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CASE NO.: Contempt Petition (civil)  148 of 2003

PETITIONER: Rama Narang

RESPONDENT: Ramesh Narang & Another

DATE OF JUDGMENT: 15/03/2007

BENCH: B.N. Agrawal Dalveer Bhandari & Lokeshwar Singh Panta

JUDGMENT: J U D G M E N T

CONTEMPT PETITION NO.148 OF 2003 IN CONTEMPT PETITION NOS.265-267 OF 1999 IN  CONTEMPT PETITION NO. 209 OF 1998 IN  CIVIL APPEAL NO.366 OF 1998  

Dalveer Bhandari, J.

       This is an unfortunate litigation amongst the most  intimate family members where the father has been  driven to file a contempt petition against his sons.  The  parties are intensely involved in inter-se litigation for the  last two decades.  The petitioner, Rama Narang is the  father of Ramesh Narang and Rajesh Narang, the  respondents herein.  Both are the children of his first  wife, namely, Motla, whom he divorced in 1963.  The  petitioner has three children from his second wife Mona,  namely, Rohit, Ramona and Rahul.   

       The petitioner has prayed that the respondents  herein namely Ramesh and Rajesh are guilty of  committing gross contempt of the orders of this Court  dated 12.12.2001 and 8.1.2002.

       The petitioner in this contempt petition has also  prayed that the order dated 12.12.2001 may be recalled.   The petitioner has further prayed that respondent no. 2,  Rajesh Narang be restrained from interfering in the  affairs of Narang International Hotels Ltd. (for short,  NIHL) and its joint management by the petitioner, Rama  Narang and respondent no.1, Ramesh Narang.

       It is further prayed that the bank accounts of the  company hereinafter be operated jointly for all amounts  and transactions by the petitioner and respondent no.1  only.

       The petitioner stated that the disputes between the  petitioner and the respondent-contemnors inter se were  subject-matter of diverse court proceedings with regard  to shareholdings and control and management of the  company, NIHL and Fashion Wears Pvt. Ltd.

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       It is incorporated in the contempt petition that for  accomplishing the object of ever-lasting peace in the  family and having regard to the views exchanged in the  family, all groups should work, be represented and have  trust in one another.  All groups should run the company  harmoniously with the active participation of all as a  family business.  The consent terms dated 12th  December, 2001 were entered into, accepted and  incorporated by this Court while finally disposing of all  the disputes between the parties.         The terms embodied in the order of 12th December,  2001 reads as under:-  "The following cases are pending between the  parties who are parties in the present  proceedings before us one way or the other. We  are told that all the parties have settled their  disputes in respect of all the litigations  specified below.   

1.      O.S. No. 3535 of 1994 before   the            Bombay High Court.

2.      O.S. No. 3578 of 1994 before the          Bombay High     Court.

3.      O.S. No. 1105 of 1998 before the          Bombay High     Court.

4.      O.S. No. 3469 of 1996 before the          Bombay High     Court.

5.      O.S. No. 1792 of 1998 before the          Bombay High     Court.

6.      O.S. No. 320 of 1991 before the          Bombay High Court.

7.      Company Petition No. 28 of 1992          before the Principal Bench, Company          Law     Board, New Delhi.

8.      Arbitration Suit No. 5110 of 1994          before the Bombay High Court.

       Today they filed a document styled it as  "MINUTES OF CONSENT ORDER" signed by  all the parties. Learned counsel appearing on  both sides submitted that all the parties have  signed this document. Today except Mona  Narang and Ramona Narang (two ladies), all  the rest of the parties are present before us  when these proceedings are dictated. As for  Mona Narang and Ramona Narang learned  counsel submitted that Mona Narang had  affixed the signatures and the power of  attorney holder of Ramona Narang has signed  the above document in his presence.  This is  recorded.

       Both sides agreed that all the suits can  be disposed of in terms of the settlement  evidenced by "MINUTES OF CONSENT  ORDER" produced before us.  For disposal of  those cases and/or for passing decrees in  them we have to pronounce the final formal

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order in terms of the settlement now produced  before us.

       We, therefore, withdraw all the aforesaid  suits to this Court under Article 139-A of the  Constitution of India.

       Prothonotory and Senior Master of the  Bombay High Court is directed to transmit the  records in the above mentioned suits by  special messenger to this Court so as to reach  the Registry here within ten days from today.  The Bench Officer of the Principal Bench of the  Company Law Board, New Delhi is directed to  forward the records relating to company  petition No. 28 of 1992 to the Registry of this  Court so as to reach the Registry within ten  days from today.

       All the parties have undertaken before us  that they will implement the terms of the  "MINUTES OF CONSENT ORDER" on or before  1.1.2002 and that no further time will be  sought for in the matter.

       Clause (f) of the compromise relates to  the operation of the bank accounts. That  clause will come into force from today  onwards."

       The aforementioned suits and company petition  were posted before this Court on 8th January, 2002 along  with the contempt proceedings.  The consent minutes as  agreed amongst the parties are reproduced: (a)  With effect from 4th May, 1999 Rama,  Ramesh and Rajesh are the only Directors of  NIHL (and its subsidiaries). Any increase in the  Board of Directors shall be with the mutual  consent of Rama and Ramesh/Rajesh.

