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Friday, January 9, 2015

CRIMINAL APPEAL NOS. OF 2014 (Arising out of S.L.P. (Crl.) Nos. 2479-2487 of 2009) E. Bapanaiah …Appellant Versus Sri K.S. Raju etc. …Respondents


                        IN THE SUPREME COURT OF INDIA


               CRIMINAL APPEAL NOS.                    OF 2014
            (Arising out of S.L.P. (Crl.) Nos. 2479-2487 of 2009)

      E. Bapanaiah                                     …Appellant


      Sri K.S. Raju etc.                            …Respondents

                               J U D G M E N T

      Prafulla C. Pant, J.

            Leave granted.

   2. These appeals are directed against judgment and order dated  22.8.2008
      passed by the High Court of Judicature, Andhra  Pradesh,  in  Contempt
      Appeal Nos. 3, 4, 5, 6, 7, 8, 9, 10 and 11 of 2007 whereby said  Court
      has allowed all the Contempt Appeals setting  aside  the  order  dated
      3.8.2007 passed in Contempt Case No. 915 of 2002  wherein  K.S.  Raju,
      Promoter Director of M/s. Nagarjuna Finance  Limited,  Hyderabad,  and
      its other directors were convicted under Section  12  of  Contempt  of
      Courts Act, 1971, and each one of them was sentenced to suffer  simple
      imprisonment for a period of six months and were further  directed  to
      pay fine of Rs.2,000/- each.

   3. At the outset, we have no hesitation  to  observe  that  the  impugned
      order does not require interference to the extent the same  is  passed
      in Contempt Appeal No. 4 of 2007 filed by Minoo  R.  Shroof,  Contempt
      Appeal No. 5 of 2007 filed by Nimesh N. Kampani, Contempt Appeal No. 6
      of 2007 filed by C.D. Menon, Contempt Appeal No. 7 of  2007  filed  by
      A.P. Kurian, Contempt Appeal No. 8 of 2007  filed  by  Sridhar  Chary,
      Contempt Appeal No. 9 of 2007 filed by G.S. Raju, Contempt Appeal  No.
      10 of 2007 filed by P.K. Madhav, and Contempt Appeal No.  11  of  2007
      filed by L.V.V. Iyyer,  which were allowed for the reason that in  the
      Contempt Case No. 915 of 2002 they were not  the  respondents  against
      whom contempt case was filed.   There  were  only  three  respondents,
      namely, K.S. Raju, N. Selvaraj  and  M/s.  Nagarjuna  Finance  Limited
      through its Managing Director,  against  whom  contempt  petition  was
      filed under Section 12 read with Section  10  of  Contempt  of  Courts
      Act, 1971 by E. Bapanaiah (present appellant) before the  High  Court.
      Other eight directors had no opportunity to defend  themselves  before
      the conviction was  recorded  by  the  learned  Single  Judge  in  its
      concluding  paragraph  134  of  the  judgment  in  the  aforementioned
      Contempt Case No. 915 of 2002.

   4. It is only in respect of conviction of K.S. Raju, Promoter Director of
      Nagarjuna Finance Limited (for short “NFL”)  which  requires  in-depth
      examination as to whether the Division Bench of  the  High  Court  has
      rightly allowed the Contempt Appeal (No. 3 of  2007)  arising  out  of
      Contempt Case No. 915 of 2002, or not.

