The NCLT, the NCLAT and their Contempt Proceedings
This article has been written by Naman who is working as a Legal Associate at Jurist and Jurist International Law Firm, New Delhi.
Introduction
The Insolvency and Bankruptcy Code, 2016 (hereinafter referred as ‘Code’) was introduced in 2016 and was initially lauded as a welcome reform that would enable efficient and timely insolvency resolution. However, since its implementation, several problems and uncertainties have arisen. The ability to punish for contempt under the Code is one of the questions yet to be resolved. Contempt of court is a serious offence that can be committed by any person who disobeys or disregards the orders of a court or tribunal. There are several adjudicating authorities that are responsible for the resolution of insolvency proceedings under the Insolvency and Bankruptcy code like NCLT, NCLAT, DRT, High Court, and The Supreme Court. While Section 179 confers DRTs with the authority to consider insolvency proceedings involving partnerships and individual debtors, Section 60 of the Code deals in relation to insolvency resolution and liquidation for corporate people, including corporate debtors and personal guarantors. In this article the focus would be on the NCLT and the NCLAT and their contempt jurisdiction.
The National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) are two important institutions established under the Companies Act, 2013. The NCLT is a quasi-judicial body that adjudicates corporate disputes, insolvency, and other matters related to the functioning of companies. The NCLAT is a statutory appellate body that hears appeals against the orders passed by the NCLT. Both institutions play a very crucial role in ensuring the smooth functioning of the corporate sector in India.
However, several benches of the NCLT including the NCLAT have begun exercising contempt proceedings as adjudicating authorities under the Code to guarantee obedience to their rulings and the dates set forth by the Code. But other benches have concluded that they lack the necessary authority and powers to initiate contempt proceedings.
In this article, we will examine whether the NCLT and NCLAT have the power to initiate contempt proceedings under Insolvency and Bankruptcy Code and under which provision this power actually lies.
Contempt of Court
Contempt of court is a legal concept that refers to any action that interferes with the administration of justice or undermines the authority of the court or tribunal. Contempt can be of two types: civil contempt and criminal contempt. Civil contempt refers to the willful disobedience of a court order, whereas criminal contempt refers to conduct that tends to bring the court or tribunal into disrepute or undermines the dignity of the court.
Contempt of court is a serious offence in India, and the punishment for contempt can include a fine, imprisonment, or both. The power to initiate contempt proceedings is vested with the courts and tribunals, and they can take cognizance of contempt on their own or on the basis of a complaint made by a party or any other person. The terms ‘court’ and ‘courts’ are nowhere defined in the Contempt of Courts Act, 1971. The NCLT and the NCLAT have been explicitly given the authority to punish for contempt under the Companies Act of 2013. The issue at hand however is ‘whether or not the Insolvency Code’s proceedings fall under the purview of this express power’. And if not, then ‘if the Insolvency and Bankruptcy Code itself gives any express power to initiate contempt proceedings’.
Under the Companies Act, 2013, the adjudicating authorities can issue contempt under Section 425 of the Act but at the same time it nowhere mentions that the provision of the Act would extend to insolvency proceedings as well as no such specific provision is available under the Insolvency and Bankruptcy Code itself which confers such a power.
In order to resolve discrepancies between the Companies Act and the Insolvency Code so as to extend the applicability of provisions of the Act to Code proceedings, the Eleventh Schedule to the Insolvency Code revised certain provisions of the Companies Act. However, no amendments to Sections 425 (Power to Punish for Contempt) and 433 (Limitation) of the Companies Act were made to make them applicable to proceedings under the Insolvency Code. Therefore one could only reach a conclusion that unless otherwise permitted by law, the adjudicating authorities under Insolvency Code, 2016 and the tribunals under the Companies Act, 2013, do not share the same jurisdiction.
The issue of whether authorities under the Insolvency Code have the right to punish for contempt has not yet come before the Supreme Court. So it has not been yet finally settled if NCLT and NCLAT, being the adjudicating authorities, have jurisdiction to initiate contempt proceedings over alleged violations of their orders. While, in India tribunals if expressly authorised can exercise contempt proceedings and Tribunals that lack statutory authority to penalise for contempt may refer contempt cases to the relevant High Court. Therefore NCLT and NCLAT under the Companies Act have such powers but the same powers are not available to them under the Insolvency Code.
