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CASE NO.: Contempt Petition (civil)  289 of 2003

PETITIONER: Maruti Udyog Limited

RESPONDENT: Mahinder C. Mehta and Others

DATE OF JUDGMENT: 10/10/2007

BENCH: S.B. Sinha & Harjit Singh Bedi

JUDGMENT: J U D G M E N T  CONTEMPT PETITION (CIVIL) NO. 289 OF 2003 IN SLP (Civil) No. 13305 of 2002

S.B. SINHA, J :          1.      This contempt petition arises in a somewhat peculiar circumstance.   Petitioner herein is manufacturer of cars.  Alleged contemnors were  Directors of a Company known as M/s. Mahalaxmi Motors Limited  (Company).  The Company obtained various advances from the customers  on behalf of the petitioner.  It, however, did not pay the amount to petitioner  herein.  Respondents admitted their liability of the petitioner to the extent of  Rs. 7.63 crores in respect of supply of vehicles made by it, as would appear  from the minutes of the meeting dated 5.04.1997 which is as under:

\0237.  MML also provided a letter No. 021/MML/97  dated 5.4.1997 wherein they admitted that there  was a shortfall of Rs. 7.63 Cr.\024

       Respondents also by an affidavit filed before the Andhra Pradesh  High Court admitted their liability stating:

\02315. In this instance also the Petitioner company  had on its own given the particulars of the amounts  due from it to the complainant company by its  letter dated 5th April, 1997 wherein it accepted a  liability of Rs. 763.22 lakhs and also gave the  repayment schedule.  Prior to that it gave a list of  all the pending customers at Hybderabad and  Vijayawada.  In fact vehicles have been delivered  to meet of these in the said list, and deliveries are  still on to the remaining persons.  The complainant  company had been delivering these vehicles  through other dealers as with the advent of this  dispute with the Petitioner company it terminated  its dealership.

16.     It is respectfully submitted that after the  Petitioner company gave the said undertaking to  pay off the due about Rs. 763.22 lakhs, there has  been a change in thinking in the concerned  officials of the complainant company had they  started making exaggerated claims over and above  the amounts actually due to it from customer  bookings.  As far as the Petitioner company is  concerned it also made funds available to honour  its commitment to the complainant company and  took a draft for the said amount in May 1997 itself

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which is to the knowledge of the complainant  company.\024

2.      As the Company or its Directors did not pay even the said admitted  amount to the petitioner, it filed a suit for recovery thereof.  Indisputably,  there existed an arbitration agreement in the contract entered into by and  between the parties, Clause 57 whereof reads as under:

\023If the differences or disputes, except dispute  pertaining to termination, shall arise between the  parties hereto as to the construction or true intent  and meaning of any of the terms and conditions  herein contained or as to any payment to be made  in pursuance hereof or as to any other matter  arising out of or connected with or/ incidental to  these presents or as to the rights, duties and  obligation of either party, such difference or  dispute whenever and so often as the same shall  arise, shall be referred to the Indian Council of  Arbitration, New Delhi under their rules for the  time being in force and the award in pursuance  thereof shall be binding on the parties.\024

3.      Relying on or on the basis of the said arbitration agreement, the  respondents herein filed an application purported to be under Section 8 of  the Arbitration and Conciliation Act, 1996 (for short \023the Act\024).  A learned  Single Judge of the Delhi High Court rejected the said application.  An  appeal was preferred thereagainst before a Division Bench which was also  dismissed.  A Special Leave Petition was filed before this Court.  Petitioner  herein agreed for reference of the disputes and differences between the  parties to arbitration inter alia on the condition that the respondents shall  deposit the amount or furnish security and/ or comply with the directions of  the learned Arbitrator in case such directions and/ or interim orders are  passed by the learned Arbitrator in the following terms:

\0234.  All the parties to this S.L.P. shall by way of  affidavit give undertaking to this Hon\022ble Court to  furnish the security and/ or comply with the  directions of learned Arbitrator in case the learned  Arbitrator directs any of the parties to furnish the  security and/ or comply with any other interim  order of the learned Arbitrator.\024

       The proposed term of reference was also agreed to by the respondents.