   5. Brief facts of the case are that the present appellant, E.  Bapanaiah,
      (one of the depositors who made deposits with NFL) filed the  contempt
      petition under Section 12 read with Section  10  of  the  Contempt  of
      Courts Act, 1971 for the alleged wilful disobedience  of  order  dated
      29.2.2000 and one  dated  21.8.2001  passed  by   Company  Law  Board,
      Southern Region Bench,  and  for  breach  of  undertakings/affidavits,
      including one filed by K.S. Raju (Promoter Director of NFL) before CLB
      and one given in Company Appeal No. 7 of 2001.  It is  stated  by  the
      present  appellant  that  the  respondent,  K.S.  Raju,  was  Promoter
      Director of  M/s.  Nagarjuna  Finance  Limited,  Hyderabad  (in  short
      “NFL”).  The said company, through its Directors, issued advertisement
      inviting  deposits  promising  good  returns  on  the  deposits   with
      attractive interest thereon, and  collected  the  huge  sum  from  the
      public.  The present appellant deposited ?.40,00,000/- (? forty lakhs)
      hoping that the same would multiply to  double  within  45  months  as
      projected in the advertisement.  The  said  amount  was  deposited  in
      eight fixed deposits of ?.5,00,000/- (? five lakhs) each for a  period
      of 45 months on 20.7.1997 and was due for  repayment  on  maturity  on
      28.4.2001.  However, when the NFL failed to  re-pay  the  sum  to  the
      depositors, an application (CP No. 35 of 2000) was filed under Section
      58-A of the Companies Act, 1956 before the Company Law Board, Southern
      Region Bench, for framing the  scheme  of  repayment  of  deposits  in
      instalments within a period of  48  months.   The  Company  Law  Board
      (CLB), exercising its suo motu powers, allowed the time to NFL on  the
      request of its directors to approve the scheme of  repayment.   During
      the pendency of  such  application  the  CLB  ordered  the  Directors,
      including the Promoter Director K.S. Raju, to file  affidavits  giving
      undertaking to the CLB that they would abide by the scheme and pay off
      the amount due to depositors.   On  the  assurance  as  given  in  the
      undertakings/affidavits filed by K.S.  Raju,  Promoter  Director,  and
      other Directors separately, the CLB passed order dated 29.2.2000.  But
      the Promoter Director and its group  companies  filed  Company  Appeal
      Nos. 9 of 2001 and 7 of 2001 against the said  order  dated  29.2.2000
      passed in CP No. 35 of 2000.   In  said  appeals,  on  behalf  of  the
      Company  an  undertaking  was  given  to  pay  half  of  first  year’s
      entitlement of the present appellant by 20.4.2002.  However, no amount
      was paid.  As such, the contempt petition was  filed  by  the  present
      appellant before the High Court for violation of  the  orders  of  the
      Company Law Board.

   6. According to the appellant, after the scheme was approved, K.S.  Raju,
      Promoter Director of NFL, started pleading that there  was  change  in
      the management of NFL, and sought to be relieved from his liability as
      the Promoter Director  of  NFL,  its  group  companies  and  from  the
      undertaking given by him to the CLB.  The CLB declined to relieve  the
      Promoter Director K.S. Raju from the undertaking given by him  and  it
      was directed that he should make the repayment as  per  the  repayment
      scheme.  The Company Appeals were  dismissed  by  the  High  Court  on
      3.1.2002.  NFL and its Promoter Director failed  to  comply  with  the
      order of the Company Law Board even after  dismissal  of  the  Company
      Appeals.  K.S. Raju, the then Promoter Director, was  responsible  for
      issuance of the advertisement inviting deposits from  the  public  and
      failed to repay the deposits as per the undertaking given  by  him  on
      behalf of the Company.  It is further alleged by the present appellant
      in the Contempt Petition before the High Court that K.S. Raju kept  on
      evading his liability, and attempted to shirk  the  responsibility  by
      taking plea that he had resigned from the directorship.

   7. A counter affidavit  was  filed  on  behalf  of  K.S.  Raju,  Promoter
      Director of NFL,  in  February,  2003  before  the  High  Court  which
      discloses that the said respondent disputed and denied  the  averments
      made in the Contempt Petition.  He pleaded that he had all respect for
      the Court and had no intention to commit the contempt  of  the  court.
      He further pleaded that long back he had left to function as  Managing
      Director of NFL.  It is further stated by him that he is neither in  a
      position to exercise any control over the Company nor  responsible  to
      make repayment of the deposits made in favour of NFL.  It was  further
      submitted by him before the learned single Judge  of  the  High  Court
      that in the order dated 29.2.2000 passed by the CLB, the Board did not
      rely on the assurance or undertaking given by the parties.   Only  the
      Managing Director was directed to file the undertaking,  as  such  the
      undertaking/affidavit given by the respondent K.S. Raju  was  not  the
      basis of the order dated 29.2.2000.  As such  it  was  contended  that
      there was no contempt of CLB or the Court.   It  was  further  pleaded
      that an agreement  was  entered  into  between  one  M/s.  Mahalakshmi
      Factorial Services Limited (for short  “MFSL”)  and  NFL  whereby  the
      control of NFL was handed over to MFSL, and  N.  Selvaraj  (respondent
      No. 2 in the Contempt Petition) was nominated as the  Chief  Executive
      Officer to look after the affairs of NFL.  Lastly, it was  pleaded  by
      respondent   K.S.   Raju   that   assuming   that   he    had    given
      undertaking/affidavit on which CLB passed the order said to have  been
      disobeyed, there is no personal liability on said respondent to  repay
      the amount in question.

