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TMI Blog2019 (8) TMI 531X X X X Extracts X X X X X X X X Extracts X X X X ..... rection 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. 6. When the matter came up on 21.8.2017 the learned senior counsel for the petitioner sought liberty to implead respondent No. 6, which is the Authorised Representative of the respondent no.7Company and filed a corrected memo of parties. Liberty was granted by this Court and in terms thereof amended memo of parties was filed wherein the Authorised Representative of the Company was impleaded as respondent No. 6. 7. The brief and relevant facts as averred by the petitioner are that on 19.10.2016, Jai Enterprises, a sole proprietorship of the petitioner filed a suit being CS No.59041/2016 before the Trial Court for recovery of a sum of Rs. 15,81,420/- against respondent No. 7. On 21.04.2017, a joint application for settlement under Order 23 Rule 3 CPC was filed by the parties with the following terms: (a) Defendant No. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... presentative of respondent No. 7 to the petitioner. 12. On 20.03.2018, an application was filed by the IRP, inter alia, stating that respondent No. 7 Company could not be revived and an Official Liquidator be appointed. 13. On 16.04.2019, summons were issued against respondent No. 7 Company and respondent Nos. 1 to 5 in a complaint under Section 200 of the Cr. P.C. for offences under Section 420/406/120B/34 IPC. 14. Learned senior counsel for the petitioner submits that there is a willful disobedience by the respondents of the undertaking and the settlement agreement dated 21.04.2017 as well as the compromise decree passed by the Civil Court on 10.07.2017. He submits that the respondents did not have any intention to abide by the terms of settlement and willfully misled the Court to accept the same and decree the suit on its basis. He submits that this is evident from the fact that even prior to the appointment of the IRP by the NCLT on 20.06.2017, the respondents had already defaulted twice and the cheques had bounced. 15. The next contention of the petitioner is that the payment of Rs. 1,50,000/- made by respondent No. 6 on 19.02.2018 indicates that the Respondents had th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pper Construction Co. (P) Ltd. & Anr., (1996) 4 SCC 622. 28. The concept of corporate entity was evolved to encourage and promote trade and commerce but not to commit illegalities or to defraud people. Where, therefore, the corporate character is employed for the purpose of committing illegality or for defrauding others, the court would ignore the corporate character and will look at the reality behind the corporate veil so as to enable it to pass appropriate orders to do justice between the parties concerned. The fact that Tejwant Singh and members of his family have created several corporate bodies does not prevent this Court from treating all of them as one entity belonging to and controlled by Tejwant Singh and family if it is found that these corporate bodies are merely cloaks behind which lurks Tejwant Singh and/or members of his family and that the device of incorporation was really a ploy adopted for committing illegalities and/or to defraud people. 2. Aligarh Municipal Board & Ors. v. Ekka Tonga Mazdoor Union & Ors. (1970) 3 SCC 98. 6. In regard to the appeal by the Municipal Board, it was contended that the Board being a Corporation it acts through natural person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if there is violation of the compromise or the order no question of contempt of court arises, but the party has a right to enforce the order or the compromise by either executing the order or getting an injunction from the court." 21. Learned counsel for the respondents, further submits that the respondents are not in willful disobedience or willful breach of any settlement or undertaking or order of any Court. It is contended that the petitioner being a sole proprietor of Jai Enterprises has been in business of supplying building material to contractors for construction of residential complexes, hospitals, etc., at various sites. Respondent No. 7 is a Public Limited Company, which had entered into a building contract for re-development plan for Lady Hardinge Medical College and Associated Hospitals. The petitioner had supplied building material for the project to respondent No. 7 between April 2013 and September 2015. Some outstanding amount remained due towards the petitioner and the petitioner had filed a suit against respondent No. 7 for the said outstanding amount of Rs. 10.2 lakhs. It is submitted that in April 2017, respondent No. 7 settled with the petitioner and underto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received claims from various financial and operational creditors employees, statutory authorities, etc. 26. Based on the above stated chronology of facts, learned counsel for the respondents contends that the respondents had certainly not benefited from the Company going under the IBC process as they actually lost control of the Company with the appointment of the IRP. After the undertaking given by respondent No. 7, in April 2017, the respondents had never disputed or denied its liability towards the petitioner. However, the petitioner is now entitled to the satisfaction of the decree only through the route of IBC proceedings. It is submitted that the petitioner is in a queue as one of the 328 operational creditors and cannot be allowed preferential treatment by breaking the queue. 