Supreme Court Holds Avitel in Contempt for Not Maintaining USD 60 Million Balance: HSBC PI Holdings vs. Pradeep Shantipershad Jain (2022)

Introduction

Date of the Judgment: 11 July 2022

Citation: Not Available

Judges: M.R. Shah, J., Aniruddha Bose, J.

Can a company be held in contempt of court for failing to maintain a specific balance in its bank account, as directed by the court? This was the central question before the Supreme Court of India in a recent contempt case. The Court examined whether the failure to maintain a USD 60 million balance in a Corporation Bank account, as previously ordered, constituted a deliberate violation of court orders, warranting punishment under the Contempt of Courts Act. The bench comprised Justices M.R. Shah and Aniruddha Bose.

Case Background

The case originates from a Share Subscription Agreement (SSA) dated 21 April 2011, between HSBC PI Holdings (Mauritius) Limited (HSBC) and Avitel Post Studioz Limited (Avitel), among others. HSBC invested USD 60 million in Avitel to acquire 7.8% of its paid-up capital. A subsequent Shareholders Agreement (SHA) was entered into on 6 May 2011. Disputes arose, leading HSBC to initiate arbitration proceedings at the Singapore International Arbitration Centre (SIAC) on 11 May 2012.

The SIAC appointed an Emergency Arbitrator, who issued interim awards on 28 May 2012 and 29 May 2012, in favor of HSBC, directing Avitel to not dispose of assets up to USD 50 million. These awards were amended on 27 July 2012, granting further relief to HSBC. Subsequently, on 30 July 2012, HSBC filed a petition under Section 9 of the Arbitration and Conciliation Act, 1996, in the Bombay High Court, seeking a direction for Avitel to deposit a security amount equivalent to HSBC’s claim in the arbitration.

On 3 August 2012, the Bombay High Court ordered Corporation Bank to allow Avitel to withdraw INR 1 crore but freeze the account thereafter. The Arbitral Tribunal dismissed Avitel’s challenge to its jurisdiction on 7 December 2012. On 22 January 2014, the Bombay High Court directed Avitel to deposit any shortfall to maintain a balance of USD 60 million in their Corporation Bank account. This order was modified by the Division Bench on 31 July 2014, reducing the required deposit to USD 30 million. Both parties appealed this order before the Supreme Court.

The Supreme Court, on 19 August 2020, set aside the Division Bench’s order and restored the Single Judge’s order of 22 January 2014, directing Avitel to maintain USD 60 million in their Corporation Bank account. Following this, HSBC issued a legal notice on 4 September 2020, demanding compliance. Avitel refused, citing contemplation of remedies under Article 137 of the Constitution of India. HSBC then filed the present contempt petition on 26 September 2020.

Timeline:

Legal Framework

The judgment primarily revolves around the interpretation and application of the following legal provisions:

• Section 9 of the Arbitration and Conciliation Act, 1996: This section allows a party to apply to a court for interim measures of protection during arbitration proceedings. The court can order measures such as preserving assets or securing the amount in dispute.
• Contempt of Courts Act: This act defines and punishes contempt of court, which includes willful disobedience of any judgment, decree, direction, order, writ, or other process of a court.

The legal framework is further supported by Article 129 of the Constitution of India which grants the Supreme Court the power to punish for contempt of itself.

Arguments

Arguments by HSBC (Petitioner):

