comply with binding release orders issued by the Adjudicating Authority and this Tribunal. It was also pointed that on the one hand the Appellants have cl....
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....e Appellants satisfy all ingredients of wilful and deliberate disobedience of court direction. Reliance was placed on the judgment of the Hon'ble Supreme Court in Maninderjit Singh Bitta Vs. Union of India, (2012) 1 SCC 273 wherein it was held that every person is expected to obey the orders of the Court in its true spirit and where the party does not obey the orders of the Court nor approaches the Court seeking extension of time for compliance or variation of the order, the only possible inference is that the party intends to disobey the orders of the Court. The persistence on the part of the Appellants insisting on issue of fresh sanction letters with new terms and conditions clearly amounted to wilful disobedience and defiance of Courts orders which tantamount to committing contempt. 32. We have extensively heard the Ld. Counsel for all the parties and have noted the rival contentions in great details and perused the records carefully. 33. It is an undisputed fact that the impugned order has stemmed out from the prayers made in two contempt applications which had been filed by the Respondents herein. 34. At this stage, it may be useful to glance at the prayers contained....
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.... of 2023 by this Hon'ble Tribunal and order dated 9 December 2024 of the Hon'ble Appellate Authority by way of which it affirmed order dated 20 August 2024, in terms of Section 12 of the Contempt of Courts Act, 1971; c) Order the officers in-charge of Respondent banks (No.1 to 7) to undergo imprisonment and pay fine in terms of Section 12 of the Contempt of Courts Act, 1971 and/or Section 74(3) of the Code; d) Order and direct the Respondent banks (No.1 to 7) to purge the contempt by forthwith complying with the order dated 20 August 2024 passed in Interlocutory Application No. 5023 of 2023 by this Hon'ble Tribunal and order dated 9 December 2024 of the Hon'ble Appellate Authority by way of which it affirmed order dated 20 August 2024; e) Pass any such other order or orders as this Hon'ble Tribunal may deem fit, proper, and appropriate in the interest of justice; f) Pass an order granting the costs of this Application in favour of the Applicants." 35. It would be constructive to see how the Adjudicating Authority had disposed of both the Contempt Applications. The relevant para 59 of the impugned order is as reproduced below: ....
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.... is the case of the Respondents that the Appellants despite being aware of the fact that in terms of the NFB Agreement, they were required to disburse the NFB limits from the Closing Date, they have dragged their feet for nearly five years in disbursing the NFB limits and have now issued fresh sanction orders which are objectionable since the sanction orders contain a string of conditionalities which were alien to the resolution plan and the NFB Agreement executed in pursuance of the plan. It was also emphatically asserted that the intent of Respondents behind filing the contempt application was only to make the Appellants see sense and release the NFB limits which was vital for their survival as crucial for their revival. The idea behind filing the contempt application was to simply make the Appellants comply with the court orders for release of NFB limits for the successful resolution of the Corporate Debtor. The intent of the Respondents was not to send the Appellants to civil prison but to tackle the undue hostility on their part in the release of NFB limits. 38. We are conscious that the power to punish a person for contempt is undoubtedly a powerful and potent weapon in th....
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....the two-stage process, it has been laid down that: "15. ...... Filing of an application or petition for initiating proceedings for contempt or a mere receipt of such reference by the court does not amount to initiation of the proceedings by court. On receiving any such document it is usual with the courts to commence some proceedings by employing an expression such as "admit", "rule", "issue notice" or "issue notice to show cause why proceedings for contempt be not initiated". In all such cases the notice is issued either in routine or because the court has not yet felt satisfied that a case for initiating any proceedings for contempt has been made out and therefore the court calls upon the opposite party to admit or deny the allegations made or to collect more facts so as to satisfy itself if a case for initiating proceedings for contempt was made out. Such a notice is certainly anterior to initiation. The tenor of the notice is itself suggestive of the fact that in spite of having applied its mind to the allegations and the material placed before it the court was not satisfied of the need for initiating proceedings for contempt; it was still desirous of ascertaining fact....
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....ion of action under the criminal law is one of great import and therefore, a serious matter. The burden and standard of proof in contempt proceedings is the same standard of proof as required in criminal proceedings. Great circumspection is required to be exercised by the court or the forum conferred with power to punish for contempt. Such action cannot be undertaken merely based on conjectures or surmises. The proceedings of contempt of court are generally treated as sui generis. Though the procedure adopted both under the common law and the statute in this context has invariably been summary in nature and the provisions of the Code of Criminal Procedure or the Evidence Act do not strictly control the same, it is essential that the court or the forum follows the procedure that is fair and objective. Before issuing notice calling upon the alleged contemnor to answer the charge of contempt, the court or the forum must record satisfaction that there is a clear, unambiguous and unequivocal case made out showing willful and contumacious conduct by the respondent. The procedure to be followed, after formal cognizance is taken, must include framing of a precise and specific charge or not....
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.... of the court. 44. Having perused the judgements cited by both the Appellants and the Respondents, we are not inclined to agree with the submission made by the Respondents dispensing with the need for the Adjudicating Authority to record prima-facie satisfaction of wilful disobedience and communication of the charges on the alleged contemnors. The Adjudicating Authority in this case has directly imposed punishment without first passing an order recording its prima-facie satisfaction that there is a contempt. Further the imposition of punishment without issue of a show cause notice to the Appellants setting out the issues/charges which allegedly constituted contempt of the August 20 NCLT Order and December 9 NCLAT order is a procedural breach. Further, penalty can be visited only after receipt of explanation and oral hearing of the specific individuals to be penalised which has not happened. 45. We find that the judgements relied upon by the Appellants adequately support the submissions made by them that contempt proceedings necessarily require recording of prima-facie satisfaction by the concerned court of law of wilful disobedience of its orders followed by framing of precis....
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....ed. Natural justice is a pervasive doctrine integral to processual fair play in Indian jurisprudence. For this reason alone, the extant order under challenge is vulnerable-against both the attachment of unspecified property and detention of unnamed contemners." (Emphasis supplied) 47. To our minds, for the reasons stated above, the Adjudicating Authority has given a go-by to the procedural requirements which are required to be mandatorily followed in contempt proceedings particularly so when a one-day imprisonment has been ordered as penal consequence rendering the proceedings quasi-criminal in character. We find that the impugned order subjecting the Appellants to contempt and consequential civil imprisonment suffers from impropriety since punishment arising from contempt is required to be directed against an individual(s) who are found to have wilfully and deliberately disobeyed the court directions. In the present case, the Respondents in their contempt application have not identified specific individual(s) by name as alleged contemnors nor made express and specific charges of violation of court directions by them. Since contempt jurisdiction has not been exercised by the ....