(b) None of the Directors (Rama, Ramesh and  Rajesh) can be removed from the directorship.

(c)     Rama and Ramesh shall continue to be in  joint management and control of NIHL and  Rajesh shall continue to be the ’Permanent  Whole Time Director’ thereof in charge of day  to day operations/management.

(d)     No decision shall be adopted concerning  or affecting the said Company (and its  subsidiaries) without the consent of Rama and  Ramesh (or Rajesh) in writing. It is further  clarified and agreed that save and except as  provided herein no prevailing decisions  including appointment of Directors/  Executives or any other persons shall continue  unless Rama and Ramesh (or Rajesh) consent  to the same in writing.

(e)     All the collections coming in cash shall  continue to be remitted in the bank accounts  of the Company and all transactions will only  be made in the form of cheques and/or as may

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hereafter be agreed to between Rama and  Ramesh (or Rajesh).

(f)     All bank accounts of the Company shall  continue to be operated jointly by any two out  of the three Directors namely Rama, Ramesh  and Rajesh and/or as may hereafter be agreed  to between Rama and Ramesh (or Rajesh). If  the amount of any transaction exceeds Rs. 10  (ten) lacs the same shall be undertaken  through a cheque signed jointly by Rama and  Ramesh/Rajesh.                  The consent terms also provided for the  performance of various actions by the parties which are  not necessary to be recorded. It is sufficient to note that  all the agreed actions were to be performed by the  petitioners group before 1.1.2002.         When the matter appeared in the list on 8.1.2002  the Court recorded that all the eight suits and  proceedings withdrawn from other courts had been  transmitted. The petitioner’s suits were disposed of in  terms of the minutes of the consent order incorporated in  the proceedings passed by this Court on 12.12.2001. The  order dated 8th January, 2002 further provided:- "All the above are now being disposed of in  terms of the minutes of consent order  incorporated in the proceedings passed by us  on 12.12.2001.

The decree will be drawn up in terms of the  minutes of the consent order."

       On the allegation that the two respondents had  violated the terms of the orders specially the clauses 3(c),  (d) and (f) of the consent minutes, this contempt petition  has been filed. It is also the case of the petitioner that the  violations of the orders had been admitted by the  respondents. According to the petitioner the violations  amounted to a willful disobedience of the orders dated  12.12.2001 and 8.1.2002 and were punishable under  this Court’s power of contempt.         This Court issued notice on the petitioner’s  application on 9th May, 2003.  This Court initiated  contempt proceedings on 15th September, 2003 at the  behest of the petitioner.   It may be pertinent to mention  that this Court requested Justice V. A. Mohta, a retired  Chief Justice of the Orissa High Court to act as a  mediator for settlement of disputes between the parties.   Despite very serious efforts by the mediator, the  settlement could not be arrived at between the parties.

       The contempt petition was directed to be listed in  the Court.  A preliminary objection was taken regarding  the maintainability of the contempt petition. According to  the respondents, in the absence of the undertaking given  to the Court and an allegation that such an undertaking  had been violated, this Court could not exercise its  jurisdiction over mere violation of the terms of the  consent order.  According to the respondents, the order  dated 12.12.2001 has been implemented within the  stipulated time.  The respondents also pleaded that order  dated 12.12.2001 had merged in the final order dated  8.1.2002.         A three-Judge Bench of this Court in Rama Narang

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v. Ramesh Narang & Anr. reported in 2006(4) Scale 280  came to a definite finding that violation of the terms of  the consent order would amount to violation of the  court’s orders dated 12.12.2001 and 8.1.2002.  The  relevant para 37 of the Rama Narang’s judgment (supra)  reads as under: "In the present case, the consent terms arrived  at between the parties was incorporated in the  orders passed by the Court on 12th December  2001 and 8th January 2002. The decree as  drawn up shows that order dated 8th January,  2002 was to be "punctually observed and  carried into execution by all concerned". A  violation of the terms of the consent order  would amount to a violation of the Court’s  orders dated 12th December 2001 and 8th  January 2002 and, therefore be punishable  under the first limb of Section 2(b) of the  Contempt of Courts Act, 1971."   

       The preliminary objection raised by the respondents  regarding maintainability of the contempt petition was  rejected. Now, the issue which arises for adjudication is  whether the respondents have violated the terms of the  undertaking given to the Court and if so, what are its  consequences?  

       The petitioner has narrated various instances of  violation of the undertaking given to the Court by the  respondents leading to contempt of court.  The parties  have filed the detailed written submissions.  The relevant  paragraphs of the written submissions filed by the  petitioner read as under: "The petitioner states that the consent terms  agreed between the parties on which a decree  was drawn, it was inter alia agreed that:  

"3. The following directions issued by this  court in the above matter are re-affirmed and  agreed to by the parties as follows:

(a)\005\005\005\005\005\005.. (b)\005\005\005\005\005\005.. (c)     Rama and Ramesh shall continue to be in  joint management and control of NIHL and  Rajesh shall continue to be the ’Permanent  Whole Time Director’ thereof in charge of day  to day operations/management.

