Date of the Judgment: 15 November 2019
Citation: 2019 INSC 1137
Judges: Ranjan Gogoi, CJI, Deepak Gupta, J., Sanjiv Khanna, J.
Can repeated assurances and undertakings given to a court be disregarded with impunity? The Supreme Court of India addressed this critical question in a contempt case arising from a dispute over a foreign arbitral award. The court found several directors of various companies guilty of contempt for violating its orders and the undertakings given to the Delhi High Court, highlighting the importance of respecting judicial proceedings. This judgment was delivered by a three-judge bench comprising Chief Justice Ranjan Gogoi, Justice Deepak Gupta, and Justice Sanjiv Khanna, with Justice Deepak Gupta authoring the judgment.
Case Background
The case stems from an international arbitration award in favor of Daiichi Sankyo Company Limited (the petitioner) against several respondents, including Malvinder Mohan Singh (MMS) and Shivinder Mohan Singh (SMS), for approximately Rs. 3500 crores. The award was challenged in both Singapore and India, but the objections were dismissed, making the award enforceable. The petitioner initiated enforcement proceedings in the Delhi High Court, where the respondents made multiple assurances to protect the petitioner’s interests.
The respondents, through their companies Oscar Investments Limited (OIL) and RHC Holding Private Limited (RHC), held a significant stake in Fortis Healthcare Limited (FHL) through Fortis Healthcare Holding Private Limited (FHHPL). The petitioner, fearing that the respondents would dissipate their assets, sought court orders to prevent them from alienating their holdings.
Timeline
| Date | Event |
|---|---|
| 29.04.2016 | Arbitral award passed in Singapore in favour of Daiichi Sankyo Company Limited. |
| 24.05.2016 | First assurance given by respondents to Delhi High Court to protect petitioner’s interest. |
| 25.07.2016 | Delhi High Court directs respondents to disclose details of assets. |
| 23.01.2017 | Second assurance given by respondents to Delhi High Court, reiterating the earlier assurance. |
| 06.03.2017 | Third assurance given by respondents, promising to furnish details of unencumbered assets. |
| 25.05.2017 | FHL issues notice to shareholders proposing increase in foreign investors’ shareholding. |
| 19.06.2017 | Fourth assurance given that status of unencumbered assets and shareholding would not be changed. |
| 20.06.2017 | Newspaper report of IHH Healthcare Bhd. acquiring 26% stake in FHL. |
| 21.06.2017 | Fifth assurance/undertaking given that the value of shares held by OIL and RHC would not be diminished. |
| 11.08.2017 | Supreme Court directs status quo on shareholding of FHHPL in FHL. |
| 14.08.2017 | 30,59,260 shares of FHHPL in FHL pledged in favor of Indiabulls Housing Finance Limited (IHFL). |
| 31.08.2017 | Supreme Court clarifies its order, applying it to both encumbered and unencumbered shares. |
| 15.02.2018 | Supreme Court clarifies its interim orders, excluding shares encumbered before 11.08.2017 and 31.08.2017. |
| 23.02.2018 | Supreme Court orders that the interim order of 15.02.2018 will continue until the High Court decides the matter. |
| 06.09.2018 – 18.09.2018 | Indiabulls Ventures Limited (IVL) transfers 12,25,000 shares of FHL held by FHHPL to IHFL. |
| 14.12.2018 | Supreme Court orders status quo on the sale of controlling stake in FHL to IHH Healthcare Berhad. |
| 15.01.2019 | FHL completes the transaction involving acquisition of assets from Singapore based RHT. |
Course of Proceedings
The petitioner initially filed an application before the Delhi High Court seeking to restrain the respondents from alienating their assets. The High Court, based on repeated assurances from the respondents, did not pass any restraint orders. However, the respondents continued to dispose of their assets, leading the petitioner to file multiple applications and eventually a contempt petition. The Supreme Court intervened, directing the maintenance of status quo with respect to the shareholding of FHHPL in FHL. Despite these orders, the respondents continued to transfer shares, leading to the present contempt proceedings.
Legal Framework
This case primarily involves the interpretation and application of the Contempt of Courts Act, 1971, specifically Section 2(b), which defines civil contempt as “wilful disobedience to any judgment, decree, direction, order or writ of a court or wilful breach of an undertaking given to a court.” The case also touches upon the enforcement of foreign arbitral awards under the Arbitration and Conciliation Act, 1996, though the main focus remains on the contempt of court.
