Introduction
In the case of Devang Hemant Vyas & Ors. V. 3A Capital Private Ltd. & Anr.,[i] the National Company Law Appellate Tribunal (‘NCLAT’) ruled in favour of Devang Hemant Vyas and Ors. (‘Appellant’) and set aside the National Company Law Tribunal (‘NCLT’) order allowing a contempt application, observing that the Company Law Board lacks the power to punish for contempt under the Companies Act.
Brief Facts
The appeal before NCLAT was related to the contempt of order passed by the Company Law Board (‘CLB’). The 3A Capital Private Limited (‘Respondent’) had filed an application before NCLT, which allowed the application for monetary compensation along with the punishment for contempt of CLB’s order.
The Appellant’s company, Prag Bosimi Synthetics Ltd., had availed finance from various financial institutions like IDB and ICICI against which Convertible Preference Shares (‘RCCPS’), Non-convertible debentures (‘NCD’), etc. were issued by the Appellant. The Respondent had bought RCCPS/ CCPS from ICICI. However, the Appellant’s company was declared a non-performing asset due to financial difficulties.
Subsequently, the lenders, including ICICI, settled the debt through a corporate debt restructuring (‘CDR’) plan. As a result, the Appellant cancelled the RCCPS/CCPS issued to ICICI in its AGM and filed for approval of cancellation/reduction of share capital before the High Court of Guwahati (‘HC’), which was allowed.
However, during the proceedings, the Respondent intervened and filed an impleadment application which was dismissed. Consequently, the Respondent appealed before the Hon’ble Supreme Court (‘SC’), which was also dismissed, and no stay was granted.
Subsequently, the HC’s order in favour of the Appellant was given effect, and the registrar approved the reduction of the share capital of the Appellant’s company. Thereafter, the Respondent approached the Appellant requesting to transfer RCCPS/ CCPS bought from ICICI.
Further, the Respondent filed the company petition before the CLB against the Appellant’s company, seeking to direct the transfer of RCCPS/CCPS in its favour. The CLB directed the Appellant’s company to issue a share certificate and transfer RCCPS/CCPS in favour of the Respondent.
The Appellant challenged the CLB’s order before the HC and the SC, respectively. However, the appeal was dismissed, and the SC affirmed the dismissal.
Thereafter, the Respondent filed the contempt application before the NCLT against the Appellant’s company and its directors, alleging wilful disobedience of the order passed by the CLB. The NCLT, in the impugned, ordered the Appellant’s company to pay a sum proportionate to RCCPS/CCPS as a one-time settlement and interest on that sum along with the legal expenses incurred to the Respondent and pay a sum to the Ministry of Corporate Affairs for violating the principle of corporate governance in registering the transfer of shares.
Consequently, the Appellant challenged the NCLT’s order before the NCLAT and contended that the CLB lacks the power of contempt. As under s. 425 of the Companies Act, 2013 (‘Act’), the NCLT and the NCLAT have the jurisdiction and power of contempt of themselves pertaining to their own order but not the order passed by the CLB.
Further, the Appellant argued that the matter had attained finality vide HC’s order dated 18.12.2012, reducing share capital; thus, the RCCPS/CCPS ceased to exist.
Findings of the NCLAT
The Hon’ble NCLAT allowed the appeal in favour of the Appellant and observed as under:
The NCLAT found the contempt order regarding the CLB's decision unenforceable, as the CLB lacks the authority to punish for contempt. Citing the HC's decision in N Venkata Swamy Naidu v. M/s. Sri Surya Teja Construction Pvt. Ltd.,[ii] the NCLAT noted that only the HC under s. 10 of the Contempt of Courts Act possesses the power to punish contempt of subordinate courts, thereby confirming that the CLB, as a subordinate entity, does not hold jurisdiction over contempt cases.
Further, the NCLAT observed that s. 425 of the Act states the word ‘contempt of themselves’, which allows issuance of contempt ruling for its own order akin to HC, but s. 425 of the Act does not empower to issue contempt of CLB’s order.
The NCLAT held that when the order of CLB merged with the order of HC and, further, merged with the order of SC, contempt can be only of the order of SC or an order passed by the HC; thus, based on the doctrine of merger contempt cannot be of the order passed by the CLB.
The NCLAT observed that the Respondent had filed the contempt application for arm twisting as the CCPS/ RCCPS had already been cancelled.
Further, NCLAT observed that as the matter was not transferred or pending before the NCLT, a fresh application for contempt of CLB’s order was filed, which was not maintainable.
Further, the NCLAT observed that the NCLT brushed aside all the objections raised by the Appellant without any reasoning. Thus, NCLT erred in issuing directions in the contempt petition for compensation or monetary relief as the NCLT cannot go beyond the original judgement or directions, which are not present in the original order.
Consequently, the NCLAT allowed the appeal in favour of the Appellant and dismissed the impugned NCLT’s order and all the directions issued against the Appellant company. Since the contempt application was set aside, there was no contempt or wilful disobedience by the Appellant company’s directors.
Conclusion
This NCLAT decision clarifies that only the tribunal or court can issue contempt orders for violations of its own directives, confirming that under s. 425 of the Companies Act, the CLB lacks jurisdiction to enforce contempt rulings.
End Notes
[i] [2024] 163 taxmann.com 351 (NCLAT- New Delhi); MANU/NL/0349/2024.
[ii] MANU/AP/0473/2007.
Authored by Purvi Garg, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.
Comments