(d)     No decision shall be adopted concerning  or affecting the said Company (and its  subsidiaries) without the consent of Rama and  Ramesh (or Rajesh) in writing. It is further  clarified and agreed that save and except as  provided herein no prevailing decisions  including appointment of Directors/  Executives or any other persons shall continue  unless Rama and Ramesh (or Rajesh) consent  to the same in writing. (e)     All transactions coming in cash shall  continue to be remitted in the bank accounts  of the Company and all transactions will only  be made in the form of cheques and/or as may  hereafter be agreed to between Rama and

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Ramesh (or Rajesh). (f)     All bank accounts of the Company shall  continue to be operated jointly by any two out  of the three Directors namely Rama, Ramesh  and Rajesh and/or as may hereafter be agreed  to between Rama and Ramesh (or Rajesh). If  the amount of any transaction exceeds Rs. 10  (ten) lacs the same shall be undertaken  through a cheque signed jointly by Rama and  Ramesh/Rajesh."         The clear and manifest intention of the  parties was that the petitioner had a say/role  in management and affairs of the company  and all transactions above Rs.10 lakhs  required his signature. The respondents have  in a systematic and continuous manner  violated this understanding between the  parties and in a blatant and defiant manner  have breached the order passed by this Court  and have till date continued to do so with  impunity, which undermines the majesty of  the court as it shows scant regard and respect  for the order passed by this Court.

       The petitioner further states that in these  proceedings this Court also passed the  following order dated 25.01.2005:

"by reference to paragraph 3(f) of the  minutes of consent order dated  12.12.2001, we clarify that the  amount of Rs.10 lakhs mentioned in  that clause refers to a transaction  and not to the amount of a cheque;  meaning thereby, by splitting up the  amount of any transaction in two or  more parts the cheques cannot be  issued if the amount of any  transaction exceeds Rs.10 lakhs."

       According to the petitioner, the respondents have  deliberately violated the said order by their contumacious  conduct.  The petitioner alleged that there has been gross  violation of Clause 3(f) of the minutes of consent order.   He has given numerous instances in support of his  submission. Some of the instances are reproduced as  under:   "Violation of Clauses 3(e) & (f)

(i)     The respondents have repeatedly split up  the amount of a transaction into multiple  cheques of less than Rs.10 lakhs each  where the total value of the transaction  exceeded Rs.10 lakhs, so as to  circumvent Clause 3(f) of the consent  terms which provided that if the amount  of any transaction exceeds Rs.10 lakhs  the same shall be undertaken through a  cheque jointly signed by Rama and  Ramesh/Rajesh.  This is despite the fact  that the language used in the consent  order was clear that "transactions" above  an amount of Rs.10 lakh, and not  "cheques" above Rs.10 lakhs, required

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the signature of both Rama and  Ramesh/Rajesh.  This was also explicitly  clarified by an order of this Court dated  January 25, 2005 in the present  proceedings between the parties which  stated as under:

       "by reference to paragraph 3(f) of the  minutes of consent order dated  12.12.2001, we clarify that the  amount of Rs.10 lakhs mentioned in  that clause refers to a transaction  and not to the amount of a cheque;  meaning thereby, by splitting the  amount of any transaction in two or  more parts the cheques cannot be  issued if the amount of any  transaction exceeds Rs.10 lakhs."  

(ii)    The respondents have contended that  pursuant to a resolution dated February  27, 2002 which provides the ability to  delegate the powers to operate the bank  account, cheques above the value of  Rs.10 lakhs are not required to be jointly  signed by Rama and Ramesh/Rajesh.  It  is submitted that (a) it is not possible for  a resolution to override the consent  terms, and (b) the resolution only  provides that the powers to "operate" the  bank accounts, which is with any two out  of the three directors as per the consent  terms may be delegated \026 it does not  provide that the authority to sign cheques  above the value of Rs.10 lakhs may be  delegated.  On the contrary, the  resolution specifically provides that "if the  amount of any transaction exceeds Rs.10  lakhs the same shall be undertaken  through a cheque jointly signed by Mr.  Rama Narang and Mr. Ramesh Narang  (or Mr. Rajesh Narang)".