- Section 2(b) of the Contempt of Courts Act, 1971: Defines civil contempt as “wilful disobedience to any judgment, decree, direction, order or writ of a court or wilful breach of an undertaking given to a court.”
Arguments
The petitioner argued that the respondents had repeatedly violated the orders of the Supreme Court and the undertakings given to the Delhi High Court by transferring shares of FHL held by FHHPL. The petitioner contended that these transfers were made to diminish the value of assets available to satisfy the arbitral award.
Arguments of Contemnors 1 to 8 (IHFL and IVL)
- IHFL contended that loan facilities were granted to companies controlled by MMS and SMS, and shares were pledged as security.
- They claimed a power of attorney dated 28.11.2016 allowed them to transfer shares to match the outstanding loan amount.
- They asserted that no shares were pledged after 11.08.2017 and that the transfers in September 2018 were based on prior instructions.
- They relied on the order dated 15.02.2018, which clarified that the status quo order did not apply to shares encumbered before 11.08.2017.
Arguments of Contemnors 9 and 10 (MMS and SMS)
- MMS and SMS argued that they had lost control over the companies due to the sale of encumbered shares.
- SMS claimed he was not involved in the administration of the companies, having gone into religious service.
- They contended that the transfers were due to the sale of encumbered shares, not a deliberate attempt to violate court orders.
The Court noted that the respondents’ actions directly contradicted their assurances and undertakings. The Court also observed that the transfer of shares was not limited to encumbered shares but also included unencumbered shares, which were explicitly protected by the court’s orders.
Submissions
| Main Submission | Sub-Submissions | Party |
|---|---|---|
| Violation of Court Orders |
|
Petitioner |
| Transfers Based on Prior Agreements |
|
Contemnors 1 to 8 (IHFL and IVL) |
| Loss of Control |
|
Contemnors 9 and 10 (MMS and SMS) |
Issues Framed by the Supreme Court
- Whether contemnors 1 to 8 violated the orders of the Supreme Court dated 11.08.2017, 31.08.2017, and 15.02.2018.
- Whether contemnors 9 and 10 violated the orders of the Supreme Court dated 11.08.2017, 31.08.2017, and 15.02.2018.
- Whether the transfer of 12,25,000 shares by IHFL and IVL was in violation of the court’s orders.
- Whether the actions of the contemnors undermined the authority of the court.
Treatment of the Issue by the Court
| Issue | Court’s Decision and Reasoning |
|---|---|
| Violation by Contemnors 1 to 8 | The Court found that contemnors 1 to 8 (IHFL and IVL) violated the orders by transferring 12,25,000 shares, which were not proven to be encumbered before 31.08.2017. The Court emphasized that even if a power of attorney existed, it could not be used to violate court orders. |
| Violation by Contemnors 9 and 10 | The Court held that contemnors 9 and 10 (MMS and SMS) also violated the orders by failing to maintain the shareholding as directed and by transferring both encumbered and unencumbered shares. The Court noted that their actions were a deliberate attempt to defeat the petitioner’s rights. |
| Transfer of 12,25,000 Shares | The Court determined that the transfer of 12,25,000 shares was a violation, as these shares were unencumbered and the transfer occurred after the status quo order. |
| Undermining Court Authority | The Court concluded that the actions of contemnors 9 and 10 undermined the authority of the Court, as they misused the legal process to avoid paying the petitioner. |
Authorities
| Authority | Court | How it was Considered | Legal Point |
|---|---|---|---|
| Contempt of Courts Act, 1971, Section 2(b) | Statute | Explained and applied to define civil contempt. | Definition of Civil Contempt |
Judgment
| Submission | Treatment by the Court |
|---|---|
| IHFL’s claim that transfers were based on prior agreements | Rejected. The Court held that even if a power of attorney existed, it could not be used to violate court orders. The transfers were deemed a wilful disobedience of the order directing maintenance of status quo. |
| MMS and SMS’s claim that they lost control due to sale of encumbered shares | Rejected. The Court found that both encumbered and unencumbered shares were transferred, and the respondents failed to provide a satisfactory explanation. The court also noted that they had a well thought out scheme to dilute their shareholdings. |
How each authority was viewed by the Court?
- The Court relied on Section 2(b) of the Contempt of Courts Act, 1971 to define and establish the grounds for civil contempt, emphasizing that the respondents’ actions constituted wilful disobedience of court orders and a breach of undertakings.
