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2015 (2) TMI 998 - SC - Companies LawDefault in repayment of deposits - Contempt petition under Section 12 read with Section 10 of the Contempt of Courts Act, 1971 - Violation of the orders of the Company Law Board - Personal liability of promoter director in pursuance of undertaking signed by him, on behalf of company - Held that - Learned counsel for the respondent K.S. Raju argued that in the undertaking given by K.S. Raju, only this much has been stated that the Company will make the payment, as such it is not the personal liability of said respondent. But needless to say that Company functions through its directors, in its operations. Company is not such person which can be sent to jail. It is the director controlling the affairs of Company through whom it has committed the disobedience, if any, and as such, such director has to suffer the consequences of disobedience if it is wilful. We have already discussed above that from the affidavits filed before the High Court, it is clear that K.S. Raju was not only the Promoter Director of NFL, but the Managing Director of said Company, working for a decade, was his nominee, and practically all the powers to run the NFL vested with K.S. Raju, the Promoter Director, and his nominees, whom he appointed under Articles 104 and 140 of Articles of Association. In our opinion, having considered the submissions of learned counsel for K.S. Raju, Promoter Director, and considering his role in the operation of the Company, as discussed above, the Division Bench of the High Court erred in law in holding that he was not guilty of wilful disobedience of the order of the CLB. It is pertinent to mention here that after giving undertaking dated 14.2.2000, respondent K.S. Raju submitted his resignation in September, 2000, which clearly reflects that the same was done in order to save himself and his company, from making the repayment directed to be made by the CLB, and thereby dishonestly made attempt in not making repayment to the depositor E. Bapanaiah. It is not the case of respondent K.S. Raju, Promoter Director, who gave undertaking that he had no knowledge of the order of the CLB, or that he made any attempt to prevent the disobedience of the order. The arrangements made between the company and MFSL shall not be of any consequence in relation to the repayment schedule approved by the CLB. The company, its promoter Director and Group Holding Companies shall continue to be responsible for due compliance of the order stated. The present case relates to a civil contempt wherein an undertaking given to Company Law Board is breached. Normally, the general provisions made under the Contempt of Courts Act are not invoked by the High Courts for forcing a party to obey orders passed by its subordinate courts for the simple reason that there are provisions contained in Code of Civil Procedure, 1908 to get executed its orders and decrees. It is settled principle of law that where there are special law and general law, the provisions of special law would prevail over general law. As such, in normal circumstances a decree holder cannot take recourse of Contempt of Courts Act else it is sure to throw open a floodgate of litigation under contempt jurisdiction. It is not the object of the Contempt of Courts Act to make decree holders rush to the High Courts simply for the reason that the decree passed by the subordinate court is not obeyed. However, there is no such procedure prescribed to execute order of CLB particularly after proviso is added to Section 634A of the Companies Act, 1956, vide Companies (Second Amendment) Act, 2002. Therefore, having considered submissions of learned counsel for the parties, and material on record, and further considering the relevant provisions of law and the cases referred above, and exercising powers under Article 136 read with Article 142 of the Constitution, we think it just and proper to interfere with the order passed by the Division Bench of the High Court whereby the Division Bench erroneously set aside the finding and sentence awarded by the learned single Judge against K.S. Raju. In our opinion, respondent K.S. Raju wilfully disobeyed the order of CLB and breached the undertaking given to CLB, and thereby committed Contempt of Court subordinate to High Court as such the Division Bench of the High Court has erred in law in allowing the Contempt Appeal No. 3 of 2007 filed by K.S. Raju and setting aside his conviction and sentence. For the reasons, as discussed above, we allow the present appeal filed against respondent K.S. Raju, and set aside the impugned order of the Division Bench of High Court. However, exercising powers under Article 142 of the Constitution of India, to do complete justice between the parties, we allow sixty days time to respondent K.S. Raju, with effect from pronouncement of this judgment to repay the entire amount to the depositor/appellant as directed by CLB, and if within the said period of sixty days payment is not made to the depositor/appellant, respondent K.S. Raju shall be taken into custody to serve out sentence as recorded against him by the learned Single Judge vide order dated 3.8.2007 in Contempt Case No. 915 of 2002. If the amount is paid to the present appellant as directed by this Court within sixty days, the sentence shall be reduced to the extent of fine only.
Issues Involved:
1. Whether the Division Bench of the High Court rightly allowed the Contempt Appeal No. 3 of 2007 filed by K.S. Raju, Promoter Director of Nagarjuna Finance Limited (NFL). 2. Whether the other directors, who were not respondents in the original contempt case, were rightly acquitted. 3. Whether K.S. Raju committed willful disobedience of the Company Law Board's (CLB) orders and breached the undertakings given to the CLB. Issue-wise Detailed Analysis: 1. Whether the Division Bench of the High Court rightly allowed the Contempt Appeal No. 3 of 2007 filed by K.S. Raju, Promoter Director of NFL: The Supreme Court scrutinized the Division Bench's decision to allow K.S. Raju's appeal, which set aside his conviction for contempt. The appellant, E. Bapanaiah, had deposited Rs. 40,00,000 with NFL, which failed to repay the amount as per the CLB's approved scheme. K.S. Raju, as Promoter Director, had given undertakings to the CLB to ensure repayment. Despite his resignation in September 2000, the CLB held him and his group companies responsible for compliance with the repayment scheme. The Division Bench erred in law by not recognizing that K.S. Raju's resignation was a tactic to evade liability. The Supreme Court restored the conviction and sentence against K.S. Raju, emphasizing that he wilfully disobeyed the CLB's orders. 2. Whether the other directors, who were not respondents in the original contempt case, were rightly acquitted: The Supreme Court acknowledged that the other directors were neither named respondents nor had the opportunity to defend themselves in the original contempt case. Therefore, the Division Bench's decision to acquit them was upheld, as their conviction without due process was unjust. 3. Whether K.S. Raju committed willful disobedience of the CLB's orders and breached the undertakings given to the CLB: The Court examined the affidavits and undertakings given by K.S. Raju, which assured repayment of deposits as per the CLB's scheme. Despite these undertakings, no repayment was made, and K.S. Raju attempted to shift liability to MFSL, which the CLB rejected. The Supreme Court held that K.S. Raju's resignation and subsequent actions were deliberate attempts to avoid compliance with the CLB's orders. Under Section 12(4) of the Contempt of Courts Act, 1971, K.S. Raju was deemed guilty of contempt, as he was in charge of NFL's operations and failed to prevent the disobedience of the CLB's orders. Conclusion: The Supreme Court allowed the appeal against K.S. Raju, restoring his conviction and sentence for contempt. He was given sixty days to repay the depositor, failing which he would serve the sentence. The appeals concerning other directors were dismissed, as they were not named respondents in the original contempt case. The Court emphasized the importance of upholding the CLB's orders and the consequences of willful disobedience by corporate directors.
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