       According to the petitioner, the following instances  would reveal how the Court’s orders have been flouted by  the respondents in a clandestine manner both in letter  and spirit.   (i)     "Purchase of cars: The respondents  purchased a Ford Mondeo, Honda Accord  and Toyota Corolla, and proposed to  purchase a BMW, all transactions above  the value of Rs.10 lakhs, admittedly  without the consent of Rama Narang, and  as the record evidences, by issuing  multiple cheques just under the value of  Rs.10 lakhs.  The respondents have, in  their reply argued that the general Clause  3(h) which provides that "all three  directors will enjoy equal remuneration  and perquisites" gives them the right to  give themselves remuneration and  perquisites of over 10 lakhs without the  consent of the other directors.  It is  submitted that not only is this against

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the principles of contractual  interpretation that the specific overrides  the general but it also defeats the very  purpose of Clause 3(f).  Clause 3(f) is  intended to control precisely this kind of  mischief where persons with signing  authority siphon off funds by purporting  to give themselves valuable perks or cash.   Further, there is a mechanism provided  under company law pursuant to which  directors’ remuneration and perquisites  are fixed and Clause 3(h) is only intended  to provide that when such remuneration  and perquisites are fixed in accordance  with that mechanism, the same shall be  fixed for all the three.  Finally, it is  submitted that the cars used by Rama  Narang are more than 10-15 years old  and therefore, the very basis of their  contention that the cars were purchased  to obtain the same perks as Rama  Narang is incorrect.

(ii)    Fixed Deposits : The respondents have   undertaken to invest Rs.39 crores of the  company by means of a fixed deposit and  in order to circumvent the requirement of  having to obtain the consent of Rama  Narang for such transaction, have split  the fixed deposits into multiple deposits  of Rs.9 lakhs each. The respondents, in  their reply, have admitted to not having  obtained Rama Narang’s consent (which  is also evident from the objection raised  by Rama Narang in his letter dated  20.10.2003, 11.5.2005 and 10.07.2006;  and sought to justify placing the fixed  deposits without Rama Narang’s consent  on the basis that "Rama Narang wishes to  cause a deadlock in the operations of the  company by ensuring that the application  of company funds are always subject to  his consent which he can withhold,  thereby pressurizing the respondents".  It  is submitted that the consent terms  explicitly contemplate consent of Rama  and Ramesh/Rajesh for application of the  company’s funds and such a statement  by the respondents is evidence of their  disregard for the letter and spirit of the  consent terms.

(iii)   Foreign Travel: Two different cheques  totaling approximately Rs.12.5 lakhs  were issued within one day of each other  towards the cost of foreign exchange for  the same "business trip", for which no  consent of Rama Narang was taken.   Similarly, foreign trips were undertaken  by the respondents and family without  approval of the petitioner also in violation  of Clause 3(d), and payments of air  tickets and other expenses were made by  issuing multiple cheques.  The  respondents have argued that the said

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transaction is justified on the basis that  Rama Narang has on numerous  occasions undertaken foreign visits at the  company expense with no objection being  raised by the other directors.  It is  pertinent to note that for each such  foreign visit, Rama Narang has sought  and obtained the approval of  Ramesh/Rajesh in accordance with the  consent terms. Notwithstanding whether  Rama took, or did not take approval from  Ramesh/Rajesh, it is no justification in  law for Ramesh/Rajesh to violate the  consent terms."

       According to the petitioner, there has been clear  violation of Clause 3(c) also.  Respondent nos. 1 and 2  and particularly respondent no.2 have taken absolute  control of the company NIHL to the total exclusion of the  petitioner.  All the management decisions and other  decisions affecting the company are being taken by  Rajesh Narang, the whole-time Director under the guise  of the day to day operation/management in clear  violation of Clause 3(c) of the consent terms which states  that Rama and Ramesh shall continue to be in "joint  management and control".    

       According to the petitioner, he was not being  consulted.  The petitioner has been deliberately kept out  of the management and control of the company.  The  tender items running into 40 crores per year are entered  into without his consent.

       The petitioner has given following instances of  violation of Clause 3(c):- a.      "Executing High-value Contracts : The  respondents have entered into several  high value contracts admittedly without  the consent of Rama Narang.  Instances  include with Pacific Enterprises of a value  of Rs.27.85 lakhs, for replacement of Hi- lifts of a value of Rs.24 lakhs each, for  purchase of DG set of a value of Rs.70  lakhs, and for a chiller plant for Bombay  flight kitchen.  In each of these cases, the  record also evidences that multiple  cheques under the value of Rs.10 lakhs  were issued.  While the respondents have  contended that there was no splitting of  cheques, and that these contracts were  essential to the business, it is submitted  that the fact relevant for the purposes of  contempt is that a transaction outside  the ordinary course of business was  entered into and that a transaction over  the value of Rs.10 lakhs was undertaken  without a cheque jointly signed by Rama  and Ramesh/Rajesh, thereby violating  Clause 3 (c), 3(d) and 3(f) and the spirit of  the consent order.  It is further submitted  that the contention that the contracts  were essential to the business of the  Company, and therefore, consent of  Rama Narang was not required, is not  tenable \026 on the contrary, contracts that

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are essential to the business of the  Company come within the purview of  "decisions concerning or affecting the  said company" that explicitly require the  approval of Rama Narang pursuant to  Clause 3(d) of the consent terms.

b.      Holding-back information sought for by  Rama Narang.  It is submitted that  refusal and blocking of information about  the company is the most grave and  blatant violation of the clause mandating  "joint management" and is clear evidence  of his complete exclusion from  management of the company.

c.      Settlement with Trade Union was  unilaterally undertaken by the  respondents and the petitioner was only  asked to sign enhance salary cheques  which was refused by the petitioner as he  was not consulted as being a  management decision.

d.      Other instances of violation include the  Leave and License Agreement entered  into by Rajesh Narang and opening of  Croissant outlets without the consent of  the petitioner, Rama Narang.  The  respondents have sought to justify these  actions on the basis of "day to day"  operations.  It is submitted that there are  total of only 11 Croissant outlets that  have been opened over the course of  several years and the opening of a new  outlet, and the taking of high-value lease  therefrom, is a strategic and business  decision and not something undertaken  on a "day-to-day" basis."

