The High Court dismissed the contempt petition, finding no willful disobedience in the context of compliance with insolvency and arbitration orders.
Delhi High Court Single-Judge Bench of Justice Ms. Mini Pushkarna reviewed a contempt petition and observed that civil contempt requires clear proof of willful disobedience, characterized by intentional and deliberate non-compliance with court orders; insolvency proceedings or financial constraints do not equate to willful contempt if they impede compliance, especially where arbitration orders are involved.
In the present case, the petitioners sought to enforce compliance with directives issued by this Court and the Arbitral Tribunal, alleging willful disobedience by respondent no. 1. The dispute originated from a Memorandum of Understanding (MOU) dated 21st December 2019, under which respondent no. 1 was to acquire the shareholding of respondent no. 2/RBT Private Limited from the petitioners and oversee the company's management. Conflicts arose when respondent no. 1 purportedly failed to fulfill the MOU terms, leading the petitioners to file a petition under Section 9 of the Arbitration and Conciliation Act, 1996, seeking interim reliefs, including an injunction against respondent no. 1 from disposing of company assets.
On 11th June 2020, the Court appointed Justice Indermeet Kaur as Sole Arbitrator and mandated the maintenance of the status quo regarding the company's assets and EMIs. Nonetheless, respondent no. 1 was found to have breached these orders by selling machinery and neglecting EMI payments as directed by the Arbitral Tribunal. Subsequent orders on 17th June and 1st July 2020 reinforced the binding nature of the Court's directives, compelling respondent no. 1 to continue EMI payments. Respondent no. 1’s appeal against the order dated 1st July 2020 was dismissed on 5th October 2021. Despite these rulings, non-compliance persisted, prompting the petitioners to seek the appointment of a Local Commissioner, who confirmed the sale of hypothecated machinery.
On 5th December 2023, the Court held respondent no. 1 in contempt for failing to comply with earlier orders and directed him to explain why he should not face punishment under the Contempt of Courts Act, 1971. The appeal against this order was dismissed on 22nd January 2024. Respondent no. 1’s claims of financial incapacity and the argument that the company’s Corporate Insolvency Resolution Process (CIRP) had rendered the petition moot were rejected. The Court determined that the contempt was willful, as non-compliance occurred before the initiation of CIRP, and the respondent’s subsequent apology was deemed insufficient.
Referring to the case of Hukum Chand Deswal v. Satish Raj Deswal, the Supreme Court emphasized that civil contempt requires proof of "wilful" disobedience, meaning intentional and deliberate action with full knowledge of the consequences. In Ram Kishan v. Tarun Bajaj, the Court outlined that civil contempt must be proven beyond reasonable doubt. Additionally, in R.N. Dey v. Bhagyabati Pramanik, it was clarified that contempt should not be used for decree execution or where alternative remedies exist.
Applying these principles, the Court assessed whether the respondents were in contempt. The additional affidavit from respondent no. 1 cited financial constraints as the reason for non-compliance rather than a wilful disregard of court orders. The financial difficulties and operational disputes, exacerbated by the company's insolvency proceedings, were considered. The sale of assets occurred prior to the court’s relevant orders and thus did not constitute contempt. Ultimately, the Court concluded that there was no willful disobedience, leading to the dismissal of the contempt petition, consistent with legal standards requiring clear proof of deliberate disobedience.
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