Supreme Court Holds Contemnors Guilty for Disobeying Orders in Arbitration Case: Urban Infrastructure Real Estate Fund vs. Dharmesh S. Jain (2022) INSC 200 (10 March 2022)

Date of the Judgment: 10 March 2022
Citation: (2022) INSC 200
Judges: M.R. Shah, J. and B.V. Nagarathna, J.

Can a party repeatedly delay compliance with court orders and then claim they are not bound by them? The Supreme Court of India recently addressed this question in a contempt case arising from an arbitration dispute. The Court found the respondents guilty of willfully disobeying court orders, highlighting the importance of respecting judicial directives. This case underscores the Court’s commitment to ensuring that its orders are not treated lightly.

Case Background

The case involves a dispute arising from an arbitral award in favor of Urban Infrastructure Real Estate Fund (the petitioner) against Dharmesh S. Jain and another (the respondents). The arbitrator had ordered specific performance of a Share Purchase Agreement and awarded the petitioner Rs. 78,33,37,500 with 18% annual interest from December 20, 2014. The respondents challenged this award, leading to a series of court proceedings.

Initially, the High Court stayed the arbitral award on the condition that the respondents deposit 50% of the awarded amount. The respondents repeatedly sought extensions to comply with this condition but failed to do so. Despite multiple opportunities and extensions, the respondents did not deposit the amount. The Supreme Court eventually dismissed their appeal and directed them to comply with the High Court’s order.

Timeline:

Course of Proceedings

The petitioner, Urban Infrastructure Real Estate Fund, initially filed an execution petition before the High Court to enforce the arbitral award. The respondents challenged the award by filing a Commercial Arbitration Petition No. 55 of 2019 in the High Court. The High Court, while staying the award, directed the respondents to deposit 50% of the awarded amount. The respondents appealed this order, seeking multiple extensions to deposit the amount, which were granted.

The High Court dismissed the appeal. The respondents then filed a special leave petition before the Supreme Court, which was also dismissed. The Supreme Court granted the respondents eight weeks to comply with the High Court’s order. Subsequently, the petitioner filed a miscellaneous application to recall the extension granted. The Supreme Court then directed the respondents to comply with the High Court’s order, warning of serious consequences for non-compliance. Despite these clear directions, the respondents failed to deposit the amount, leading to the contempt petition.

Legal Framework

The case primarily involves the interpretation and application of the following legal provisions:

• Section 34 of the Arbitration and Conciliation Act, 1996: This section deals with applications to set aside an arbitral award. The respondents had filed a petition under this section in the High Court challenging the arbitral award.

• Section 36 of the Arbitration and Conciliation Act, 1996: This section pertains to the enforcement of arbitral awards. The respondents argued that non-compliance with the conditional stay order would mean the award becomes executable under this section.

• Contempt of Courts Act, 1971: This Act defines and punishes contempt of court. The petitioner sought to punish the respondents for willfully disobeying the orders of the High Court and the Supreme Court.

Arguments

Respondents’ Arguments:

• The respondents argued that the High Court’s order dated 08.08.2019 was not a mandatory direction to deposit 50% of the awarded amount but a conditional stay order. They contended that non-compliance would only lead to the vacation of the stay, making the arbitral award executable under Section 36 of the Arbitration and Conciliation Act, 1996.

• They submitted that the Supreme Court’s order dated 17.09.2021 merely extended the time for compliance with the High Court’s order and did not constitute a fresh direction. They also argued that the subsequent order dated 28.10.2021 was not a mandatory direction, the non-compliance of which would warrant contempt proceedings.

• The respondents claimed that they had made honest efforts to comply with the deposit condition but faced “grave and insurmountable challenges/difficulties.” They also stated that negotiations were ongoing and that they had given a demand draft of Rs. 5 crores and were ready to submit a further sum of Rs. 5 crores.

• They relied on the case of R.N. Dey and Ors. Vs. Bhagyabati Pramanik and Ors., (2000) 4 SCC 400, arguing that contempt proceedings cannot be used for executing a decree or implementing an order for which law provides an appropriate procedure.

Petitioner’s Arguments:

• The petitioner argued that the respondents had deliberately delayed the execution of the award by seeking extensions and making the Court believe they would comply with the deposit order. They highlighted that the respondents had not even complied with the High Court’s order to disclose their assets.

• The petitioner contended that the Supreme Court’s order dated 28.10.2021 was a specific mandatory direction to deposit the amount, and non-compliance would have serious consequences. They pointed out that the respondents themselves had stated in their application to recall the order that it was a mandatory direction.

• The petitioner submitted that the respondents’ claim of financial difficulties was an afterthought, as they had not raised this issue earlier. They argued that the respondents had the financial capacity to comply with the orders.

• The petitioner relied on the cases of Rama Narang Vs. Ramesh Narang & Anr., (2006) 11 SCC 114, Bank of Baroda Vs. Sadruddin Hasan Daya & Anr. (2004) 1 SCC 360, and Rita Markandey Vs. Surjit Singh Arora, (1996) 6 SCC 14, to argue that the respondents should be punished for willful disobedience.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the core issues addressed by the Court were:

1. Whether the respondents willfully disobeyed the order of the High Court dated 08.08.2019.
2. Whether the respondents willfully disobeyed the order of the Supreme Court dated 28.10.2021.
3. Whether the respondents should be held guilty of contempt of court for such disobedience.

