Wilful breach of undertaking given to Court would tantamount to Contempt of Court: Apex Court

Case Details: Suman Chadha v. Central Bank of India - [2021] 131 taxmann.com 161 (SC)

Judiciary and Counsel Details

• • Indira Banerjee and V. Ramasubramaniam, JJ.
  • Santosh Kumar, AOR for the Petitioner. Anuj Jain, Mukesh Verma, Anurag Agarwal, Advs. and Yash Pal Dhingra, AOR for the Respondent.

Facts of the Case

In the instant case, the petitioners were directors of a company ‘P’, which availed loan/credit facilities from the respondent bank. The petitioners guaranteed the repayment of the loan and had also offered their immovable property as security.
The loan of the bank was categorized as a Non-Performing Asset due to defaults in repayment. A notice under section 13(2) was issued followed by a possession notice under section 13(4) the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

Aggrieved by the same, the petitioners approached Debts Recovery Tribunal (DRT), under section 17. However, the DRT declined to grant any interim relief against the physical possession of the aforesaid properties.

The petitioners filed an appeal but could not deposit Rs. 7 crores being 25 per cent of the amount demanded in the notice under section 13(2). Eventually, the appeal was dismissed as withdrawn.

In addition to the foregoing, the writ petition came for admission the petitioners admitted liability and offered, by way of a statement under oath, to deposit Rs. 7 crores, i.e., 25 per cent of the notice amount in three instalments. The bank gave its assent and thereafter the High Court ordered that the possession of the properties of the petitioners would not be disturbed subject to the petitioners depositing Rs. 7 crores.

However, the cheque deposited for installment was dishonored. Therefore, the bank filed a petition under sections 10 and 12 of the Contempt of Courts Act, 1971 for punishing the petitioners for willful and deliberate breach of their undertaking.

Though the petitioners resisted the contempt petition on the ground that breach of an undertaking, made with a view to secure a conditional order of stay may not be tantamount to contempt, especially when the consequences for breach of such undertaking was spelled out in the order of the Court itself, the Judge was not convinced. Therefore, High Court held the petitioners guilty of contempt and sentenced them to simple imprisonment for three months with a fine of Rs. 2000 each.

As a result, the petitioners raised a defense that they had issued post-dated cheques in the hope of receiving amounts due to them from their debtors and that their debtors failed to make payment. The petitioners also named three debtors from whom they were expected to receive money.

Doubting the genuineness of the claim made by the petitioners, the Judge before whom the contempt petition came up, passed an order directing an investigation by the Serious Fraud Investigation Office (SFIO). To the misfortune of the petitioners, SFIO submitted a report that the alleged debtors of the petitioners are only shell entities of PPPL, of which the petitioners were directors.

The High Court came to the conclusion that the petitioners had actually played a fraud upon the Court and thus, held the petitioners guilty of contempt of the court. Thereafter, an appeal was filed to the Apex Court.

Supreme Court Held

After investigation, the Apex Court noted that the series of acts committed by the petitioners (i) in issuing post-dated cheques, which were dated beyond the date within which they had agreed to make payment; (ii) in allowing those cheques to be dishonoured; (iii) in not appearing before the Court on the first date of hearing with an excuse that was found to be false; (iv) in coming up with an explanation about their own debtors committing default; and (v) in getting exposed through the report of the SFIO, convinced the High Court to believe that the undertaking given by the petitioners was not based upon good faith but intended to hoodwink the Court. Therefore, there is no fault with the order of High Court holding the petitioners guilty of contempt.

In view of the fact that the immovable properties which the petitioners attempted to save, by approaching the DRT and the High Court, have already been sold. All the attempts made by the petitioners from 2015 onwards, to save the mortgaged properties have been in vain.

Therefore, the SLP was disposed of upholding the finding of the High Court that the petitioners were guilty of contempt of court, but reducing the period of sentence from three months to the period of imprisonment already suffered/undergone by the petitioners.

Case Review

• • Central Bank of India v. Suman Chadha [2017] 84 taxmann.com 76 (Delhi) (para 31) SLP dismissed.

List of Cases Referred to

• • Narain Singh v. Lala Rajendra Lal 1976 SCC Online All. 425 (para 8)
  • Indian Overseas Bank v. Lalit Kumar Aggarwal 2000 SCC Online Delhi 710 (para 8)
  • K. Saravankumar v. Sheela 2008 (3) CTC 669 (para 8)
  • National Agricultural Cor. Marketing v. Reliance Polycrete Ltd. [2009] 163 DLT 441 (para 8)
  • Dinesh Kumar Gupta v. United India Insurance Co. Ltd. [2010] 12 SCC 770 (para 9)
  • Niaz Mohammad v. State of Haryana [1994] 6 SCC 332 (para 9)
  • Bank of Baroda v. Sadruddin Hasan Daya [2004] 1 SCC 360 (para 10)
  • Rama Narang v. Ramesh Narang [2006] 11 SCC 114 (para 10)
  • Rama Narang v. Ramesh Narang [2007] 75 SCL 215 (SC) (para 10)
  • Babu Ram Gupta v. Sudhir Bhasin [1980] 3 SCC 47 (para 16).