2021 (1) TMI 939 - SC - Companies Law

Contempt petition - guilty of contempt - specific performance of family settlement - oppression and mismanagement - allegation is that the high value contracts were executed by issuing multiple cheques under the value of 10 lakhs though the contract amount was much more - vital information with regard to management of the Company was withheld - unilateral settlement with trade union - appointment and promotion of senior executives - Sections 397 398 and 403 of the Companies Act 1956 - HELD THAT - Perusal of Section 397 would reveal that a member of a Company is entitled to apply to the CLB complaining that the affairs of the Company were being conducted in a manner prejudicial to the public interest or in a manner oppressive to any member or members including anyone or more of themselves for an order under the said section. The only rider is that such a Member should have a right to do so by virtue of Section 399. Under sub-section (2) of Section 397 if the CLB was of the opinion that the Company s affairs are being conducted in a manner prejudicial to the public interest or in a manner oppressive to any member or members and that to wind up the Company would unfairly prejudice such member or members but that otherwise the facts would justify the making of a winding up order on the ground that it was just and equitable that the Company should be wound up; it was entitled to make such order as it thinks fit with a view to bringing to an end such matter complained of - It could thus be seen that any member of a Company is entitled to make an application to the CLB complaining that the affairs of the Company are being conducted in a manner prejudicial to public interest or in a manner prejudicial to the interest of the Company and the CLB is empowered to make such order as it thinks fit with a view to bring to an end the matter complained of. A similar provision contained in Section 398 enables the members of a Company to complain that the affairs of the Company are being conducted in a manner prejudicial to public interest or in a manner prejudicial to interest of the Company. It also enables a member to complain with regard to material change which has taken place in the management and control of the Company and by reason of such change it is likely that the affairs of the Company will be conducted in a manner prejudicial to the public interest or to the interest of the Company. Again the only rider is that such a member must have a right to apply by virtue of Section 399. Perusal of sub-section (2) of Section 398 would further reveal that if such an application was made under sub-section (1) of Section 398 and if the CLB was of the opinion that the affairs of the Company are being conducted as aforesaid the Tribunal may with a view to bringing to an end or preventing the matter complained of or apprehended is entitled to make such orders as it thinks fit - It could thus be seen that the respondents had legitimately approached the CLB invoking its jurisdiction under Sections 397 398 and 403 of the Companies Act. The learned CLB had also passed interim orders in exercise of its powers under Section 403 of the Companies Act. The petitioner had approached this Court immediately after the order dated 10th April 2008 was passed by the CLB by way of present contempt petition. Along with the contempt petition IA No. 1 of 2008 was also filed for stay of the order passed by CLB. Subsequently another IA No. 2 of 2008 was also filed seeking stay of the proceedings before CLB and the communications/directions passed by the Facilitator. However no orders have been passed by this Court on the said IAs. In the present case undisputedly the respondents were entitled to invoke the jurisdiction of the CLB under Sections 397 398 and 403 of the Companies Act. The CLB has passed the order on 10th April 2008 appointing a Facilitator and further passed order dated 28th April 2011 enhancing the powers of the Facilitator. Perusal of the orders passed by this Court dated 21st July 2009 and 29th July 2009 would reveal that though this Court had appointed independent Director it is clarified that the independent Director s functioning would not come in the way of the functioning of the Facilitator. On the contrary by order dated 29th July 2009 this Court observed that the appointment of Shri Ranina as independent Director would facilitate the functioning of the Facilitator appointed by the CLB - It can thus be seen that this Court has held that the contempt proceeding is not like an execution proceeding under the Code of Civil Procedure. It has been held that though the parties in whose favour an order has been passed is entitled to the benefits of such order but the Court while considering the issue as to whether the alleged contemnor should be punished for not having complied with and carried out the directions of the Court has to take into consideration all facts and circumstances of a particular case. It has been held that is why the framers of the Act while defining civil contempt have said that it must be wilful disobedience of any judgment decree direction order writ or other process of the Court. It has been held that before punishing the contemnor for non-compliance of the decision of the Court the Court must not only be satisfied about the disobedience of any judgment decree direction writ or other process but should also be satisfied that such disobedience was wilful and intentional. In the present case the petitioner has failed to make out a case of wilful deliberate and intentional disobedience of any of the directions given by this Court or acting in breach of an undertaking given to this Court. On the contrary we find that the respondents had taken recourse to the legal remedy available to them under the statutory provisions. No doubt Mr. Rohatgi has argued that the proceedings before the CLB are itself without jurisdiction. Though the counsel for the present petitioner had raised an issue that without deciding on the maintainability of the petition the interim order could not be passed the CLB observed that under Sections 397 and 398 of the Companies Act it is well settled that only if the maintainability is challenged either in terms of Section 399 or jurisdiction of the CLB challenges on other grounds have to be considered along with the merits of the case. It further observed that in the present case it was admitted fact that the petitioner qualified under Section 399 of the said Act and that the CLB has jurisdiction to deal with the petition under Sections 397 and 398 of the Act. It further observed that in the proceedings under Sections 397/398 it is the interest of the Company which is paramount. It observed that it was quite evident from the various annexures enclosed with the petition that due to differences among the Directors many operational issues concerning the management of the Company like payment of salary/wages payment to suppliers etc. were pending resulting in agitation by the employees and irregularity in supplies - it should not be construed that we have held that the proceedings under the CLB were maintainable in law. Since the proceedings are pending final adjudication the parties would be at liberty to raise all issues available to them including the issue of jurisdiction. The present contempt petition is without any merit and deserves to be dismissed and is accordingly dismissed.

