Udyog Limited Vs. Mahinder C. Mehta and Others  Insc 1033 (10 October 2007)
Sinha & Harjit Singh Bedi
PETITION (CIVIL) NO. 289 OF 2003 IN SLP (Civil) No. 13305 of 2002 S.B. SINHA, J:
This contempt petition arises in a somewhat peculiar circumstance.
herein is manufacturer of cars. Alleged contemnors were Directors of a Company
known as M/s. Mahalaxmi Motors Limited (Company). The Company obtained various
advances from the customers on behalf of the petitioner. It, however, did not
pay the amount to petitioner herein. Respondents admitted their liability of
the petitioner to the extent of Rs. 7.63 crores in respect of supply of
vehicles made by it, as would appear from the minutes of the meeting dated
5.04.1997 which is as under:
MML also provided a letter No. 021/MML/97 dated 5.4.1997 wherein they admitted
that there was a shortfall of Rs. 7.63 Cr. Respondents also by an
affidavit filed before the Andhra Pradesh High Court admitted their liability
In this instance also the Petitioner company had on its own given the
particulars of the amounts due from it to the complainant company by its letter
dated 5th April, 1997 wherein it accepted a liability of Rs.
763.22 lakhs and also gave the repayment schedule. Prior to that it gave a list
of all the pending customers at Hybderabad and Vijayawada. In fact vehicles have been delivered to meet of these in
the said list, and deliveries are still on to the remaining persons. The
complainant company had been delivering these vehicles through other dealers as
with the advent of this dispute with the Petitioner company it terminated its
is respectfully submitted that after the Petitioner company gave the said
undertaking to pay off the due about Rs. 763.22 lakhs, there has been a change
in thinking in the concerned officials of the complainant company had they
started making exaggerated claims over and above the amounts actually due to it
from customer bookings. As far as the Petitioner company is concerned it also
made funds available to honour its commitment to the complainant company and
took a draft for the said amount in May 1997 itself which is to the knowledge
of the complainant company.
the Company or its Directors did not pay even the said admitted amount to the
petitioner, it filed a suit for recovery thereof. Indisputably, there existed
an arbitration agreement in the contract entered into by and between the
parties, Clause 57 whereof reads as under:
the differences or disputes, except dispute pertaining to termination, shall
arise between the parties hereto as to the construction or true intent and
meaning of any of the terms and conditions herein contained or as to any
payment to be made in pursuance hereof or as to any other matter arising out of
or connected with or/ incidental to these presents or as to the rights, duties
and obligation of either party, such difference or dispute whenever and so
often as the same shall arise, shall be referred to the Indian Council of Arbitration,
New Delhi under their rules for the time being in force and the award in
pursuance thereof shall be binding on the parties.
Relying on or on the basis of the said arbitration agreement, the respondents
herein filed an application purported to be under Section 8 of the Arbitration
and Conciliation Act, 1996 (for short the Act). A learned Single
Judge of the Delhi High Court rejected the said application. An appeal was
preferred thereagainst before a Division Bench which was also dismissed. A
Special Leave Petition was filed before this Court. Petitioner herein agreed
for reference of the disputes and differences between the parties to
arbitration inter alia on the condition that the respondents shall deposit the
amount or furnish security and/ or comply with the directions of the learned
Arbitrator in case such directions and/ or interim orders are passed by the
learned Arbitrator in the following terms:
All the parties to this S.L.P. shall by way of affidavit give undertaking to
this Honble Court to furnish the security and/ or comply with the
directions of learned Arbitrator in case the learned Arbitrator directs any of
the parties to furnish the security and/ or comply with any other interim order
of the learned Arbitrator. The proposed term of reference was also agreed
to by the respondents.
the basis of the said representations, this Court by an order dated 6.09.2002
referred the subject matter of the dispute to the arbitration of Justice A.M. Ahmadi,
a former Chief Justice of this Court.
question as to whether the respondents should furnish bank guarantee or not
came up for consideration before the learned Arbitrator and by an order dated
25.03.2003 a direction was issued upon the respondents to furnish bank guarantee
for the sum of Rs. 763.22 lakhs within a period of four weeks from the said
the documents relied upon by the claimant company in support of its claim for Rs.
