In an extraordinary move, the Supreme Court on October 18 issued a contempt notice to two sitting members of the National Company Law Appellate Tribunal (NCLAT). With this contempt notice, the top court has given a prima facie finding that the conduct of the bankruptcy appellate tribunal was unbecoming of a judicial tribunal.

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The two appellate tribunal members, facing contempt, have also been directed to appear in person before the apex court on October 30.

During the proceedings, Chief Justice of India (CJI) DY Chandrachud observed that it seriously doubts the honesty of proceedings of the case at NCLAT.

Why did the Supreme Court resort to such unprecedented action against the NCLAT members?

Here’s the back story

At the heart of the story is a raging battle between cousins Deepak Chhabria and Prakash Chhabria over management control of electrical and telecommunication cables manufacturing company Finolex Cables.

Orbit Electricals, in which Prakash Chhabria enjoys a 78% shareholding, holds a 30.7% stake in Finolex Cables. Apart from this, Prakash enjoys another 20% stake in Finolex Cables through Finolex Industries and through direct stakes. The Deepak Chhabria faction, on the other hand, owns 7% of shares in Orbit Electricals.

Amidst the battle over control of Finolex Cables, an annual general meeting (AGM) of the firm was held on September 29 for shareholders’ vote on the appointment of Chairman. At the AGM, majority shareholders voted against the resolution seeking to reappoint Deepak Chabbria as the Executive Chairman. However, the result of the AGM was withheld from the public.

As the dispute between the two sides continues at NCLAT, non-disclosure of the AGM result caused Prakash Chhabria to move the Supreme Court. He had asked the apex court to direct disclosure of AGM results.

Meanwhile, the two brothers were locked in a parallel dispute about an 2019 extraordinary general meeting (EGM) that allowed amending the Articles of Association. Deepak Chhabria had challenged the EGM results and the subsequent changes to the Articles of Association.

This battle was underway before the NCLAT. The tribunal had reserved its judgment in September. This verdict was due to be pronounced on October 13 at 2:15 pm.

But, on the morning of Oct 13, the Supreme Court heard Prakash Chhabria’s plea and directed the scrutinizer to declare the result of the September 29 AGM. The top court’s order was uploaded at 1:55 pm.

Lawyers of both sides rushed to NCLAT to inform it about the Supreme Court order and that it should defer its scheduled judgment to take note of the AGM results.

However, NCLAT refused to take the Supreme Court order on record, despite fervent appeals by lawyers, and proceeded to pass its judgment.

It is this action of the NCLAT that the Supreme Court has termed as openly defiant, and has now proceeded to launch contempt proceedings against two sitting members of the tribunal.

(Edited by : Kanishka Sarkar)

First Published:Oct 19, 2023 12:25 PM IST