NCLT’s Order Allowing Contempt Application Set Aside Due to CLB’s Lack of Contempt Jurisdiction Under Cos. Act | NCLAT

Case Details: Devang Hemant Vyas v. 3A Capital (P.) Ltd. - [2024] 163 taxmann.com 351 (NCLAT- New Delhi)

Judiciary and Counsel Details

• Rakesh Kumar Jain, Judicial Member & Ajai Das Mehrotra, Technical Member
• Ms Aarohi Bhalla & Sagar Ghogre, Advs. for the Appellant. & Others.
• Rajeev K. Panday & Rajeev M. Roy, Advs. for the Respondent. & Others.

Facts of the Case

In the instant case, the appellant company obtained project finance from bank ‘I’, and some preference shares were allotted to it. The appellant failed to repay the finance amount, so the bank sold the said shares to the respondent company.

The appellant filed a petition before the High Court for approval of cancelling/reducing the capital of its preference shares, including shares allotted to the bank, and the same was allowed.

The Respondent filed a petition before the Company Law Board (CLB) against the appellant, seeking a direction to the appellant to transfer the sum of the said shares and the same was allowed.

The appellant then filed an appeal before the High Court challenging the order of CLB; however, the appeal was dismissed, and the Supreme Court affirmed the dismissal.

Thereafter, the Respondent filed an application before the NCLT to initiate a proceeding of contempt against the appellant for disobedience of the order passed by CLB, and a compensation amount was imposed on the appellant vide the impugned order.

It was noted that in N Venkata Swamy Naidu Vs. M/s Sri Surya Teja Construction Pvt. Ltd. (2007) 140 412, decided by the High Court, it was held that the High Court, under section 10 of the Contempt of Courts Act, had the power to punish for contempt of a subordinate court, coextensive with its power to punish for contempt of itself. Thus, the CLB had no jurisdiction to issue the order of contempt because the power to punish for contempt had to be specifically provided for and conferred under the Companies Act 2013.

NCLAT Held

The NCLAT held that, once the order of the CLB merged with the order passed by the High Court and further merged in the order of the Supreme Court, contempt would only be of the order of the Supreme Court or an order passed by the High Court but would not lie against the order passed by the CLB.

Further, since the contempt petition itself was not maintainable on various grounds, the direction issued in that petition against the appellants was not sustainable, and thus, the instant appeal was to be allowed.