763.22 lakhs are in dispute, I am not inclined to make an interim award under
section 17 of the Act read with Order 12 Rule 6, CPC. However, I am prima facie
satisfied that the claimant company has made out a prima facie case for an
interim order directing the respondents to furnish a bank guarantee in the sum
of Rs. 763.22 lakhs within a period of four weeks from today. Needless to state
that under the Supreme Court order dated 6.9.2002 (paragraph 3) the interim
order has to be complied with within four weeks from the date of the
interlocutory application was filed by the respondents before this Court being
IA No. 2 of 2003. But, the same was withdrawn on 6.05.2003.
application was thereafter filed by them before the learned Arbitrator for
modification of the said order dated 25.03.2003 by offering to furnish property
security purported to have been situate at Secunderabad in the State of Andhra Pradesh instead of bank guarantee.
Curiously enough, it was not disclosed that the said property was encumbered in
more than one way and, as would appear from the discussions made hereinafter,
the property was being claimed by the State of Andhra Pradesh as having vested in it.
on or about 28.06.2003, it was disclosed that the property was encumbered. The
learned Arbitrator rejected the application for modification by an order dated
2.08.2003 but extended time for furnishing bank guarantee upto 27.08.2003. In
the meantime, the petitioner filed a contempt petition before this Court on
appears from the records that the respondents herein had given an undertaking
not to alienate their assets or encumber or create third party interest in the
property at Secunderabad. It is also not in dispute that despite pendency of
the aforementioned contempt petition, the property belonging to company at Bangalore was disposed of. It was disclosed
before the learned Arbitrator by the respondents in their reply to application
under Section 17 of the Act filed by the petitioner and the same was reiterated
in the affidavit affirmed by Respondent No. 1 herein on 7.07.2004.
or about 23.07.2004, this Court directed the alleged contemnors to file
affidavit disclosing details of their present assets as also that of the
Company; pursuant whereto, an affidavit was filed by Respondent No. 1 stating:
The property of M/s. Mahalaxmi Motors Ltd. at Secunderabad was encumbered.
He had a flat at D-1, Maya Apartment admeasuring 800 sq. ft. at Ashoka Road, Bangalore which was sold on 3.02.2004 for Rs. 8,00,700/-.
He was the manager of Hyderabad Auto Services and drawing a salary of Rs.
in its reply denied and disputed the said statement and contended that by
reason of sale of property at Bangalore, a
further contempt has been committed. It was urged that the affidavit of
Respondent No. 1 not only amounted to suppression of facts but also perjury.
award was made on 10.04.2005 as against the Company for a sum of Rs. 7.63 crores
with interest at the rate of 8% in favour of the petitioner along with costs
Before this Court, however, a proposal for settlement was made by Respondent
No. 1 in terms of an affidavit; paragraph 13 whereof reads thus:
I say that I pray this Honble Court to kindly consider my pecuniary
circumstances and helpless position to mobilize monies to an extent of 763.22 lakhs
and I pray which inability of mere may not be termed as contempt of this
Honble Court. I once again reiterate and pray this Honble Court to
kindly consider my adverse financial circumstances and kindly accept the landed
property as security which the Petitioner has accepted and consequently the
orders passed by the Arbitrator was complied with and thus there is no cause of
action to proceed with the present contempt case. Even otherwise I have also
established a prima facie case over the title of the said land before the High
Court of Andhra Pradesh before the Sole Arbitrator and before this Honble
Court. I am even now ready and willing to relinquish all my rights over the
landed property in favour of the Petitioner. I further agree that I will
execute the General Power of Attorney in favour of the petitioner for the
purpose of getting clearance from the Government of Andhra Pradesh and
regularization of the land in question in favour of the Mahalaxmi MotorsI will
fully cooperate with the Petitioner to get the land transferred in its name or
for its disposal and the Respondent unhestitatingly sign on every paper which
the petitioner brings before him in the matter of the said landed property
Relying on or on the basis of the said representation made by the respondents,
a Division Bench formed an impression that it is possible to settle the dues of
the petitioner as also other creditors. By an order dated 9.02.2007, therefore,
it was directed:
The parties hereto should find out ways and means to sell the property
belonging to the first respondent company herein, situate at Secunderabad,
jointly by the petitioner as also the Indian Overseas Bank, Hyderabad. For the said purpose, the Chief
Manager of the Indian Overseas Bank, the Collector of the Hyderabad District as
also the Managing Director of respondent No. 1 Mahendra C. Mehta, who is
present in Court today, shall meet in the office of the Collector, Hyderabad on 26th February, 2007 at 11.00 a.m.
