HC says NCLT is subordinate court, allows contempt proceedings without formal reference
The Punjab and Haryana High Court has made it clear that the Company Law Board (CLB), now replaced by the National Company Law Tribunal (NCLT), is a court subordinate to the high court. As such, contempt proceedings can be initiated by an aggrieved party without requiring a formal reference from the CLB.
The Bench of Justice Sureshwar Thakur and Justice Vikas Suri held that the absence of a reference from the CLB (a subordinate court) did not vitiate the high court’s jurisdiction to entertain the contempt petition. The court emphasised that if two interpretations of an interim order were possible, and one interpretation favored the alleged contemnor, no actionable contempt could be established.
The dispute arose when a petition before the CLB alleging oppression and mismanagement in a company. The CLB issued an interim order in 2007, directing the parties to maintain the status quo regarding fixed assets, board composition, and shareholding, among other things. A contempt petition was filed in 2014, alleging that violation of the CLB’s interim order.
The Single Bench of the high court found the one of parties guilty of contempt and directed him to appear in person to explain why he should not be sentenced to imprisonment. The appellant challenged the order before the Division Bench through senior advocate Munisha Gandhi with Vaibhav Sharma and Adarsh Dubey
The court asserted contempt proceedings could not be sustained unless the alleged contumacious act was clearly in violation of the order. The court reiterated the principles laid down by the Supreme Court in “Midnapore Peoples’ Coop. Bank Ltd. versus Chunilal Nanda” case regarding the maintainability of appeals in contempt cases. It held that an appeal under Section 19 of the Contempt of Courts Act, 1971, was maintainable only against orders imposing punishment for contempt. However, if the contempt order was incidental to, or connected with, the merits of the dispute, it might still be challenged through an intra-court appeal or under Article 136 of the Constitution.
The Bench noted that an apology, if made bona fide and without qualification, should be considered by the court. The appellant in the case in hand had tendered an unconditional apology, which the court found to be a mitigating factor.
The court asserted business decisions, especially those aimed at improving efficiency and profitability, should not be lightly interfered with in contempt proceedings. The appellant’s actions, involving relocating obsolete machinery to improve operational efficiency, were deemed to be legitimate business decisions. The court stressed that unless there was clear evidence of mala fides or financial loss to the aggrieved party, such decisions should not be construed as contemptuous.
The court also referred to the importance of awaiting the outcome of pending appeals before initiating contempt proceedings. It cited the Supreme Court’s ruling in “Modern Food Industries (India) Ltd. versus Sachidanand Dass” case, which held that contempt proceedings should not be initiated while an appeal against the underlying order was pending.
The court added that the burden of proving wilful disobedience lay with the party alleging contempt.