   8. In  the  counter  affidavits  filed  on  behalf  of  NFL  (through  G.
      Venkatapathi, Executive Director) and N. Selvaraj (respondent No. 2 in
      the Contempt Petition) it was disclosed that Sridhar  Chary,  Managing
      Director, functioning for over a decade of NFL, was none else than the
      nominee of K.S. Raju, Promoter  Director.   It  was  also  pleaded  on
      behalf of NFL that out of Paid-up  Capital  of  ?.26.32  crores  group
      companies were holding ?.16.16 crores, i.e.,  approximately  61%.   It
      was also stated by NFL in its counter affidavit before the High  Court
      that under Articles 104 and 140 of the Articles  of  Association  K.S.
      Raju had power to  appoint  the  Managing  Director  and  other  three
      Directors as his nominees.  N.  Selvaraj  (respondent  No.  2  in  the
      Contempt petition) denied that he was nominee  of  MFSL.   He  further
      pleaded that there was no change in the management of NFL  during  his
      tenure as Managing Director, and he further told that  entire  control
      remained with K.S. Raju and his nominees.  The Executive Director,  G.
      Venkatapathi of NFL, filed additional counter affidavit in which it is
      clearly stated that the CLB passed the  order  on  the  basis  of  the
      undertakings and affidavits filed by the  Promoter  Director  and  the
      group companies.  The counter  affidavits  further  revealed  that  on
      special audit made in April, 2002, several irregularities  were  found
      to have been committed by  the  Management  resulting  in  failure  of
      recoveries in respect of loans advanced to various companies who  were
      not traceable on the addresses given.

   9. An additional counter affidavit  was  filed  by  K.S.  Raju,  Promoter
      Director, who was contesting the  contempt  petition  with  other  two
      respondents, in which he alleged that the representatives of MFSL have
      engineered and secured the audit report to save the Directors of  said

  10. Learned Single Judge, after hearing the parties at length, came to the
      conclusion that NFL and its Promoter Director, K.S. Raju,  are  guilty
      of contempt of court.  Paragraphs 134 and  135  of  the  judgment  and
      order dated 3.8.2007 passed by the learned Single Judge read as under:

           “134. The 1st and 3rd respondents/contemnors  are  found  guilty
           and liable to be convicted under Section 12 of the  Contempt  of
           Courts Act.  Accordingly, the 1st  respondent  as  well  as  the
           other directors of the 3rd respondent company are convicted  and
           sentenced to suffer simple imprisonment  for  a  period  of  six
           months, together with imposition of fine of  Rs.2,000/-  (Rupees
           two thousand  only).   The  1st  respondent  as  well  as  other
           directors of the 3rd  respondent  shall  be  detained  in  Civil
           Prison for the period of imprisonment as ordered above.

           135. Accordingly, C.C. is allowed.”

  11. Aggrieved by the order dated 3.8.2007 passed  by  the  learned  single
      Judge in Contempt Case No. 915 of 2002 respondent K.S. Raju,  Promoter
      Director, appears to have filed Contempt Appeal No. 3 of  2007  before
      the Division Bench of the High Court.  His appeal was taken  up  along
      with the appeals of the other Directors and disposed of vide  impugned
      order dated 22.8.2008  whereby  the  appeals  of  all  the  Directors,
      including that of K.S. Raju, were allowed.  Hence these appeals before
      us by the depositor E. Bapanaiah.

      (We have already observed in the beginning of this judgment that since
      the ‘other Directors’ were  neither  impleaded  by  name  nor  had  an
      opportunity to defend themselves,  as  such  setting  aside  of  their
      conviction and sentence by the Division Bench of  the  High  Court  in
      their appeals, requires no interference.  As such  further  discussion
      is confined to the issue of allowing of  K.S.  Raju  by  the  Division
      Bench of the High Court.)

