Supreme Court Directs Payment in Contempt Case: Kotak Mahindra Bank vs. Sanjiv Gupta (23 September 2019)

Introduction

Date of the Judgment: 23 September 2019

Citation: Not Available

Judges: Deepak Gupta, J., Aniruddha Bose, J.

What happens when a party fails to comply with a court order, especially regarding financial obligations? The Supreme Court of India recently addressed this question in a contempt case involving Kotak Mahindra Bank Limited (KMBL) and Alchemist Assets Reconstruction Company Ltd. (Alchemist). The core issue was whether Alchemist was in contempt for not paying Rs. 4.5 crores to KMBL as directed by previous court orders. The Supreme Court ultimately directed Alchemist to pay the amount, subject to a final determination by the High Court regarding the actual dues.

Case Background

The case revolves around a loan taken by Coventry Coil-O-Matic Haryana Limited from a consortium of banks, including ICICI Bank, IDBI, and IFCI. ICICI Bank assigned its debt to Kotak Mahindra Bank Limited (KMBL), while IFCI assigned its non-performing assets to Alchemist Assets Reconstruction Company Ltd. (Alchemist). It appears that IDBI also assigned its debts to Alchemist.

KMBL initiated recovery proceedings before the Debts Recovery Tribunal, Delhi, for Rs. 4,72,06,961. Alchemist started proceedings under Section 13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). Additionally, KMBL filed a winding-up petition under the Companies Act, 1956. The borrower company challenged these proceedings in a writ petition before the Punjab and Haryana High Court, which was dismissed.

The borrower company then filed a Letters Patent Appeal (LPA) where the High Court passed an interim order on 09.08.2011, directing the borrower to pay Rs. 12 crores to Alchemist and Rs. 6.5 crores to KMBL. The High Court also allowed the creditors to recover the dues by selling 18 acres of land, with the sale to be finalized after the court’s permission. Of the Rs. 5 crores deposited in the court, Rs. 3 crores was to be given to Alchemist and Rs. 2 crores to KMBL.

This interim order was challenged by both Alchemist and the borrower company in the Supreme Court. The Supreme Court modified the High Court’s order on 07.05.2012, directing Alchemist and the borrower company to get the land evaluated. The borrower company had the option to buy the land at the evaluated price. If the offer was not accepted, Alchemist was allowed to sell the land as per the procedure in Rules 8 and 9 of the Security Interest (Enforcement) Rules, 2002. Out of the sale proceeds, Alchemist was to pay Rs. 4.5 crores to KMBL and the surplus was to be deposited in the High Court.

Timeline

Course of Proceedings

The Punjab and Haryana High Court dismissed the writ petition filed by the borrower company challenging the proceedings under the SARFAESI Act and the winding-up petition. The High Court, in the Letters Patent Appeal, passed an interim order directing the borrower to pay certain amounts to Alchemist and KMBL. This order was challenged in the Supreme Court. The Supreme Court modified the High Court’s order, directing the evaluation and potential sale of the land. Alchemist filed a review petition against this order, which was dismissed. Subsequently, Alchemist was permitted to approach the High Court for modification of the interim order.

Legal Framework

The case primarily involves the interpretation and implementation of orders passed by the High Court and the Supreme Court. The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) is also relevant, specifically Section 13, which deals with the enforcement of security interest. The Security Interest (Enforcement) Rules, 2002, particularly Rules 8 and 9, which outline the procedure for the sale of immovable property, are also pertinent.

The Supreme Court’s order dated 07.05.2012 directed that if the borrower company did not accept the valuation of the land, Alchemist could sell the land as per Rules 8 and 9 of the Security Interest (Enforcement) Rules, 2002. Further, out of the amount realized, Alchemist was to pay Rs. 4.5 crores to KMBL.

Arguments

Arguments by KMBL:

• KMBL contended that Alchemist was in contempt of court for not paying Rs. 4.5 crores as directed by the Supreme Court’s order dated 07.05.2012.
• KMBL argued that the sale of the property by Alchemist was done in a clandestine manner, without informing KMBL about the dates fixed, and in violation of the directions of the High Court.
• KMBL asserted that the order of 07.05.2012 has not been varied or modified by any subsequent order, and therefore, Alchemist was bound to pay the amount.