       The petitioner also asserted that there is a clear  violation of Clause (d) of the Court’s order which reads as  under: "The respondents have unilaterally, without  the consent of Rama Narang, taken several  decisions affecting the Company including  unilateral appointment and promotion of  personnel such as Vice-Presidents (Accounts)  etc.; issuance of tenders and executing  contracts outside the ordinary course of  business, in clear violation of Clause 3(d) of  the consent terms which requires that "no  decision shall be adopted concerning or  affecting the Company and its subsidiaries  shall be made without the consent of Rama  and Ramesh/Rajesh in writing".  The  respondents contend that decisions relating to  appointment only relate to "prevailing  decisions".  It is submitted that the first part of  Clause 3(d) which states that "no decision  shall be adopted concerning or affecting the  company" includes decisions adopted to  appoint or promote personnel to the extent  such appointment or promotion affects or

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concerns the Company.  However, since the  first part of Clause 3(d) relates only to  decisions that are to be adopted, it did not  cover the continuation of personnel already  appointed and the latter part of clause 3(d)  which states that "it is further clarified and  agreed that save and except as provided  therein no prevailing decisions including  appointment of Directors/Executives or any  other persons shall continue unless Rama and  Ramesh/Rajesh consent to the same in  writing" was to expand the operation of part 1  of Clause 3(d) also to prevailing decisions of  appointment.          It is clear from the above that the Consent  Order is continuously being wilfully violated by  the respondents even after the filing of the  contempt petition before this Court in 2003,  after the clarification order issued by this  Court dated 25.1.2005 and even after the  order and judgment of this Court dated  14.4.2006."

       In the written submissions filed by the respondents,  considerable emphasis has been given on the  background and conduct of the petitioner and the order  dated 15.2.1995 in Notice of Motion No. 2646 of 1994 in  Suit No.3535 of 1994 of Justice D. R. Dhanuka of the  Bombay High Court and the report of the court mediator  Justice V.A. Mohta. It is also incorporated in the written  submissions that the petitioner is deriving all possible  advantage from an alleged technical breach of the  consent terms which too is based on interpretation of the  consent terms contrary to the mutual understanding of  the parties.

       The respondents submitted that it was never the  intention of the parties that (the company with an annual  turnover of over Rs.120 crores), the petitioner should  enjoy a veto power over the company transactions whose  value exceeds Rs.10 lakhs, allowing the petitioner to  create a deadlock.

       The respondents also submitted that the petitioner  at no point of time made any complaint regarding the  conduct of the respondents either by sending a letter of  protest or otherwise.  It is also submitted that the  petitioner had not objected to purchase of cars, purchase  of hi-lifts etc.   In the contempt application, the petitioner  has highlighted clear breach of Clauses 3(d), 3(c), 3(e)  and 3(f).  The petitioner submitted that there has been  gross violation of Clause 3(f) of the agreement.  Clause  3(f) reads as under: "If the amount of any ’transaction’ (read  ’payment/disbursement’) exceeds Rs.10 (ten)  lakhs the same shall be undertaken through a  cheque signed jointly by Rama and  Ramesh/Rajesh."

       The respondents also submitted that immediately  after the consent terms, the circular resolution dated  27.2.2002 was entered into between the parties.  The

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said resolution reads as under:  "RESOLVED THAT any two out of three  Directors of the Company namely Mr. Rama  Narang, Mr. Ramesh Narang and Mr. Rajesh  Narang, be and are hereby jointly authorized to  open and close bank accounts and place fixed  deposits with such banks and on such terms  and conditions as they deem fit and proper  and to operate and issue instructions to the  said bankers as well as the existing bankers of  the company."

       The respondents submitted that clause 3(f) was  meant purely for operation of bank accounts and as an  instruction to the company bankers is borne out by the  fact that through the aforesaid circular resolution dated  27.2.2002, Rama Narang and Ramesh Narang inter alia  resolved that if the amount of any transaction exceeds  Rs.10 lakhs, the same shall be undertaken through   cheques signed jointly by Rama Narang and Ramesh  Narang (or Rajesh Narang) and further resolved that  certified copies of the said circular resolution be  forwarded to the company’s bankers as required.  If the  portion of clause 3(f) at the issue was not intended as an  instruction to the bankers, why would the circular  resolution dated 27.2.2002 be passed?  Again, there was  no explanation from Rama Narang.  The respondents had  tried to give explanation for splitting the cheques where  amount exceeded Rs.10 lakhs.  The respondents gave  explanation that a Ford Mondeo car and a Honda Accord  car were purchased by the company in June 2002 by the  respondents by splitting the value of each car when  exceeded Rs.10 lakhs so as to byepass the signature of  the petitioner.  The explanation given by the respondents  that for the payment terms for purchase of the said  vehicles, 50% payment was to be made at the time of  placing of the order and 50% at the time of delivery of the  vehicles.