Summary

Issues Involved:
1. Family Dispute and Previous Litigation
2. Consent Order and Family Settlement
3. Alleged Violations of Consent Order
4. Contempt Petition and Preliminary Objections
5. Proceedings Before Company Law Board (CLB)
6. Appointment and Role of Facilitator
7. Interim Orders and Compliance with Statutory Provisions
8. Allegations of Non-Cooperation and Deadlock in Company Management
9. Legal Principles on Contempt and Jurisdiction

Detailed Analysis:

1. Family Dispute and Previous Litigation:
The judgment revolves around a family dispute between a father and his two sons from his first wife, leading to numerous legal proceedings, some reaching the Supreme Court. The factual matrix involves the petitioner, his two sons from the first marriage, and other family members from subsequent marriages.

2. Consent Order and Family Settlement:
In previous litigation, the parties reached a settlement recorded in the "Minutes of Consent Order" dated 12th December 2001 and 8th January 2002. This settlement included specific terms about the management and control of Narang International Hotel Limited (NIHL) and its subsidiaries, requiring mutual consent for decisions and joint management by the petitioner and his sons.

3. Alleged Violations of Consent Order:
The petitioner alleged violations of the Consent Order by the respondents, including unilateral decisions on high-value contracts, withholding vital information, and unauthorized appointments and promotions. These actions were claimed to be in violation of clauses 3(c), (d), (e), and (f) of the Consent Order.

4. Contempt Petition and Preliminary Objections:
The petitioner filed a contempt petition alleging willful disobedience of the Consent Order. The respondents raised preliminary objections regarding the maintainability of the petition, arguing that the order had merged into subsequent orders and that they had complied with the terms.

5. Proceedings Before Company Law Board (CLB):
Due to alleged non-cooperation by the petitioner, the respondents filed Company Petition No. 47 of 2008 before the CLB, seeking directions for the smooth functioning of the company. The CLB appointed Justice Arvind V. Savant as a Facilitator to ensure operational decisions were made despite the deadlock among directors.

6. Appointment and Role of Facilitator:
The Facilitator was appointed to bring consensus among directors on urgent matters and take binding decisions if consensus was not possible. The Facilitator's role was limited to operational issues, such as employee matters, supplier contracts, and urgent repairs.

7. Interim Orders and Compliance with Statutory Provisions:
The Supreme Court, recognizing the ongoing disputes and their impact on the company's operations, appointed an independent Director, Shri Homi Ranina, to ensure compliance with statutory provisions. The Court clarified that this appointment would not interfere with the Facilitator's role.

8. Allegations of Non-Cooperation and Deadlock in Company Management:
The respondents alleged that the petitioner was using the Consent Order to create a deadlock, thereby stalling the company's operations. The CLB found persistent non-cooperation by the petitioner, leading to the appointment of the Facilitator with enhanced powers, including signing cheques and statutory records in case of disagreement among directors.

9. Legal Principles on Contempt and Jurisdiction:
The Court emphasized that for civil contempt, there must be willful disobedience of a court order. It noted that the respondents had taken legal recourse under Sections 397, 398, and 403 of the Companies Act, which was within their rights. The Court referred to established legal principles that taking legal action to enforce rights does not constitute contempt.

Conclusion:
The Supreme Court dismissed the contempt petition, finding no willful disobedience of its orders by the respondents. It held that the respondents had legitimately approached the CLB and acted within the legal framework. The Court also disposed of the interlocutory application, suggesting that the parties seek remedies through the National Company Law Tribunal (NCLT) under the Insolvency and Bankruptcy Code, 2016.