Supreme Court Sets Aside NCLAT Judgment for Defiance of Court Order in Orbit Electricals vs. Deepak Kishan Chhabria (2023)

Date of the Judgment: 30 October 2023

Citation: 2023 INSC 967

Judges: Dr. Dhananjaya Y Chandrachud, CJI, J.B. Pardiwala, J., and Manoj Misra, J.

Can a judicial tribunal disregard a direct order from the Supreme Court? The Supreme Court of India recently addressed this critical question in a contempt case involving the National Company Law Appellate Tribunal (NCLAT). The core issue was whether the NCLAT defied the Supreme Court’s explicit directions by proceeding to deliver a judgment despite being informed of the Supreme Court’s order. The Supreme Court, in a unanimous decision authored by Dr. Dhananjaya Y Chandrachud, CJI, found that the NCLAT had indeed acted in defiance of its order.

Case Background

The case originated from a dispute between Orbit Electricals Private Limited and Deepak Kishan Chhabria & Ors. The National Company Law Tribunal (NCLT) had dismissed an application for interim relief filed by the first respondent on 31 December 2019. The first respondent then appealed to the NCLAT. While the appeal was pending, the NCLAT reserved its order on 21 September 2023 and directed the parties to maintain the status quo as it existed before 3 May 2019. This interim order was passed despite no interim relief being in effect since the NCLT’s dismissal on 31 December 2019. The Supreme Court vacated this interim order on 26 September 2023, noting that no reasons were given by the NCLAT for the interim order and that no interim relief had been in effect since 2019. The Supreme Court further directed that any action taken regarding the appointment of the Executive Chairperson in the Annual General Meeting (AGM) of Finolex Cables Limited, scheduled for 29 September 2023, would be subject to the outcome of the appeal pending before the NCLAT.

Timeline

Course of Proceedings

The Supreme Court’s order of 26 September 2023 vacated the NCLAT’s interim order. Subsequently, on 13 October 2023, the matter was mentioned before the Supreme Court in a contempt petition. The Supreme Court, noting that the declaration of the AGM result was being deferred, directed the scrutinizer to declare the result immediately and instructed the NCLAT to deliver its judgment only after being informed of the AGM results. Despite this, the NCLAT proceeded to deliver its judgment on 13 October 2023, even after being informed of the Supreme Court’s order. This led to the Supreme Court initiating an inquiry and ultimately setting aside the NCLAT’s judgment.

Legal Framework

The Supreme Court invoked its jurisdiction under Article 142 of the Constitution of India to ensure the dignity of the Court is maintained and to prevent the misuse of the court process. Article 142 empowers the Supreme Court to pass any order necessary for doing complete justice in any cause or matter pending before it.

The Supreme Court also referred to the following rules of the NCLAT:

• Rule 38 of the NCLAT Rules, 2016: This rule pertains to the submission of documents and citations to the Court Master before the commencement of proceedings.
• Rule 101 of the NCLAT Rules, 2016: This rule mandates that orders passed by the Supreme Court should be placed before the Chairperson or Members of the Appellate Tribunal.
• Rule 102 of the NCLAT Rules, 2016: This rule specifies the duty of the Registrar to ensure compliance with the directions of the Supreme Court.

Arguments

Petitioner’s Arguments:

• The petitioner argued that the NCLAT was duly informed of the Supreme Court’s order of 13 October 2023 in the morning session, which directed the NCLAT to pronounce its judgment only after the AGM results were declared.
• The petitioner contended that despite being apprised of this order, the NCLAT proceeded to deliver its judgment, thus defying the Supreme Court’s directions.
• The petitioner pointed out that the NCLAT’s claim that they were not aware of the Supreme Court’s order until 5:35 PM on 13 October 2023 was false, as the order had been communicated to them at around 2:15 PM.

Respondent’s Arguments:

• The respondents argued that the NCLAT followed its established procedure, which does not allow for mentioning of cases before the pronouncement of judgment.
• The respondents claimed that the order of the Supreme Court was not officially communicated to them before the judgment was pronounced.
• The respondents asserted that the NCLAT was not in wilful defiance of the Supreme Court’s order and that the judgment was delivered in accordance with their established practice.

Scrutinizer’s Arguments:

• The Scrutinizer argued that he had sought a legal opinion on how to treat the votes cast at the AGM, and based on that opinion, he withheld the results.
• The Scrutinizer claimed that he was acting in accordance with the legal advice he had received and was not in defiance of the Supreme Court’s orders.

