Contempt Power Of NCLT Under Insolvency And Bankruptcy Code, 2016

February 10, 2022by Chitwandeep Kaur0

Author – Chitwandeep Kaur and Abhinandan Sharma (Intern)

 

INTRODUCTION –

Contempt jurisdiction, as we are acquainted with, is an extraordinary jurisdiction that cannot be exercised by ordinary courts/Tribunals unless it is expressly granted. Therefore, unlike constitutional courts, tribunals require appropriate legislation to proceed on contempt proceedings.

National Company Law Tribunal (NCLT), when it deals with Insolvency & Bankruptcy Code, 2016 (IBC) matters, is an Adjudicating Authority created by IBC, no way connected with Companies Act, and the jurisdiction is not interchangeable between Adjudicating Authority under IBC and the Tribunal under Companies Act, 2013, except to the extent law permits.

The IBC’s eleventh schedule makes substantial changes to the Companies Act 2013 (CA) to bring it into acquiescence with the IBC. Numerous provisions of the Companies Act 2013 that apply to the NCLT have been made applicable to it under the IBC. Section 429 of the CA, which allows the NCLT to seek the help of the Chief Metropolitan Magistrate, Chief Judicial Magistrate, or District Collector to take custody or control of all property, books of account, or other documents, was amended in this way. The amendment to Section 429 suggests that the legislature did not believe that Section 5(1) alone was adequate to allow Section 429 to be used in IBC proceedings. As a result, the absence of a corresponding modification to Section 425 shows that the legislators intended to make Section 425 inapplicable not IBC proceedings.

 

JURISDICTION OF NCLT

Section 5(1) of the Insolvency & Bankruptcy Code, 2016 designates the National Company Law Tribunal to act as the adjudicating authority in relation to insolvency resolution and liquidation for corporate persons including corporate debtors and personal guarantors

The National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (‘NCLAT’) are empowered to penalise for contempt under Section 425 of the Companies Act, 2013.

The National Company Law Tribunal (NCLT) is tribunal constituted under Section 408 of the Companies Act, 2013, to exercise the powers conferred on it by the Companies Act 2013 or any other law, thus the powers conferred on the NCLT are exercisable by it in proceedings under the IBC.

Furthermore, Rule 11 establishes the Inherent Powers of the Tribunal to make such orders as may be necessary for meeting the ends of justice or to prevent abuse of the process of the Tribunal.

The Tribunal also has the power to regulate its own procedure in accordance with the rules of natural justice and equity, for the purpose of discharging its functions under the Act1.

The court in the case of McDonald’s India Pvt Ltd and Ors Vs Union of India and Ors while establishing the jurisdiction of NCLT stated that: ‘In absence of separate rules to govern the procedure to be followed by NCLT for exercise of power to punish for contempt, the NCLT is to follow the general rules. The statute and the rules, as extracted earlier, permit and authorize NCLT to “regulate” its own procedure [S. 424] and “be guided by the principles of natural justice2”.’

It is therefore established here that the jurisdiction of NCLT is not limited, and extends to IBC as well.

 

CASE ANALYSIS:

SHAILENDRA SINGH VS. NISHA MALPANI AND ANR.3

The appellant, a corporate debtor’s advocate, filed an application with the NCLT seeking reimbursement of his legal fees from the respondent, the resolution professional. The defendant was ordered by the NCLT to pay the arrears of fees, which he did not do. As a result, a contempt application was filed under the Act, initiating contempt proceedings against the respondent for willful disobedience and ordering the issuing of appropriate orders to clear the debts. In a contempt application, the NCLT found that the Act does not extend contempt authority to the Code and dismissed the case. The NCLT’s order was challenged in front of the NCLAT.

After making observations, the NCLAT came to the conclusion that the NCLT, as the ‘Adjudicating Authority,’ can exercise ‘Contempt Proceedings.’ The power to penalise for ‘Contempt’ is conferred in the ‘Tribunal’ adjudicating on any matter not only confined to the Companies Act, 2013 but also to matters connected to the Insolvency and Bankruptcy Code, 2016 as per a combined reading of Sections 408 and 425 of the Act. Additionally, the NCLAT held that the ‘Tribunal’ has the authority to control its own procedure in accordance with natural justice and equity principles in order to carry out its functions under the Act.

As a result, the NCLAT ordered the NCLT to return the contempt application to its file within 2 (two) weeks after receiving a copy of the judgement and to decide the case on the merits.

 

OTHER PRECEDENTS

The Hon’ble NCLAT in the case of “Mahesh Kumar Panwar vs. M/s Mega Soft Infrastructure Pvt. Ltd. and Ors.4 accentuated the fact that Section 425 of the Companies Act, 2013 can be invoked and instigated during the insolvency proceedings.

The Mumbai Bench of the NCLT directed in a matter5 that the Ex-Directors of the Corporate Debtor appear in person before the bench, failing to which orders shall be passed under the Contempt of Court Act6.

In the case of Manoj K. Daga vs. ISGEC Heavy Engineering Limited and Ors7, while addressing the conduct of the Directors in causing obstruction to the CIRP proceedings and for the willful non-compliance of undertakings, the Hon’ble NCLAT in para 22 stated, “The acts of the two Directors have obstructed the proceedings of CIRP, the proceedings before Adjudicating Authority and this Tribunal. The acts prima facie disclose serious Contempt, violating mandate of law of IBC applied by Orders of Adjudicating Authority and this Tribunal and breach of undertaking given on oath, actionable as NCLT established under the Companies Act, 2013 acts as Adjudicating Authority and this Tribunal is empowered under Section 425 of Companies Act, 2013 read with enabling provisions to take action. ”

 

OPINION

Maxwell “On the Interpretation of Statutes”, 10th Edn., stated that:

“………….. if the choice is between two inter- pretations, the narrower of which would fail to achieve the manifest purpose of the legislation, we should avoid a construction which would reduce the legislation to futility and should rather accept the bolder construction based on the view that Parliament would legislate only for the purpose of bringing about an effective result8.”

The provision giving the NCLT the power to punish for contempt is in Section 425, which reads:

The Tribunal and the Appellate Tribunal shall have the same jurisdiction, powers and authority in respect of contempt of themselves as the High Court has and may exercise, for this purpose, the powers under the provisions of the Contempt of Courts Act, 1971, which shall have the effect subject to modifications that—

(a) the reference therein to a High Court shall be construed as including a reference to the Tribunal and the Appellate Tribunal; and

(b) the reference to Advocate-General in section 15 of the said Act shall be construed as a reference to such Law Officers as the Central Government may, specify in this behalf.”

There, keeping in view the above, we hereby opine that NCLT has the implied power to adjudicate contempt proceedings, whether expressly stated or not.

 

Footnotes

1 Rule 51

2 see S. 424 read with Rules 11, 34 and 51

3 Comp. App. (AT) (Ins) No. 945 of 2020

(2019) ibclaw.in 331 NCLAT

5Asset Reconstruction Company India Pvt Limited vs. Shivam Water Treaters Private Limited C.P. (I.B) No. 153/7/NCLT/AHM/2017

6 https://ibclaw.in/contempt-conundrum-conflicting-opinions-of-nclt-on-applicability-of-contempt-provisions-in-ibc-by-mr-sai-sumed-yasaswi-kondapalli-and-ca-roustam-sanyal/

7 Company Appeal (AT) (Ins) No.1113 of 2019 & I.A. No.3878 of 2019, I.A. No.516 of 2020 & I.A. No.1075 of 2020

8 M. Pentiah vs. Veeramallappa Muddala, AIR 1961 SC 1107

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Chitwandeep Kaur

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