  12. We have heard learned counsel for the parties at  length  and  perused
      the papers on record.

  13. It is not disputed that E. Bapanaiah made deposit of ?.40,00,000/-  (?
      forty lakhs)  in eight FDRs each of ?.5,00,000/- (? five  lakhs)  with
      NFL in response to the advertisement made by the said Company.  It  is
      also not disputed that respondent K.S. Raju was the Promoter  Director
      of   NFL,   Hyderabad.    Not   only   this,   the   filing   of   the
      undertaking/affidavit dated 14.2.2000 before the  Company  Law  Board,
      Southern Region Bench is not denied by the respondent K.S. Raju.   The
      said undertaking/affidavit reads as under: -


                   Company Petition No.NAG6-33/45QA/SRB/99

           In the matter of the Companies Act, 1956 Section 58A(9)

           In the matter of the Reserve Bank of India  Act,  1934,  Section


           In  the  matter  of  Nagarjuna  Finance   Limited,   Punjagutta,
           Hyderabad        … Petitioner


           I, k.s. Raju, s/o Late Shri K V K Raju, aged 50 years,  residing
           at, ‘Digvijayam’, Plot No. 933A, Road  No.  47,  Jubilee  Hills,
           Hyderabad-500033,  do  hereby  solemnly  affirm  and  state   as

           I am the promoter director of  Nagarjuna  Finance  Limited,  the
           petitioner in the Company Petition No. NAG6-33/45 QA/SRB/99.

           I as such hereby give assurance that Nagarjuna  Finance  Limited
           (NFL) shall make repayment  of  deposits  as  per  the  approved
           scheme by the Hon’ble Company Law Board in  the  above  petition
           for  deferment  of  repayment  of  deposits.   It   is   further
           reiterated that all steps shall be taken to cause NFL to  comply
           with aforesaid repayment schedule.

           The statements made are true to  my  knowledge  and  I  solemnly
           affirm that this declaration is true and that no part of  it  is

           Place: Hyderabad                        Sd/-
           Date: February 14, 2000                 K.S. Raju

  14.  Now we have to examine as to whether the defences taken by K.S. Raju,
      Promoter Director, that he committed no  wilful  disobedience  of  the
      order of the Company Law Board are acceptable or not.  It is  relevant
      to mention here that it is not the defence of K.S. Raju that repayment
      has been made by him or by NFL to the present appellant  E.  Bapanaiah
      (depositor).  That  being  so,  we  have  to  see  whether  there  was
      justification on the part of K.S. Raju,  Promoter  Director,  and  his
      Company (NFL) in not making repayment as per the  scheme  approved  by
      the CLB, as  directed by said authority.

  15. Learned counsel for the  respondent  K.S.  Raju  argued  that  in  the
      undertaking given by K.S. Raju, only this much has  been  stated  that
      the Company will make the payment, as such  it  is  not  the  personal
      liability of said  respondent.   But  needless  to  say  that  Company
      functions through its directors, in its operations.   Company  is  not
      such person which can be sent to jail.  It is the director controlling
      the affairs of Company through whom it has committed the disobedience,
      if any, and as such, such director has to suffer the  consequences  of
      disobedience if it is wilful.  We have already  discussed  above  that
      from the affidavits filed before the High Court, it is clear that K.S.
      Raju was not only the Promoter  Director  of  NFL,  but  the  Managing
      Director of said Company, working for a decade, was his  nominee,  and
      practically all the powers to run the NFL vested with K.S.  Raju,  the
      Promoter Director, and his nominees, whom he appointed under  Articles
      104 and 140 of Articles of Association.

  16. In our opinion, having considered the submissions of  learned  counsel
      for K.S. Raju, Promoter Director, and  considering  his  role  in  the
      operation of the Company, as discussed above, the  Division  Bench  of
      the High Court erred in law in holding  that  he  was  not  guilty  of
      wilful disobedience of the order of  the  CLB.   It  is  pertinent  to
      mention here that after giving undertaking dated 14.2.2000, respondent
      K.S. Raju submitted his resignation in September, 2000, which  clearly
      reflects that the same was done in  order  to  save  himself  and  his
      company, from making the repayment directed to be made by the CLB, and
      thereby dishonestly made  attempt  in  not  making  repayment  to  the
      depositor E. Bapanaiah.

