This article examines the NCLT and NCLAT’s power to exercise contempt jurisdiction under the Insolvency and Bankruptcy Code, 2016, and the inconsistent approach taken by different benches.
Although the Insolvency and Bankruptcy Code, 2016 (Code) was initially hailed as a welcome reform that would enable timebound and effective insolvency resolution, its tenure has been fraught with issues and uncertainty. One of the issues that remains open is the power to punish for contempt under the Code.
The Code does not expressly confer contempt jurisdiction on the National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT). Nonetheless, as adjudicating authorities under the Code, some benches of the NCLT and NCLAT have been exercising contempt jurisdiction, to ensure compliance with their orders and adherence to the timelines prescribed by the Code. However, other benches have concluded that they lack the requisite jurisdiction.
Jurisdiction and Powers of Adjudicating Authorities
Although the NCLT and NCLAT were established under the Companies Act, 2013 (Act), their jurisdiction as adjudicating authorities under the Code is not linked to, or, except as permitted by law, interchangeable with, that of the tribunals under the Act.
Sections 408 and 410 of the Act empower the NCLT and NCLAT to exercise and discharge powers conferred under the Act or any other law. Further, the NCLT and NCLAT can regulate their own procedure to serve the ends of justice or prevent abuse of their processes.
The Eleventh Schedule to the Code (Eleventh Schedule) amended certain provisions of the Act to eliminate inconsistencies between the Act and the Code and extend the application of certain sections of the Act to proceedings under the Code. However, Sections 425 (Power to punish for contempt) and 433 (Limitation) of the Act were not amended to apply to proceedings under the Code. In spite of this, the Supreme Court of India (SC), while interpreting Section 238A of the Code – which deals with limitation – held that Section 238A of the Code was merely clarificatory in nature, and that the provisions of the Limitation Act, 1963 (Limitation Act), and, by extension, Section 433 of the Act, had applied to applications filed under Sections 7 and 9 of the Code since the Code’s inception.
The SC observed that different proceedings under the Act that were pending before District Courts, or High Courts, were to be transferred to the NCLTs on their establishment. Each of these proceedings was governed by the Limitation Act, and the SC held that the mere transfer of proceedings to a tribunal would not result in the Limitation Act ceasing to apply. The SC also held that, when the Eleventh Schedule amended various provisions of the Act, it was deemed unnecessary to apply and adapt Section 433 of the Act to the Code because “...the “procedure” that would apply to NCLT would be the procedure contained inter alia in the Limitation Act...” It was, therefore, evident “...that NCLT would have to decide applications made to it under the Code in the same manner as it exercises its other jurisdiction under the [Act]...”. Moreover, since the language of Section 433 of the Act does not restrict its application to proceedings under the Act, or subject its operation to other provisions of the Act, the SC held that Section 433 of the Act extends to the proceedings under the Code.
Thus far, the SC has not been seized with the question of adjudicating authorities’ power to punish for contempt. It is, therefore, unclear whether adjudicating authorities may exercise contempt jurisdiction. However, the SC’s rationale in respect of the application of Section 433 of the Act to proceedings under the Code may be applied to Section 425 of the Act. Like Section 433, Section 425 of the Act does not restrict its application to proceedings under the Act, or subject its operation to other provisions of the Act. Section 425 of the Act, as presently drafted, is broad enough to apply to any proceedings before the NCLT and NCLAT irrespective of the statute under which those proceedings have been brought. Therefore, in our view, a specific amendment to Section 425 of the Act is unnecessary to enable the exercise of contempt jurisdiction by the adjudicating authorities.
Tribunals and the Power of Contempt
The Constitution of India, 1950 (Constitution) did not originally contemplate the establishment of tribunals. This was introduced by the 42nd amendment to the Constitution which inserted Articles 323A (Administrative Tribunals) and 323B (Tribunals for other matters). Administrative tribunals for the adjudication of matters related to public service may only be established by the Parliament. Tribunals for other specified matters can be established both by the Parliament and state legislatures by enacting a law. The SC has, however, held that, under these Articles, the legislature can establish tribunals on other subjects as well, provided there is legislative competence under an appropriate entry in the Constitution.
In India, tribunals may punish for contempt where they are expressly empowered to do so – illustratively, the Central Administrative Tribunal (CAT) under the Administrative Tribunals Act, 1985 and the NCLT and NCLAT under Section 425 of the Act.
