REPORTABLE
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
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
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
company.
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: -
“BEFORE THE COMPANY LAW BOARD SOUTHERN BENCH AT CHENNAI
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
45QA
AND
In the matter of Nagarjuna Finance Limited, Punjagutta,
Hyderabad … Petitioner
AFFIDAVIT
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
follows:
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
false.
Place: Hyderabad Sd/-
Date: February 14, 2000 K.S. Raju
Deponent”
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.
Ltd.
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
scheme.
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
dismissed.”
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,
2002.”
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
matter.
(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
Board”)
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.
………………………………J.
[Vikramajit Sen]
………………………………J.
[Prafulla C. Pant]
New Delhi;
November 07, 2014.
-----------------------
[1] 1975 Supp (3) SCC 81
[2] AIR 1986 Guj 209
[3] 2008 CriLJ 227
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
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
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
company.
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: -
“BEFORE THE COMPANY LAW BOARD SOUTHERN BENCH AT CHENNAI
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
45QA
AND
In the matter of Nagarjuna Finance Limited, Punjagutta,
Hyderabad … Petitioner
AFFIDAVIT
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
follows:
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
false.
Place: Hyderabad Sd/-
Date: February 14, 2000 K.S. Raju
Deponent”
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.
Ltd.
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
scheme.
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
dismissed.”
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,
2002.”
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
matter.
(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
Board”)
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.
………………………………J.
[Vikramajit Sen]
………………………………J.
[Prafulla C. Pant]
New Delhi;
November 07, 2014.
-----------------------
[1] 1975 Supp (3) SCC 81
[2] AIR 1986 Guj 209
[3] 2008 CriLJ 227