Strangely, there are different petitions being filed under different provisions for initiating contempt proceedings before the NCLT and the NCLAT. Among those the below mentioned are mostly preferred:
(i) Contempt petition under Section 425 of the Companies Act, 2013 read with Section 10 and 12 of the Contempt of Courts Act, 1971 and Rules 11 and 34 of the NCLT and NCLAT Rules, 2016 and;
(ii) Contempt petition under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 read with Rule 11 of the National Company Law Tribunal Rules, 2016. and;
(iii) Contempt petition under Section 151 of the Code of Civil Procedure, 1908, read with Rule 11 and 149 of the National Company Law Tribunal Rules, 2016.
The true wording of these sections are as under:
“Section 425: Power to punish for contempt.
The Tribunal and the Appellate Tribunal shall have the same jurisdiction, powers and authority in respect of contempt of themselves as the High Court has and may exercise, for this purpose, the powers under the provisions of the Contempt of Courts Act, 1971, which shall have the effect subject to modifications that—
(a) the reference therein to a High Court shall be construed as including a reference to the Tribunal and the Appellate Tribunal; and
(b) the reference to Advocate-General in section 15 of the said Act shall be construed as a reference to such Law Officers as the Central Government may, specify in this behalf.
Section 60: Adjudicating Authority for corporate persons.
…..
(5) Notwithstanding anything to the contrary contained in any other law for the time being in force, the National Company Law Tribunal shall have jurisdiction to entertain or dispose of—
(a) any application or proceeding by or against the corporate debtor or corporate person;
(b) any claim made by or against the corporate debtor or corporate person, including claims by or against any of its subsidiaries situated in India; and
(c) any question of priorities or any question of law or facts, arising out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor or corporate person under this Code.”
NCLT and The Contempt Proceedings
The NCLT is a quasi-judicial body that has been established under the Companies Act, 2013. It has been entrusted with the task of adjudicating corporate disputes, insolvency, and other matters related to the functioning of companies. The NCLT has been given the powers of a civil court, and it can summon witnesses, take evidence on oath, and enforce the attendance of witnesses and production of documents.
However, the question that arises is whether the NCLT has the power to initiate contempt proceedings. The answer to this question is not straightforward, as there is no clear provision in the Insolvency Code, 2016, that grants the NCLT the power to initiate contempt proceedings.
One argument in favour of the NCLT’s power to initiate contempt proceedings is that it has been vested with the powers of a civil court. Contempt of court is a civil offence, and therefore, it can be argued that the NCLT, being a civil court, has the power to initiate contempt proceedings.
However in K.K. Agarwal & Anr. V. M/s. Soni Infratech 2020[10], the Principal bench of the NCLT ruled that adjudicating authorities lack contempt jurisdiction. The NCLT bench held that the legislature, through Schedule 11 of the Insolvency Code, has already established which parts and provisions of the Companies Act will apply to the Insolvency Code, and the power to initiate contempt proceedings was not extended to the Insolvency Code. The NCLT thus ruled that adjudicating authorities could not exercise contempt authority under the Code because these actions needed exceptional jurisdiction, which could only be granted by express legislative consent. This was because Section 425 of the Act had not been changed in this way.
NCLAT and The Contempt Proceedings
As in the case of the NCLT, there is no clear provision in the Insolvency Code, 2016, that confers the power to initiate contempt proceedings on the NCLAT also. The question, therefore, remains here also is whether the NCLAT has the power to initiate contempt proceedings.
The answer to this question is rather more complex, as there is no clear precedent on whether the NCLAT has the power to initiate contempt proceedings. However, there are some arguments in favour of conferring this power on the NCLAT.
One argument is that the NCLAT is a higher court than the NCLT, and therefore, it should have the power to initiate contempt proceedings. This argument is based on the principle that a higher court should have all the powers of a lower court, as well as additional powers that are necessary to ensure the smooth functioning of the judicial system.
Still, there are also arguments against conferring the power to initiate contempt proceedings on the NCLAT. One argument is that the power to initiate contempt proceedings is a serious power that should be exercised only by courts and tribunals that have been specifically empowered by law to do so. The Insolvency Code, 2016, does not specifically confer this power on the NCLAT, and therefore, it can be argued that the NCLAT should not have this power.
Another argument is that the NCLAT is a specialised tribunal that has been established to hear appeals against the orders of the NCLT. Its role is limited to that of an appellate body, and it does not have the power to initiate proceedings on its own. Therefore, it can be argued that the NCLAT should not have the power to initiate contempt proceedings.
