GAIL (India) Limited v. Jose P Philip

11. In view of the continued default and non-performance by respondent No. 1, the petitioner, pursuant to Clause 29 of the GCC, terminated the Contract Agreement through a letter dated 24.09.2014, citing non-performance of work, non-approval of price escalation, and failure to comply with statutory provisions. Subsequently, MECON Limited, by letter dated 26.09.2014, notified respondent No. 1 regarding the necessary documentation and formalities required for the contract closure, in accordance with Clause 49 of the SCC, following the termination.

12. In the interregnum, OMP No. 145/2014 and 151/2014 were contested between the parties and this court vide order dated 30.01.2015 disposed of the said petitions, holding that the interim order passed in the order dated 04.02.2014 shall continue during the pendency of the Arbitral proceedings subject to the respondent No.1 keeping the PBGs and ABGs alive during the pendency of the aforesaid proceedings. The relevant portion of the order is reproduced below: "21. In the circumstances the Court directs that the interim order passed on 4th February 2014 in both petitions will continue during the pendency of the arbitral proceedings subject to the Petitioner keeping alive the PBGs and ABGs during the pendency of the arbitral tribunal."

13. Being aggrieved by the order dated 30.01.2015, the petitioner/GAIL filed an appeal before the Division Bench, bearing FAO (OS) No. 351/2015, under the provisions contained in section 37 of the Arbitration and Conciliation Act, 1996.

14. It is claimed that on a conjoint reading of orders dated 4.02.2014 and 30.01.2015, the petitioner was restrained from invoking and encashing the PBGs and ABGs furnished by the respondent No.1 in favour of the petitioner/GAIL until the disposal of the arbitral proceedings, subject to the respondent No.1 keeping the same alive. In the letter dated 17.07.2015, respondent No. 1 confirmed their understanding of the order dated 30.01.2015 to Mecon Limited wherein the operative part of the said order was set out.

15. That on 21.07.2015, the petitioner/GAIL, through its agent MECON Limited, requested the respondents to extend the validity of the Bank Guarantees and submit the original copies of the extended guarantees. Despite receipt of the request, the respondents failed to submit the extended guarantees. On 28.08.2015, the respondents revalidated the PBG but failed to renew the ABGs. Subsequently, on 12.10.2015, the respondents claimed that their banker, IDBI Bank, refused to renew the ABGs, alleging that no renewal request had been received from the petitioner/GAIL. The petitioner/GAIL asserts that it is under no obligation to request renewal from the respondents' banker, and as per the court's order dated 30.01.2015, the respondents were legally obligated to keep the Bank Guarantees valid without seeking modification of the said order.

SUBMISSIONS

16. Mr. Raju, learned senior counsel for the petitioners alluded to the order dated 21.03.2017 during the present proceedings whereby an undertaking was given on behalf of the respondents that the amount under the ABGs to the tune of ₹17 crores is being arranged and some time was sought. It was pointed out that later vide order dated 08.05.2017, an undertaking was given to make a deposit of ₹17.46 crores by 31.07.2017, and eventually, as recorded in the order dated 28.11.2017 during the proceedings, ₹8 crores were deposited by the respondents by 29.11.2017.

17. It was vehemently urged by Mr. Raju, learned senior counsel for the petitioners that the ABGs expired on 13.08.2015 and the same were not deliberately renewed, which is clearly wilful disobedience of the directions of this Court. It was urged that although an excuse is taken by the respondent that CIRP[9] had been initiated against M/s Tecpro Systems Limited with effect from 07.08.2017, however, it is pointed out that the same occurred before the deadline to make payment was set, which was to be 31.07.2017.

18. Mr. Raju learned senior counsel for the petitioners also urged that by way of an afterthought, the respondents now seek to blame third parties such as Ernst & Young and Edelweiss and their plea that as individuals, they were not liable and cannot be sustained.