  17. Sub-section (4) of Section 12 of the  Contempt  of  Courts  Act,  1971
      provides that ‘where the person found guilty of contempt of  court  in
      respect of any undertaking given to a court is a company, every person
      who, at the time the contempt was committed, was in charge of, and was
      responsible to, the  company  for  the  conduct  of  business  of  the
      company, as well as the company, shall be deemed to be guilty  of  the
      contempt and the punishment may be enforced, with  the  leave  of  the
      court, by the detention in civil prison of each of such  person’.   It
      further provides that ‘nothing contained  in  this  sub-section  shall
      render any such person liable to such punishment if he proves that the
      contempt was committed without his knowledge or that he exercised  all
      due diligence to prevent its commission’.

  18. It is not the case of respondent K.S.  Raju,  Promoter  Director,  who
      gave undertaking that he had no knowledge of the order of the CLB,  or
      that he made any attempt to prevent the disobedience of the order.

  19. Though it is contended by Mr. C.A. Sundaram,  learned  senior  counsel
      for K.S. Raju that liability to make repayment to the depositors stood
      transferred to MFSL with whom NFL entered into an agreement after  the
      order dated 29.2.2000 passed, but copy of the  order  dated  19.9.2000
      passed by the CLB (Annexure P-4) on  the  record  discloses  that  the
      liability continued with K.S. Raju and  group  of  his  companies,  as
      mentioned in direction No. 2 of the order which reads as under: -

                 “Heard Shri C.R. Murali, Practising  Chartered  Accountant
           and Authorized representative of the company  as  well  as  Shri
           L.V.V. Iyer, Director of the  company.   The  company  has  made
           payment of Rs.73 lakhs to the depositors between  17.7.2000  and
           19.9.2000.  The company has  considered  all  the  430  hardship
           cases; attended to complaints to nine depositors received at the
           Bench Office and disposed of 1424  complaints  received  at  his
           office by taking appropriate action as per the  Scheme  approved
           by the CLB.  According  to  Shri  Iyer,  the  company  finds  it
           difficult to make payment to the depositors in  accordance  with
           the  scheme  of  account  of  the  poor  rate  of  recovery   of
           receivables and for want of the  required  additional  expertise
           and infrastructure  for  recovery  of  the  monies  due  to  the
           company.  Hence, the management of the company has entered  into
           a strategic alliance with M/s.  Mahalakshmi  Factoring  Services
           Limited,  Bombay   (MFSL),   which   would   provide   necessary
           infrastructure  and  skills  to  accelerate   the   process   of
           realization  of  the  receivables  to  make  repayment  to   the
           depositors.  Accordingly,  additional  professionals  have  been
           inducted into  the  Board  of  the  Company  to  strengthen  the
           recovery and disbursement mechanism.  MFSL has agreed to  resume
           the responsibility in realizing the dues of the  company.   MFSL
           is involved in the management of the company, Shri N. Selvaraju,
           President of the Company and Shri  C.  Muthuswamy,  Director  of
           MFSL  have  filed  affidavits  undertaking  to   discharge   the
           obligations towards  the  depositors  in  terms  of  the  scheme
           approved by the CLB.

                 Taking into consideration the facts and  circumstances  of
           the case, submissions made on  behalf  of  the  company,  it  is
           ordered as under: -

              1. The Company shall –

                    i. make payment to the depositors in every  category  as
                       per the Scheme approved by the CLB;

                   ii. furnish additional particulars  of  the  cases  where
                       payments are due to the  depositors  and  the  actual
                       payment made by the company in such cases;

                  iii. attend to the complaints of nine depositors  received
                       at the bench office and report compliance;

              2. The affidavits filed by :

                    a) Shri K.S. Raju, Promoter Director of the Company;

                    b) M/s. New India Finance Ltd.

                    c) M/s. Chinnar Securities Pvt. Ltd.

                    d) M/s. Nagarjuna Housing Development Finance Ltd.

                    e) M/s. Nagarjuna Engineering &  Construction  Co.  Pvt.

                    f) M/s. Nagarjuna Holdings Private Limited

                    g) M/s. Paschim Holdings Pvt. Ltd.

                    h) M/s. K.S. Raju Associates & Holdings Pvt. Ltd.

                    i) M/s. Corporate Securities & Holdings Pvt. Ltd.

                    j) M/s. K.S. Raju Associates and Estates Pvt. Ltd.

                    k) M/s. K.R.R. Holdings Pvt. Ltd; and

                    l) Shri Sridhar Chari, Managing Director of the  company
                       assuring repayment of deposits by the company as  per
                       the scheme approved by the CLB shall remain in  force
                       till discharging the  obligations  in  terms  of  the
                       order dated 29.2.2000 of the CLB.

