Case: E.Bapanaiah Vs. K.S.Raju Etc

5. Brief facts of the case are that the present appellant, E. Bapanaiah, (one of the depositors who made deposits with NFL) filed the contempt petition under Section 12 read with Section 10 of the Contempt of Courts Act, 1971 for the alleged wilful disobedience of order dated 29.2.2000 and one dated 21.8.2001 passed by Company Law Board, Southern Region Bench, and for breach of undertakings/affidavits, including one filed by K.S. Raju (Promoter Director of NFL) before CLB and one given in Company Appeal No. 7 of 2001. It is stated by the present appellant that the respondent, K.S. Raju, was Promoter Director of M/s. Nagarjuna Finance Limited, Hyderabad (in short NFL). The said company, through its Directors, issued advertisement inviting deposits promising good returns on the deposits with attractive interest thereon, and collected the huge sum from the public. The present appellant deposited ?.40,00,000/- (? forty lakhs) hoping that the same would multiply to double within 45 months as projected in the advertisement. The said amount was deposited in eight fixed deposits of ?.5,00,000/- (? five lakhs) each for a period of 45 months on 20.7.1997 and was due for repayment on maturity on 28.4.2001. However, when the NFL failed to re-pay the sum to the depositors, an application (CP No. 35 of 2000) was filed under Section 58-A of the Companies Act, 1956 before the Company Law Board, Southern Region Bench, for framing the scheme of repayment of deposits in instalments within a period of 48 months. The Company Law Board (CLB), exercising its suo motu powers, allowed the time to NFL on the request of its directors to approve the scheme of repayment. During the pendency of such application the CLB ordered the Directors, including the Promoter Director K.S. Raju, to file affidavits giving undertaking to the CLB that they would abide by the scheme and pay off the amount due to depositors. On the assurance as given in the undertakings/affidavits filed by K.S. Raju, Promoter Director, and other Directors separately, the CLB passed order dated 29.2.2000. But the Promoter Director and its group companies filed Company Appeal Nos. 9 of 2001 and 7 of 2001 against the said order dated 29.2.2000 passed in CP No. 35 of 2000. In said appeals, on behalf of the Company an undertaking was given to pay half of first years entitlement of the present appellant by 20.4.2002. However, no amount was paid. As such, the contempt petition was filed by the present appellant before the High Court for violation of the orders of the Company Law Board.  6. According to the appellant, after the scheme was approved, K.S. Raju, Promoter Director of NFL, started pleading that there was change in the management of NFL, and sought to be relieved from his liability as the Promoter Director of NFL, its group companies and from the undertaking given by him to the CLB. The CLB declined to relieve the Promoter Director K.S. Raju from the undertaking given by him and it was directed that he should make the repayment as per the repayment scheme. The Company Appeals were dismissed by the High Court on 3.1.2002. NFL and its Promoter Director failed to comply with the order of the Company Law Board even after dismissal of the Company Appeals. K.S. Raju, the then Promoter Director, was responsible for issuance of the advertisement inviting deposits from the public and failed to repay the deposits as per the undertaking given by him on behalf of the Company. It is further alleged by the present appellant in the Contempt Petition before the High Court that K.S. Raju kept on evading his liability, and attempted to shirk the responsibility by taking plea that he had resigned from the directorship.  7. A counter affidavit was filed on behalf of K.S. Raju, Promoter Director of NFL, in February, 2003 before the High Court which discloses that the said respondent disputed and denied the averments made in the Contempt Petition. He pleaded that he had all respect for the Court and had no intention to commit the contempt of the court. He further pleaded that long back he had left to function as Managing Director of NFL. It is further stated by him that he is neither in a position to exercise any control over the Company nor responsible to make repayment of the deposits made in favour of NFL. It was further submitted by him before the learned single Judge of the High Court that in the order dated 29.2.2000 passed by the CLB, the Board did