IN THE SUPREME COURT OF INDIA
|NAME OF CASE||Rama Narang vs Ramesh Narang|
|DATE OF CASE||Jan. 19, 2021|
|BENCH/ JUDGE||Justice A.M. KHANWILKAR|
|STATUTES INVOLVED||Constitution of India; Companies Act,1956; Contempt of Court Act,1971|
|IMPORTANT SECTIONS||139 A of Constitution of India 2(b) of Contempt of Court Act, 1971|
The case arose out of a family dispute amongst a father and his two sons from his first wife, this dispute gave rise to a number of proceedings some of which ended up coming to the apex court.
Ramesh Narang has approached the court by a contempt petition where Rama Narang was respondent, the matter was settled between the parties and the parties had placed on record the Minutes of the Consent Order signed by all the parties. Later there was a series of disputes amongst the parties and they have approached the court seeking justice. The matter came up again on 8th January 2002 where under section 139A of the constitution of India all the pending cases between the parties were transferred to the apex court and were being disposed of in terms of the Minutes of Consent Order incorporated in the proceedings passed on 12.12.2001.
Narang International Hotel Limited (hereinafter referred to as ‘NIHL’) and its subsidiaries are concerned, Rama Narang, Ramesh Narang and Rajesh Narang were to be the only Directors. Any decision by the Board of Directors was to be taken only by the mutual consent of Rama Narang on one hand and Ramesh and Rajesh, on the other hand. The settlement also provided, that none of the Directors i.e. Rama Narang, Ramesh Narang and Rajesh Narang could be removed from the Directorship.
Rama Narang and Ramesh Narang were continued to be in joint management and control of NIHL and Rajesh Narang was continued to be the whole-time Director In-Charge of day-to-day operations and management of NIHL. It also provided, that no decision shall be taken concerning the said NIHL and its subsidiaries, without the consent of Rama Narang on one hand and Ramesh/Rajesh on the other hand. It is further provided, that all bank accounts of the Company have to be operated jointly by any two of the three Directors as agreed between Rama Narang and Ramesh/Rajesh. It further provided, that if the amount of any transaction was exceeding Rs. 10 lakhs, then the same could be undertaken only through a cheque signed jointly by Rama Narang on one hand and Ramesh or Rajesh on the other hand.
Facts of case-
- Rama(petitioner) alleged that Ramesh (respondent1) and Rajesh (respondent2) violated few clauses of Consent Order amounting to contempt of court. The proceedings for the same were initiated on 15th September 2003, Justice V.A. Mohta, retired Chief Justice of Orissa High Court to act as a Mediator for settlement of disputes between the parties but all in vain no conclusion was reached. The respondents had filed response to the said contempt petition. It was submitted, that the petitioner was attempting to stall the functioning of the company by trying to use the veto power .
The court passed a judgment and order dated 15 March 2007, thus convicting the respondents u/s 2(b) of the Contempt of Courts Act, 1971. Taking into consideration the fact that immediately sending the respondents to jail would create total chaos in the Company and it would also vitally affect the interest of large number of people including the employees of the Company, the sentence of imprisonment imposed on the respondents was kept in abeyance. This Court further directed the parties to meticulously comply with the undertaking given by them to the Court.
- Ramesh filed Company Petition No.47 of 2008 before the Company Law Board, New Delhi considering the standstill position of NHIL under guidance of Rama, On 14 March 2008, the CLB directed the board meeting of NIHL & appointed Shri C.R. Das, Former Member of CLB as Observer, to observe the proceedings of the said meeting , not a single decision had been taken under 15 hours course of meeting. The CLB found, that in the proceedings u/s 397/398 of the Companies Act, 1956, it was the interest of the Company, which was paramount. The order passed by CLB dated 10 April 2008, was violative of the order of this Court dated 15 March 2007 and nothing but an attempt to legalize their conduct of contempt.
- The petitioner approached apex Court by contempt petition. The contempt petition was listed before apex Court on 10 February 2009. The matter thereafter came up before this Court on 9 April 2009. Perusal of the order dated 9 April 2009, would reveal, that the apex Court, on a query found, that for the last one decade, the Company has not filed its returns under the Income Tax Act. It also found, that the Books of Accounts had not been audited. It was also found, that the requisite financial statements had not been filed before the Registrar of Companies.