it is stated that a writ petition bearing No. 15920/2004 is pending before the
High Court of Andhra Pradesh in regard to the said property, we request the
Chief Justice of the High court to consider the desirability of placing the
said writ petition before an appropriate Bench for its very early
furtherance of the said order, the Collector of the Hyderabad District held a
meeting. In the said meeting, it transpired that the property in question,
which is in dispute, belonged to the State of Andhra Pradesh and it claiming right, title and interest therein had
initiated a proceeding against the respondents in respect thereof under the
provisions of the Andhra Pradesh Land Grabbing (Prohibition) Act, 1982. The
said proceeding was decided in favour of the State of Andhra Pradesh.
Respondents filed a writ petition before the High Court thereagainst being Writ
Petition No. 15920 of 2004. The said writ petition having been dismissed, the
appeal of the respondents and the Company preferred thereagainst was taken up
for hearing along with this matter and by reason of a judgment and order of
this date, we are disposing of the same also.
The Collector filed a status report inter alia noticing:
It may be informed to this Honble Court that on detailed enquiry by the
revenue officials it is learnt that one Sri R. Praveen Kumar, S/0 R. Vijay
Kumar, claiming to be GPA holder (Un-registered) of M/s Mahalakshmi Motors Ltd.
is reportedly running Mahalaxmi Motors workshop on the suit schedule land but
on ground a company under the name and style of M/s Hyundai Lakshmi is being
run, involving business of buying, selling and servicing of vehicles. Further,
there are two prominent display boards at the entrance showing as Hyundai Lakshmi.
The copy of the GPA furnished by Sri Praveen Kumar, is not registered and has
no legal authenticity. This office has reason to believe that a third party is
in illegal possession of the land and the relationship between M/s Mahalaxmi
Motors and present occupant is not known. In this regard, necessary action is
being initiated separately It was, therefore, opined:
The very fact that M/s Mahalaxmi Motors have applied for regularization proves
that they are in illegal occupation of Government land. Thus, they do not have
any locus standi over the suit scheduled property. Further the intention of
selling of the land as proposed by the Indian Overseas Bank and Maruti Udyog
Ltd. cannot be considered at this juncture as the suit property does not belong
to Mahendra C. Mehta and others and the suit scheduled land is required for
Mr. T.K. Ganju, learned senior counsel appearing on behalf of the petitioner
would submit that by brazenly flouting the order of this Court dated 6.09.2002,
the respondents have committed gross contempt of this Court. It was submitted
that the alleged contemnors were bound to comply with the orders passed by the
learned Arbitrator in terms of this Courts order dated 6.09.2002. as they
had not furnished bank guarantee pursuant thereto or in furtherance thereof and
in fact the alleged contemnors have committed a contempt of this Court.
furthermore contended that that the contempt stands aggravated as even during pendency
of this proceeding as also the arbitration proceeding before the learned
Arbitrator, they have sold their flat situate at Bangalore.