Additionally, the Court also considered the following sub-issues:

• Whether the order to deposit 50% of the award amount was a mandatory direction or a conditional order.
• Whether the respondents’ claim of financial difficulties was a valid reason for non-compliance.
• Whether the availability of execution proceedings precluded contempt proceedings.

Treatment of the Issue by the Court:

Authorities

The Supreme Court considered the following authorities while reaching its decision:

Cases:

Legal Provisions:

Judgment

How each authority was viewed by the Court?

• The Court distinguished R.N. Dey and Ors. Vs. Bhagyabati Pramanik and Ors., (2000) 4 SCC 400, stating that in the present case, the High Court’s order was stayed subject to a deposit, and the contemnors had taken advantage of the extended time period.
• The Court relied upon Rama Narang Vs. Ramesh Narang & Anr., (2006) 11 SCC 114, Bank of Baroda Vs. Sadruddin Hasan Daya & Anr. (2004) 1 SCC 360, and Rita Markandey Vs. Surjit Singh Arora, (1996) 6 SCC 14 to support its view that contempt jurisdiction could be invoked in this case.
• The Court distinguished Sudhir Vasudeva vs. M. George Ravishekaran – [(2014) 3 SCC 373], stating that in the present case, the orders clearly required the contemnor to deposit the amount within the specified period.
• The Court relied upon State of Bihar vs. Subhash Singh – [(1997) 4 SCC 430] and Maruti Udyog vs. Mahinder C. Mehta – AIR 2008 SC 309 to support its view that the respondents should have either explained their non-compliance or sought an extension of time.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the respondents’ repeated attempts to delay compliance with court orders and their lack of bonafides. The Court emphasized that the respondents had taken advantage of extensions granted by the High Court and the Supreme Court, and then tried to argue that the orders were not mandatory. The Court also noted that the respondents had not disclosed their assets for a long time, further indicating a lack of respect for judicial processes.

Logical Reasoning:

The Court rejected the respondents’ argument that the order to deposit was not mandatory. The Court emphasized that the respondents had been given ample time and opportunity to comply with the orders. The Court also rejected the respondents’ claim of financial difficulties, finding it to be an afterthought.

The Court stated, “Despite there being a specific direction issued by this Court in the order dated 28.10.2021 directing the respondents to comply with and deposit the amount to be deposited as per the order passed by the High Court dated 08.08.2019 positively and within the time granted by this Court by order dated 17.09.2021 in Special Leave Petition (C) No. 14724 of 2021, the respondents have the audacity to submit before this Court that no direction has been issued by this Court in the order dated 28.10.2021.”

The Court further noted, “In the order dated 28.10.2021, there is a specific direction issued by this Court directing the respondents herein – original petitioners in special leave petition to comply with and deposit the amount to be deposited as per the order passed by the High Court positively and within the time granted by this Court (eight weeks) as mentioned in the order dated 17.09.2021.”

The Court concluded, “In view of the above and for the reasons stated above, we are of the firm view that the respondents have willfully disobeyed the order passed by the High Court dated 08.08.2019 in Notice of Motion No. 960 of 2019 in Commercial Arbitration Petition No. 55 of 2019 and have willfully disobeyed the order dated 28.10.2021 passed by this Court in Miscellaneous Application No. 1668 of 2021 in Special Leave Petition (C) No. 14724 of 2021 and thereby the respondents are guilty of civil contempt.”

There were no dissenting opinions in this judgment.

Key Takeaways

• Parties must comply with court orders and cannot repeatedly seek extensions and then claim that the orders are not mandatory.

• The Supreme Court takes a serious view of willful disobedience of its orders and will not hesitate to invoke its contempt jurisdiction.

• Claims of financial difficulty must be made in good faith and at the earliest opportunity, not as an afterthought.

• The availability of alternative remedies, such as execution proceedings, does not preclude contempt proceedings for willful disobedience of court orders.

Directions

The Supreme Court held the respondents, particularly respondent No. 1, guilty of contempt of court for willful disobedience of the order passed by the High Court dated 08.08.2019 and the order dated 28.10.2021 passed by this Court. The respondents were directed to appear before the court for a hearing on sentencing.

Development of Law

The ratio decidendi of this case is that parties cannot repeatedly delay compliance with court orders and then claim they are not bound by them. The Supreme Court reaffirmed that its orders must be respected and that willful disobedience will be met with contempt proceedings. This case reinforces the Court’s position that it will not allow parties to abuse the judicial process by delaying compliance and then claiming the orders were not mandatory.

Conclusion

The Supreme Court found the respondents guilty of contempt for willfully disobeying the orders of the High Court and the Supreme Court. The Court emphasized that its orders must be complied with and that parties cannot repeatedly delay compliance and then claim that the orders are not mandatory. This judgment underscores the importance of respecting judicial directives and the Court’s commitment to ensuring that its orders are not treated lightly. The respondents were held liable for suitable punishment under the provisions of the Contempt of Courts Act.