              3. The arrangements made between the company  and  MFSL  shall
                 not be of any consequence  in  relation  to  the  repayment
                 schedule approved by the CLB.  The  company,  its  promoter
                 Director and Group Holding Companies shall continue  to  be
                 responsible for due compliance of the order stated supra.

              4. The progress made in implementation of the scheme  will  be
                 reviewed on 14.11.2000 at 10.30 p.m.”

  20. When an application under Section 634A of the Companies Act, 1956  was
      moved by the present appellant before the CLB, the Board, by  speaking
      order dated 21.8.2001, after considering rival  submissions,  observed
      in paragraphs 6 and 7 as under: -

           “6.   In regard to the plea of Shri Murali that  the  provisions
           of Section 634A cannot be invoked by the applicant,  it  may  be
           observed that this Section is explicit which runs as follows:

                 Sec. 634A: Any order made by the Company Law Board  may  be
                 enforced by that Board in the same manner as if it  were  a
                 decree made by a Court in a suit pending  therein,  and  it
                 shall be lawful for that Board to send, in the case of  its
                 inability to execute such order, to the  Court  within  the
                 local limits of whose jurisdiction, -

                    a) in the case  of  an  order  against  a  company,  the
                       registered office of the company is situated, or

                    b) in the case of an order against any other person, the
                       person concerned voluntarily resides, or  carries  on
                       business or personally works for gain.

           Section 634A is clear that as in the case of a court, the orders
           of the Company Law Board can be  enforced  by  it  in  the  same
           manner as if it were a decree made by  a  court.   This  section
           further permits the CLB, in case of its liability to execute the
           order, to seek the assistance  of  the  court  having  competent
           jurisdiction for execution of its order.  In view of this  there
           is no force in the argument of Shri Murali.

           7.    Taking into consideration the facts and  circumstances  of
           the case, the opportunity afforded to the Company and the  legal
           position stated hereinabove, I hereby  order  that  the  Company
           shall pay 30 per  cent  of  the  deposit  amount  together  with
           interest at the contracted rate upto the date  of  maturity  and
           thereafter till the date of payment at the rate of 14.5 per cent
           within 30 days of receipt  of  this  order,  failing  which  the
           applicant  is  at  liberty  to  move  the  Court,  within  whose
           jurisdiction the registered office of the Company is situated to
           execute the order of the CLB.”

  21. The above order appears to have been challenged in Company Appeal Nos.
      7 & 9 of 2001 by both the parties – depositor E.  Bapanaiah  and  NFL,
      respectively.  Both these company appeals were heard and  disposed  of
      by order dated 3.1.2002 by the High Court.  The concluding  paragraphs
      of the common order passed by the High Court in the  Company  Appeals,
      are quoted below: -

                 “In the  circumstances,  the  submission  of  the  learned
           counsel for the respondent company that it is entitled  to  wait
           till the  month  of  April  2002  cannot  be  accepted  and  the
           respondent company is therefore bound to make the payments every
           month as per the clause 11(f) read with clause 12  (iv)  of  the

                 Coming to  the  second  submission  made  by  the  learned
           counsel for the respondent company, though I do not  propose  to
           go into the larger question whether  the  nature  of  the  power
           exercised under Section 634A of the  Companies  Act  is  in  the
           nature of the power exercised as an executing court, but I  must
           say the impugned order is not in conformity  with  the  original
           order of the Company Law Board dated 29th February, 2000.   But,
           a combined reading of clause 1(i) and 12(iv) of the scheme,  the
           respondent company is bound to pay 30% of the amount due to  the
           petitioner  within  1  year  from  the  date  of  the   maturity
           (28.4.2001) spread over 12 equal monthly instalments.

                 Coming to the submission made by the learned  counsel  for
           the depositor, I do not see any reason why he  should  have  any
           grievance against the impugned order.  It is  open  for  him  as
           indicated by the Company Law Board in the impugned order to move
           the appropriate court for the execution  of  the  order  of  the
           Company Law Board dated 29th February 2000.

