One must note right at the outset before noting anything else that the Supreme Court has as recently as on August 9, 2021 in a latest, learned, laudable and landmark judgment titled Suman Chadha & Anr. vs. Central Bank of India in Special leave Petition (C) No. 28592 of 2018 made a significant observation without mincing any words that the wilful breach of the undertaking given to the Court can amount to Contempt under Section 2(b) of the Contempt of Courts Act. The Bench comprising of Justice Indira Banerjee and Justice V Ramasubramnian of the Apex Court has observed that an undertaking given by a party should be seen in the context in which it was made and (i) the benefits that accrued to the undertaking party; and (ii) the detriment/injury suffered by the counter party. The Bench, however, expressed its doubt about the observation made in an earlier judgment that there is no distinction between wilful violation of the terms of a consent decree and wilful violation of a decree passed on adjudication.
To start with, this brief, brilliant and balanced judgment which has been authored by Justice V Ramasubramanian of Apex Court for himself and Justice Indira Banerjee sets the ball rolling by first and foremost putting forth in para 1 that, “Upon being found guilty of committing contempt of Court, the petitioners who are husband and wife respectively, were sentenced to simple imprisonment for three months along with a fine of Rs. 2000/ each, by a learned Judge of the Delhi High Court. The said Order having been confirmed by the Division Bench of the High Court in an appeal under Section 19 of the Contempt of Courts Act, 1971 (‘Act’ for short), the petitioners have come up with the above Special Leave Petition.”
While elaborating on the background facts, the Bench then very rightly envisages in para 2 stating cogently, clearly and convincingly in detail that, “The background facts which led to the petitioners being held guilty of contempt of Court, are lucidly recorded in the Order dated 18.07.2017 of the learned Judge. They are as follows:
(i) The petitioners were Directors of a company by name Parul Polymers Private Limited, which availed loan/credit facilities from the respondent Bank. The petitioners guaranteed the repayment of the loan and had also offered immovable properties as security.
(ii) On 24th July, 2014, the loan of the respondents was categorized as a Non Performing Asset due to defaults in repayment. On 18th August, 2014, a notice under Section 13(2) of SARFAESI Act was issued for recovery of Rs. 28,82,942.24 plus interest. It was followed by a possession notice under section 13(4) in respect of two properties.
(iii) Aggrieved by the same, the petitioners filed S.A. No. 367/2014 before the Debts Recovery Tribunal-III, New Delhi (‘DRTIII’ for short), under Section 17 of the SARFAESI Act. However, the DRTIII declined to grant any interim relief against the physical possession of the aforesaid properties.
(iv) The petitioners filed an appeal but could not deposit Rs 7 crores being 25% of the amount demanded in the notice under Section 13(2). Eventually the appeal was dismissed as withdrawn on 31.03.2015.
(v) However, on 01st April, 2015, the petitioners secured a conditional order of stay from DRT-III, New Delhi in S.A. No. 367/2014 whereby the petitioners were required to deposit a sum of Rs. 5 crores within thirty days. The order also stipulated that Rs. 2 crores would be deposited by 03rd April, 2015.
(vi) On 03rd April, 2015, the petitioners gave a letter to SHO, Police Station Katju Marg, Rohini, Delhi showing their intention to deposit the amount of Rs. 2 crores by way of four cheques. Therefore, the Receiver was unable to take possession of the properties.
(vii) Thereafter, the petitioners challenged the conditional order of stay passed by DRT-III on 01st April, 2015 before the High Court by way of W.P.(C)No.3406/2015 stating that the Bank and DRT-III were acting unfairly and unjustly in not accepting their cheques totalling to Rs. 2 crores.
(viii) When the writ petition came for admission and interim orders on 08th April, 2015, the petitioners admitted liability and offered, by way of a statement under oath, to deposit Rs. 7 crores, i.e. 25% of the notice amount in three instalments on or before 30th June, 2015. The Bank gave its assent and thereafter the Court ordered that the possession of the properties of the petitioners shall not be disturbed subject to the petitioners depositing Rs 7 crores on or before 30th June, 2015, i.e. Rs. 2 crores on 30th April, 2015, Rs. 2.5 crores each on 31st May, 2015 & 30th June, 2015.