4.      On the basis of the said representations, this Court by an order dated  6.09.2002 referred the subject matter of the dispute to the arbitration of  Justice A.M. Ahmadi, a former Chief Justice of this Court.

5.      The question as to whether the respondents should furnish bank  guarantee or not came up for consideration before the learned Arbitrator and  by an order dated 25.03.2003 a direction was issued upon the respondents to  furnish bank guarantee for the sum of Rs. 763.22 lakhs within a period of  four weeks from the said date directing:

\023Since the documents relied upon by the claimant  company in support of its claim for Rs. 763.22  lakhs are in dispute, I am not inclined to make an  interim award under section 17 of the Act read  with Order 12 Rule 6, CPC.  However, I am prima  facie satisfied that the claimant company has made  out a prima facie case for an interim order  directing the respondents to furnish a bank  guarantee in the sum of Rs. 763.22 lakhs within a

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period of four weeks from today.  Needless to state  that under the Supreme Court order dated 6.9.2002  (paragraph 3) the interim order has to be complied  with within four weeks from the date of the order.\024

6.      An interlocutory application was filed by the respondents before this  Court being IA No. 2 of 2003.  But, the same was withdrawn on 6.05.2003.   An application was thereafter filed by them before the learned Arbitrator for  modification of the said order dated 25.03.2003 by offering to furnish  property security purported to have been situate at Secunderabad in the State  of Andhra Pradesh instead of bank guarantee.  Curiously enough, it was not  disclosed that the said property was encumbered in more than one way and,  as would appear from the discussions made hereinafter, the property was  being claimed by the State of Andhra Pradesh as having vested in it.   However, on or about 28.06.2003, it was disclosed that the property was  encumbered.  The learned Arbitrator rejected the application for  modification by an order dated 2.08.2003 but extended time for furnishing  bank guarantee upto 27.08.2003.  In the meantime, the petitioner filed a  contempt petition before this Court on 26.07.2003.   

7.      It appears from the records that the respondents herein had given an  undertaking not to alienate their assets or encumber or create third party  interest in the property at Secunderabad.  It is also not in dispute that despite  pendency of the aforementioned contempt petition, the property belonging to  company at Bangalore was disposed of.  It was disclosed before the learned  Arbitrator by the respondents in their reply to application under Section 17  of the Act filed by the petitioner and the same was reiterated in the affidavit  affirmed by Respondent No. 1 herein on 7.07.2004.   

8.      On or about 23.07.2004, this Court directed the alleged contemnors to  file affidavit disclosing details of their present assets as also that of the  Company; pursuant whereto, an affidavit was filed by Respondent No. 1  stating:

(i)     The property of M/s. Mahalaxmi Motors Ltd. at Secunderabad was  encumbered. (ii)    He had a flat at D-1, Maya Apartment admeasuring 800 sq. ft. at  Ashoka Road, Bangalore which was sold on 3.02.2004 for Rs.  8,00,700/-. (iii)   He was the manager of Hyderabad Auto Services and drawing a  salary of Rs. 15,000/- p.m.

       Petitioner in its reply denied and disputed the said statement and  contended that by reason of sale of property at Bangalore, a further contempt  has been committed.  It was urged that the affidavit of Respondent No. 1 not  only amounted to suppression of facts but also perjury.   

       An award was made on 10.04.2005 as against the Company for a sum  of Rs. 7.63 crores with interest at the rate of 8% in favour of the petitioner  along with costs and expenses.   

9.      Before this Court, however, a proposal for settlement was made by  Respondent No. 1 in terms of an affidavit; paragraph 13 whereof reads thus:

\02313. I say that I pray this Hon\022ble Court to kindly  consider my pecuniary circumstances and helpless  position to mobilize monies to an extent of 763.22  lakhs and I pray which inability of mere may not  be termed as contempt of this Hon\022ble Court.  I  once again reiterate and pray this Hon\022ble Court to  kindly consider my adverse financial  circumstances and kindly accept the landed  property as security which the Petitioner has  accepted and consequently the orders passed by