       The respondents have also given explanation for  purchase of BMW car valued at Rs.30 lakhs for the use of  Ramesh Narang as Joint Director on 16.8.2002.  In  September 2002, Ramesh Narang suggested the  purchase by the company of an identical BMW car for the  use of the petitioner.  However, the petitioner made it  clear that he preferred a Mercedes and accordingly steps  were taken to cancel the second BMW car for the  petitioner.  But the respondents failed to give any  explanation how the payment for the first BMW car for  the use of Ramesh Narang was made.

       Similarly, the respondents gave explanation for  purchase of Toyota Corolla car by the company for the  use of respondent no.2 by allegedly splitting the  transaction whose value exceeded Rs.10 lacs by issuing  two cheques.  The explanation is that the respondents  gave Rs.4 lakhs as advance and the balance amount was  paid against delivery.

       The respondents gave explanation regarding their  visit abroad that initially they planned to visit U.K.,  Denmark and Northwest and later on Switzerland and  Sweden were also added.  Therefore, two cheques were  given.  The respondents also gave an explanation that the  fixed deposits holdings of the company totaling

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approximately Rs.39 crores have been split by the  respondents into smaller deposits of Rs.9 lakhs each.   The explanation given was that circular resolution dated    27.2.2002 authorized any two Directors of the company  to jointly open and close bank accounts, for the  respondents failed to give any explanation why the fixed  deposits of Rs.39 crores were split into smaller deposits  of Rs.9 lacs each.  The explanation given was that high- lift vehicles were purchased separately and then  assembled rather than purchasing a fully assembled  vehicle.  The respondents have similarly given  explanation for other transactions where the cheques  amount had been split by the respondents.  Similar  explanation has been given regarding tender of high-lifts  totaling Rs.40 lakhs without consulting the petitioner  and regarding unilateral promotion of persons.

       The explanations given by the respondents for  splitting up the cheques are wholly untenable.  In case of  genuine difficulty or confusion, the respondents ought to  have approached the Court for directions.   

       The object of entering into consent terms and jointly  filing the undertaking was to run the family business  harmoniously with the active participation of all as a  family business but the respondents had taken absolute  control of the company NIHL to the total exclusion of the  petitioner. All the management decisions and other  decisions affecting the company were taken by the  respondent Rajesh Narang, the whole time Director  under the guise of the day to day operation/management  in clear violation of clause 3(c) of the consent terms  which clearly state that Rama Narang and Ramesh  Narang shall continue to be in joint management and  control.  The parties gave undertaking to the court  regarding the consent terms.   

       The respondents have erroneously submitted that  joint management and control of the company means  giving veto power to the petitioner.  According to the  terms of undertaking the petitioner and the respondents  were under an obligation to run the company  harmoniously with the active participation of all as a  family business but unfortunately the respondents have  taken absolute control to the total exclusion of the  petitioner.  This is contrary to the terms of the  undertaking given to this Court.

       In this case the respondents have deliberately  violated the orders of this Court dated 12.12.2001 and  8.1.2002 based on the undertaking given by the parties  to this Court.  We have been called upon to decide  whether deliberate breach of undertaking can attract  Section 2(b) of the Contempt of Courts Act.  Before we  examine the issue further, it is imperative to clearly  comprehend the expression ’undertaking’ with the help of  settled law which has been crystallized in a large number  of cases of this Court.

        Black’s Law Dictionary, 5th Edition defines  ’undertaking’ in the following words:         "A Promise, engagement, or stipulation.   An engagement by one of the parties to a  contract to the other, as distinguished from  the mutual engagement of the parties to each

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other.  It does not necessarily imply a  consideration.  In a somewhat special sense, a  promise given in the course of legal  proceedings by a party or his counsel,  generally as a condition to obtaining some  concession from the Court or the opposite  party. A promise or security in any form."

       Osborn’s Concise Law Dictionary, 10th Edition  defines ’undertaking’ in the following words:   "A promise, especially a promise in the course  of legal proceedings by a party or his counsel  which may be enforced by attachment or  otherwise in the same manner as an  injunction."

                In M. v. Home Office (1992) 4 All ER 97 at p.132,  the expression ’undertaking’ has been dealt with in the  following manner:  "If a party, or solicitors or counsel on his  behalf, so act as to convey to the court the firm  conviction that an undertaking is being given,  that party will be bound and it will be no  answer that he did not think that he was  giving it or that he was misunderstood."

       In re Hudson [1966] Ch. 209 the English Court  observed as under: "An undertaking to the court confers no  personal right or remedy on any other party.   The only sanctions for breach are  imprisonment for contempt, sequestration or a  fine."