19. Mr. Rajshekhar Rao, learned senior counsel for the respondents, Corporate Insolvency Resolution Process however, pointed out that the respondents were the Chief Executive Officers, CMD, Vice Chairman and Managing Directors of the aforesaid two companies, which formed the consortium and the directions dated 30.01.2015 was addressed to the aforesaid two companies in the consortium and although the respondents were not individually liable to make good the losses yet they liquidated their own assets and paid a sum of ₹8 crores during the course of the proceedings but for the fact that they are now facing personal insolvency in terms of Section – 95 of the IBC10, which enables the creditors to initiate insolvency process against a Personal Guarantor through a Resolution Professional. It was urged that the respondents were never parties to the original arbitration proceedings and they cannot be held personally liable in respect of contractual obligations of the consortium companies and since the CIRP proceedings are still pending, he alluded to Civil Miscellaneous Application NO. 44911/2023 to the effect that directions should now be issued to the IRP11 to get the relevant bank guarantees extended.

ANALYSIS AND DECISION

20. I have given my thoughtful consideration to the submissions advanced by the learned counsels for the parties at the Bar. I have gone through the relevant record of this case.

21. The Contempt of Courts Act, 1971 envisages a civil contempt which should demonstrate a wilful disobedience of a decision of the Court. Avoiding long academic discussion, in the cited case of U.N. Insolvency and Bankruptcy Code Insolvency Resolution Professional Bora v. Assam Roller Flour Mills Assn.12, after examining a plethora of case law on the subject, it was reiterated that:

(i) It should be shown that there was due knowledge of the order or directions and that the disobedience is a deliberate, conscious and intentional act.

(ii) When two views are possible, the element of wilfulness vanishes as it involves a mental element.

(iii) Since the proceedings are quasi-criminal in nature, what is required is a proof beyond reasonable doubt since the proceedings are quasi-criminal in nature.

(iv) when a distinct mechanism is provided and that too, in the same judgment alleged to have been violated, a party has to exhaust the same before approaching the court in exercise of its jurisdiction under the Contempt of Courts Act, 1971.

(v) While dealing with a contempt petition, the Court is not expected to conduct a roving inquiry and go beyond the very judgment which was allegedly violated.

22. In a subsequent decision by the Supreme Court in the case of Urban Infrastructure Real Estate Fund v. Dharmesh S. Jain13, at page 682, the Supreme Court referred to some earlier decision on the subject and observed: “19.2. R.N. Dey v. Bhagyabati Pramanik, (2000) 4 SCC 400], wherein this Court held that the weapon of initiating contempt proceedings could not be used for execution of a decree or implementation of an order. That is, a court should not invoke contempt jurisdiction, where alternate remedies are available to secure the terms of an order. We are mindful of the fact that contempt proceedings should not be of the nature of execution proceedings in disguise.”

23. In view of the aforesaid proposition of law, reverting back to the instant matter, at the outset, this Court has no hesitation in holding that the present contempt proceedings against the respondent cannot be sustained in law. First things first, it is evident that the respondent no.1 was a Chief Executive Officer; respondent no.2 was the Chairman cum Managing Director, and the respondent no.3 was Vice Chairman and Managing Director of M/s Tecpro Systems Limited. They were not parties to the OMP No.145/2014 and 151/2014, which petitions were instituted by the two consortium companies.

24. The order dated 30.01.2015 passed by this Court in proceedings under Section 9 of the Arbitration and Conciliation Act, thereby directing that the PBG and ABG „be kept alive‟ during the pending of the arbitral proceedings were directed to the consortium companies. So, therefore, technically speaking there were no directions to each individual respondent though in a practical sense they were the person in charge and control of the day-to-day affairs of the company and the respondent no.1 company.

25. It would be expedient to refer to the decision in the case of Rosan Sam Boyce v. B.R. Cotton Mills Ltd.14 by the Supreme Court, wherein it was held that an undertaking given by the person in management and control will be the undertaking of the Company itself. It is well ordained in law that the theory of attribution lays down a settled principle that acts of Directors, who are in management and control, are deemed to be acts of a company which is a legal identity, which has no mind or body to think and act. It is well settled also that acts of Directors in control are attributable as the acts of the company and treated as such. Reference can be had to decision by the Supreme Court in the case of Daichi Sankyo Company Limited v. Oscar Investments Limited15.

26. Therefore, if the corporate veil is lifted, the respondents can be said to be responsible for not deliberately extending the ABGs after its expiry on 13.08.2015. The position that clearly emerges is that when served with the notices in the present contempt proceedings, the respondents appeared in person before the Court on 21.03.2017 and requested some time to defer the judgment so as to arrange the necessary funds. Pursuant thereto on 08.05.2017, Mr. Sandeep Sethi, learned senior counsel for the respondents appeared and stated on instructions that a sum of ₹17.46 crores shall be deposited with the Registry of this Court on or before 31st July 2017.