(ix) On 29th April, 2015, the petitioners gave a letter along with four cheques for Rs. 50 lakhs each dated 06th May, 2015 purportedly in compliance of the order dated 08th April, 2015.
(x) Accordingly, the possession proceedings for one property scheduled for 30th April, 2015 were deferred by the Bank. But on 08th May, 2015, all the four cheques bounced.”
To put things in perspective, the Bench then enunciates in para 4 that, “Therefore, the respondent-Bank filed a petition under Sections 10 and 12 of the Contempt of Courts Act, 1971 for punishing the petitioners for willful and deliberate breach of their undertaking dated 08.04.2015. Though the petitioners resisted the contempt petition on the ground that breach of an undertaking, made with a view to secure a conditional order of stay may not tantamount to contempt, especially when the consequences of breach of such undertaking are spelt out in the order of the Court itself, the learned Judge was not convinced. Therefore, by an Order dated 18.07.2017, the learned Judge of the High Court held the petitioners guilty of contempt and sentenced them simple imprisonment for three months with a fine of Rs. 2000 each. The Division Bench upheld the said order and the petitioners are before us.”
In hindsight, the Bench then discloses in para 5 that, “Before we proceed further we should record certain developments which have taken place after the order of single Judge dated 18.07.2017. They are as follows:
(i) The learned Judge himself granted suspension of the sentence of imprisonment till 26.07.2017, to enable the petitioners to move an intra-court appeal;
(ii) The petitioners moved an intra-court appeal, which came up before the Division Bench on 25.07.2017. The Division Bench wanted the petitioners to comply at least with a part of their undertaking before the sentence could be suspended. But the petitioners could not. Thereafter, the Division Bench did not grant suspension of sentence on 25.07.2017;
(iii) The petitioners filed a Special Leave Petition along with an application for exemption from surrendering. But the said application was dismissed by an order in Chamber dated 31.07.2017;
(iv) On 03.08.2017, the Division Bench of the High Court dismissed the miscellaneous application seeking suspension of sentence;
(v) Challenging the said order dated 03.08.2017, the petitioners moved a Special Leave Petition along with an application seeking exemption from surrendering. This application was dismissed vide order in Chamber dated 18.08.2017.
(v) On a subsequent application seeking extension of time, this Court granted three weeks time vide order dated 11.09.2017;
(vii) Eventually, the petitioners surrendered and were taken into custody on 06.11.2017. After being in custody for 11 days, the petitioners were released on interim bail by Order dated 16.11.2017;
(viii) The contempt appeal was thereafter dismissed by the Division Bench of the High Court by an Order dated 27.09.2018, with a direction to the petitioners to surrender within 10 days. However, on 01.11.2018, this Court ordered notice in the present SLP and also granted stay of the impugned order.”
As a corollary, the Bench then underscores in para 6 that, “The reason why we have noted certain events post the order of the learned single Judge is to bring on record the fact that the petitioners have already served simple imprisonment for a period of 11 days, out of the penalty of simple imprisonment for three months. They have also paid the fine.”
Be it noted, the Bench then observes in para 15 that, “It is seen from the portion of the order of the High Court dated 08.04.2015 that it was not an order passed on the basis of an affidavit/undertaking. It was on the basis of an offer made by the petitioners, the first of whom was actually present in Court. The offer so made was accepted by the Bank and hence the order was actually based upon the consent of parties. This is made clear by what is recorded by the Court in Paragraph 5 of its order dated 08.04.2015. Paragraph 5 reads as follows:
“5. During the course of hearing counsel for the petitioner Dr. Sharma stated that the petitioners are admitting the liability provided some time is granted in order to settle the matter finally. It was suggested by the counsel that the petitioners may be afforded opportunity of depositing Rs. 7 (seven) crores i.e. 25% of the notice amount in three instalments on or before 30.06.2015. The first petitioner is present in Court. He is a director of the third petitioner and authorised to depose on its behalf. His statement to above effect has been recorded under oath separately and has been kept on record.