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the Arbitrator was complied with and thus there is  no cause of action to proceed with the present  contempt case.  Even otherwise I have also  established a prima facie case over the title of the  said land before the High Court of Andhra Pradesh  before the Sole Arbitrator and before this Hon\022ble  Court.  I am even now ready and willing to  relinquish all my rights over the landed property in  favour of the Petitioner.  I further agree that I will  execute the General Power of Attorney in favour  of the petitioner for the purpose of getting  clearance from the Government of Andhra Pradesh  and regularization of the land in question in favour  of the Mahalaxmi Motors\005I will fully cooperate  with the Petitioner to get the land transferred in its  name or for its disposal and the Respondent  unhestitatingly sign on every paper which the  petitioner brings before him in the matter of the  said landed property\005\024

10.     Relying on or on the basis of the said representation made by the  respondents, a Division Bench formed an impression that it is possible to  settle the dues of the petitioner as also other creditors.  By an order dated  9.02.2007, therefore, it was directed:

\023(1) The parties hereto should find out ways and  means to sell the property belonging to the first  respondent company herein, situate at  Secunderabad, jointly by the petitioner as also the  Indian Overseas Bank, Hyderabad.  For the said  purpose, the Chief Manager of the Indian Overseas  Bank, the Collector of the Hyderabad District as  also the Managing Director of respondent No. 1  Mahendra C. Mehta, who is present in Court  today, shall meet in the office of the Collector,  Hyderabad on 26th February, 2007 at 11.00 a.m. (2)     As it is stated that a writ petition bearing No.  15920/2004 is pending before the High Court of  Andhra Pradesh in regard to the said property, we  request the Chief Justice of the High court to  consider the desirability of placing the said writ  petition before an appropriate Bench for its very  early disposal.\024

11.     In furtherance of the said order, the Collector of the Hyderabad  District held a meeting.  In the said meeting, it transpired that the property in  question, which is in dispute, belonged to the State of Andhra Pradesh and it  claiming right, title and interest therein had initiated a proceeding against the  respondents in respect thereof under the provisions of the Andhra Pradesh  Land Grabbing (Prohibition) Act, 1982.  The said proceeding was decided in  favour of the State of Andhra Pradesh.   

12.     Respondents filed a writ petition before the High Court thereagainst  being Writ Petition No. 15920 of 2004.  The said writ petition having been  dismissed, the appeal of the respondents and the Company preferred  thereagainst was taken up for hearing along with this matter and by reason of  a judgment and order of this date, we are disposing of the same also.   

13.     The Collector filed a status report inter alia noticing:

\02310. It may be informed to this Hon\022ble Court that  on detailed enquiry by the revenue officials it is  learnt that one Sri R. Praveen Kumar, S/0 R. Vijay  Kumar, claiming to be GPA holder (Un-registered)  of M/s Mahalakshmi Motors Ltd. is reportedly

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running Mahalaxmi Motors workshop on the suit  schedule land but on ground a company under the  name and style of M/s Hyundai Lakshmi is being  run, involving business of buying, selling and  servicing of vehicles.  Further, there are two  prominent display boards at the entrance showing  as \023Hyundai Lakshmi\024.  The copy of the GPA  furnished by Sri Praveen Kumar, is not registered  and has no legal authenticity.  This office has  reason to believe that a third party is in illegal  possession of the land and the relationship between  M/s Mahalaxmi Motors and present occupant is  not known.  In this regard, necessary action is  being initiated separately\005\024

       It was, therefore, opined:

\02311. The very fact that M/s Mahalaxmi Motors  have applied for regularization proves that they are  in illegal occupation of Government land.  Thus,  they do not have any locus standi over the suit  scheduled property.  Further the intention of  selling of the land as proposed by the Indian  Overseas Bank and Maruti Udyog Ltd. cannot be  considered at this juncture as the suit property does  not belong to Mahendra C. Mehta and others and  the suit scheduled land is required for public  purpose.\024

14.     Mr. T.K. Ganju, learned senior counsel appearing on behalf of the  petitioner would submit that by brazenly flouting the order of this Court  dated 6.09.2002, the respondents have committed gross contempt of this  Court.  It was submitted that the alleged contemnors were bound to comply  with the orders passed by the learned Arbitrator in terms of this Court\022s  order dated 6.09.2002.  as they had not furnished bank guarantee pursuant  thereto or in furtherance thereof and in fact the alleged contemnors have  committed a contempt of this Court.     