                  In  the  circumstances,  both  the  company  appeals  are

  22. However, after above order was passed by the High Court, a proviso  is
      added by Legislature to Section 634A of the Companies Act, 1956, which
      reads as under:-

           “Provided that the provision of this section shall not apply  on
           and after commencement of the Companies (Second Amendment)  Act,

      As such, on the date (3.8.2007) order passed by learned single  Judge,
      the depositor had no option of getting executed the order of CLB as  a
      decree passed in a suit, and present appellant  could  not  have  been
      asked to avail remedy under Section 634A of the Companies Act.

  23. No doubt, a company which defaults in  repayment  of  deposit  can  be
      dealt with as per provisions contained in sub-sections (9) and (10) of
      Section 58A of the Companies Act, 1956, which read as under: -

           “(9) Where a company has failed to repay  any  deposit  or  part
           thereof in accordance with the  terms  and  conditions  of  such
           deposit the Tribunal may, if it is satisfied, either on its  own
           motion or on the  application  of  the  depositor,  that  it  is
           necessary so to do to safeguard the interests  of  the  company,
           the depositors or in the public interest direct, by  order,  the
           company to make  repayment  of  such  deposit  or  part  thereof
           forthwith or within such time and subject to such conditions  as
           may be specified in the order:

                 Provided that the Tribunal may  before  making  any  order
           under this sub-section give a reasonable  opportunity  of  being
           heard to the company and the other  persons  interested  in  the

           (10) Whoever fails to comply with any order made by the Tribunal
           under sub-section (9)  shall  be  punishable  with  imprisonment
           which may extend to three years and shall also be  liable  to  a
           fine of not less than rupees five hundred for every  day  during
           which such non-compliance continues.”

      (Expression  “Tribunal”  was  substituted  in  the   above   mentioned
      provisions vide Act No. 11 of 2003 in  place  of  words  “Company  Law

  24. During arguments it is stated before us by the learned counsel for the
      parties that the prosecution was also launched against the  respondent
      K.S. Raju but he was discharged.  However, Special Leave  Petition  is
      said to have been pending in said matter.   We are of  the  view  that
      the depositors cannot be left without remedy  merely  for  the  reason
      that prosecution could have been launched against the company.

  25. Powers of the High Courts to punish for contempt including the  powers
      to punish for  contempt  of  itself  flow  from  Article  215  of  the
      Constitution of India.  Section 10 of the Contempt of Courts Act, 1971
      empowers the High Courts to punish contempts of its subordinate courts
      which reads as under: -

           “10. Power of High Court  to  punish  contempts  of  subordinate
           courts. – Every High Court shall  have  and  exercise  the  same
           jurisdiction, powers and authority, in accordance with the  same
           procedure and  practice,  in  respect  of  contempts  of  courts
           subordinate to  it  as  it  has  and  exercises  in  respect  of
           contempts of itself:

                 Provided that no High Court shall  take  cognizance  of  a
           contempt alleged to have been committed in respect  of  a  court
           subordinate to it where such contempt is an  offence  punishable
           under the Indian Penal Code (45 of 1860).”

  26. As to the question whether CLB is a court subordinate to High Court or
      not, in Canara Bank v. Nuclear Power Corporation  of  India  Ltd.  and
      others[1], this Court has held that CLB in the proceedings  before  it
      under  Section  111  of  the  Companies  Act  since  performs   curial
      functions, hence it is a “court” within the meaning of Section 9-A  of
      Special  Court  (Trial  of  Offences  Relating  to   Transactions   in
      Securities) Act, 1992.  In  Sk.  Mohammedbhikhan  Hussainbhai  v.  The
      Manager Chandrabhanu Cinema[2], the Gujarat High Court has  taken  the
      view that if the High Court is an appellate court  of  some  authority
      under a statute, such authority can be  deemed  to  be  a  subordinate
      court within the ambit of Contempt of Courts Act, 1971 and, therefore,
      the High Court can exercise powers of dealing with  contempt  of  such
      authority provided the act of contempt was not punishable for offences
      under Indian Penal Code. In N. Venkata Swamy Naidu v. Sri  Surya  Teja
      Constructions Pvt. Ltd. and others[3], High Court  of  Andhra  Pradesh
      observed as under: -

