Restricting NCLT’s Contempt Powers Would Reduce IBC to a "Paper Tiger": Bombay HC Holds Contempt Plea Not Maintainable [Read Order]

The BombayHigh Court held a conempt plea not maintainable before it and said that restricting NCLT’s contempt powers would reduce IBC to a "Paper Tiger".

The petitioner, S.G. Mittal Enterprises Pvt. Ltd had availed a cash credit facility from Satara Sahakari Bank. The petitioner later defaulted on the payment, and the bank, the reposnednt initiated insolvency proceedings under section 7 of the Insolvency and Bankruptcy Code,2016 (IBC) before the National Company Law Tribunal (NCLT)

As part of the settlement talks, the parties executed consent terms agreeing to the payment of 5.71 crore. The NCLT recorded the same and disposed of the petition. The petitioner then paid the entire amount and wanted a “No Dues Certificate.” The bank then demanded an additional ₹18.57 lakh and reported outstanding dues of ₹1.78 crore to CIBIL. This clearly blocked the Petitioner’s loan application.

Aggrieved by the same, the petitioner filed a contempt petition before the High Court alleging breach of consent terms and NCLT’s order.

The main issue for consideration was whether contempt jurisdiction vests exclusively with the NCLT/NCLAT under Section 425 of the Companies Act, 2013.

The counsel for the petitioner argued that the IBC does not confer contempt powers on nclt. Thu,s the high courts can retain parallel jurisdiction under Section 10 of the Contempt of Courts Act, 1971 and Article 215 of the Constitution.

It was argued that section 425 of the Companies Act was not amended to cover IBC proceedings. This clearly indicated the content of the legislature to exclude contempt powers in insolvency matters. The counsel depended on Gujarat Urja Vikas Nigam Ltd. v. Amit Gupta (2021), where it was held that NCLT can exercise only powers expressly conferred, and Delhi Judicial Service Assn. v. State of Gujarat (1991), where it was held that Tribunals cannot assume contempt jurisdiction unless expressly provided.

The Bench of Justice Milind N Jadhav observed that contmept jurisdication by nature is extraordinary, penal and coercive, and it has to be traceable to statute or constitution. It was observed that Section 425, Companies Act, 2013 Confers contempt powers on NCLT/NCLAT equivalent to High Courts. Thus it applies to all matters before them and not only company matters.

It was also noted that NCLT derives its existence from companies act, but it is a functioning authority under the IBC. Both statutes are interconnected. The court depende don (Tinsukhia Electric Supply Co. v. State of Assam, 1989 where it was held that statutory provisions must be interpreted to give meaningful effect and Dr Subramanian Swamy v. Arun Shourie, 2014 where it was held that NCLT qualifies as a “court” under the Contempt of Courts Act.

It was also noted that under the IBC, the Adjudicating Authority (NCLT) adjudicates all proceedings before it and renders its decision. Only because the IBC does not specifically mention the contempt provisions, it cannot be said that the ‘Adjudicating Authority’ (NCLT) has no powers of contempt.

It was opined that if one is to give such a restricted interpretation that the NCLT has no jurisdiction of contempt, then its orders will be implemented and in fact, the IBC would be reduced to a paper tiger, existing only in form but devoid of any real force or enforceability.

It was also opined that the High Court has supervisory jurisdiction under Articles 226/227, but contempt jurisdiction lies with NCLT/NCLAT. So entertaining contempt petitions directly in the High Court would bypass the designated forum.

It was held that contempt proceedings cannot be used as a substitute for execution or enforcement of orders, nor for resolving disputes arising from Consent Terms, especially when compliance depends on disputed facts or interpretation.

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