The Court noticed, that none of the authorities had taken any action under the Companies Act or under the Income Tax Act, 1961. The Court therefore, called for the status of the matter pending before the Income Tax Authorities. The Court, in order to protect the interest of the Revenue as well as the workmen, as the first step, directed M/s K.P.M.G. Chartered Accountants to prepare financial accounts after verifying the Books. The matter was set aside till the report was made. On 13th July 2009 court passed a detailed order. Court questioned the income tax department regarding the assessment of taxes and asked about what actions have been taken.
- The matter was directed to be listed by this Court thereafter on 21 July 2009. Apology was tendered to the Court by the Registrar of Companies for not taking action under the Companies Act. The Court appointed an independent Director, who was to look into the financial management of the Company and submit his report to this Court from time to time. The Court, requested Shri Homi Ranina, a Tax Expert to accept the assignment and submit the Status Report to this Court, so that appropriate directions could be issued. Thereafter matter came up before the Court on 29 July 2009, an order passed on the said date, Court requested Shri Ranina to take charge as independent Director .
- Matter thereafter came up before this Court on 14 December 2009. This Court noted, that the Accounts of the Company stood duly audited upto 31 March 2006, whereas accounts of the subsidiary Companies stood audited upto 31 March 2009. The Court further noted, that as on that date, there was no compliance of the provisions of Section 212 of the Companies Act. The Court extended the time for filing of accounts before Registrar of Companies upto 31 January 2010.
- The court then directed, the decision taken by Shri H.P. Ranina in consultation with Shri Habib Rehman, decision shall be final and binding on Board of Directors. The matter was thereafter listed before this Court on 16 April 2010. The court ordered the Registrar of Companies had submitted a report on 26 March 2010 . Thereafter, the matter came up for hearing before the Court on 3 May 2010. By order on said date, the Court appointed Shri Syed Habibur Rehman as an independent Director to manage the affairs of the Hotel and the flight kitchens on day-to-day basis.
- Thereafter, the matter was listed before this Court on 6 August 2010. By order on said date, the Court noticed the earlier proceedings and observed, that although number of steps were taken there has been no output, therefore court directed the Additional Chief Metropolitan Magistrate, 37 Court, Mumbai, to expedite the hearing and finally dispose of the cases pending before him.
- It further appears from the record, that Rajesh, who was a whole-time Director, filed Company Application No.223 of 2011 before the CLB in pending Company Petition No. 47 of 2008 due to non-cooperative attitude of Rama Narang Company had come to a standstill.
- On 28 April 2011, the CLB after considering the rival contentions, passed an order, appointing Shri H.S. Acharya as a Special Officer-cum-Advisor, in addition to the Facilitator already appointed. Thereafter, by an order dated 30 April 2015, the CLB passed the order stating that Mr. Ranina will not go beyond the powers conferred upon when Mr. Acharya was appointed by CLB through orders dated 29.11.2011, on 14 April 2016 court granted eight weeks to submit a complete report.
- On 16 August 2016, the Court directed the contempt petition to be listed for final disposal in the month of November 2016. It further ordered, that without prejudice to the rights of the respective parties, the present arrangement for running the affairs of the Company will continue until further orders. On 29 November 2016, the matter was directed to be adjourned sine die.On 30th April 2019, in the board of directors meeting it was suggested to sale the property (Bandra property’ costing 351 crores) so as to tide over the financial crisis, the petitioner’s suggestions were welcomed but he refused to make any remarks, but when he with his family was asked to vacate the house, they denied, IA(Interlocutory Appeal) No.87565 of 2019 came to be filed seeking directions, the appeal was listed under various benches but was adjourned from time to time. IA as well as the contempt petition was listed before apex court on 4 December 2020.
Issue before the court-
- Whether objection was taken regarding the maintainability of the above said contempt petition?
Arguments from appellant-
- The perusal of the orders passed by this Court dated 12th December 2001 and 8th January 2002, would reveal, that the respondents were required to run the affairs of NIHL jointly along with the petitioner. However, they were running the affairs of the Company totally to the exclusion of the present petitioner.
