2018 (1) TMI 1749 - HC - Companies Law

Constitutional validity of notification of Section 425 of the Companies Act 2013 by Respondent No.1 pursuant to N/N. S.O. 1934 (E) dated June 1 2016 published in the Gazette of India - regulation of proceedings under Section 425 of the Companies Act 2013 read with the Contempt of Courts Act 1971 as amended - challenge to procedure followed by NCLT - failure to record that a prima facie case of contempt is made out communicated the charge nor indicated in any other manner the gravamen of the case of contempt which the petitioners are called upon to answer - HELD THAT - There can be no quarrel with the proposition that the proceedings under the Contempt of Courts Act 1971 are quasi criminal in nature. Initiation 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. Since the impugned orders have been passed only at the threshold scrutiny by NCLT and there is no order issued holding any of the petitioners or other parties arrayed as contemnors as being guilty not the least punishing any person for contempt of court the remedy of appeal may not be even available. Be that as it may the judicial review if called for in the facts and circumstances of the case can neither be grudged nor denied. In the case at hand one of the parties bound by the restraint order has allegedly committed certain acts in collusion with others the objective statedly being to overreach and defeat the judicial process. The scrutiny of the impugned act by NCLT cannot be construed as impropriety so long as the order dated 13.07.2017 operates - A careful reading of the two orders passed by the NCLT on 05.09.2017 one on the company application under Section 242 of the Companies Act 2013 and the other on the contempt application which is impugned before this court would show that there is no inherent contradiction. The NCLT is at the stage of threshold scrutiny of the matter. It is still gathering facts. Such proceedings are nothing but in the nature of a preliminary inquiry wherein response has been sought in the wake of which it hopes and expects to collect not only the necessary facts but also requisite material in support of the contentions of either side. The decision as to whether the alleged acts constituting contempt have actually been committed or not will undoubtedly have to be taken after replies have been secured. Such stage having not even been reached the procedure followed in having the service of the copy of the contempt application effected through counsel for the opposite party (who are the applicants) is not in breach of but in accord with the rules of the National Company Law Tribunal s Rules 2016. As regards the grievance that some of the parties shown in the list of contemnors were not even properly served and yet proceeded ex parte all that needs to be said is that if such were the facts it is a matter of irregularity of the proceedings. This court is confident that if any such lapse has occurred and brought to the notice of NCLT it would take suitable corrective action and pass the necessary orders in terms of rules. Rule 49(2) . This by itself cannot be allowed to be used by the petitioners to impel this court to interdict in exercise of the writ jurisdiction. The petitioners have not been able to show violation of the principles of natural justice in the proceedings thus far conducted by NCLT on the contempt application. As noted above the said proceedings cannot be said to be without jurisdiction. There is no element of arbitrariness as necessitates the writ court s intervention. Thus this court declines exercise of writ jurisdiction - On the above facts and in the circumstances the NCLT being seized of the matter it would not be proper for this court in proceedings at hand to make any observations either way on the merits of the allegations made in the contempt application lest the same prejudices either side. This court is of the view that grievances raised by the petitioners are a result of unfounded apprehensions about NCLT having prejudged the issue and reflect paranoia rather than substance - The writ petitions are thus dismissed.

Summary

Issues Involved:

1. Legality of NCLT's orders dated 05.09.2017 and 26.09.2017 on contempt application no.300 (PB)/2017.
2. Whether NCLT acted in breach of principles of natural justice.
3. Maintainability of writ petitions against NCLT's orders.
4. Whether NCLT's proceedings were arbitrary or biased.
5. Appropriateness of NCLT's actions in the context of pending appeals before NCLAT.

Issue-wise Detailed Analysis:

1. Legality of NCLT's Orders:
The petitioners challenged the orders of NCLT dated 05.09.2017 and 26.09.2017, arguing that the action to initiate contempt proceedings was uncalled for, illegal, and arbitrary. They contended that the orders were in gross breach of the principles of natural justice. The court noted that the NCLT was still at the stage of threshold scrutiny and had not yet taken formal cognizance of contempt. The proceedings were in the nature of a preliminary inquiry, and the NCLT was gathering facts before deciding whether a prima facie case of contempt was made out.

2. Breach of Principles of Natural Justice:
The petitioners argued that NCLT did not issue formal notices through its Registry and acted on the affidavit of service of notices submitted by the counsel for the applicants. The court found that the procedure followed by NCLT was in accordance with the National Company Law Tribunal Rules, 2016, which allow service through counsel. The court emphasized that the stage for formal charge or notice of accusations had not yet arrived, and the NCLT was following a fair process by seeking replies from the parties.

3. Maintainability of Writ Petitions:
The respondents contended that the writ petitions were not maintainable and that the appropriate remedy was to approach the appellate court. However, the court held that judicial review was available and could not be denied, particularly as the impugned orders were at the threshold stage and did not constitute punishment for contempt. The court referred to established precedents affirming the maintainability of writ petitions in such circumstances.

4. Arbitrariness or Bias in NCLT's Proceedings:
The petitioners alleged bias and undue haste by NCLT in taking cognizance of the contempt application. The court rejected these allegations, noting that NCLT had acted neutrally by treating the application as one filed in the wake of its order dated 13.07.2017 and was yet to decide on the merits of the allegations. The court found no basis for the claim of arbitrariness or bias.

5. NCLT's Actions Amidst Pending Appeals:
The petitioners argued that NCLT should have awaited the decision of NCLAT on the pending appeals before proceeding with the contempt application. The court disagreed, stating that there was no stay from NCLAT, and NCLT was within its rights to scrutinize the alleged acts of contempt as long as its order dated 13.07.2017 was operative. The court found no inherent contradiction in NCLT's approach, as the contempt proceedings were distinct from the relief sought in the company application under Section 242 of the Companies Act, 2013.

In conclusion, the court dismissed the writ petitions, finding that the grievances raised were based on unfounded apprehensions and did not warrant intervention. The interim orders were vacated, and pending applications were disposed of as infructuous.