27. It is further contended that by the present contempt proceedings the petitioner is seeking execution of his decree outside the IBC proceedings, which would be against the process under the Insolvency and Liquidation mandated by the IBC. 28. As regards the payment of amount of Rs. 1,50,000/- by demand draft on 19.02.2018 is concerned, it is submitted that respondent Nos. 2, 3 and 4 were accused ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich it was not possible for the contemnor to comply with the order, the Court may not punish the alleged contemnor." 31. Further reliance is placed on the judgment of Dushyant Somal vs. Sushma Somal, (1981) 2 SCC 277 and I quote the relevant portion: "... Where the person alleged to be in contempt is able to place before the court sufficient material to conclude that it is impossible to obey the order, the court will not be justified in punishing the alleged contemnor." 32. Further reliance is placed on the judgment of the Apex Court in Kanwar Singh vs. High Court of Delhi, (2012) 4 SCC 307, the relevant portion of is as under: "... Law does not permit to skip the remedies available under Order XXI Rule 32 CPC and resort to the contempt proceedings for the reason that the court has to exercise its discretion under the Act 1971 when an effective and alternate remedy is not available to the person concerned. Thus, when the matter relates to the infringement of a decree or decretal order embodies rights, as between the parties, it is not expedient to invoke and exercise contempt jurisdiction, in essence, as a mode of executing the decree or merely because other remedies may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry of cases mentioned under Section 2(b) of the Act. The Court was not called upon to decide whether there was any contumacious conduct as envisaged by the first category of cases under that Section. The observations in Babu Ram Gupta (supra) were held to be obiter by the Apex Court in the case of Rama Narang (supra). The Apex Court further observed in the case of Rama Narang (supra) that if the observations in the case of Babu Ram Gupta (supra) were to be accepted as an enunciation of law, it would be contrary to the language of the statute. The Court further observed that the Section itself provides that willful violation of any order or decree etc. would tentamount to contempt and a compromise decree is as much a decree as any other decree passed on adjudication. In passing a decree by consent, the Court adds its mandate to the consent and thus it is composed of both a command and a contract. The provisions of Order XXIII Rule 3 CPC require the Court to pass a decree in accordance with the consent terms only when it is proved to the satisfaction of the Court that the suit has been adjusted wholly or in part by any lawful agreement. The Apex Court further held that merely because ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 of the IPC for Insolvency Resolution Process to be set in motion and thereupon the NCLT appointed an IRP to take over the management of respondent No. 7. All attempts to revive the Company failed and on 20.03.2018, the IRP applied to NCLT to liquidate the Company. The respondents further contend that the petitioner is one of the 328 operational creditors and the respondents cannot break the queue to satisfy the decree. 40. Section 2(b) of the Contempt of Courts Act, 1971 which is relevant for the adjudication of this case, reads as under: "2. Definitions In this Act, unless the context otherwise requires- XXXXX (b) "civil contempt" means willful disobedience to any judgment, decree, direction, order, writ or other process of a court or willful breach of an undertaking given to a court;" 41. In the case of Niaz Mohammad & Ors. (supra), the Apex Court has held that the framers of the Act while defining civil contempt have said that it must be willful disobedience of any judgment, decree etc. and therefore, before a contemnor is punished for non-compliance of a direction of a Court, the Court must not only be satisfied about the disobedience, but should also be satis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Contempt of Courts Act, 1971 that the disobedience to the order alleging contempt has to satisfy the test that it is a wilful disobedience to the order. Bearing this important factor in mind, it is relevant to note that a proceeding for civil contempt would not lie if the order alleged to have been disobeyed itself provides scope for reasonable or rational interpretation of an order or circumstance which is the factual position in the instant matter. It would equally not be correct to infer that a party although acting due to misapprehension of the correct legal position and in good faith without any motive to defeat or defy the order of the Court, should be viewed as a serious ground so as to give rise to a contempt proceeding. 24. To reinforce the aforesaid legal position further, it would be relevant and appropriate to take into consideration the settled legal position as reflected in the judgment and order delivered in Ahmed Ali v. Supdt., District Jail [1987 Cri LJ 1845 (Gau)] as also in B.K. Kar v. High Court of Orissa [AIR 1961 SC 1367 : (1961) 2 Cri LJ 438] that mere unintentional disobedience is not enough to hold anyone guilty of contempt and although di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to be judged having regard to the facts and circumstances of each case. ..." 