       Similarly, in Shoreham-by-Sea U.D.C. v. Dolphin  Canadian Proteins (1972) 71 L.G.R. 261, the Court  observed as under: "Failure to comply with an undertaking to  abate a nuisance may be visited with a  substantial fine."

       The Division Bench of the Bombay High Court in  Bajranglal Gangadhar Khemka & Anr. v.  Kapurchand Ltd. reported in AIR 1950 Bombay 336 had  an occasion to deal with similar facts.  Chagla, C.J.,  speaking for the Court, observed as under: "We are not prepared to accept a position  which seems to us contrary to the long  practice that has been established in this  Court, and, apparently, also in England. There  is no reason why even in a consent decree a  party may not give an undertaking to the  Court. Although the Court may be bound to  record a compromise, still, when the Court  passes a decree, it puts its imprimatur upon  those terms and makes the terms a rule of the  Court; and it would be open to the Court,  before it did so, to accept an undertaking given  by a party to the Court. Therefore, there is  nothing contrary to any provision of the law

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whereby an undertaking cannot be given by a  party to the Court in the consent decree, which  undertaking can be enforced by proper  committal proceedings."

       In Noorali Babul Thanewala v. K.M.M. Shelly &  Others reported in (1990) 1 SCC 259, a tenant  committed breach of undertaking given by him to the  Supreme Court to deliver vacant possession of certain  premises.  The Supreme Court held the tenant guilty of  contempt.  Hon’ble V. Ramaswami, J., delivering the  judgment observed:  "When a court accepts an undertaking given  by one of the parties and passes orders based  on such undertaking, the order amounts in  substance to an injunction restraining that  party from acting in breach thereof. The  breach of an undertaking given to the Court by  or on behalf of a party to a civil proceedings is,  therefore, regarded as tantamount to a breach  of injunction although the remedies were not  always identical. For the purpose of enforcing  an undertaking that undertaking is treated as  an order so that an undertaking, if broken,  would involve the same consequences on the  persons breaking that undertaking as would  their disobedience to an order for an  injunction. It is settled law that breach of an  injunction or breach of an undertaking given  to a court by a person in a civil proceeding on  the faith of which the court sanctions a  particular course of action is misconduct  amounting to contempt."  

                In Mohd. Aslam v. Union of India reported in  (1994) 6 SCC 442, this Court dealt with the contempt  proceedings raising the issues as to the amenability of  the State and of its Ministers for failure of obedience to  the judicial pronouncements.  In this case, the Chief  Minister of Uttar Pradesh had made a statement before  National Integration Council that the Government of  Uttar Pradesh will hold itself fully responsible for the  protection of the Ram Janma Bhumi-Babri Masjid  structures.   Upon this statement of the Chief Minister,  this Court had passed an order.  However, in the  contempt proceedings it was alleged that the orders  passed on the basis of the statements made have been  deliberately and wilfully flouted and disobeyed by the  State of Uttar Pradesh.  While dealing with the expression  "undertaking", this Court observed as under:  "The Chief Minister having given a solemn  assurance to the National Integration Council  and permitted the terms of that assurance to  be incorporated as his own undertaking to this  court and allowed an order to be passed in  those terms cannot absolve himself of the  responsibility unless he placed before the  Court sufficient material which would justify  that he had taken all reasonable steps and  precautions to prevent the occurrence."  

       In Rita Markandey v. Surjit Singh Arora reported  in (1996) 6 SCC 14, this Court came to the conclusion

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that even if the parties have not filed an undertaking  before the Court, but if the Court is induced to sanction a  particular course of action or inaction on the basis of the  representation of such a party and the court ultimately  finds that the party never intended to act on such  representation or such representation was false, even  then the party would be guilty of committing contempt of  court.  The Court observed as under: "Law is well settled that if any party gives an  undertaking to the Court to vacate the  premises from which he is liable to be evicted  under the orders of the Court and there is a  clear and deliberate breach thereof it amounts  to civil contempt but since, in the present  case, the respondent did not file any  undertaking as envisaged in the order of this  Court the question of his being punished for  breach thereof does not arise. However, in our  considered view even in a case where no such  undertaking is given, a party to a litigation  may be held liable for such contempt if the  Court is induced to sanction a particular  course of action or inaction on the basis of the  representation of such a party and the Court  ultimately finds that the party never intended  to act on such representation or such  representation was false."

       In KCG Verghese v. KT Rajendran reported in  (2003) 2 SCC 492, this Court dealt with the  "undertaking" in contempt proceedings arising out of  eviction proceedings.  This Court held that when at the  time of giving the undertaking, the tenant did not  indicate that he was in possession of a part of the  premises and not the other portion nor was such a stand  taken in any of the pleadings before the High Court or  rent controller, the order of eviction passed against the  tenant is equally binding upon the occupant of the other  portion.

       This Court again had occasion to deal with a case in  Bank of Baroda v. Sadruddin Hasan Daya and Anr.  reported in (2004) 1 SCC 360.  In that case, the Court  clearly observed as under: "The wilful breach of an undertaking given to a  court amounts to "civil contempt" within the  meaning of Section 2(b) of the Contempt of  Courts Act.  The respondents having  committed breach of the undertaking given to  the Supreme Court in the consent terms they  are clearly liable for having committed  contempt of court."

