1. The respondent company herein, which is registered under the Companies Act 1956, is also the respondent in Company Petition No.182 of 1998. A creditor of the respondent-company filed the above Company Petition invoking the jurisdiction of this Court under Section 433 of the Companies Act, 1956, praying that the respondent-company be wound up on the ground that the respondent-company is not able to pay the debts to its creditors.
2. Notice before admission was ordered in the above said Company Petition and during the pendency of the matter, on 14-3-2000, the learned Counsel for the respondent-company made a representation that the respondent-company was willing to make the payment as claimed by the petitioner, but sought some time to make the payment. In the circumstances, this Court recorded the said undertaking of the respondent-company and adjourned the matter till 31-3-2000, so as to enable the parties ‘to work out some time schedule for payment of the amount’. The matter appeared again in the list on 31-3-2000, but, however, it was not taken up for hearing – obviously at the request of one of the parties to the proceedings and it was adjourned to 13-4-2000. However, the matter was ultimately taken up on 13-4-2000, but there was no representation on behalf of the respondent company. In the circumstances, this Court opined that there was a breach of undertaking given by the respondent-company. Consequently the office was directed to issue contempt proceedings to the respondent. Accordingly, the proceedings were initiated by the learned Advocate-General.
3. The learned Government Pleader -Kum. J. Vijayalakshmi appearing on behalf of the learned Advocate-General submitted that the conduct of the respondent would clearly amount to contempt of Court as there was a clear breach of undertaking given by the respondent to the Court on 14-3-2000. The learned Government Pleader placed before the Court a passage in Halsbury’s “Law of England” of 4th Edition, Volume 9, Page 44 which reads as follows:
“75. Breach of undertaking :–An undertaking given to the Court by a person or corporation in pending proceedings on the faith of which the Court sanctions a particular course of action or inaction, has the same force as an injunction made by the Court and a breach of the undertaking is misconduct amounting to contempt. The Court will not commit a defendant unless both the terms of the undertaking and the breach are clear beyond question.
A person will not be held guilty of the breach of an undertaking unless he has proper notice of its terms. Thus an undertaking given in Court on behalf of a person without his knowledge and not communicated to him will not be enforced by process of contempt.
Where the undertaking is of a negative character, personal service of the order containing the undertaking is unnecessary provided the party against whom enforcement is sought has notice of the undertaking. It seems, however, that personal service is required where the undertaking is positive in character.
Where an undertaking has been given on behalf of a company, the company will be guilty of contempt if, with knowledge of the terms of the undertaking, it fails to carry out its obligations contained in the undertaking.
A director or other officer of the company may also be punishable in contempt in respect of the company’s breach of undertaking provided that such director or officer has proper notice of the terms of the undertaking; but a director is only liable in his capacity as “agent ” for the company and not in his capacity as shareholder. Proceedings will only lie against a director or officer of the company if the company itself is liable for a breach of undertaking. As in the case of disobedience to an order of the Court, breach of an undertaking is punishable by committal or by sequestration.”
4. The above statement of law is made on the basis of long line of authorities.
5. The learned Government Pleader also placed reliance on a judgment of the Supreme Court reported in Noorali Babul Thanewala v. K.M.M. Shetty, , wherein their Lordships at Para 11 held as follows:
“11. When a Court accepts an undertaking given by one of the parties and passes orders based on such undertaking, the order amounts in substance to an injunction restraining that party from acting in breach thereof. The breach of an undertaking given to the Court by or on behalf of a party to a civil proceedings is, therefore, regarded as tantamount to a breach of injunction although the remedies were not always identical. For the purpose of enforcing an undertaking that undertaking is treated as an order so that an undertaking, if broken, would involve the same consequences on the persons breaking that undertaking as would their disobedience to an order of an injunction. It is settled law that breach of an injunction or breach of an undertaking given to a Court by a person in a civil proceedings on the faith of which the
Court sanctions a particular course of action is misconduct amounting to contempt. The remedy in such circumstances may be in the form of a direction to the contemnor to purge the contempt or a sentence of imprisonment or fine or all of them. On the facts and circumstances of this case in the light of our finding that there was a breach of the undertaking we think that mere imposition of imprisonment or fine will not meet the ends of justice. There will have to be an order to purge the contempt by directing the first respondent-contemnor to deliver vacant possession immediately and issuing necessary further and consequential directions for enforcing the same.”
