IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE THOTTATHIL B. RADHAKRISHNAN TUESDAY, THE 20TH SEPTEMBER 2011 / 29TH BHADRA 1933 Con.Case(C).No. 831 of 2010(S) ----------------------------------------- AGAINST THE JUDGEMENT/ORDER IN CP.32/2006 ............................................................................................... PETITIONER(S): ----------------------- MR.RAKESH KUMAR S/O.JWALA PRASAD, AGED 53/05 PROPRIETOR OF M/S.RISHAB ENTERPRISES, BLOCK NO,K II SHOP NO.206,SECTOR 18, NOIDA 201301, (U.P) BY ADVS. SRI.SAKESH KUMAR SRI.RAJESH THOMAS RESPONDENT(S): ------------------------- 1. M/S.RAJAGOPAL TEXTILE MILLS PVT. LTD. REPRESENTED BY ITS MANAGING DIRECTOR MR.DIPESH S VED, P.B.NO.404, MULAKUNNATHUKAVU DISTRICT THRISSUR, KERALA, INDIA 680 581 2. MR.DIPESH S VED, DIRECTOR M/S.RAJAGOPAL TEXTILES MILLS PVT. LTD P.B.NO.404, MULAKUNNATHUKAVU DISTRICT THRISSUR, KERALA, INDIA 680 581 3. MR.SANTHI KUMAR S.VED,DIRECTOR M/S.RAJAGOPAL TEXTILE MILLS PVT. LTD P.B.NO.404, MULAKUNNATHUKAVU DISTRICT THRISSUR, KERALA, INDIA 680 581 4. MR.ROHIT S.VED C.E.O ROHIT COSTS, PLOT NO.22B & 22C INDUSTRIAL DEVELOPMENT PLOT,PERINGANDOOR, ATHANI 680 581. BY ADV. SRI. DEVAN RAMACHANDRAN THIS CONTEMPT OF COURT CASE (CIVIL) HAVING BEEN FINALLY HEARD ON 26/08/2011 ALONG WITH CO. APPLN. NO. 603/2011, THE COURT ON 20/09/2011 DELIVERED THE FOLLOWING: DS Con.Case(C).No. 831 of 2010(S) APPENDIX PETITIONER'S ANNEXURES: ANNEXURE A1: COPY OF THE CO. APPL. NO. 740/2008 IN C.P. NO. 32 OF 2006. ANNEXURE A2: COPY OF THE ANNEXURE A1 AGREEMENT IN CO. APPLN. NO. 740/2008. ANNEXURE A3: CERTIFIED COPY OF ORDER DATED 30-09-2008 IN CO. APPLN. NO. 740/2008 IN C.P. NO. 32 OF 2006. ANNEXURE A4: LEGAL NOTICE DATED 11-07-2009. RESPONDENT'S ANNEXURES: NIL /TRUE COPY/ PA TO JUDGE DS Thottathil B.Radhakrishnan,J. = = = = = = = = = = = = = = = = = = = = = = = = Cont.Case(C).No.831 of 2010-S & Co.Appl.No.603 of 2011 in C.P.No.32 of 2006 = = = = = = = = = = = = = = = = = = = = = = = = Dated this the 20th day of September, 2011. Judgment 1.Company Petition No.32 of 2006 was filed by the petitioner herein praying for an order that the Company M/s.Rajagopal Textile Mills(Pvt.) Ltd. be wound up by the Court under the provisions of the Companies Act. Sections 433(c) and 434 of that Act were invoked. Incidental and consequential reliefs were sought for. Pending that company petition, Co.Appl.No.740 of 2008 was filed placing therewith an agreement which is Annexure- A to the affidavit in that company application. Thereby, the parties had drawn up a compromise. Leave was sought for to record that application. This was granted. Resultantly, C.P.No.32 of 2006 was ordered recording that the disputes between the parties are settled in terms of the agreement which is Annexure-A to Co.Appl.No.740 of 2008 and the parties will act accordingly. COC.831/10 -: 2 :- 2.The captioned Contempt of Court Case is filed invoking the provisions of Article 215 of the Constitution of India read with Section 12 of the Contempt of Courts Act. The captioned company application is filed seeking that the C.P.No.32 of 2006 which was closed on the basis of the settlement in terms of the agreement, be revived as the respondents have willfully defied the said agreement. 3.An affidavit has been filed on behalf of the respondents pointing out, among other things, that they have not acted in willful disobedience of any direction of the Court. It is submitted that they have not violated any order of this Court. They also stand to say that the failure to perform the terms of the settlement between the parties was not willful and the applicant had also been paid certain amounts in terms of the settlement, though all payments due under COC.831/10 -: 3 :- settlement could not be made, owing to unavoidable exigency of situation and inability of the respondents to pay. 4.The learned counsel appearing for the petitioner in these matters relied on the decision of the Apex Court in Bank of Baroda v. Sadruddin Hasan Daya[(2004) 1 SCC 360] and Rama Narang v. Ramesh Narang[(2006) 11 SCC 114] and argued that on the face of the willful refusal to comply with the undertaking given to this Court in the form of terms of the aforesaid settlement agreement, it would be within the authority of the Company Court to invoke the provisions of Article 215 of the Constitution and Section 12 of the Contempt of Courts Act. He pointed out that willful neglect to abide by undertakings and disobedience of any process of court in that regard would necessarily result in a situation of civil contempt and that when a decree is passed on a compromise, the undertakings contained therein COC.831/10 -: 4 :- cannot be breached and any violation of those terms would result in civil contempt. 5.On the other hand, the learned counsel for the respondents argued that the facts situation as reflected by the materials on record, including the counter affidavit would clearly show that there is no willful neglect or disobedience of the directions of the Court and that the respondents were unable to pay the entire amounts covered by the settlement agreement. He also argued that having regard to the terms of the settlement agreement, any failure in the undertaking to pay, could only visit the respondents, at the most, with the revival of the company petition seeking winding up and nothing more. 6.While the jurisdiction to initiate action for contempt could be exercised by the Judge of a High Court notified by the Honourable the Chief COC.831/10 -: 5 :- Justice of that High Court, the question in the case in hand is as to whether the facts and circumstances of this case calls for exercise of the authority under the Contempt of Courts Act. 7.The thrust of the disputes on facts revolves around the allegation that the terms of the deed of settlement of dues dated 8th September, 2008 stand breached. The question would, therefore, be that and as to, what, if any, would be the consequence of such breach. 