       It was furthermore contended that that the contempt stands aggravated  as even during pendency of this proceeding as also the arbitration  proceeding before the learned Arbitrator, they have sold their flat situate at  Bangalore.

15.     Mr. Shyam Divan, learned senior counsel appearing on behalf of the  alleged contemnors, on the other hand, has drawn our attention to the  additional affidavits filed by the contemnors herein tendering unconditional  apology.  We would refer to only one of them filed by Respondent No. 1.  It  was averred therein:

\0231.  I unconditionally apologize to this Hon\022ble  Court with respect to the contempt which is the  subject matter of the Contempt Petition.  I have  highest respect for the judiciary and for the judges  of this Hon\022ble Court as well as the Ld. Arbitrator. 2.      I was unable to arrange for Bank Guarantee  of Rs. 763.22 lakhs since the company was not in a  position to mobilize resources.  Moreover, I did  not have personal resources to raise funds and to  ensure that the Bank Guarantee is provided. 3.      I request this Hon\022ble Court to accept the  unconditional apology tendered by me.\024

       A further reply has also been filed by the respondents stating:

\0236.  That the District Collector has needlessly

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and unwarrantly traced earlier rejection of the  regularization proposals by the government by  cryptic and non-speaking order and consequent  filing of writ petition No. 15 of 2000 by the  respondent when the matter was remitted back to  government to pass appropriate orders taking into  account the recommendations of the District  Collector and the Commissioner of Land Revenue  dated 22.10.1997 and 30.9.1997 which facts are  already in the record of this Honourable Court.   While so doing, the District Collector, Hyderabad  made a false report that a report was submitted to  the government that the lands are required for  public purpose like establishment of hospitals,  schools, play grounds, etc., referring to his report  dated 17.6.2003 and his report is not based on the  recommendations based by him and the  Commissioner Land Revenue referred to above  which is definitely an after thought and to  prejudice the mind of this Honourable Court.   Further it is not a relevant issue at this juncture  which he never pleaded before any of the courts  below.

7.      The Respondent submits that the Collector,  Hyderabad deliberately, wantonly and maliciously  sent a misleading report to this Hon\022ble Court.   When the District Collector himself recommended  for the regularization of the lands in question in  favour of the Respondent collecting market rate at  Rs. 1240/- per sq. yard in his letter No. 14-87- 89/1993 dated 22.10.1994, the District Collector  suppressed this letter and quoted a different one.   In fact the Hon\022ble High Court directed the  Government to take into consideration the same  letter dated 22.10.1994 in its order dated 30.7.2001  in W.P. No. 15/2000.  the District Collector,  Hyderabad deliberately suppressed the said letter  and gave a false and misleading report to this  Hon\022ble Court and this is highly reprehensible.\024

       In regard to possession of the property by M/s. Lakshmi Hyundai, it  was stated:

\02311. The Respondent submits that it is not true to  say that the land in question is under illegal  occupation of third party Sri R. Praveen Kumar  S/o Vijaya Kumar Rao as reported by the District  Collector, Hyderabad.  The fact remained is that  the Managing Direcotr of M/s Mahalaxmi Motors  Ltd., and Lakshmi Hyundai had association with  each other.  M/s. Lakshmi Hyundai has its own  showroom and workshop at Humayathnagar,  Hyderabad.  That company has some customers in  the Secunderabad area and for the convenience of  its customers the Managing Director of M/s.  Hyundai Lakshmi sought the oral permission of  the Managing Director of M/s. Mahalaxmi Motors  to carry on servicing of the cars of its customers in  the workshop of Mahalaxmi Motors Ltd.  Except  this there is no jural relationship between M/s.  Mahalaxmi Motors Ltd., and Hyundai Lakshmi  Motors.  The latter has no right, claim, title or  interest over the workshop of M/s. Mahalaxmi  Motors Ltd., and no financial transaction took

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place between these two companies.  M/s.  Mahalaxmi Motors Ltd. ever executed any GPA  either registered or unregistered in favour of  anybody muchless in favour of R. Praveen Kumar  S/o Vijaya Kumar Rao.\024

16.     Our attention was drawn to an affidavit affirmed by the alleged  Contemnor No. 3 wherein he stated that he was only an employee of the  Company and he was made Director of the Company only because of his  experience in the sale and service of automobiles.  He has allegedly tendered  his resignation as Director in 1997 and the Company has accepted the same.

