InContempt Petition (Civil) No 6108 of 2023 -SC- NCLAT members face strong criticism from Supreme Court for defying order; Rs 1 crore fine imposed on former chairman of Finolex Cables for colluding with scrutinizer to delay AGM results
Chief Justice Dhananjaya Y Chandrachud, Justice J.B. Pardiwala& Justice Manoj Misra [30-10-2023]

Read Order: Orbit Electricals Private Limited v. Deepak KishanChhabria&Ors

Chahat Varma

New Delhi, November 3, 2023: In a significant ruling, the Supreme Court has rebuked the National Company Law Appellate Tribunal (NCLAT) for defying its order in the Finolex Cables case. The Court also censured the Member (Judicial) of the NCLAT Bench for his conduct and imposed a fine of Rs. 1 crore on former Chairman and Managing Director of Finolex Cables, Deepak Kishan Chhabria, for colluding with the Scrutinizer to delay the declaration of the AGM results.

In the present matter, the National Company Law Tribunal (NCLT) had dismissed an application for interim relief by the first respondent on 31 December 2019. The first respondent had appealed to the NCLAT, and no interim relief had been granted during the appeal. The NCLAT reserved orders on the appeal on 21 September 2023 but directed the parties to maintain the status quo as of 03 May 2019 until the judgment was delivered, without providing any reasons. The Supreme Court vacated the NCLAT's interim direction and stated that any action taken during the Annual General Meeting (AGM) of Finolex Cables Limited on 29 September 2023, regarding the appointment of the Executive Chairperson, should be subject to the outcome of the pending appeal before the NCLAT. On 13 October 2023, a grievance was made to this Court that the NCLAT had proceeded to deliver its order despite being informed of this Court's direction not to do so until the Scrutinizer's report was available. Consequently, this Court required the Chairperson of the NCLAT to verify the situation and report back to the Court.

The Chairperson of the NCLAT submitted a report about events surrounding a Court order. The report contained two statements, one from a Member (Judicial) and another from a Member (Technical) of the NCLAT, explaining the sequence of events leading to the NCLAT's judgment. The statements suggested that mentioning was entertained after judgments were pronounced and that there was a misunderstanding.

However, it became apparent that the NCLAT was aware of the Court's order before delivering its judgment, which contradicted the statements in the report. This led the Court to issue a show-cause notice to the NCLAT members and the scrutinizer, asking them to explain why they should not be held in contempt.

A three-judge bench of Chief Justice Dhananjaya Y Chandrachud, Justice J.B. Pardiwala and Justice Manoj Misra observed that, based on the CCTV footage and the transcript, it was unquestionably evident that the NCLAT was informed that the court had issued an order on the morning of October 13, 2023, stating that the judgment would be delivered only after the results determined by the Scrutiniser were declared. However, the NCLAT Bench chose not to adhere to the court's order.

The bench stated that in such a situation, the appropriate course of action, if the NCLAT Bench believed that the order should be produced in accordance with the rules, would have been to defer the pronouncement of the judgment, allowing the parties to comply with the required procedure.

Thus, the bench opined that there was no doubt that the NCLAT Bench wilfully defied the court's order, even though the court's order had been brought to their attention.

The Member (Technical) issued an unconditional apology, accepting that control over the Court's procedures, especially in matters mentioned, falls under the jurisdiction of the Member (Judicial). The bench decided not to pursue this matter further and accepted the apology.

Regarding the Member (Judicial), it was noted that the statements made in the affidavit filed before the Court were contrary to the record. The Member (Judicial) did not entertain any attempt at mentioning by counsel and claimed that the order of the Supreme Court dated 13 October 2023 was not on record before the Bench, despite being informed of the order in the morning session. The bench censured the conduct of the Member (Judicial).

As for the Scrutinizer, the bench emphasized that there was a clear direction in its order dated 26 September 2023, which required the interim order passed by the NCLAT on 21 September 2023 to be vacated. It also directed that any action resulting from the AGM would be subject to the pending appeal. However, the Scrutinizer failed to implement this order, and the AGM proceeded on 29 September 2023. The Scrutinizer sought legal opinion on how to treat the votes after voting had concluded, effectively delaying the declaration of the AGM's results.

The bench found that the Scrutinizer had acted in concert with Deepak Kishan Chhabria, to delay the declaration of the AGM's results, breaching the Court's directions issued on 26 September 2023.

In response, the bench said, “We are of the view that such action by commercial interests must be dealt with firmly so as to serve a clear reminder that the process of this Court cannot be allowed to be misused for partisan purposes in commercial disputes involving warring factions.”

In light of the closure of the proceedings, the bench restated the directives from a prior court order that had set aside the judgment rendered by the NCLAT Bench on October 13, 2023.

Consequently, the case will now be transferred for further proceedings, with the appeal being listed before a Bench presided over by the Chairperson of the NCLAT for the purpose of conducting the hearing and making a final decision.