8.The preamble of the agreement which is Annexure-A to Co.Appl.No.740 of 2008, recites and recalls the different litigations between the parties pending in different courts and also the amounts due to the parties to those litigations from the respondents. The terms of that settlement enumerate into ten[(i) to (x)]. Of them, clauses (i) to (vi) deal with the settlement between the parties that payments would be made by the first COC.831/10 -: 6 :- party thereto and the manner in which the second party would acknowledge receipt and wait for the further payments in terms of those clauses. Clause (vi) provides that the second party would request the courts where the litigations are pending to keep the litigations pending for the period during which the first party is required to pay up the outstandings in terms of the settlement. Clause (vii) says that on payment of all the installments, the second party shall withdraw all the cases. Clause (ix) says that the settlement agreement shall be filed in the company petition in the High Court. 9.Clauses (viii) and (x) are of specific importance to answer the issues involved in the matter in hand. They read as follows: “(viii) That if by any chance the First Party fails to pay the installment amount for two consecutive months, this settlement/agreement COC.831/10 -: 7 :- shall cease to operate. The Second Party then shall be at liberty to revive all the cases and would be entitled to proceed to recover whole remaining amounts due towards the Second Party and the group of the First Party as per the ledger and shall not be limited to the agreed amount in these presents. Second party may also file a company petition for winding up, if advised. (x) If the first party fails to make payment of any installment second party shall also be entitled for present and further interest at 12% as agreed earlier.” 10.In terms of Clause (viii), if the first party fails to pay the installments for two consecutive months, the settlement/agreement shall cease to operate. The second party will, thereupon, be at liberty to revive all the cases and would be entitled to proceed to recover whole remaining amounts due towards the second party without COC.831/10 -: 8 :- adhering to the agreed amount in terms of the settlement. The second party was also given the opportunity to file a company petition for winding up. This, obviously, shows that the settlement agreement carried with it, the liability clause that would operate in the event of the first party failing to perform its obligations under that settlement. After it breached any payment of two consecutive installments,the first party could not tie down the second party to the settlement agreement. More importantly, clause (x) provides that if there is failure to make payment of any installment, the second party shall be entitled for present and further interest at 12%. These provisions in clauses (viii) and (x) clearly indicate the consequence agreed to between the parties in the event of the first party(the company) committing breach of the terms of the said settlement. COC.831/10 -: 9 :- 11.In the aforesaid premise, the consequence of any failure to pay in terms of the settlement recorded by this Court was also determined by the parties. The settlement gave the right to the second party to demand the entire amounts that were due notwithstanding the settlement. Eligibility for interest was also provided under that agreement. The second party was entitled to resurrect all litigations which the parties had decided to be left without prosecution for sometime. The second party could also apply for winding up the company. It is also the admitted fact that the company had made certain payments even after the settlement. The plea of the respondents is that they were unable to make any further payments owing to their financial deficiency. The so-called breach of the agreement leads to the consequences which are also agreed to between the parties. The terms of the settlement being as noted above, I do not find any ground to hold that the failure of the COC.831/10 -: 10 :- company and the respondents to perform their obligations in terms of that settlement, recorded by this Court, is willful disobedience of any direction or undertaking, to invite action for civil contempt. Hence, no case of contempt is made out. 12.Having found as aforesaid, the question is whether the revival of the company petition is to be granted. Though it was agreed between the parties that the second party could file an application for winding up, nothing prevents it from seeking revival of the company petition since the very foundation on which the company petition was disposed of on the basis of settlement, has lost its substratum. Therefore, the petitioners have established abundant ground for grant of relief of revival of the company petition. COC.831/10 -: 11 :- In the result, i.Cont.Case(C).No.831 of 2010 is dismissed. ii.Company Application No.603 of 2011 is allowed reviving C.P.No.32 of 2006 from the stage at which it was closed as per judgment dated 30.9.2008. iii.C.P.No.32 of 2006 will accordingly be listed appropriately. iv.No costs. Thottathil B.Radhakrishnan, Judge. Sha/0609