2007 (8) TMI 442 - HC - Companies Law

Civil and criminal contempt - whether the order passed by the Company Law Board in the company petition filed on behalf of the 3rd respondent is binding on the 1st respondent; and whether non-compliance of the same would amount to violation of the order of the Company Law Board as well as the undertaking given by the 1st respondent to the Company Law Board? Whether the Company Law Board could be treated as a Court, and subordinate to the High Court, for the purpose of invoking the provisions of the Contempt of Courts Act, 1971? Whether the contempt proceedings initiated by the petitioner are not barred by limitation? Whether the contemnors are liable for punishment as provided under the provisions of the Contempt of Courts Act? Held that - The present stand of the 1st respondent is contrary to his reply dated 26-9-2002 to Reserve Bank of India, where he has stated that the terms of memorandum of understanding do not (i) constitute change in management or control of the company; (ii) confer any right to appoint directors on the Board so as to control the company; and (iii) constitute transfer of ownership of the company by sale of shares or control within the meaning provided to the said term in regulation 2(i)( c) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. Therefore, it is clear that the 1st respondent not only violated the orders of the Court as well as the orders of the Company Law Board as well as the undertakings, but also made a deliberate attempt to deny the liability, taking contrary stands, thereby violating the orders. he Company Law Board is not vested with the powers to deal with cases under the provisions of the Contempt of Courts Act. Therefore, such powers are to be exercised only by this Court for any alleged contempt to Company Law Board similar to the Civil Courts. Further, as the orders of the Company Law Board are appealable under section 10F of the Act before this Court, the Company Law Board should be treated as subordinate to this Court, and therefore, this Court is well within its powers in entertaining the contempt proceedings, and the contentions to the contra are devoid of merit. It is difficult to accept the contention of the respondents that the present contempt petition is barred by limitation. Since the order of the Company Law Board is merged with the order of this Court in the appeal filed and disposed of by an order dated 3-1-2002, confirming the orders of the Company Law Board, and as the contempt petition was filed in the year 2002 itself, which was even admitted on 4-9-2002, the contempt proceedings are well within the time. Further, the amounts are payable over a period of three years from 28-4-2001. Therefore, this point is held against the respondents. The 1st and 3rd respondents/contemnors are found guilty and liable to be convicted under section 12 of the Contempt of Courts Act. Accordingly, the 1st respondent as well as the other directors of the 3rd respondent company are convicted and sentenced to suffer simple imprisonment for a period of six months, together with imposition of fine of ₹ 2,000 (Rupees two thousand only) each. The 1st respondent as well as other directors of the 3rd respondent shall be detained in Civil Prison for the period of imprisonment as ordered above.

Issues Involved:
1. Violation of Company Law Board orders and undertakings.
2. Whether the Company Law Board is a Court and subordinate to the High Court.
3. Limitation period for initiating contempt proceedings.
4. Liability and punishment for contempt.

Issue-wise Analysis:

Issue 1: Violation of Company Law Board orders and undertakings

The petitioner alleged that the respondents committed civil and criminal contempt by disobeying the orders of the Company Law Board (CLB) and breaching affidavits filed before the CLB and the High Court. The 1st respondent, as the promoter director, along with other directors, issued public advertisements inviting deposits, promising attractive returns, and received deposits from the public, including Rs. 40 lakhs from the petitioner. Due to financial issues, the 3rd respondent company filed a scheme for repayment of deposits in installments before the CLB, which was approved on 29-2-2000. The respondents filed affidavits undertaking to comply with the scheme but failed to do so, leading to the present contempt petition. The court found that the 1st respondent's claim of resignation and lack of control over the company was meritless and that the respondents' actions amounted to deliberate attempts to circumvent the CLB's orders, constituting contempt.

Issue 2: Whether the Company Law Board is a Court and subordinate to the High Court

The court examined whether the CLB could be considered a Court and subordinate to the High Court for invoking the Contempt of Courts Act, 1971. The CLB, constituted under section 10E of the Companies Act, has powers similar to a Civil Court, including summoning witnesses, compelling the production of documents, and examining witnesses on oath. The court referred to various judgments, including the Supreme Court's decision in Canara Bank v. Nuclear Power Corpn. India, which held that the CLB is a Court for certain purposes. The court concluded that the CLB is a Court for the purposes of the Contempt of Courts Act and subordinate to the High Court, thus empowering the High Court to initiate and punish for contempt.

Issue 3: Limitation period for initiating contempt proceedings

The respondents contended that the contempt petition was barred by limitation as the court did not issue notice within one year from the alleged date of contempt. However, the court noted that the contempt petition was admitted on 4-9-2002, and notices were issued in Form-1. The court also observed that the cause of action for contempt was continuous, as the repayment scheme extended over several years. Referring to the Supreme Court's decision in Pallav Sheth v. Custodian, the court held that the contempt petition was filed within the prescribed time, considering the continuous nature of the contempt.

Issue 4: Liability and punishment for contempt

The court found the 1st respondent and the 3rd respondent company guilty of contempt for deliberate violation of the CLB's orders and undertakings. The 1st respondent's attempts to evade liability by claiming resignation and lack of control were rejected. The court emphasized the need for severe punishment to deter such actions and maintain the sanctity of judicial proceedings. The 1st respondent and other directors of the 3rd respondent company were sentenced to six months of simple imprisonment and fined Rs. 2,000 each. The 2nd respondent was discharged from allegations of contempt due to lack of involvement in the initial scheme order.

Conclusion:

The court concluded that the respondents' actions amounted to contempt of court, and the 1st respondent and other directors of the 3rd respondent company were liable for punishment under the Contempt of Courts Act. The court imposed imprisonment and fines to uphold the authority of judicial orders and deter future violations.

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