Prima Facie Case Of Contempt Must Be Established Before Issuing Show-Cause Notice: NCLAT

The National Company Law Appellate Tribunal (NCLAT) at Delhi on Tuesday held that courts must first ascertain whether a prima facie case of contempt is made out and identify specific alleged contemnors before issuing notice to show cause.

It set aside a National Company Law Tribunal order directing State Bank of India, Bank of India, Canara Bank, ICICI Bank, Indian Bank and Union Bank of India to release rolled-over bank guarantee limits within one month, failing which the officers concerned would undergo one day of simple imprisonment in civil prison.

A bench of Chairperson Justice Ashok Bhushan and Technical Member Barun Mitra observed:

“Court must first ascertain facts and satisfy itself that a prima facie case of contempt is made out, and only thereafter should it call upon the alleged contemnors to show cause why they should not be punished. It is also to be kept in mind that contempt can be initiated against specific individuals and the principle of natural justice necessitates that a meaningful opportunity is to be allowed to the identified contemnors so as to give them an opportunity to defend themselves.”

The dispute arose from Jyoti Structures Limited's corporate insolvency resolution process. Its resolution plan was approved in 2019 by the committee of creditors, which included State Bank of India, Bank of India, Canara Bank, ICICI Bank, Indian Bank and Union Bank of India, among others.

Under the approved resolution plan, the lenders were required to roll over existing bank guarantee and letter of credit facilities in favour of the corporate debtor. Since Jyoti Structures is an engineering procurement and construction company dependent on banking support, continuation of these facilities was central to its operations.

To operationalise the resolution plan, the parties executed a non-fund-based facility agreement. Under this agreement, the lenders were required to make facilities available up to their respective sanctioned limits upon the Closing Date.

The Closing Date was achieved on November 9, 2021 after investors infused Rs 170 crore into the company. This triggered the lenders' obligation to operationalise the facilities in accordance with the approved resolution plan and the non-fund-based facility agreement.

Alleging prolonged delay in release of these facilities, Jyoti Structures and its shareholders approached the National Company Law Tribunal.

On August 20, 2024, the National Company Law Tribunal directed the lenders to release the non-fund-based limits at the first instance. The appellate tribunal upheld that direction in December 2024.

With the facilities still unreleased, Jyoti Structures and its shareholders initiated contempt proceedings alleging wilful disobedience of the earlier orders.

On February 16, 2026, the tribunal directed release of the rolled-over bank guarantee limits within one month, warning that failure to comply would result in one day of simple imprisonment in civil prison for the officers concerned.

The six lender banks challenged that order, arguing that no specific individuals had been identified as alleged contemnors and that the mandatory procedural safeguards governing contempt proceedings had not been followed.

The appellate tribunal agreed with this contention. It held that the tribunal had not followed the mandatory procedural safeguards required in contempt proceedings.

The tribunal also reiterated that contempt cannot be established merely on proof of non-compliance. Deliberate and wilful disobedience must be shown.

It observed, “Therefore, mere disobedience is not enough to hold a person guilty of civil contempt unless it is accompanied with an element of deliberate and wilful intent to defy the orders of the court.”

The appellate tribunal found that the tribunal had directly imposed punishment without first recording prima facie satisfaction regarding contempt. It also found that no proper show-cause notices had been issued and no specific individuals had been identified as responsible for the alleged non-compliance.

Holding that contempt proceedings resulting in imprisonment require strict compliance with principles of natural justice, the appellate tribunal set aside the contempt order and the direction for civil imprisonment. It, however, left it open to the respondents to pursue appropriate proceedings in accordance with law.