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2019 (8) TMI 531 - HC - Insolvency and BankruptcyContempt petition - direction to punish respondent No. 7 and its key officers/directors (respondent Nos. 1 to 6) for willful disobedience of the undertaking dated 21.04.2017 given on behalf of respondent No. 7, in respect of a settlement under Order 23 Rule 3 CPC as also for violation of order dated 10.07.2017, whereby, in view of the settlement, a compromise decree has been passed - whether the respondents are guilty of contempt as alleged by the petitioner? Maintainability of the contempt petition - HELD THAT - From a reading of the judgment of the Apex Court in the case of RAMA NARANG VERSUS RAMESH NARANG AND ANR. 2006 (4) TMI 553 - SUPREME COURT , it is clear that a contempt petition would lie in case there is a violation or non-compliance of a compromise or a consent decree and merely because execution is one of the remedy available to the decree holder, it cannot be said that the Court s jurisdiction to deal with the matter under the Contempt of Courts Act is taken away - Following the ratio of the judgment in the case of Rama Narang, the preliminary objection raised by the respondents regarding the non-maintainability of the petition is rejected. Now coming in to the merits of the case, in order to hold a person guilty of civil contempt, it has to be established by the person alleging contempt that the alleged contemner was guilty of a willful breach or a willful disobedience of an order or a direction, decree etc. of any Court. The emphasis, therefore, has to be on the word willful. The word willful means an act or omission which is done voluntarily and with an intent to do something which is forbidden by law or failing to do something which the law requires to be done. The Apex Court in the case of NIAZ MOHAMMAD AND ORS. VERSUS STATE OF HARYANA AND ORS. 1994 (9) TMI 364 - SUPREME COURT had the occasion to explain willful disobedience as used in Section 2(b) of the Contempt of Courts Act. It was held that before a contemnor is punished for non-compliance of the direction of a Court, the Court must be satisfied not only of the fact that there is disobedience of a judgment or decree or direction but also must satisfy itself that such disobedience was willful and intentional. The Civil Court in an execution proceeding is not concerned whether the disobedience is willful or otherwise and once a decree is passed, it is the duty of the Court to execute it. On the other hand, while examining the grievance of a person who has invoked the contempt jurisdiction, the Court has to record a finding of willful and intentional disobedience - If from the circumstances of a particular case, the Court is satisfied that there has been a disobedience but the same is a result of some compelling circumstances, under which it was not possible for the contemnor to comply with the order, the Court may not punish the alleged contemnor. Whether by not paying the money to the petitioner in terms of the compromise decree, the respondents have willfully disobeyed the order, with an intent to do so or there are any compelling circumstances, which has prevented the respondents from paying the balance amount in terms of the compromise decree? - HELD THAT - The ICICI Bank, one of its significant financial creditors, recalled its financial assistance to the tune of 412 Crores and the Bank issued notice under the SARFAESI Act. Respondent No. 7 thereafter applied under Section 10 of the IBC asking for Insolvency Resolution process to be set in motion. An IRP was appointed to take over the management and the powers of the Board of respondent No. 7 were suspended. The IRP has applied to the NCLT to liquidate the Company. Respondent No. 7 owes over ₹ 2000 Crores to various creditors. Respondent No. 7 has a list of several financial creditors and operational creditors and the petitioner is one of the operational creditors way down in the seriatim. The respondents, are therefore, prevented by operation of law from jumping the queue and paying the balance amount to the petitioner in satisfaction of the compromise decree. In the absence of any willful disobedience by the respondents, this Court cannot grant the relief sought for by the petitioner - the respondents cannot be held guilty of the alleged contempt for the present. However, if in future the respondent Company is revived or any fresh cause of action arises in favour of the petitioner, this judgment will not come in the way of the petitioner seeking a remedy available to him in law. Petition dismissed.
Issues Involved:
1. Condonation of delay in filing rejoinder and reply. 2. Alleged willful disobedience of an undertaking and compromise decree. 3. Maintainability of contempt proceedings in the context of insolvency proceedings. 4. Analysis of "willful disobedience" in the context of contempt of court. Detailed Analysis: 1. Condonation of Delay: - C.M. Appl. No. 3887/2019: The court allowed the application for condonation of a 9-day delay in filing the rejoinder. - C.M. Appl. No. 19227/2019: The court allowed the application for condonation of a 34-day delay in filing the reply. 2. Alleged Willful Disobedience: - Contempt Petition: The petitioner filed a contempt petition under Sections 10 and 12 of the Contempt of Courts Act, 1961, read with Article 215 of the Constitution of India, against the respondents for willful disobedience of an undertaking dated 21.04.2017 and a compromise decree dated 10.07.2017. - Settlement Terms: The settlement included payment of ?10,19,763 in five monthly installments. Default in payment would attract 12% interest per annum on the defaulted sum. - Default and Insolvency: Respondent No. 7 defaulted on the payments, leading to dishonored cheques. Subsequently, an Interim Resolution Professional (IRP) was appointed by the National Company Law Tribunal (NCLT) for insolvency proceedings. 3. Maintainability of Contempt Proceedings: - Petitioner's Argument: The petitioner argued that the moratorium under Section 14 of the Insolvency and Bankruptcy Code (IBC) does not affect contempt proceedings. The petitioner cited several judgments to support the argument that the corporate veil can be lifted to hold directors/officers responsible for contempt. - Respondents' Argument: The respondents contended that there was no willful disobedience and that the company’s insolvency prevented compliance with the decree. They argued that the contempt petition is not maintainable as it seeks execution of the decree, which should be done through IBC proceedings. - Court's Analysis: The court referred to the Supreme Court’s decision in Rama Narang vs. Ramesh Narang, which held that contempt proceedings can be initiated for non-compliance with a compromise decree. The court rejected the preliminary objection regarding the non-maintainability of the petition. 4. Analysis of "Willful Disobedience": - Legal Standard: The court emphasized that for an act to constitute civil contempt, it must be a willful disobedience of a court order or decree. The term "willful" implies a deliberate and intentional act. - Respondents' Defense: The respondents argued that the non-payment was due to the company's financial distress and subsequent insolvency proceedings, not willful disobedience. They highlighted that the IRP was appointed, and liquidation proceedings were initiated, which legally prevented them from making payments. - Court's Conclusion: The court found that the respondents' inability to pay was due to compelling circumstances arising from insolvency proceedings, not willful disobedience. The court held that the respondents could not be punished for contempt as the disobedience was not willful or intentional. Judgment: - Final Decision: The court dismissed the contempt petition and discharged the notice of contempt, concluding that the respondents were not guilty of willful disobedience. The court noted that if the company is revived or a fresh cause of action arises, the petitioner may seek appropriate remedies in law.
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