NCLT Consent Order Does Not Bar Appeal Against Unconsented Penalty: Kerala High Court

The Kerala High Court on 10 June held that even where an order of the National Company Law Tribunal (NCLT) is recorded as a consent order, a party may still challenge a penal condition before the appellate tribunal if it was not specifically consented to.

Justice Harisankar V. Menon disposed of a writ petition filed by Gramox Paper & Boards (P) Ltd and its authorised representative, granting them liberty to challenge an NCLT Kochi Bench order before the National Company Law Appellate Tribunal (NCLAT). The Court also continued interim protection for five weeks. He held:

“I have my own doubts as regards the power of the NCLT for having issued an order in the nature of Ext.P10, by which a huge penalty of Rs.1,00,000/- per day is saddled on the petitioner herein.”

The dispute arose from contempt proceedings initiated by Cson Paper Mills (P) Ltd alleging non-compliance with an earlier NCLT order. Under that order, Gramox was directed to execute documents for transfer of certain properties in favour of Cson Paper Mills and to bear the legal expenses connected with the transfer.

Gramox complied with the direction relating to legal expenses but did not complete the property transfer, contending that legal issues existed with respect to the property situated in Karnataka.

Consequently, Cson Paper Mills moved the NCLT alleging non-compliance. During the contempt proceedings, counsel for Gramox undertook that the company would comply with the original order within 40 days. Recording the undertaking, the Tribunal directed that in the event of non-compliance, Gramox would be liable to pay Rs.1 lakh per day.

Aggrieved by the penal condition, Gramox approached the High Court. The company submitted that while it wished to challenge the penalty, Section 421(2) of the Companies Act, 2013 bars appeals against consent orders, creating uncertainty regarding the maintainability of an appeal.

The High Court observed that the impugned order appeared to have been passed on the basis of the undertaking given on behalf of Gramox and therefore bore the character of a consent order.

However, the Bench found that the petitioner may not have expressly consented to the imposition of the daily penalty. Therefore, it held that the penal portion of the order could be challenged under Section 421 of the Companies Act. It observed:

“I am of the opinion that the petitioner might not have consented to be mulcted with a liability of Rs.1,00,000/- per day. Therefore, the latter portion of the second paragraph of Ext.P10 order, in my opinion, could be challenged by the petitioner under the provisions of Section 421 of the Act.”

Accordingly, the High Court disposed of the writ petition and permitted Gramox to approach the NCLAT within three weeks while continuing interim protection for five weeks.

For Petitioners: Advocates R Aiswarya, Sneha Rajiv, C.K Karunakaran, Lekshmi P Nair, Shifna Muhammed Shukkur, Krishna Suresh, Mekha Manoj, Anirudh Indukaladharan, Simren Parel, Samuvel Shibu and Anu Stephen

For Respondents: Advocates Alexander Joseph Markos, Isaac Thomas, P.G Chandapillai Abraham, Paul P Abraham and John Vithayathil