not rely on the assurance or undertaking given by the parties. Only the Managing Director was directed to file the undertaking, as such the undertaking/affidavit given by the respondent K.S. Raju was not the basis of the order dated 29.2.2000. As such it was contended that there was no contempt of CLB or the Court. It was further pleaded that an agreement was entered into between one M/s. Mahalakshmi Factorial Services Limited (for short MFSL) and NFL whereby the control of NFL was handed over to MFSL, and N. Selvaraj (respondent No. 2 in the Contempt Petition) was nominated as the Chief Executive Officer to look after the affairs of NFL. Lastly, it was pleaded by respondent K.S. Raju that assuming that he had given undertaking/affidavit on which CLB passed the order said to have been disobeyed, there is no personal liability on said respondent to repay the amount in question.  8. In the counter affidavits filed on behalf of NFL (through G. Venkatapathi, Executive Director) and N. Selvaraj (respondent No. 2 in the Contempt Petition) it was disclosed that Sridhar Chary, Managing Director, functioning for over a decade of NFL, was none else than the nominee of K.S. Raju, Promoter Director. It was also pleaded on behalf of NFL that out of Paid-up Capital of ?.26.32 crores group companies were holding ?.16.16 crores, i.e., approximately 61%. It was also stated by NFL in its counter affidavit before the High Court that under Articles 104 and 140 of the Articles of Association K.S. Raju had power to appoint the Managing Director and other three Directors as his nominees. N. Selvaraj (respondent No. 2 in the Contempt petition) denied that he was nominee of MFSL. He further pleaded that there was no change in the management of NFL during his tenure as Managing Director, and he further told that entire control remained with K.S. Raju and his nominees. The Executive Director, G. Venkatapathi of NFL, filed additional counter affidavit in which it is clearly stated that the CLB passed the order on the basis of the undertakings and affidavits filed by the Promoter Director and the group companies. The counter affidavits further revealed that on special audit made in April, 2002, several irregularities were found to have been committed by the Management resulting in failure of recoveries in respect of loans advanced to various companies who were not traceable on the addresses given.  9. An additional counter affidavit was filed by K.S. Raju, Promoter Director, who was contesting the contempt petition with other two respondents, in which he alleged that the representatives of MFSL have engineered and secured the audit report to save the Directors of said company.  10. Learned Single Judge, after hearing the parties at length, came to the conclusion that NFL and its Promoter Director, K.S. Raju, are guilty of contempt of court. Paragraphs 134 and 135 of the judgment and order dated 3.8.2007 passed by the learned Single Judge read as under: -134. The 1st and 3rd respondents/contemnors are found guilty and liable to be convicted under Section 12 of the Contempt of Courts Act. Accordingly, the 1st respondent as well as the other directors of the 3rd respondent company are convicted and sentenced to suffer simple imprisonment for a period of six months, together with imposition of fine of Rs.2,000/- (Rupees two thousand only). The 1st respondent as well as other directors of the 3rd respondent shall be detained in Civil Prison for the period of imprisonment as ordered above.  135. Accordingly, C.C. is allowed11. Aggrieved by the order dated 3.8.2007 passed by the learned single Judge in Contempt Case No. 915 of 2002 respondent K.S. Raju, Promoter Director, appears to have filed Contempt Appeal No. 3 of 2007 before the Division Bench of the High Court. His appeal was taken up along with the appeals of the other Directors and disposed of vide impugned order dated 22.8.2008 whereby the appeals of all the Directors, including that of K.S. Raju, were allowed. Hence these appeals before us by the depositor E. Bapanaiah.  (We have already observed in the beginning of this judgment that since the other Directors were neither impleaded by name nor had an opportunity to defend themselves, as such setting aside of their conviction and sentence by the Division Bench of the High Court in their appeals, requires no interference. As such further discussion is confined to the issue of allowing of K.S. Raju by the Division Bench of the High Court.)

