Supreme Court Holds NCLAT Members in Contempt for Ignoring Its Order

The Supreme Court of India recently delivered a landmark ruling in the case of Orbit Electricals Private Limited vs. Deepak Kishan Chhabria & Others. This case involved allegations of contempt against the National Company Law Appellate Tribunal (NCLAT) for ignoring the Supreme Court’s explicit directions regarding the pending company law dispute between Orbit Electricals Private Limited and Deepak Kishan Chhabria.

The Supreme Court took an unprecedented step by censuring the NCLAT bench, issuing monetary penalties, and ensuring that justice was not obstructed by judicial defiance.

Background of the Case

The case originated from a corporate dispute concerning Finolex Cables Limited. The National Company Law Tribunal (NCLT) had dismissed an application for interim relief filed by Deepak Kishan Chhabria, one of the respondents, on December 31, 2019. An appeal was pending before the NCLAT.

Despite the absence of any interim relief, the NCLAT, on September 21, 2023, directed the parties to maintain the “status quo as was available prior to the Extraordinary General Meeting (EOGM) dated May 3, 2019.” This decision effectively gave Chhabria relief that had not been granted for almost four years.

Supreme Court’s Initial Intervention

On September 26, 2023, the Supreme Court vacated the NCLAT’s interim order, stating that:

The NCLAT provided no justification for reinstating the pre-EOGM status quo.
There was no interim relief since December 31, 2019.
The Bombay High Court had not granted Chhabria any relief in related proceedings.

The Supreme Court allowed the Annual General Meeting (AGM) of Finolex Cables Limited to proceed on September 29, 2023, with the stipulation that any action on Resolution No. 4 (regarding the Executive Chairperson’s appointment) would be subject to the final outcome of the NCLAT appeal.

Defiance of Supreme Court’s Order

Despite this, the NCLAT bench proceeded to pronounce its judgment on October 13, 2023, before the AGM results were declared. This was a direct violation of the Supreme Court’s order, which required the NCLAT to wait for the AGM results before issuing its judgment.

Senior counsels representing the petitioners informed the Supreme Court that the NCLAT was apprised of the order before delivering its judgment. However, the tribunal refused to acknowledge the communication, proceeding with its decision despite multiple interventions by counsels.

Supreme Court’s Contempt Proceedings

After receiving reports from NCLAT’s Chairperson and reviewing CCTV footage of the proceedings, the Supreme Court observed that:

The NCLAT was explicitly informed about the Supreme Court’s directive.
The bench ignored multiple requests by counsels to take cognizance of the Supreme Court’s order.
The judgment was delivered in willful defiance of the Supreme Court’s directive.

Key Observations by the Supreme Court

The Supreme Court’s order made several scathing observations:

1. NCLAT Members Acted in Defiance of Supreme Court

The Court ruled that the judicial members of NCLAT had acted in “willful defiance” of its directive. The judgment stated:

“We have no manner of doubt that the Bench of the NCLAT has acted in willful defiance of the order despite being apprised of the Supreme Court’s directive.”

2. CCTV Footage Confirmed the NCLAT’s Defiance

The Court reviewed video evidence, confirming that multiple senior counsels had apprised the NCLAT of the Supreme Court’s directive before it delivered its judgment.

3. Judicial Conduct Was “Unbecoming”

The Supreme Court reprimanded the NCLAT for not following proper judicial decorum and emphasized:

“The manner in which the NCLAT proceeded to deliver judgment in defiance of the directions of the Court is unbecoming of a judicial tribunal.”

Final Judgment and Penalties

The Supreme Court took the following actions:

Set aside the NCLAT’s judgment dated October 13, 2023, directing that a new bench, presided over by the Chairperson of the NCLAT, should hear the appeal afresh.
Issued a notice of contempt to Rakesh Kumar (Judicial Member) and Dr. Alok Srivastava (Technical Member) of the NCLAT.
Directed that they appear personally before the Supreme Court.
Imposed financial penalties:
- Deepak Kishan Chhabria was ordered to pay ₹1 crore to the Prime Minister’s Relief Fund.
- The Scrutinizer, VM Birajdar, was fined ₹10 lakh for failing to declare the AGM results on time.

Implications of the Judgment

This case has significant ramifications for corporate governance and judicial accountability:

Strengthening Supreme Court’s Authority: The ruling reaffirms that lower judicial bodies must comply with the Supreme Court’s directives.
Ensuring Fair Corporate Governance: Companies must adhere to the rule of law, and judicial interference in corporate matters must be justified with proper reasoning.
Holding Judicial Officers Accountable: This case sets a precedent for disciplinary action against judicial officers who willfully ignore superior court directives.

Conclusion

The Supreme Court’s ruling in Orbit Electricals Private Limited vs. Deepak Kishan Chhabria is a landmark decision emphasizing judicial discipline and corporate governance. By penalizing those responsible for contempt, the Court has reinforced that no judicial body is above the rule of law. The judgment serves as a critical reminder that court orders must be adhered to without exception.

Petitioner Name: Orbit Electricals Private Limited.
Respondent Name: Deepak Kishan Chhabria & Others.
Judgment By: Justice Dhananjaya Y Chandrachud, Justice J B Pardiwala, Justice Manoj Misra.
Place Of Incident: NCLAT, India.
Judgment Date: 30-10-2023.

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