Breach Of Interim Orders Cannot Trigger Fresh Contempt After Final Order In Insolvency Case: NCLT Kochi

The National Company Law Tribunal at Kochi has held that once a final order is passed in a matter, all acts and issues arising during the pendency of the proceedings stand merged in that order, and any alleged breach of interim directions cannot later be used to initiate contempt proceedings for past acts.

A Bench of Judicial Member Vinay Goel observed:

“Upon finalisation of the proceedings, all acts and matters arising during the pendency of the proceedings stand merged in the final order. Any alleged breach or disobedience of such interim orders would not give rise to a fresh cause of action to initiate contempt proceedings at a later stage for past acts. Further, the Petitioner is well within its rights to seek execution of the order in accordance with law.”

The case arose from insolvency proceedings against Savute Textiles Private Limited, where the Tribunal was dealing with an application alleging fraudulent transactions by the suspended directors. By its final order dated April 25, 2024, the Tribunal declared the Business Transfer Agreement null and void and directed restoration of assets and payment of specified amounts to the corporate debtor.

A major shareholder later filed a contempt petition alleging non-compliance with this final order. The petitioner relied on material including a liquidator's report to claim that plant, machinery, and stock had been removed on November 19 and 20, 2024, and that the assets were not restored in terms of the Tribunal's directions.

The respondents opposed the plea, contending that there was no wilful or deliberate disobedience of the order and that mere non-compliance would not amount to civil contempt. They argued that the proper remedy was to seek execution of the order. On facts, they denied any unauthorised removal of assets, stating that only one machine had been temporarily moved for repair with approval and later returned.

The tribunal held that contempt jurisdiction under Section 425 of the Companies Act, 2013 is a serious power and cannot be used as a substitute for enforcement of orders. It observed that mere non-compliance, including failure to comply with monetary directions, does not by itself constitute contempt unless there is clear, wilful and deliberate disobedience.

Emphasising that contempt proceedings are quasi-criminal in nature, the tribunal said they must be exercised with caution and only in cases where there is intentional disregard of the Tribunal's authority. It noted that the law provides a complete mechanism for enforcement of its orders, which are executable like civil court decrees through processes such as attachment and recovery.

Holding that no case for contempt was made out, the Tribunal dismissed the petition and left it open to the petitioner to pursue enforcement of the April 25, 2024 order through appropriate execution proceedings in accordance with law.