Court's reasoning:
5. Brief facts of the case are that the present appellant, E. Bapanaiah, (one of the depositors who made deposits with NFL) filed the contempt petition under Section 12 read with Section 10 of the Contempt of Courts Act, 1971 for the alleged wilful disobedience of order dated 29.2.2000 and one dated 21.8.2001 passed by Company Law Board, Southern Region Bench, and for breach of undertakings/affidavits, including one filed by K.S. Raju (Promoter Director of NFL) before CLB and one given in Company Appeal No. 7 of 2001. It is stated by the present appellant that the respondent, K.S. Raju, was Promoter Director of M/s. Nagarjuna Finance Limited, Hyderabad (in short NFL). The said company, through its Directors, issued advertisement inviting deposits promising good returns on the deposits with attractive interest thereon, and collected the huge sum from the public. The present appellant deposited ?.40,00,000/- (? forty lakhs) hoping that the same would multiply to double within 45 months as projected in the advertisement. The said amount was deposited in eight fixed deposits of ?.5,00,000/- (? five lakhs) each for a period of 45 months on 20.7.1997 and was due for repayment on maturity on 28.4.2001. However, when the NFL failed to re-pay the sum to the depositors, an application (CP No. 35 of 2000) was filed under Section 58-A of the Companies Act, 1956 before the Company Law Board, Southern Region Bench, for framing the scheme of repayment of deposits in instalments within a period of 48 months. The Company Law Board (CLB), exercising its suo motu powers, allowed the time to NFL on the request of its directors to approve the scheme of repayment. During the pendency of such application the CLB ordered the Directors, including the Promoter Director K.S. Raju, to file affidavits giving undertaking to the CLB that they would abide by the scheme and pay off the amount due to depositors. On the assurance as given in the undertakings/affidavits filed by K.S. Raju, Promoter Director, and other Directors separately, the CLB passed order dated 29.2.2000. But the Promoter Director and its group companies filed Company Appeal Nos. 9 of 2001 and 7 of 2001 against the said order dated 29.2.2000 passed in CP No. 35 of 2000. In said appeals, on behalf of the Company an undertaking was given to pay half of first years entitlement of the present appellant by 20.4.2002. However, no amount was paid. As such, the contempt petition was filed by the present appellant before the High Court for violation of the orders of the Company Law Board6. According to the appellant, after the scheme was approved, K.S. Raju, Promoter Director of NFL, started pleading that there was change in the management of NFL, and sought to be relieved from his liability as the Promoter Director of NFL, its group companies and from the undertaking given by him to the CLB. The CLB declined to relieve the Promoter Director K.S. Raju from the undertaking given by him and it was directed that he should make the repayment as per the repayment scheme. The Company Appeals were dismissed by the High Court on 3.1.2002. NFL and its Promoter Director failed to comply with the order of the Company Law Board even after dismissal of the Company Appeals. K.S. Raju, the then Promoter Director, was responsible for issuance of the advertisement inviting deposits from the public and failed to repay the deposits as per the undertaking given by him on behalf of the Company. It is further alleged by the present appellant in the Contempt Petition before the High Court that K.S. Raju kept on evading his liability, and attempted to shirk the responsibility by taking plea that he had resigned from the directorship7. A counter affidavit was filed on behalf of K.S. Raju, Promoter Director of NFL, in February, 2003 before the High Court which discloses that the said respondent disputed and denied the averments made in the Contempt Petition. He pleaded that he had all respect for the Court and had no intention to commit the contempt of the court. He further pleaded that long back he had left to function as Managing Director of NFL. It is further stated by him that he is neither in a position to exercise any control over the Company nor responsible to make repayment of the deposits made in favour of NFL. It was further submitted by him before the learned single Judge of the High Court that in the order dated 29.2.2000 passed by the CLB, the Board did not rely on the assurance or undertaking given by the parties. Only the Managing Director was directed to file the undertaking, as such the undertaking/affidavit given by the respondent K.S. Raju was not the basis of the order dated 29.2.2000. As such it was contended that there was no contempt of CLB or the Court. It was further pleaded that an agreement was entered into between one M/s. Mahalakshmi Factorial Services Limited (for short MFSL) and NFL whereby the control of NFL was handed over to MFSL, and N. Selvaraj (respondent No. 2 in the Contempt Petition) was nominated as the Chief Executive Officer to look after the affairs of NFL. Lastly, it was pleaded by respondent K.S. Raju that assuming that he had given undertaking/affidavit on which CLB passed the order said to have been disobeyed, there is no personal liability on said respondent to repay the amount in question8. In the counter affidavits filed on behalf of NFL (through G. Venkatapathi, Executive Director) and N. Selvaraj (respondent No. 2 in the