However, through Shailendra Singh v. Nisha Malpani (2021) ibclaw.in 528 NCLAT[11], the NCLAT overturned the NCLT’s ruling in K.K. Agarwal and ruled that such a narrow interpretation could not be used and that adjudicating authorities may proceed and punish for contempt even if the Code does not expressly grant such a jurisdiction. The appellate tribunal has thus held that during the insolvency proceedings, Section 425 of the Companies Act, 2013 may be invoked and initiated by the appropriate authority.
Still, there are no specific and separate rules or provisions that confer the power to be exercised by the adjudicating authorities in cases of contempt of their orders and lawful authority. While the Supreme Court has held that Tribunals can institute contempt proceedings to secure the interest of justice and the majesty of the judicial system.
The Apex Court has held thus in the case of Sudhakar Prasad vs. Govt. of A.P. and Ors. 2000 SC (13.12.2000):
- …We are, therefore clearly of the opinion that there is no anathema in the Tribunal exercising jurisdiction of High Court and in that sense being supplemental or additional to the High Court but at the same time not enjoying status equivalent to High Court and also being subject to judicial review and judicial superintendence of the High Court.
- Contempt jurisdiction is exercised for the purpose of upholding the majesty of law and dignity of the judicial system as also of the courts and Tribunals entrusted with the task of administering delivery of justice. Power of contempt has often been invoked, as a step in that direction, for enforcing compliance of orders of courts and punishing for lapses in the matter of compliance. The majesty of the judicial system is to be ensured so that it may not be lowered and the functional utility of the constitutional edifice is preserved from being rendered ineffective.
The Inherent Powers
In exercise of power conferred by Section 469 of the Companies Act, 2013, the Central Government has made the National Company Law Tribunal Rules, 2016, hereinafter, referred to as the “NCLT Rules, 2016” and the National Company Law Appellate Tribunal Rules, 2016, hereinafter, referred to as the “NCLAT Rules, 2016”.
Rule 11 of the both the Rules reads as :-
“11. Inherent Powers.- Nothing in these rules shall be deemed to limit or otherwise affect the inherent powers of the Tribunal to make such orders as may be necessary for meeting the ends of justice or to prevent abuse of the process of the Tribunal.”
One argument is that NCLT has been conferred with inherent powers, but the same cannot be utilised to institute contempt proceedings as there is no specific provision related to contempt under the Insolvency Code.
Another argument is that Inherent powers are those powers that are not specifically conferred by law but are necessary to ensure the smooth functioning of a court or tribunal to ensure the proper administration of justice and the NCLAT being the superior tribunal has the inherent power to initiate contempt proceedings.
Though both the NCLT Rules, 2016 and the NCLAT Rules, 2016 have express provisions for ‘Inherent Powers’ but the same cannot not solely be relied upon to initiate contempt proceedings as they being ‘rules’ are always read with some other ‘provisions’ and as there are no specific provisions in the code to initiate contempt proceedings therefore these rules conferring ‘Inherent Powers’ have no specific provisions under the code to be read with to institute contempt proceedings.
Conclusion
In conclusion, the question of whether the NCLT and NCLAT have the power to initiate contempt proceedings is a complex one. While there are arguments in favour of conferring this power on the NCLAT, there is no clear precedent on this issue. Several benches of NCLT, on the other hand, have held that they do not have the powers to initiate contempt proceedings.
Given the importance of the power to initiate contempt proceedings, it may be necessary to consider amending the Companies Act, 2013 and the Insolvency and Bankruptcy Code, 2016 to specifically confer this power on the NCLAT. This would ensure that the NCLAT has all the necessary powers to ensure the proper administration of justice in the corporate sector.
In any case, it is important to ensure that the power to initiate contempt proceedings is exercised judiciously and only in cases where it is necessary to ensure the proper functioning of the judicial system. Contempt of court is a serious offence, and the power to initiate proceedings should be used sparingly and only as a last resort. Until and unless express provisions are made, the conundrum of the contempt jurisdiction of adjudicating authorities under the Insolvency Code is going to remain, which is also evident from the filings preferred before them. Unless the question of contempt jurisdiction under the Insolvency and Bankruptcy Code gets settled, petitions will continue to be filed under different provisions.
However, the ruling of the principal bench in K.K.Agarwal v. Soni Infratech Private Limited, which held that Section 425 was not applicable in proceedings under the IBC, would continue to be correct until an express provision is added extending the power under Section 425 to proceedings under the IBC. Till such time the undeclared power to issue contempt order under the Insolvency Code will remain.
Reference
[10] https://ibbi.gov.in/uploads/order/69aa0a10d5afb58e51bd8c739e1b0b75.pdf
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