17.     Our attention was further drawn to a counter affidavit dated 6.04.2004  filed by Respondent No. 2 wherein it was stated that he was not a signatory  to the original dealership agreement and was not involved in any of the day  to day affairs of Mahalxmi Motors Ltd.

18.     Our attention was also drawn to a counter affidavit dated 16.2.2004,  and further affidavits dated 1.08.2004, 5.08.2005 and 4.10.2005 wherein, as  noticed hereinbefore, Respondent No. 1 had tendered unconditional apology  for his inability to raise the resources and furnish a bank guarantee to the  tune of Rs. 763.22 lakhs.  Respondent No. 2 had also stated that he was  forced to sell his personal flat at Bangalore to meet his debts and obligations  and he was ready and willing to relinquish all rights with the respect to the  land in Secunderabad.

19.     It was furthermore submitted that as the learned Arbitrator has passed  an award only against the Company, the interlocutory order passed by this  Court having merged with the final award, no contempt of this Court has  been committed.

20.     The fact of the matter, as noticed hereinbefore, clearly goes to show  that the alleged contemnors not only prevaricated their stand at different  stages in different proceedings, they intended to prolong the litigation one  way or the other.  They had accepted their liability at least to the extent of  7.63 crores.  They must have invested the said amount.  The parties hereto  accepted that the disputes and differences pending between them should be  referred to an arbitrator.  It was agreed to by the petitioner only on the  representation made by the alleged contemnors that they would furnish a  bank guarantee provided an order is passed in that behalf by the learned  Arbitrator.   

21.     The fact that the learned Arbitrator issued such a direction is not in  dispute.  The learned Arbitrator even otherwise had the jurisdiction to pass  interim order in terms of Section 9 of the Act.  Correctness or otherwise of  the said order has not been questioned.  Despite undertaking given before  this Court, in the aforesaid matter, the alleged contemnors did not furnish  any bank guarantee.  Admittedly, their application for modification was also  dismissed.  Not only, they went back from the undertaking given before this  Court, they also sold away the only property which was in their possession.   The property situate at Secunderabad admittedly had been claimed by the  State of Andhra Pradesh.  The alleged contemnors even did not disclose that  the said property was an encumbered one.  The same was disclosed only at a  later stage.

22.     If they were not in a position to furnish any bank guarantee or  otherwise, they could have taken such an unequivocal stand before the  courts.  They not only suppressed material facts, but also made a wrong  representation that in the event the property at Secunderabad is sold, the  price whereof is about 11 crores and, thus, from the sale proceeds the dues  of the debtors would be satisfied.  Such a claim was evidently made, as  would now appear, that an application for regularization was pending before  the State.  The alleged contemnors did not have any subsisting right, title and  interest in or over the said property.  They could not have made a proposal  before this Court for sale of the property only on the basis of a title which

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they could only derive on happening of a contingency, viz., regularization  thereof by the State.  A proposal for sale of the property could be made only  if the respondents had any subsisting title thereto and not otherwise.