Tribunals which are not statutorily empowered to punish for contempt may refer contempt proceedings to the jurisdictional High Court under the Contempt of Courts Act, 1971 (Contempt Act). The Contempt Act provides for the punishment of contempt in a ‘court’. The SC has held that “…Though the [Contempt Act] does not define the term ‘Court’ but in our opinion, the ‘court’ under the Contempt Act means the authority which has the legal power to give a judgment which, if confirmed by some other authority, would be definitive. The ‘Court’ is an institution which has power to regulate legal rights by the delivery of definitive judgments and to enforce its orders by legal sanctions and if its procedure is judicial in character in such matters as the taking of evidence and the administration of oath, then it is a court…”. Applying these principles, the SC has held the Assistant Registrar of Cooperative Societies adjudicating a co-operative dispute, and the Assistant Charity Commissioner acting as a judicial officer under the Bombay Public Trusts Act, 1950 are courts for the purposes of the Contempt Act. Similarly, tribunals such as the Industrial Tribunal and the Income Tax Appellate Tribunal are considered courts. The SC has also held that “…It is in the interests of justice and administration of law that litigants should show the same respect to a court, no matter whether it is highest in the land or whether it is one of inferior jurisdiction only. The Contempt of Courts Act, 1952 does not define “contempt” or “courts” and in the interest of justice any conduct of the kind mentioned above towards any person who can be called a “court” should be amenable to the jurisdiction under the Contempt of Courts Act, 1952…”.
Similarly, Section 27(5) of the Arbitration and Conciliation Act, 1996 provides that the arbitral tribunal may take High Court’s assistance by making appropriate applications to punish any party committing contempt to the arbitral tribunal.
The Act has expressly conferred the power to punish for contempt on the NCLT and the NCLAT. The question that has arisen before the NCLT and the NCLAT in the context of the Code is simply whether this express power extends to proceedings under the Code.
Judicial Views
In the past, several benches of the NCLT had instituted contempt proceedings under the Code. However, in 2020, the Principal Bench, in K.K. Agarwal & Anr. V. M/s. Soni Infratech, held that adjudicating authorities do not have contempt jurisdiction. The NCLT observed that Parliament had amended sections of the Act wherever they were to apply to the Code. As Section 425 of the Act had not been so amended, the NCLT held that adjudicating authorities could not exercise contempt jurisdiction under the Code as these required extraordinary jurisdiction which could only be conferred through express legislative approval.
Thereafter, in 2021, the NCLAT, in Shailendra Singh v. Nisha Malpani, overruled the NCLT’s decision in K.K Agarwal, and held that such a restricted interpretation cannot be taken and that, based on Sections 408 and 425 of the Act, adjudicating authorities can punish persons for contempt even if the Code does not expressly confer contempt jurisdiction. The NCLAT also relied on the Bankruptcy Law Reforms Committee Report (BLRC Report) and the Statement and Objects and Reasons of the Insolvency and Bankruptcy Code Bill, 2016 (IBC Bill) to hold that adjudicating authorities had the same powers, jurisdiction, and authority, as a High Court.
Recently, the NCLT, New Delhi, while applying the NCLAT’s decision in Shailendra Singh, examined CAT’s power to initiate contempt proceedings, and stated that the NCLT has the same jurisdiction, powers, and authority as those vested with CAT.
Concluding Comments
The power to punish for contempt is crucial as it enables the adjudicating authorities to enforce their orders and deter their avoidance or violation. Without this power, the adjudicating authorities would be rendered toothless, and a failure to adhere to their orders is likely to hinder the achievement of the Code’s objectives.
The SC has rightly held that “…Contempt jurisdiction is exercised for the purpose of upholding the majesty of law and dignity of judicial system as also of the courts and tribunals entrusted with the task of administering delivery of justice. Power of contempt has often been invoked, as a step in that direction, for enforcing compliance of orders of courts and punishing for lapses in the matter of compliance. The majesty of judicial institution needs to be ensured so that it may not be lowered, and the functional utility of the constitutional edifice is preserved from being rendered ineffective…”.
Based on the jurisprudence, including the SC’s decision with respect to the applicability of Section 433 of the Act to the Code, the NCLT and NCLAT’s power to punish for contempt under the Act should apply to proceedings under the Code. As the adjudicating authorities were envisaged as special courts with their own code and powers, it is unlikely that the Legislature intended to deprive them of the ability to take cognizance (suo motu or otherwise) of contempt of their own orders. The NCLAT’s decision in Shailendra Singh is, therefore, correct. However, final determination of the issue by the SC will eliminate any uncertainty as to the adjudicating authorities’ power to punish for contempt.
This article is co-authored by Sudeshna Guha Roy