- The respondents were required to run the affairs of NIHL jointly with the present petitioner, it was clearly found, that they had acted in breach of the orders of the Court and were running the business totally to the exclusion of the petitioner also, the acts which are alleged to be contemptuous in nature, in the present proceedings, are identical with the acts which are found to be contemptuous in the judgment of this Court dated 15th March 2007.
- The CLB has no jurisdiction to pass an order of a nature as passed by it, when there was settlement between the parties which has a seal of approval by the Court, the respondents could not have initiated the proceedings before the CLB, the reliance placed by the respondents on the orders passed by CLB is of no assistance to their case.
- The petitioner had taken objection with regard to maintainability of the proceedings before the CLB and the CLB, without deciding the issue regarding tenability, had passed the interim orders. It is therefore submitted, that the reliance placed by the respondents on the orders passed by CLB is of no assistance to their case.
Arguments from respondent-
- The family settlement between the parties is in two parts. The first part is with regard to various suits filed by Ramesh Narang which were withdrawn and transferred to the Court and decreed by the Court. The second part of the settlement was with regard to the management of the Company.
- The present petitioner was throughout of non-cooperation in the functioning of the Company. The petitioner, at every stage, was attempting to put a hindrance so that the functioning of the Company comes to a standstill. After the orders were passed by this Court on 12th December 2001 and 8th January 2002, though the petitioner was required to co-operate, but he refused to do so and in order to run the affairs of the Company, the respondents were required to do certain things in the interest of the Company.
- Every Director has a fiduciary responsibility to act for welfare of the Company, it was therefore submitted, that since the present petitioner failed to act for welfare of the Company, the respondents had no other option but to approach the CLB, seeking certain directions for smooth functioning of the Company.
- If the petitioner was aggrieved by the order passed by the CLB, the remedy available to him was to challenge the same before the competent authority, having failed to avail of that opportunity, it is not open to the petitioner to now contend that the said orders cannot be given effect to.
- 139A of Constitution: conferment on the Supreme Court of powers to issue certain writs. — Parliament may by law confer on the Supreme Court power to issue directions, orders or writs, including writs in the nature of habeas corpus, mandamus, prohibition, quo warranto and certiorari, or any of them, for any purposes other than those mentioned in clause (2) of article 32.
- 2(b) of Contempt of Court 1971:
“civil contempt” means wilful disobedience to any judgment, decree, direction, order, writ or other process of a court or wilful breach of an undertaking given to a court.”
- 397 of Companies Act, 1956: application to tribunal for relief in cases of oppression-
(1) Any members of a company who complain that the affairs of the company are being conducted in a manner prejudicial to the public interest or in a manner oppressive to any member or members (including any one or more of themselves) may apply to the Tribunal for an order under this section, provided such members have a right so to apply in virtue of section 399.
(2) If, on any application under sub-section (1), the Tribunal is of opinion-
(a) that the company’s affairs are being conducted in a manner prejudicial to the public interest or in a manner oppressive to any member or members; and
(b) that to wind up the company would unfairly prejudice such member or members, but that otherwise, the facts would justify the making of a winding-up order on the ground that it was just and equitable that the company should be wound up; the Tribunal may, with a view to bringing to an end the matters complained of, make such order as it thinks fit.
- This Court in unequivocal terms has held, that even if the objection is raised to the jurisdiction of a forum, it has jurisdiction to pass interim orders till it finally decides the issue of jurisdiction and such orders are binding on the parties till the issue of jurisdiction is decided.
- Having held, that the present contempt petition deserves no merit and is liable to be dismissed, we find that such an application need not be entertained. Indeed, the respondents may be well- advised to take recourse to the remedies available to them in law. We do not wish to express any opinion one way or the other in that regard.
- Without going into the merits and demerits of the said application, we dispose of the same relegating the parties to the statutory remedy available to them in law.
All pending IAs, if any, stand disposed of in aforesaid terms.
This family dispute in the end proved destructive to the company’s working and the employees of the company whose jobs have been put under direct risk, court and CLB officers have played a great and mediating role to settle the dispute but the supreme court at the end dismissed the appeal based on non-maintainability.