What weighed in the mind of the Court?
The Supreme Court was deeply concerned by the repeated violations of its orders and the undertakings given to the Delhi High Court. The Court noted that the respondents had engaged in a well-thought-out scheme to dilute their shareholdings and transfer assets to avoid paying the petitioner, undermining the authority of the Court. The Court also emphasized that the respondents had not been truthful and honest in court, hiding relevant material which is not acceptable.
| Sentiment | Percentage |
|---|---|
| Violation of Court Orders | 40% |
| Breach of Undertakings | 30% |
| Deliberate Scheme to Defraud | 30% |
| Ratio | Percentage |
|---|---|
| Fact | 60% |
| Law | 40% |
Court Orders Status Quo on Shareholding
Respondents Transfer Shares
Court Finds Transfer of Unencumbered Shares
Contempt of Court Established
The Court’s reasoning was based on the following points:
- The respondents had given repeated assurances and undertakings to the Delhi High Court, which they subsequently violated.
- The respondents transferred not only encumbered shares but also unencumbered shares, which were protected by the court’s orders.
- The respondents failed to provide a satisfactory explanation for the reduction in shareholding.
- The Court found that the respondents had engaged in a deliberate scheme to dilute their shareholdings and transfer assets to avoid paying the petitioner.
- The Court emphasized the importance of truthfulness and honesty in court proceedings.
The Court considered the arguments of the contemnors but rejected them, finding that they were a lame excuse for wilful disobedience of the court’s orders.
The Court held that:
- Contemnors 1 to 8 (directors of IHFL and IVL) were guilty of knowingly and wilfully disobeying the orders of the Court.
- Contemnors 9 and 10 (MMS and SMS) were guilty of wilfully and contumaciously disobeying the orders of the Court.
- The actions of contemnors 9 and 10 undermined the authority of the Court.
The Court noted that the respondents’ actions had resulted in the shareholding of FHHPL in FHL virtually vanishing, and that this was a well-thought-out plan to deprive the petitioner of the amounts due to it.
The Court quoted:
- “Civil contempt is defined under the Contempt of Courts Act, 1971 under Section 2(b) to mean wilful disobedience of any judgment, decree, direction, order of the Court of wilful breach of an undertaking given to the Court.”
- “A litigant should always be truthful and honest in court. One who seeks equity must not hide any relevant material.”
- “No person or institution howsoever powerful, can be permitted to misuse the process of the Court.”
There were no dissenting opinions.
The Court analyzed the facts, the legal provisions, and the conduct of the respondents, concluding that there was a clear case of contempt of court. The Court emphasized that the orders were to be read along with the solemn assurances and undertakings given by the contemnors before the Delhi High Court.
The Court also discussed the potential implications for future cases, noting that the conduct of the respondents had undermined the authority of the court and that such actions cannot be tolerated.
Key Takeaways
- Repeated assurances and undertakings given to a court must be honored.
- Courts will not tolerate wilful disobedience of their orders.
- Parties must be truthful and honest in court proceedings.
- Attempts to circumvent court orders through complex schemes will be met with strict action.
- The authority of the court must be respected, and any actions that undermine it will be dealt with severely.
Directions
The Court issued the following directions:
- Contemnors 1 to 8 were given an opportunity to purge themselves of contempt by depositing the value of 12,25,000 shares as on 31.08.2017 in the Bombay Stock Exchange within eight weeks.
- Contemnors 9 and 10 were given an opportunity to purge themselves of contempt by depositing Rs. 1170.95 crores each in the Court within eight weeks.
- The Registry was directed to register a suo moto contempt petition against RHC, OIL, MMS, SMS, and FHL for violating the order dated 14.12.2018.
Development of Law
This case reinforces the principle that wilful disobedience of court orders and breach of undertakings given to the court constitute contempt of court. The ratio decidendi of this case is that the court will not tolerate any attempt to circumvent its orders and will take strict action against those who do so. There is no change in the previous positions of law.
Conclusion
The Supreme Court found the directors of Indiabulls Housing Finance Limited, Indiabulls Ventures Limited, Oscar Investments Limited, and RHC Holding Private Limited guilty of contempt of court for violating its orders and the undertakings given to the Delhi High Court. The Court emphasized the importance of respecting judicial proceedings and ensuring that court orders are followed. The Court also highlighted that any attempt to circumvent court orders would be met with strict action.