Mr. Shyam Divan, learned senior counsel appearing on behalf of the alleged
contemnors, on the other hand, has drawn our attention to the additional
affidavits filed by the contemnors herein tendering unconditional apology. We
would refer to only one of them filed by Respondent No. 1. It was averred
I unconditionally apologize to this Honble Court with respect to the
contempt which is the subject matter of the Contempt Petition. I have highest
respect for the judiciary and for the judges of this Honble Court as well
as the Ld. Arbitrator.
was unable to arrange for Bank Guarantee of Rs. 763.22 lakhs since the company
was not in a position to mobilize resources. Moreover, I did not have personal
resources to raise funds and to ensure that the Bank Guarantee is provided.
request this Honble Court to accept the unconditional apology tendered by
me. A further reply has also been filed by the respondents stating:
That the District Collector has needlessly and unwarrantly traced earlier
rejection of the regularization proposals by the government by cryptic and
non-speaking order and consequent filing of writ petition No. 15 of 2000 by the
respondent when the matter was remitted back to government to pass appropriate
orders taking into account the recommendations of the District Collector and
the Commissioner of Land Revenue dated 22.10.1997 and 30.9.1997 which facts are
already in the record of this Honourable Court.
so doing, the District Collector, Hyderabad made a false report that a report
was submitted to the government that the lands are required for public purpose
like establishment of hospitals, schools, play grounds, etc., referring to his
report dated 17.6.2003 and his report is not based on the recommendations based
by him and the Commissioner Land Revenue referred to above which is definitely
an after thought and to prejudice the mind of this Honourable Court.
it is not a relevant issue at this juncture which he never pleaded before any
of the courts below.
Respondent submits that the Collector, Hyderabad deliberately, wantonly and maliciously sent a misleading report to this
the District Collector himself recommended for the regularization of the lands
in question in favour of the Respondent collecting market rate at Rs. 1240/-
per sq. yard in his letter No. 14-87- 89/1993 dated 22.10.1994, the District
Collector suppressed this letter and quoted a different one.
fact the Honble High Court directed the Government to take into
consideration the same letter dated 22.10.1994 in its order dated 30.7.2001 in
W.P. No. 15/2000. the District Collector, Hyderabad deliberately suppressed the said letter and gave a false and misleading
report to this Honble Court and this is highly reprehensible. In
regard to possession of the property by M/s. Lakshmi Hyundai, it was stated:
The Respondent submits that it is not true to say that the land in question is
under illegal occupation of third party Sri R. Praveen Kumar S/o Vijaya Kumar Rao
as reported by the District Collector, Hyderabad. The fact remained is that the Managing Direcotr of M/s Mahalaxmi
Motors Ltd., and Lakshmi Hyundai had association with each other. M/s. Lakshmi
Hyundai has its own showroom and workshop at Humayathnagar, Hyderabad. That company has some customers in
the Secunderabad area and for the convenience of its customers the Managing
Director of M/s. Hyundai Lakshmi sought the oral permission of the Managing
Director of M/s. Mahalaxmi Motors to carry on servicing of the cars of its
customers in the workshop of Mahalaxmi Motors Ltd. Except this there is no jural
relationship between M/s. Mahalaxmi Motors Ltd., and Hyundai Lakshmi Motors.
The latter has no right, claim, title or interest over the workshop of M/s. Mahalaxmi
Motors Ltd., and no financial transaction took place between these two
companies. M/s. Mahalaxmi Motors Ltd. ever executed any GPA either registered
or unregistered in favour of anybody muchless in favour of R. Praveen Kumar S/o
Vijaya Kumar Rao.
Our attention was drawn to an affidavit affirmed by the alleged Contemnor No. 3
wherein he stated that he was only an employee of the Company and he was made
Director of the Company only because of his experience in the sale and service
of automobiles. He has allegedly tendered his resignation as Director in 1997
and the Company has accepted the same.
Our attention was further drawn to a counter affidavit dated 6.04.2004 filed by
Respondent No. 2 wherein it was stated that he was not a signatory to the
original dealership agreement and was not involved in any of the day to day
affairs of Mahalxmi Motors Ltd.