           “28. Under Section 10F of the Companies  Act  1956,  any  person
           aggrieved by any decision or order of the Company Law Board  may
           file an appeal to the High Court, within  sixty  days  from  the
           date of communication of the decision or order  of  the  Company
           Law Board, on any question of law arising out of such an  order.
           The Company Law Board is thus judicially subordinate to the High
           Court and, even if its administrative control  is  held  not  to
           vest in the High Court under Article 235 of the Constitution  of
           India, it would nonetheless be a Court subordinate to  the  High
           Court under Section 10 of the Contempt of Courts Act.”

  27. The present case relates to a civil contempt  wherein  an  undertaking
      given to  Company  Law  Board  is  breached.   Normally,  the  general
      provisions made under the Contempt of Courts Act are  not  invoked  by
      the High Courts for forcing a party  to  obey  orders  passed  by  its
      subordinate courts for the simple reason  that  there  are  provisions
      contained in Code of Civil Procedure, 1908 to get executed its  orders
      and decrees.  It is settled principle of  law  that  where  there  are
      special law and general law,  the  provisions  of  special  law  would
      prevail over general law.  As such, in normal circumstances  a  decree
      holder cannot take recourse of Contempt of Courts Act else it is  sure
      to throw open a floodgate of litigation under  contempt  jurisdiction.
      It is not the object of the Contempt of  Courts  Act  to  make  decree
      holders rush to the High Courts simply for the reason that the  decree
      passed by the subordinate court is not obeyed.  However, there  is  no
      such procedure prescribed to execute order of CLB  particularly  after
      proviso is added to Section 634A of  the  Companies  Act,  1956,  vide
      Companies (Second Amendment) Act, 2002.

  28. Therefore, having considered submissions of learned  counsel  for  the
      parties, and material on record, and further considering the  relevant
      provisions of law and the cases referred above, and exercising  powers
      under Article 136 read with Article 142 of the Constitution, we  think
      it just and proper to interfere with the order passed by the  Division
      Bench of the High Court whereby the  Division  Bench  erroneously  set
      aside the finding and sentence awarded by  the  learned  single  Judge
      against K.S. Raju.  In our  opinion,  respondent  K.S.  Raju  wilfully
      disobeyed the order of CLB and breached the undertaking given to  CLB,
      and thereby committed Contempt of Court subordinate to High  Court  as
      such the Division Bench of the High Court has erred in law in allowing
      the Contempt Appeal No. 3 of 2007 filed by K.S. Raju and setting aside
      his conviction and sentence,  recorded  against  him  by  the  learned
      Single Judge in Contempt Case No. 915 of 2002.

  29. For the reasons, as discussed above, we allow the present appeal filed
      against respondent K.S. Raju, and set aside the impugned order of  the
      Division Bench of High  Court.   Accordingly,  order  dated  3.8.2007,
      passed in Contempt Case No. 915 of 2002, to the extent  of  conviction
      and sentence recorded against K.S. Raju (respondent) stands  restored.
      However, exercising powers under Article 142 of  the  Constitution  of
      India, to do complete justice between the parties, we allow sixty days
      time to respondent K.S. Raju, with effect from pronouncement  of  this
      judgment to repay the entire  amount  to  the  depositor/appellant  as
      directed by CLB, and if within the said period of sixty  days  payment
      is not made to the depositor/appellant, respondent K.S. Raju shall  be
      taken into custody to serve out  sentence as recorded against  him  by
      the learned Single Judge vide order dated 3.8.2007  in  Contempt  Case
      No. 915 of 2002.  If the amount is paid to the  present  appellant  as
      directed by this Court  within  sixty  days,  the  sentence  shall  be
      reduced to the extent of fine only.  Rest of the appeals filed by  the
      depositor in respect of all other directors, who were not impleaded by
      name before the High Court in the contempt Case No. 915 of  2002,  and
      acquitted by the impugned order  passed  by  Division  Bench  of  High
      Court, are dismissed.

                                                            [Vikramajit Sen]

                                                [Prafulla C. Pant]

      New Delhi;
      November 07, 2014.
[1] 1975 Supp (3) SCC 81
[2] AIR 1986 Guj 209
[3] 2008 CriLJ 227

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