23.     We, therefore, are of the opinion that the alleged contemnors have  misled this Court and have committed gross contempt of this Court.   24.     In Bank of Baroda v. Sadruddin Hasan Daya and Another [(2004) 1  SCC 360], even in relation to a consent order, this Court held:   \02310. A legal plea taken by a party that a decree  passed by a court (including Supreme Court) is  without jurisdiction and therefore a nullity, will not  normally amount to a contemptuous statement.  However, the written submission made by the  respondents before the Debts Recovery Tribunal,  wherein they said that the Supreme Court had no  jurisdiction to pass the decree dated 28-7-1999 and  the decree had no validity and is a nullity, has to be  seen in the factual background of the case. It may  be noted that the decree had been passed on the  basis of consent terms. It is not the case of the  respondents that any fraud was played upon them  by any party when they entered into a settlement  and signed the minutes of the decree. It appears  that the respondents from the very inception had  no intention of paying the amount, but they agreed  for a settlement and consent terms only for the  purpose of gaining time whereunder instalments  were fixed. They adopted the same procedure in  the suit instituted by Oman International Bank,  SAOD, wherein they offered the same property to  remain under attachment till the decree was  satisfied. Placing the same property under  attachment is bound to create problems for the  decree-holders of either of the suits as no one  wants to buy such property in court auction which  may land him in further litigation. The respondents  intentionally and deliberately adopted such a  course of action so that further hurdles may come  in the way of execution of the decree and therefore  it is clearly a case of wilful breach of an  undertaking given to the Court.\024    25.     This Court in Babu Ram Gupta v. Sudhir Bhasin [(1980) 3 SCC 47]  held:   \02310\005Indeed, 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 decrees 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

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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 by the  court in its order, there can be no question of  wilful disobedience of such an undertaking. In the  instant case, we have already held that there is  neither any written undertaking filed by the  appellant nor was any such undertaking impliedly  or expressly incorporated in the order impugned.  Thus there being no undertaking at all the question  of breach of such undertaking does not arise.\024

26.      Mr. Divan, however, relied upon a decision of this Court in R.N. Dey  and Others v. Bhagyabati Pramanik and Others [(2000) 4 SCC 400] wherein  it has been held:

\0237 . We may reiterate that the weapon of contempt  is not to be used in abundance or misused.  Normally, it cannot be used for execution of the  decree or implementation of an order for which  alternative remedy in law is provided for.  Discretion given to the court is to be exercised for  maintenance of the court\022s dignity and majesty of  law. Further, an aggrieved party has no right to  insist that the court should exercise such  jurisdiction as contempt is between a contemner  and the court\005\024           This Court in R.N. Dey (supra) has categorically held that the  contempt is a matter between the court and the contemnor.  Unlike R.N. Dey  (supra), here in the respondents are not disputing their liability to pay the  awarded amount.  Therein no undertaking had been given.    27.     In Rama Narang v. Ramesh Narang and Another [(2006) 11 SCC 114]  whereupon reliance has been placed by Mr. Divan, the question revolved  round the alleged violation of certain clauses of the consent terms.  In that  case the consent order did not contain an undertaking.  It, on that premise,  opined:   \02424. All decrees and orders are executable under  the Code of Civil Procedure. Consent decrees or  orders are of course also executable. But merely  because an order or decree is executable, would  not take away the court\022s jurisdiction to deal with a  matter under the Act provided the court is satisfied  that the violation of the order or decree is such,  that if proved, it would warrant punishment under  Section 13 of the Act on the ground that the  contempt substantially interferes or tends  substantially to inter fere with the due course of  justice. The decisions relied upon by the  respondents themselves hold so as we shall  subsequently see.\024           This Court in Rama Narang (supra), thus, clearly laid down the  proposition of law that when an undertaking has been recorded in  accordance with law, a contempt proceeding would be maintainable.

28.     We, therefore, keeping in view the peculiar facts and circumstances of  this case and the conduct of the alleged contemnors, are of the opinion that  they have committed contempt of this Court.  We are clearly of the opinion  that it is eminently a fit case where jurisdiction of this Court under Article

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129 of the Constitution of India as also the provisions of the Contempt of  Courts Act, 1970 should be invoked.   

29.     However, the fact that the alleged contemnor No. 3 has resigned,  being not in dispute, no action is being taken against him.  So far as, the  alleged contemnor No. 1 is concerned, we are of the opinion that he being  the Managing Director of the Company, is liable to be punished.  He is  sentenced to undergo six months imprisonment.  The alleged contemnor No.  2 is also held guilty but as he was not the Managing Director, we are of the  view that sentencing him three months imprisonment shall meet the ends of  justice.  

30.     The contempt petition is allowed with the aforementioned directions.