Our attention was also drawn to a counter affidavit dated 16.2.2004, and
further affidavits dated 1.08.2004, 5.08.2005 and 4.10.2005 wherein, as noticed
hereinbefore, Respondent No. 1 had tendered unconditional apology for his
inability to raise the resources and furnish a bank guarantee to the tune of Rs.
763.22 lakhs. Respondent No. 2 had also stated that he was forced to sell his
personal flat at Bangalore to meet his debts and obligations
and he was ready and willing to relinquish all rights with the respect to the
land in Secunderabad.
was furthermore submitted that as the learned Arbitrator has passed an award
only against the Company, the interlocutory order passed by this Court having
merged with the final award, no contempt of this Court has been committed.
The fact of the matter, as noticed hereinbefore, clearly goes to show that the
alleged contemnors not only prevaricated their stand at different stages in
different proceedings, they intended to prolong the litigation one way or the
other. They had accepted their liability at least to the extent of 7.63 crores.
They must have invested the said amount. The parties hereto accepted that the
disputes and differences pending between them should be referred to an
arbitrator. It was agreed to by the petitioner only on the representation made
by the alleged contemnors that they would furnish a bank guarantee provided an
order is passed in that behalf by the learned Arbitrator.
The fact that the learned Arbitrator issued such a direction is not in dispute.
The learned Arbitrator even otherwise had the jurisdiction to pass interim
order in terms of Section 9 of the Act. Correctness or otherwise of the said
order has not been questioned. Despite undertaking given before this Court, in
the aforesaid matter, the alleged contemnors did not furnish any bank
guarantee. Admittedly, their application for modification was also dismissed.
Not only, they went back from the undertaking given before this Court, they
also sold away the only property which was in their possession.
property situate at Secunderabad admittedly had been claimed by the State of
Andhra Pradesh. The alleged contemnors even did not disclose that the said
property was an encumbered one. The same was disclosed only at a later stage.
they were not in a position to furnish any bank guarantee or otherwise, they
could have taken such an unequivocal stand before the courts. They not only
suppressed material facts, but also made a wrong representation that in the
event the property at Secunderabad is sold, the price whereof is about 11 crores
and, thus, from the sale proceeds the dues of the debtors would be satisfied.
Such a claim was evidently made, as would now appear, that an application for
regularization was pending before the State. The alleged contemnors did not
have any subsisting right, title and interest in or over the said property.
They could not have made a proposal before this Court for sale of the property
only on the basis of a title which they could only derive on happening of a
contingency, viz., regularization thereof by the State. A proposal for sale of
the property could be made only if the respondents had any subsisting title
thereto and not otherwise.
We, therefore, are of the opinion that the alleged contemnors have misled this
Court and have committed gross contempt of this Court.
Bank of Baroda v. Sadruddin Hasan Daya and Another [(2004) 1 SCC 360], even in
relation to a consent order, this Court held:
A legal plea taken by a party that a decree passed by a court (including
Supreme Court) is without jurisdiction and therefore a nullity, will not
normally amount to a contemptuous statement.
the written submission made by the respondents before the Debts Recovery
Tribunal, wherein they said that the Supreme Court had no jurisdiction to pass
the decree dated 28-7-1999 and the decree had no validity and is a nullity, has
to be seen in the factual background of the case. It may be noted that the
decree had been passed on the basis of consent terms. It is not the case of the
respondents that any fraud was played upon them by any party when they entered
into a settlement and signed the minutes of the decree. It appears that the
respondents from the very inception had no intention of paying the amount, but
they agreed for a settlement and consent terms only for the purpose of gaining
time whereunder instalments were fixed. They adopted the same procedure in the
suit instituted by Oman International Bank, SAOD, wherein they offered the same
property to remain under attachment till the decree was satisfied. Placing the
same property under attachment is bound to create problems for the
decree-holders of either of the suits as no one wants to buy such property in
court auction which may land him in further litigation. The respondents
intentionally and deliberately adopted such a course of action so that further
hurdles may come in the way of execution of the decree and therefore it is
clearly a case of wilful breach of an undertaking given to the Court.