27. Admittedly, ₹8 crores were deposited by 29.11.2017 and as was recorded in the proceedings of this Court on 28.11.2017 that Mr. Sandeep Sethi, learned senior counsel was representing all three respondents. The amount was deposited by way of cheques with the honoured too and converted into Fixed Deposit Receipts which were also released in favour of the by the petitioners as recorded in the order sheet dated 19.03.2018.

28. As regards the remaining amount, the respondents were directed to file an affidavit of assets, movable and immovable properties, and pursuant thereto each of the three respondents filed such affidavits which are a matter of record. All said and done, this Court finds merit in the plea by Mr. Rajshekar Rao, learned senior counsel for the respondents that the respondents in their individual capacities did all they could do to muster up enough funds so as to make good the losses to the petitioners but could not do so for personally facing insolvency process under the IBC. It needs to be empahsized that, it is only during the pendency of the present proceedings that the respondents gave undertakings to comply with the directions and fallout of the non-compliance of the order dated 30.01.2015.

29. It is borne out from the record that a plea has been taken that M/s Tecpro Systems Limited could not keep the ABGs alive since its account was declared as NPA16 by the IDBI Bank and it was initially declared as SICK company and filed its SICA17 reference before the BIFR18 vide case no.86/2015 registered on 14.07.2015.

30. The plea by Mr. Rajshekar Rao, learned senior counsel for the respondents that on initiation of the CIRP proceedings against M/s Tecpro Systems Limited vide order dated 07.08.2017 moratorium came to be enforced under Section 14 of the IBC cannot be brushed aside, and therefore, any liability towards the PBGs and the ABGs or in the alternative for extension of the same was in the domain of the IRP. The aforesaid discussions clearly invite an interference that the respondents despite their best efforts were unable to renew the ABGs with IDBI Bank particularly when their bank account had been Non-Performing Assets Sick Industrial Companies Act, 1985 Board for Industrial and Financial Reconstruction declared NPA and subsequently filing of the reference before the BIFR.

31. It goes without saying that the order dated 30.01.2015 was assailed by the petitioner in FAO(OS) 351/2015 and the Division Bench of this Court considered the plea of the respondents that it is unable to renew the bank guarantees for reasons beyond their control, and, in fact, the respondents voluntarily conceded and had given statement for early encashment by GAIL of the other performance bank guarantees issued by the Axis Bank. The PBGs timeline with the Axis Bank were to expire 30.07.2015 and the same were eventually allowed to be encashed in January, 2016. Accordingly, the order dated 30.01.2015 of the learned Single Judge in OMP proceedings was quashed vide order dated 28.01.2016 giving liberty to the petitioners/GAIL to seek appropriate remedy and relief for the amount thereof.

32. On the point of impleadment of the respondents in the main proceedings, reliance in this regard can be placed to the decision in the case of Census Commissioner v. Krishnamurthy (supra), wherein it was held that an order is not binding on the party who was not impleaded in the proceedings. Any order passed without their participation can be ignored as a violation of the principles of natural justice. Likewise in the case of Ranjan Kumar v. State of Bihar19, the Supreme Court re-affirmed that no adverse order can be passed against the party not made a respondent to the proceedings. At the cost of repetition, the lead members of the consortium, AMK VIGAZ and its directors were not impleaded in the contempt petition and neither were all the directors of the M/s Tecpro Systems Ltd. Hence, it can be safely said that the contempt proceedings are procedurally flawed and not maintainable. As recognised in the case of Deepali Designs & Exhibits Pvt. Ltd. v. PICO Deepali Overlays Consortium20, a consortium member may be treated separately from the consortium for certain obligations and in this case financial liabilities of M/s Tecpro Systems Ltd. were transferred to be discharged by the IRP, subject to the availability of sufficient funds at his disposal.

33. In view of the foregoing discussions, this Court finds that there was no intentional, wilful or contumacious neglect on the part of the respondents in complying with the directions of this Court dated 30.01.2015. Hence, the aforesaid contempt petitions are dismissed. All pending applications are also disposed of.