       The respondents placed reliance on Babu Ram  Gupta v. Sudhir Bhasin & Anr. reported in (1980) 3  SCC 47.  In this case admittedly no application, affidavit  or any undertaking were given by the appellant.   Therefore, this case is of no assistance to the  respondents.  In this case, the Court observed that "even  the consent order does not incorporate expressly or  clearly that any such undertaking had been given either  by the appellant or by his lawyer before the Court that he  would handover possession of the property to the

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receiver.  In the absence of any express undertaking  given by the appellant or any undertaking incorporated  in the order impugned, it will be difficult to hold that the  appellant wilfully disobeyed or committed breach of such  an undertaking".

       The Court even in this case observed that "in fact,  the reason why a breach of clear undertaking given to the  court amounts to contempt of court is that the  contemnor 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 critical analysis of the decided cases of this  Court clearly leads to the conclusion that wilful breach of  an undertaking given to the Court amounts to contempt  of court under Section 2(b) of the Act.

                The orders of this Court dated 12th December, 2001  and 8th January, 2002 are based on undertaking given  by the petitioner and the respondents to this Court.   Apart from several other conditions it is explicitly  incorporated in the undertaking given to this Court that  the petitioner and the respondents shall jointly operate  the bank accounts (if the amount of any transaction  exceeded Rs.10 lakhs) in order to ensure that both the  petitioner and the respondents have the joint control on  the affairs of the company.  In the undertaking given by  the petitioner and the respondents, it is clearly  mentioned that if the amount of any transaction exceeds  Rs.10 lakhs the same shall be undertaken through a  cheque signed jointly by Rama Narang and  Ramesh/Rajesh Narang.  

       Clause 3(f) of the undertaking given to the Court on  8.1.2002 reads as under: "(f)    All bank accounts of the Company shall  continue to be operated jointly by any two out  of the three Directors namely Rama, Ramesh  and Rajesh and/or as may hereafter be agreed  to between Rama and Ramesh (or Rajesh). If  the amount of any transaction exceeds Rs. 10  (ten) lacs the same shall be undertaken  through a cheque signed jointly by Rama and  Ramesh/Rajesh."

       The parties gave undertaking with the object of  having joint management and control of the company.  The object of joint management and control can be  accomplished if every major decisions of the company are  taken jointly with the express consent of the petitioner  and the respondents.  The petitioner in the application  for contempt has enlisted series of instances where in  order to keep the petitioner out of the management and  control of the company where the amount of transaction  exceeded Rs.10 lakhs, the payment was made by splitting  the amount in two or more cheques.  This subterfuge was  adopted to keep the petitioner out of the control of the  management and company.  The respondents were, in  fact successful in keeping the petitioner totally out of the

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management and control of the company.  This situation  carried on for years together.  This was absolutely  contrary to the letter and spirit of the undertaking given  by the parties to this Court. The orders dated 12th  December, 2001 and 8th January, 2002 are based on the  undertaking given by the parties. The respondents  blatantly and deliberately violated the orders of this  Court based on the undertaking given to the Court.   Consequently, the respondents are guilty of deliberately  flouting and disregarding the undertaking given to this  Court.

       In order to maintain sanctity of the orders of the  highest court of the country, it has become imperative  that those who are guilty of deliberately disregarding the  orders of the Court in a clandestine manner should be  appropriately punished.  The Majesty of the Court and  the Rule of Law can never be maintained unless this  Court ensures meticulous compliance of its orders.   

       We have carefully perused the undertaking given by  the parties to the Court and orders of this Court dated  12th December, 2001 and 8th January, 2002 based on the  undertaking of the parties given to this Court and other  relevant facts and circumstances. According to our  considered view the respondents are clearly guilty of  committing contempt of court by deliberate and wilful  disobedience of the undertaking given by them to this  Court.  In this view of the matter, in order to maintain  sanctity of the orders of this Court, the respondents must  receive appropriate punishment for deliberately flouting  the orders of this Court.   

       Consequently, we convict the respondents under  Section 2 (b) of the Contempt of Courts Act and sentence  them to a simple imprisonment for a period of two  months.  We further impose a fine of Rs.2000/- to be  deposited by each of them within one week failing which  they shall further undergo imprisonment for one month.

       We are also not oblivious of the fact that  immediately sending the respondents to jail would create  total chaos in the company which would also vitally affect  the interests of large number of people including the  employees of the company.  Therefore, while keeping in  view the peculiar facts and circumstances of this case,  the sentence of imprisonment imposed on the  respondents is kept in abeyance.  We further direct the  parties to meticulously comply with the undertakings  given by them to this Court.  In case, similar violation of  the undertakings given to this Court is brought to the  notice of the Court, in that event, the respondents shall  be sent to jail forthwith to serve out the sentence  imposed in this case.  

       This order is passed in view of the special facts and  circumstances of this case.  The Contempt Application is  accordingly disposed of.