This Court in Babu Ram Gupta v. Sudhir Bhasin [(1980) 3 SCC 47] held:
if we were to hold that non- compliance of a compromise decree or consent order
amounts to contempt of court, the provisions of the Code of Civil Procedure
relating to execution of decrees may not be resorted to at all.
fact, the reason why a breach of clear undertaking given to the court amounts
to contempt of court is that the contemner by making a false representation to
the court obtains a benefit for himself and if he fails to honour the
undertaking, he plays a serious fraud on the court itself and thereby obstructs
the course of justice and brings into disrepute the judicial institution.
same cannot, however, be said of a consent order or a compromise decree where
the fraud, if any, is practised by the person concerned not on the court but on
one of the parties. Thus, the offence committed by the person concerned is qua
the party not qua the court, and, therefore, the very foundation for proceeding
for contempt of court is completely absent in such cases. In these
circumstances, we are satisfied that unless there is an express undertaking
given in writing before the Court by the contemner or incorporated by the court
in its order, there can be no question of wilful disobedience of such an
undertaking. In the instant case, we have already held that there is neither
any written undertaking filed by the appellant nor was any such undertaking
impliedly or expressly incorporated in the order impugned.
there being no undertaking at all the question of breach of such undertaking
does not arise.
Mr. Divan, however, relied upon a decision of this Court in R.N. Dey and Others
v. Bhagyabati Pramanik and Others [(2000) 4 SCC 400] wherein it has been held:
. We may reiterate that the weapon of contempt is not to be used in abundance
it cannot be used for execution of the decree or implementation of an order for
which alternative remedy in law is provided for.
given to the court is to be exercised for maintenance of the courts
dignity and majesty of law. Further, an aggrieved party has no right to insist
that the court should exercise such jurisdiction as contempt is between a contemner
and the court This Court in R.N. Dey (supra) has categorically held that
the contempt is a matter between the court and the contemnor. Unlike R.N. Dey
(supra), here in the respondents are not disputing their liability to pay the
awarded amount. Therein no undertaking had been given.
Rama Narang v. Ramesh Narang and Another [(2006) 11 SCC 114] whereupon reliance
has been placed by Mr. Divan, the question revolved round the alleged violation
of certain clauses of the consent terms. In that case the consent order did not
contain an undertaking. It, on that premise, opined:
All decrees and orders are executable under the Code of Civil Procedure.
Consent decrees or orders are of course also executable. But merely because an
order or decree is executable, would not take away the courts jurisdiction
to deal with a matter under the Act provided the court is satisfied that the
violation of the order or decree is such, that if proved, it would warrant
punishment under Section 13 of the Act on the ground that the contempt
substantially interferes or tends substantially to inter fere with the due
course of justice. The decisions relied upon by the respondents themselves hold
so as we shall subsequently see. This Court in Rama Narang (supra), thus,
clearly laid down the proposition of law that when an undertaking has been
recorded in accordance with law, a contempt proceeding would be maintainable.
We, therefore, keeping in view the peculiar facts and circumstances of this
case and the conduct of the alleged contemnors, are of the opinion that they
have committed contempt of this Court. We are clearly of the opinion that it is
eminently a fit case where jurisdiction of this Court under Article 129 of the
Constitution of India as also the provisions of the Contempt of Courts Act,
1970 should be invoked.
However, the fact that the alleged contemnor No. 3 has resigned, being not in
dispute, no action is being taken against him. So far as, the alleged contemnor
No. 1 is concerned, we are of the opinion that he being the Managing Director
of the Company, is liable to be punished. He is sentenced to undergo six months
imprisonment. The alleged contemnor No. 2 is also held guilty but as he was not
the Managing Director, we are of the view that sentencing him three months
imprisonment shall meet the ends of justice.
The contempt petition is allowed with the aforementioned directions.