Issues Framed by the Supreme Court

The Supreme Court did not frame explicit issues in this case. However, the core issue was whether the NCLAT had acted in contempt of the Supreme Court’s order by proceeding to deliver its judgment despite being informed of the Supreme Court’s directions.

Treatment of the Issue by the Court

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

Authorities

The Supreme Court did not rely on any specific cases or books in this judgment. The primary focus was on the sequence of events and the actions of the NCLAT in relation to the Supreme Court’s orders.

Judgment

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

How each authority was viewed by the Court?

• Article 142 of the Constitution of India: The Supreme Court invoked this article to set aside the NCLAT judgment and ensure the dignity of the court.
• Rule 38 of the NCLAT Rules, 2016: The Court noted that while this rule exists, the NCLAT should have allowed the order to be placed on record or deferred the judgment to allow for proper procedure.
• Rule 101 and 102 of the NCLAT Rules, 2016: The Court noted that the NCLAT did not follow these rules, as they were duty-bound to comply with the Supreme Court’s order.

What weighed in the mind of the Court?

The Supreme Court was primarily concerned with the defiance of its orders by the NCLAT. The court emphasized that a judicial tribunal cannot disregard the directions of the Supreme Court. The court also noted that the NCLAT had attempted to mislead the court by falsely claiming that they were not aware of the order until much later, and by not allowing the order to be placed on record. The court also took a serious view of the fact that the Scrutinizer acted in concert with one of the parties to delay the declaration of the AGM results.

Fact:Law Ratio

The court’s reasoning was primarily based on the factual sequence of events and the actions of the NCLAT and the Scrutinizer. While legal principles were applied, the court’s focus was on the factual evidence of defiance and non-compliance.

The Supreme Court considered the NCLAT’s claim that it was following its procedure of not allowing mentioning before judgment, but found that this did not justify the defiance of a direct order from the Supreme Court. The court also rejected the NCLAT’s claim that it was not aware of the order, based on the evidence presented.

The court’s decision was based on the following reasons:

• The NCLAT was duly apprised of the Supreme Court’s order before delivering its judgment.
• The NCLAT attempted to mislead the court by falsely claiming ignorance of the order.
• The NCLAT did not follow due procedure by not allowing the order to be placed on record.
• The Scrutinizer acted in concert with one of the parties to delay the declaration of the AGM results.

The Supreme Court quoted the following from the judgment:

• “We are constrained to observe that the order dated 16 October 2023 purports to create an impression that the Bench of the NCLAT was apprised of the order passed by this Court for the first time when the email was received at 5.35 pm on 13 October 2023. This prima facie is a falsehood…”
• “The manner in which the NCLAT has proceeded to deliver judgment in defiance of the directions of the Court is unbecoming of a judicial tribunal.”
• “A party cannot be allowed by recourse to devious means to obviate compliance with a solemn order passed by this Court.”

There were no dissenting opinions in this case. The bench was unanimous in its decision.

Key Takeaways

• Judicial tribunals are bound to comply with the orders of the Supreme Court.
• Defiance of the Supreme Court’s orders will not be tolerated.
• Parties cannot use devious means to circumvent the orders of the Supreme Court.
• The Supreme Court has the power to set aside judgments of lower tribunals that defy its orders.
• Commercial interests cannot misuse the court process for partisan purposes.

Directions

The Supreme Court issued the following directions:

• The judgment of the NCLAT dated 13 October 2023 was set aside.
• The appeal was to be heard afresh by a bench presided over by the Chairperson of the NCLAT.
• Mr. Deepak Kishan Chhabria was directed to pay Rs. One crore to the Prime Minister’s Relief Fund.
• Mr. V.M. Birajdar (the Scrutinizer) was directed to pay Rs. Ten lakhs to the Prime Minister’s Relief Fund.

Development of Law

The ratio decidendi of this case is that judicial tribunals are bound to comply with the orders of the Supreme Court, and defiance of such orders will not be tolerated. This case reinforces the principle of judicial hierarchy and the importance of maintaining the dignity of the court. There was no change in the previous position of law; rather, the Supreme Court reinforced the existing principles.

Conclusion

In conclusion, the Supreme Court’s judgment in Orbit Electricals vs. Deepak Kishan Chhabria & Ors. underscores the importance of respecting and complying with the orders of the apex court. The Supreme Court set aside the NCLAT’s judgment due to its defiance of the court’s directions. The court also imposed penalties on those who attempted to misuse the court process. This case serves as a reminder that no judicial body or individual is above the law and that the Supreme Court will act decisively to maintain its authority and ensure justice.