Contempt Order Imposing Civil Imprisonment unsustainable Without Naming Individual Contemnors and Following Due Process: NCLAT [Read Order]

The National Company Law Appellate Tribunal (NCLAT) has held that a contempt order directing civil imprisonment of lender banks’ officers was legally unsustainable as the alleged contemnors were not specifically identified and mandatory principles of due process were not followed.

The appeal arose from an order passed by the National Company Law Tribunal (NCLT) Mumbai Bench in contempt proceedings initiated by Jyoti Structures Ltd. and its shareholders against a consortium of lender banks including State Bank of India, Bank of India, Canara Bank, ICICI Bank, Indian Bank and Union Bank of India.

The dispute related to the lenders alleged failure to release rolled-over non-fund based facilities, including bank guarantees and letters of credit, as contemplated under the approved resolution plan of Jyoti Structures Ltd. The NCLT had directed the lenders to release the facilities within one month failing which they would face one day of simple imprisonment in civil prison.

Challenging the order the lenders stated that the contempt proceedings suffered from serious procedural infirmities. They argued that no individual officer had been named as a contemnor, no specific charges were framed and no formal show-cause notice alleging contempt had been issued. It was further submitted that contempt proceedings being quasi-criminal in nature require strict compliance with procedural safeguards and principles of natural justice.

The respondents argued that the lenders had persistently failed to comply with earlier judicial directions requiring release of the non-fund based facilities and had thereby wilfully disobeyed orders of the NCLT and NCLAT.

The Appellate Tribunal observed that the power to punish for contempt is a serious and extraordinary jurisdiction which must be exercised with utmost caution. The Tribunal noted that before imposing punishment, the court must record prima facie satisfaction, issue a proper show-cause notice, frame precise charges and provide an adequate opportunity of defence to the alleged contemnors.

The Bench comprising Justice Ashok Bhushan (Chairperson), Mr. Barun Mitra (Member Technical) and Mr. Arun Baroka (Member Technical) held that initiation of contempt proceedings requires adherence to a two-stage process and cannot be undertaken casually. Since the impugned order imposed imprisonment without identifying individual contemnors and without following mandatory procedural requirements, the contempt order could not be sustained.

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