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The second petitioner is directed to file an affidavit/undertaking within one week confirming the statement of the first petitioner. The counsel for the respondent submitted his assent to the disposal of the writ petition on terms offered.””
It is worth noting that the Bench then observes in para 19 that, “But what has happened in this case is that the subsequent conduct of the petitioners after the orders dated 08.04.2015, seems to have tilted the balance against the petitioners. Purportedly in compliance of the undertaking given to Court on 08.04.2015 and the order passed thereon, the petitioners issued four cheques for Rs 50 lakhs each. These cheques were handed over to the Bank on 29.04.2015 along with a covering letter. But all the four cheques were post-dated, bearing the date 06.05.2015, though the undertaking given to the Court was to deposit the amount on or before 30.04.2015.”
Damningly, the Bench then clearly states in para 20 that, “On 08.05.2015, all the four cheques bounced. The conduct of the petitioners first in issuing post-dated cheques and then in allowing them to be dishonoured, showed the petitioners in poor light. The petitioners could have at least mend their ways thereafter. However they did not.”
Going forward, the Bench then points out in para 22 that, “On the next date of hearing, the petitioners raised a defence that they had issued post-dated cheques in the hope of receiving amounts due to them from their debtors and that their debtors failed to make payment. The petitioners also named three debtors from whom they were expected to receive money.”
As we see, the Bench then reveals in para 23 that, “Doubting the genuineness of the claims made by the petitioners, the learned Judge before whom the Contempt Petition came up, passed an order on 07.12.2015 directing an investigation by Serious Fraud Investigation Office (‘SFIO’ for short). To the misfortune of the petitioners, SFIO submitted a report that the alleged debtors of the petitioners are only shell entities of Parul Polymers Private Ltd., of which the petitioners were Directors.”
Ostensibly, the Bench then, therefore, held in para 24 that, “All the above events that happened after 08.04.2015, convinced the High Court to come to the conclusion that the petitioners had actually played a fraud upon the Court. This is why the learned Single Judge as well as the Division Bench of the High Court held the petitioners guilty of contempt of court.”
Quite rightly and quite commendably, the Bench then holds in para 27 that, “In this case, the series of acts committed by the petitioners (i) in issuing post-dated cheques, which were dated beyond the date within which they had agreed to make payment; (ii) in allowing those cheques to be dishonoured; (iii) in not appearing before the Court on the first date of hearing with an excuse that was found to be false; (iv) in coming up with an explanation about their own debtors committing default; and (v) in getting exposed through the report of the SFIO, convinced the High Court to believe that the undertaking given by the petitioners on 08.04.2015 was not based upon good faith but intended to hoodwink the Court. Therefore, we are unable to find fault with the High Court holding the petitioners guilty of contempt.”
Adding a rider, the Bench then holds in para 32 that, “However, Mr. Santosh kumar, learned counsel for the petitioners, pleaded that the Court may show sympathy on the petitioners, in view of the fact that the immovable properties which the petitioners attempted to save, by approaching the DRT and the High Court, have already been sold. All the attempts made by the petitioners from 2015 onwards, to save the mortgaged properties have been in vain.”
No doubt, the Bench then rightly maintains in para 33 that, “There is no dispute on facts that the mortgaged properties have now been sold and with extraordinary efforts, the Bank has also taken possession. The petitioners have also spent 11 days in custody out of the total period of imprisonment of three months imposed by the High Court. In such circumstances, we think that it is sufficient punishment for the petitioners.”
Finally, the Bench then holds in para 34 that, “Therefore, the SLP is disposed of upholding the finding of the learned Single Judge and the Division Bench of the High Court that the petitioners are guilty of contempt of court, but reducing the period of sentence from three months to the period of imprisonment already suffered/undergone by the petitioners. There will be no order as to costs.”
In conclusion, the Bench of Apex Court has laid down the correct legal position on this. The bottom-line of this notable judgment can be simply stated thus: The wilful breach of the undertaking given to the Court can amount to contempt under Section 2(b) of the Contempt of Courts Act. Very rightly so!
Sanjeev Sirohi, Advocate,