• HSBC argued that Avitel’s failure to deposit the shortfall amount to maintain USD 60 million in the Corporation Bank account was a deliberate and willful disobedience of the Supreme Court’s orders dated 19 August 2020 and 6 May 2021.
• HSBC contended that Avitel had siphoned off the invested USD 60 million to related parties, including Avitel Dubai, through Avitel Mauritius, and further to companies owned by the alleged contemnors.
• HSBC highlighted that the final arbitral award in Singapore, which was not challenged there, awarded USD 60 million in damages to HSBC against Avitel, and the same was upheld by the Bombay High Court.
• HSBC pointed out that despite a legal notice and a specific direction from the Supreme Court on 6 May 2021, Avitel failed to deposit the shortfall amount within the stipulated six weeks.
• HSBC argued that Avitel’s claim of inability to liquidate assets was a false attempt to evade compliance, noting that they did not notify their inability until filing an exemption application, despite the August 2020 judgment.
• HSBC submitted that the list of assets provided by Avitel was untrustworthy, unaudited, and did not account for liabilities, and the valuation of assets was unclear and unreliable.
• HSBC submitted that the contempt petition was maintainable as the purpose of contempt is to bring violation of Court Orders to the notice of the Court, and that contempt is a matter between the court and the person in contempt.
• HSBC argued that Section 9 of the Arbitration Act is for interim protection and not a suit, and that contempt and execution are separate remedies that can be invoked simultaneously.
• HSBC contended that the respondents were given ample time to comply with the August 2020 judgment, and were in contempt of the order dated 6 May 2021, which provided an additional six weeks for deposit.
• HSBC submitted that compliance with the order was not contingent on the availability of liquid funds and that the respondents cannot contend that they will comply only when their assets are allowed to be sold.

Arguments by Avitel (Respondents):

• Avitel argued that the present contempt petition was not maintainable as the order to deposit USD 60 million was executable before the appropriate court, and that contempt proceedings cannot substitute execution proceedings.
• Avitel contended that they never intended to disobey the court order but were unable to comply due to lack of funds, and that their inability was beyond their control.
• Avitel stated that they had disclosed all their assets and were willing to sell them under court supervision to comply with the order, and that they had also filed an application seeking permission to sell their assets.
• Avitel submitted that contempt requires willful disobedience, which was absent in their case due to their genuine inability to pay, and that mere non-compliance cannot be a ground for punishment under the Contempt of Courts Act.
• Avitel argued that the order of the Single Judge had not yet become a decree, and the enforcement of the arbitral award was still pending before the High Court.
• Avitel contended that the appropriate remedy for HSBC was to approach the Bombay High Court for execution, not the Supreme Court for contempt.

Submissions Table

Issues Framed by the Supreme Court:

The Supreme Court framed the following issues for adjudication:

1. Whether the respondents have committed contempt of court for willful disobedience of the orders dated 19.08.2020 and 06.05.2021.
2. Whether the present contempt petition is maintainable in light of the fact that the order passed by the learned Single Judge of the High Court is executable.

Treatment of the Issue by the Court:

The following table demonstrates how the Court decided the issues:

Authorities

The Supreme Court considered the following authorities:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

The Court used the authorities as follows:

• The Court relied on Firm Ashok Traders vs. Gurumukh Das Saluja; (2004) 3 SCC 155 to establish that Section 9 of the Arbitration Act is for interim protection and not a suit.
• The Court cited KK Modi vs. KN Modi and Ors.; (1998) 3 SCC 573 to highlight that re-agitating the same issues is an abuse of the process of the Court.
• The Court relied on Delhi Development Authority vs. Skipper Construction CO. (P) Ltd.; (1996) 4 SCC 622 and Rajinder Kumar Malhotra vs. Paresh Biharilal Vyas; 2016 SCC Online Bom 89 to emphasize that contempt and execution are separate remedies that can be invoked simultaneously.
• The Court relied on Rama Narang vs. Ramesh Narang and Anr.; (2006) 11 SCC 114 to state that a court’s jurisdiction to deal with contempt is not taken away by the fact that an order is executable.
• The Court cited M/s Terra Manufacturing & Sales vs. M/s Alagendiraa Apparels 2011 SCC Online Del 4458 to state that a person is liable for contempt if they willfully violate an order passed under Section 9 of the Arbitration Act.
• The Court relied on Welset Engineers & Anr. vs. Vikas Auto Industries & Ors.; (2015) 10 SCC 609 to state that a party in breach of any order of court is subject to contempt.
• The Court relied on SEBI vs. Sahara India Real Estate Corp. Ltd. & Ors.; (2014) 5 SCC 429 to highlight that non-compliance with the orders passed by the Supreme Court shakes the foundation of the judicial system.
• The Court relied on Kunhayammed vs. State of Kerala; (2000) 6 SCC 359 to emphasize that the August Judgment required the respondents to deposit the shortfall amount in the manner suggested by the learned Single Judge.
• The Court relied on Maninderjit Singh Bitta vs. Union of India; (2012) 1 SCC 273 to state that inordinate delay in complying with court orders is contempt.
• The Court relied on Vedanta Ltd. (formerly known as M/s. Sesa Sterlite Ltd) vs. Goa Foundation and Ors.; 2021 SCC Online SC 476 to disapprove of delaying tactics in review petitions.

