Mere Non-Payment Of Ordered Amount Not Civil Contempt, Execution Is Proper Remedy: NCLT Kochi

The National Company Law Tribunal at Kochi has recently observed that mere non-payment of amounts directed under its orders does not automatically amount to civil contempt and that execution proceedings are the appropriate remedy.

A coram of Judicial Member Vinay Goel observed that contempt proceedings, being quasi-criminal in nature, cannot be routinely invoked as a substitute for execution of orders.

'If contempt were to be invoked for every instance of default in payment, it would effectively convert the 'contempt jurisdiction' into an 'execution mechanism', which is neither contemplated nor intended by the legislature. “ it held

Insolvency proceedings were initiated against the Axiomata Elevators Private Limited in 2019 and it was subsequently ordered into liquidation in October 2020

The liquidator alleged that shortly after insolvency began, the suspended directors operated the company's bank accounts without the IRP's authorisation and transferred Rs. 7.07 lakhs. It was also alleged that they siphoned off over Rs.1.20 crore and diverted company business.

Applications were accordingly filed seeking recovery of the amounts. In June 2023, the tribunal directed the directors to repay Rs. 7.07 lakhs and Rs.1.20 crore within one month, with 12% interest if unpaid.

Alleging non-compliance, the liquidator initiated contempt proceedings against the company's suspended directors, claiming wilful disobedience of the tribunal's orders.

The suspended directors contended that the contempt petitions were not maintainable as effective alternative remedies were available under Section 424(3) of the Companies Act, 2013 for enforcement of the orders. The suspended directors also argued that when acting as the adjudicating authority under the Insolvency and Bankruptcy Code, 2016, the Tribunal could not invoke contempt powers under Section 425 of the Companies Act read with the Contempt of Courts Act, 1971.

The tribunal observed that ordinary non-compliance would not amount to civil contempt where there exists bona fide financial incapacity, ambiguity in the order, pendency of appeal, genuine difficulty in implementation, or a bona fide dispute as to interpretation or computation.

“In such situations, the appropriate and efficacious remedy is to pursue execution in accordance with the law. “ it noted

The tribunal held that contempt proceedings are justified only where there is clear and cogent material showing deliberate and wilful attempt to undermine its authority.

“The element of intention and mens rea remains a decisive factor in determining whether the conduct complained of falls within the ambit of contempt or not.“ it said

However, the tribunal clarified that it is empowered to execute its own orders by applying the principles and procedural framework of the Code of Civil Procedure, 1908, wherever necessary.

“In view of the above statutory framework, this Adjudicating Authority is vested with the necessary powers to enforce and execute its own orders by adopting the procedure contemplated under the Code of Civil Procedure, 1908, as made applicable through the National Company Law Tribunal Rules, 2016. “ it observed

Accordingly, the tribunal dismissed the contempt petitions and granted the directors seven days to comply with its earlier directions, failing which the liquidator was given liberty to initiate appropriate execution proceedings in accordance with law.

For Petitioner: Advocate Kevin Thomas

For Respondents: Advocate George Johny