6. Sri D.V. Seetharama Murthy, the learned Counsel appearing on behalf of the respondent, on the other hand, argued that the undertaking was not a categoric undertaking insofar as the payment is concerned, though there was a categoric admission and acceptance of the liability to make payment to the petitioner by the respondent in the time schedule to be worked out between the parties. In fact a representation was made before the Court on 14-3-2000 that two more weeks’ time was required so as to enable the parties ‘to work out for the time schedule for payment’. The learned Counsel further submitted that it was an unfortunate situation that occurred on 31-3-2000, when the matter was posted, or on the subsequent dates or even on 17-4-2000 when the contempt proceedings were directed to be initiated, that the relevant facts were not brought to the notice of the Court. It is submitted that as a matter of fact, the respondent-company became sick industrial company within the meaning of Section 2(o) of the Sick Industrial Companies Act in obedience to the mandate of the law. To bring the same to the notice of the Board constituted under the said Act, the
respondent did in fact by his application dated 3-4-2000 inform the Board. In view of the mandatory provision contained under Section 22 of the said Act, that during the pendency of the proceedings before the Board no legal proceedings for winding up of such industrial company could be proceeded with, except with the consent of the Board. In the circumstances, the learned Counsel submitted that though the respondent made a categoric admission of the liability to make the payment to the petitioner in Company Petition No.182 of 1998, the respondent was not in a position to make the payment immediately in view of the financial situation of the respondent and if only the respondent brought it to the notice of this Court about the pendency of the issue before BIFR this Court is legally obliged to defer the consideration of the company petition. The learned Counsel further submitted that it is not the intention of the respondent to breach the undertaking given to this Court, but it is only an inability to make the payment and in fact there was no intention much less deliberate intention to breach the undertaking given by the respondent to this Court on 17-4-2000.
7. No doubt, it is a settled principle of law that an undertaking given to this Court is in the same footing as an order of this Court directing the respondent to do or to forbear from doing a particular thing, but as rightly pointed out by the learned Counsel for the respondent, that though the liability is admitted categorically, the undertaking was not specific about the time of payment. It is clearly indicated on 14-3-2000 that the respondent would require some more time ‘to work out the time schedule required for the payment of the amount’. Apart from that, as rightly pointed out by the learned Counsel for the respondent that by making the undertaking on 14-3-2000, the respondent did not derive any advantage on that day or on any subsequent dates, so that
he could be accused of playing fraud on the Court. Even if the respondent did not make the statement as was made on 14-3-2000, the situation would be, that the Company Petition was required to be admitted and posted for trial and depending upon the material available on record, the Company Petition would either be allowed or dismissed. This Court in exercise of its jurisdiction under Section 433 of the Companies Act could not have granted a money decree in favour of the petitioner in a Company Petition. Assuming for the sake of arguments everything favourably to the petitioner in Company Petition No.182 of 1998 and even if the Company Petition were to be allowed ultimately the petitioner would have to go and establish his claim before the Official Liquidator and recover whatever amount that was available depending on the nature of his right. On the other hand, the statement made by the respondent on 14-3-2000 only obviated the trial of the Company Petition; in the sense that in view of the admission made by the respondent, the Court was relieved of the necessity to adjudicate upon the claim of the Company Petition. What only remained for the Court was to pass a formal order of wininding up of the respondent-company. The Court after recording the admission of the respondent, need not have necessarily granted time to the respondent to make the payment, but could have passed an order for winding up of the company. Even then, the further proceedings for the winding up of the company could not have been continued, once the affairs of the respondent-company were taken to the notice of the BIFR on 3-4-2000, and was pending consideration before the BIFR. The Court is required to defer further proceedings pursuant to the winding up, in view of the provision under Section 22 of the Sick Industrial Companies Act, 1985.
8. In this context, the learned Counsel for the respondent brought to the
notice of the Court in Baburam v. Sudhir Bhasin, . Their Lordships while dealing with the orders passed by the Court, which are popularly known as ‘consent orders’ without contest, held as follows:
“…………Take another instance where a compromise is arrived between the parties and a particular property having been allotted to A, he has to be put in possession thereof by B B. does not give possession of this property to A. Can it be said that because the compromise decree has not been implemented by B, he commits the offence of contempt of Court? Here also the answer must be in the negative and the remedy of A would be not to pray for drawing up proceedings for contempt of Court against B but to approach the executing Court for directing a warrant of delivery of possession under the provisions of the Code of Civil Procedure. Indeed, 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 decree may not be resorted to at all. In 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. The 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 in by the Court in its order, there can be no question of wilful disobedience of such an undertaking…………”
their Lordships have categorically held that there should be some benefit accruing the person giving the undertaking to the Court and only then the breach of such undertaking constitutes the act of the contempt of Court.
9. In the background of the principle laid down by the Supreme Court, even if the respondent herein had not given such an undertaking and allowed this Court to allow the Company Petition as prayed for, by ordering the winding up of the respondent company, the winding up proceedings could not have been continued in view of Section 22 of the Sick Industrial Companies Act once the affairs of the respondent-company were pending consideration before BIFR. Therefore the respondent did not obtain any advantage by making such an undertaking/statement.
10. Looked at any angle, and in the background of the above discussion, it cannot be said that the respondent did make a deliberate or intentional breach of undertaking given to the Court, and at the most, the conduct of the respondent is either irresponsible or imprudent.
11. In the circumstances, the respondent is discharged from the contempt proceedings and the contempt case is therefore closed.