What weighed in the mind of the Court?

The Supreme Court’s decision was heavily influenced by the following:

• The Court emphasized the deliberate and willful disobedience of its orders by the respondents. The repeated failure to comply with the directions, despite multiple opportunities and a specific order, weighed significantly in the Court’s decision.
• The Court noted that the respondents’ claim of financial inability was not genuine, given their conduct and the fact that they had siphoned off funds to related parties.
• The Court highlighted that the respondents were seeking to re-agitate the same issues, which had been rejected earlier.
• The Court emphasized the need to maintain the rule of law and the faith and confidence of the people in thejudicial system. The Court noted that non-compliance with its orders shakes the foundation of the judicial system and undermines the rule of law.
• The Court emphasized that the contempt proceedings and execution proceedings are separate remedies and that the power to punish for contempt is not taken away by the fact that an order is executable.

Ratio of Fact to Law

The judgment has a significant factual component, as the Court extensively reviewed the timeline of events, the various orders passed, and the conduct of the parties. However, the legal principles were also crucial. The Court applied the principles of contempt of court, the nature of Section 9 applications, and the remedies available to parties in arbitration disputes. The ratio of fact to law in the judgment can be described as follows:

• Facts: The Court dedicated a substantial portion of the judgment to detailing the factual background of the case, including the initial agreements, the arbitration proceedings, the various court orders, and the actions of the parties. This factual analysis was critical in establishing the willful disobedience of the court’s orders.
• Law: The Court applied established legal principles related to contempt of court, the nature of interim measures under Section 9 of the Arbitration Act, and the distinction between contempt and execution proceedings. The Court also relied on several precedents to support its conclusions.

Overall, the judgment demonstrates a balanced approach, where both facts and law played a crucial role in the Court’s decision. The factual analysis was used to establish the willful disobedience, while the legal principles were applied to determine the maintainability of the contempt petition and the appropriate remedy.

Decision

The Supreme Court held Avitel in contempt of court for willful disobedience of the orders dated 19 August 2020 and 6 May 2021. The Court did not accept Avitel’s defense of financial inability, noting that they had siphoned off funds and failed to comply with the orders despite multiple opportunities. The Court emphasized that non-compliance with its orders undermines the rule of law. The Court also held that the contempt petition was maintainable, as the power to punish for contempt is not taken away by the fact that an order is executable.

Flowchart of the Case:

Key Takeaways

This case underscores the following key points:

• Compliance with Court Orders: The case highlights the importance of complying with court orders, even if they are interim in nature. Non-compliance can lead to contempt proceedings, which can have serious consequences.
• Willful Disobedience: The Court emphasized that contempt requires willful disobedience of court orders. A mere inability to comply may not be sufficient to avoid contempt, especially if the inability is due to deliberate actions or negligence.
• Contempt and Execution: The case clarifies that contempt proceedings and execution proceedings are separate remedies. A party can pursue both simultaneously if there is a violation of a court order.
• Interim Measures: The case reinforces the importance of interim measures granted under Section 9 of the Arbitration Act. Parties are expected to comply with such measures, and failure to do so can be considered contempt of court.
• Rule of Law: The case underscores the importance of maintaining the rule of law and the faith and confidence of the people in the judicial system. Non-compliance with court orders undermines the judicial system and cannot be tolerated.