Contempt Petition) it was disclosed that Sridhar Chary, Managing Director, functioning for over a decade of NFL, was none else than the nominee of K.S. Raju, Promoter Director. It was also pleaded on behalf of NFL that out of Paid-up Capital of ?.26.32 crores group companies were holding ?.16.16 crores, i.e., approximately 61%. It was also stated by NFL in its counter affidavit before the High Court that under Articles 104 and 140 of the Articles of Association K.S. Raju had power to appoint the Managing Director and other three Directors as his nominees. N. Selvaraj (respondent No. 2 in the Contempt petition) denied that he was nominee of MFSL. He further pleaded that there was no change in the management of NFL during his tenure as Managing Director, and he further told that entire control remained with K.S. Raju and his nominees. The Executive Director, G. Venkatapathi of NFL, filed additional counter affidavit in which it is clearly stated that the CLB passed the order on the basis of the undertakings and affidavits filed by the Promoter Director and the group companies. The counter affidavits further revealed that on special audit made in April, 2002, several irregularities were found to have been committed by the Management resulting in failure of recoveries in respect of loans advanced to various companies who were not traceable on the addresses given9. An additional counter affidavit was filed by K.S. Raju, Promoter Director, who was contesting the contempt petition with other two respondents, in which he alleged that the representatives of MFSL have engineered and secured the audit report to save the Directors of said company10. Learned Single Judge, after hearing the parties at length, came to the conclusion that NFL and its Promoter Director, K.S. Raju, are guilty of contempt of court. Paragraphs 134 and 135 of the judgment and order dated 3.8.2007 passed by the learned Single Judge read as under: -134. The 1st and 3rd respondents/contemnors are found guilty and liable to be convicted under Section 12 of the Contempt of Courts Act. Accordingly, the 1st respondent as well as the other directors of the 3rd respondent company are convicted and sentenced to suffer simple imprisonment for a period of six months, together with imposition of fine of Rs.2,000/- (Rupees two thousand only). The 1st respondent as well as other directors of the 3rd respondent shall be detained in Civil Prison for the period of imprisonment as ordered above135. Accordingly, C.C. is allowed11. Aggrieved by the order dated 3.8.2007 passed by the learned single Judge in Contempt Case No. 915 of 2002 respondent K.S. Raju, Promoter Director, appears to have filed Contempt Appeal No. 3 of 2007 before the Division Bench of the High Court. His appeal was taken up along with the appeals of the other Directors and disposed of vide impugned order dated 22.8.2008 whereby the appeals of all the Directors, including that of K.S. Raju, were allowed. Hence these appeals before us by the depositor E. Bapanaiah(We have already observed in the beginning of this judgment that since the other Directors were neither impleaded by name nor had an opportunity to defend themselves, as such setting aside of their conviction and sentence by the Division Bench of the High Court in their appeals, requires no interference. As such further discussion is confined to the issue of allowing of K.S. Raju by the Division Bench of the High Court.)The present case relates to a civil contempt wherein an undertaking given to Company Law Board is breached. Normally, the general provisions made under the Contempt of Courts Act are not invoked by the High Courts for forcing a party to obey orders passed by its subordinate courts for the simple reason that there are provisions contained in Code of Civil Procedure, 1908 to get executed its orders and decrees. It is settled principle of law that where there are special law and general law, the provisions of special law would prevail over general law. As such, in normal circumstances a decree holder cannot take recourse of Contempt of Courts Act else it is sure to throw open a floodgate of litigation under contempt jurisdiction. It is not the object of the Contempt of Courts Act to make decree holders rush to the High Courts simply for the reason that the decree passed by the subordinate court is not obeyed. However, there is no such procedure prescribed to execute order of CLB particularly after proviso is added to Section 634A of the Companies Act, 1956, vide Companies (Second Amendment) Act, 2002Therefore, having considered submissions of learned counsel for the parties, and material on record, and further considering the relevant provisions of law and the cases referred above, and exercising powers under Article 136 read with Article 142 of the Constitution, we think it just and proper to interfere with the order passed by the Division Bench of the High Court whereby the Division Bench erroneously set aside the finding and sentence awarded by the learned single Judge against K.S. Raju. In our opinion, respondent K.S. Raju wilfully disobeyed the order of CLB and breached the undertaking given to CLB, and thereby committed Contempt of Court subordinate to High Court as such the Division Bench of the High Court has erred in law in allowing the Contempt Appeal No. 3 of 2007 filed by K.S. Raju and setting aside his conviction and sentence, recorded against him by the learned Single Judge in Contempt Case No. 915 of 2002