44. In the case of Gyani Chand vs. State of A.P. (2016) 15 SCC 164, the Apex Court reiterated that to hold somebody guilty of contempt of Court, the concerned person must have willfully disobeyed any judgment, decree etc. or should have willfully committed breach of an undertaking given to a Court. 45. Very recently, a Division Bench of this Court has decided an appeal under Section 19 of the Contempt of Courts Act, against an order of the Single Judge, wherein the appellants had been held guilty of contempt for non-compliance of an undertaking given to the Court. The Division Bench while deciding the appeal has referred to various judgments of the Supreme Court including the one in the case of Rama Narang (supra). The Division Bench has, in great details, analysed the meaning of the term willful disobedience. The Court has also relied upon the judgment in the case of Bank of Baroda vs. Sadruddin Hasan Daya (2004) 1 SCC 360. The relevant extract from the judgment of the Apex Court is as under: "14. The respondents had filed consent terms in this Court but the same contained an undertaking th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given through a power of attorney will make no difference as he also got benefit under the consent decree passed by this Court." 46. Traversing through the judgments referred to above, what emerges is that 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 & Ors. (supra) 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 proceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disputed or rebutted that the moratorium has been issued, the IRP has been appointed and liquidation proceedings are pending against respondent No. 7 in the NCLT. The power and management of the Board of respondent No. 7 now vests in the IRP. Respondents cannot, at this stage, break the queue and allow preferential treatment to the petitioner, over the other financial and operational creditors, to discharge their liability under the compromise decree. Learned counsel for the respondents is thus right in his contention that the disbursement of payments by the respondents to clear the liabilities towards its creditors, including the petitioner, would be governed by the proceedings under the IBC and thus the respondents are prevented by law to satisfy the decree in favour of the petitioner and there is no willful disobedience of the compromise decree. No doubt that the petitioner has a compromise decree in its favour and is entitled to the amount under the said decree, but until the petitioner is able to prove that there is willful disobedience, the respondents cannot be punished for civil contempt under the Contempt of Courts Act. 50. The Apex Court has in several judgments drawn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y would also be liable for contempt as the Courts have lifted the corporate veil and on finding guilty, have punished the Directors/Officers In-Charge responsible for the business. In my view, these judgments do not apply to the present controversy which essentially revolves around the alleged willful disobedience of the respondents in discharging the liability under the compromise decree and the defence of the respondents that they are being prevented in complying with the decree, by operation of law. 53. Learned senior counsel for the petitioner has placed reliance on the judgment of the Bombay High Court in the case of Tayal Cotton Pvt. Ltd. vs. State of Maharashtra & Ors. in Criminal Writ Petition No. 1437/2007 decided on 06.08.2018, to contend that when a moratorium is issued under Section 14 of the IBC, it prohibits institution of suits or execution against the judgment or a decree but does not prohibit the criminal proceedings. The argument is that moratorium issued under Section 14 of the IBC will not come in the way of the contempt Court exercising its powers under Article 215 of the Constitution of India and the Contempt of Courts Act. A bare reading of the judgment in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... satisfy the decree. Neither can an order be passed to punish the respondents in view of my finding above that there is no willful disobedience. 55. In the absence of any willful disobedience by the respondents, this Court cannot grant the relief sought for by the petitioner and I am fortified in my view by the judgment of the Apex Court in Mohd. Iqbal Khanday vs. Abdul Majid Rather (1994) 4 SCC 34 and K.L. Arora vs. S.S. Prasad & Anr. (2000) 10 SCC 89. In the case of Mohd. Iqbal (supra), the appellant did not comply with the orders directing it to grant ad hoc promotion. The appellant contended that the compliance could not be done as granting the promotion would be contrary to a particular Rule. The Apex Court held as under: ".... In such a situation the insistence of the courts on implementation may not square with realities of the situation and practicabilities of implementation of the court's direction. In our considered view, hooking a party to contempt proceedings and enforcing obedience to such orders hardly lends credence to judicial process and authority; more so, in the peculiar facts and circumstances of the case. The court must always be zealous in preserving i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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