Arguments by Alchemist:

• Alchemist argued that as an assignee of IFCI and IDBI, it was entitled to recover 98.12% of the total outstanding dues, while KMBL was entitled to only 1.88%.
• In the alternative, Alchemist submitted that as per the claim filed by KMBL, it was entitled to 9.76% of the total recoveries.
• Alchemist contended that KMBL had already been paid Rs. 2 crores, which was more than the amount due to it.
• Alchemist stated that pursuant to the Supreme Court’s order dated 02.07.2014, it had filed an application before the High Court in February 2017 for modification of the interim order dated 09.08.2011, which was pending.
• Alchemist argued that it was not guilty of willful disobedience of the court’s order.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame specific issues but addressed the following:

• Whether Alchemist was in contempt of court for not paying Rs. 4.5 crores to KMBL as per the order dated 07.05.2012.
• Whether the contentions of Alchemist that no amount is due to KMBL should be considered in the contempt proceedings.
• Whether the sale of the property by Alchemist was conducted properly.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court considered the following authorities:

• United Bank of India vs. Satyawati Tondon & Ors. (2010) 8 SCC 110 – Supreme Court of India: This case was cited by Alchemist to argue that the appeal filed by the petitioner in the High Court should be allowed. However, the Supreme Court did not directly rely on this case for its decision.
• Kanaiyalal Lalchand Sachdev & Ors. Vs. State of Maharashtra & Ors. (2011) 2 SCC 782 – Supreme Court of India: This case was also cited by Alchemist to support their argument for allowing the appeal in the High Court. However, the Supreme Court did not directly rely on this case for its decision.
• General Manager, Sri Siddeshwara Cooperative Bank Ltd. & Anr. Vs. Ikbal & Ors. (2013) 10 SCC 83 – Supreme Court of India: This case was cited by Alchemist to argue that the appeal filed by the petitioner in the High Court should be allowed. However, the Supreme Court did not directly rely on this case for its decision.
• Section 13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002: This section deals with the enforcement of security interest.
• Rules 8 and 9 of the Security Interest (Enforcement) Rules, 2002: These rules outline the procedure for the sale of immovable property.

Judgment

The Supreme Court held that Alchemist was bound to pay Rs. 4.5 crores to KMBL as per the order dated 07.05.2012. The Court noted that this order had not been varied, modified, or vacated by any subsequent order. The Court also noted that Alchemist’s application to the High Court for modification of the interim order was filed only in February 2017, despite being given liberty to do so in 2014.

The Court directed that the amount of Rs. 4.5 crores deposited by Alchemist should be paid to KMBL along with any accrued interest. This payment was made subject to the decision of the High Court regarding the actual amount due to KMBL. If the High Court finds that a lesser amount is due, KMBL is required to refund the excess amount along with interest to Alchemist.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the fact that its order dated 07.05.2012, directing Alchemist to pay Rs. 4.5 crores to KMBL, had not been modified or vacated. The Court emphasized the importance of adhering to its orders and the High Court’s orders. The Court also noted the delay in Alchemist filing an application before the High Court, which further weighed against Alchemist’s arguments. The Court’s focus was on ensuring compliance with its orders and not getting into the merits of the dispute, which it deemed was the High Court’s purview.

The Supreme Court emphasized the binding nature of its orders and the High Court’s orders. It stated:

“Both the High Court and this Court had clearly directed that out of the amount recovered by sale of the properties of the borrowed Company by Alchemist, Rs.4.5 crores were to be paid to KMBL, and Rs.9 crores were to be retained by Alchemist.”

The Court also highlighted that:

“This order of 07.05.2012 has not been varied, modified or vacated by any subsequent order.”

Further, the Court observed:

“Unless the earlier order is modified, the alleged contemnors were bound to obey the orders of this Court as well as the High Court.”

Key Takeaways

• Court orders must be strictly followed unless they are modified or vacated by a competent court.
• Parties cannot avoid compliance with court orders by raising new arguments or claims, especially in contempt proceedings.
• Contempt proceedings are primarily meant to ensure compliance with court orders, and not to decide the merits of the dispute.
• The Supreme Court’s decision ensures that the orders of the court are respected and enforced.

Directions

The Supreme Court directed that the amount of Rs. 4.5 crores deposited by Alchemist shall be paid to KMBL along with interest, if any, accrued thereupon. This payment is subject to the decision of the High Court regarding the actual amount due to KMBL. If the High Court finds that a lesser amount is due to KMBL, then KMBL shall refund the excess amount along with interest, if any, as determined by the High Court to Alchemist.

Development of Law

The ratio decidendi of this case is that parties are bound to comply with court orders unless they are modified or vacated by a competent court. This case reinforces the principle of the binding nature of court orders and the importance of adhering to them. There is no change in the previous position of law.

Conclusion

In conclusion, the Supreme Court directed Alchemist to pay Rs. 4.5 crores to KMBL, as per its earlier order, emphasizing the importance of complying with court orders. The Court clarified that the contempt proceedings were not the appropriate forum to decide the merits of the dispute, which was left to the High Court. This judgment reinforces the principle that court orders must be obeyed unless modified or vacated.