2025 (5) TMI 657 - AT - IBC

Contempt of the Tribunal s order - withdrawal of CIRP - whether filing of the Application by the RP on the resolution passed by the CoC amounts to violation of the order of this Tribunal dated 13.01.2021 as contended by the Applicant? - interpretation and application of Section 12A of the IBC and Regulation 30A of the CIRP Regulations regarding withdrawal of CIRP applications and the requirement of bank guarantees for CIRP expenses - HELD THAT - Regulation 30A sub-regulation (1) (b) requires the Application to be filed through the RP after the constitution of the CoC with requisite vote share approving filing of Section 12A Application. The RP was statutorily obliged to file Application under Section 12A for withdrawal of the CIRP. Section 12A Application which has been filed by the RP contained necessary submissions and averments and case details of various resolution of the CoC for filing the withdrawal Application and circumstances under which the CoC decided to file 12A Application with 98% vote share - It is already noticed above that before the CoC fee and expenses of the Applicant (former RP) and the present RP i.e. Respondent No.1 were also placed for the approval and the CoC did not approve the expenses either of the former RP or of the present RP with 100% vote share which has been noticed in paragraph 29 of the Application. The RP was statutorily obliged to file Application under Section 12A which was resolved by the CoC with requisite vote share it is failed to see how the RP can be said to have committed contempt of the order dated 13.01.2021 by filing an Application for withdrawal. The law for initiating proceedings of civil contempt are well settled. Willful violation of order passed by Court can give cause for initiating contempt proceedings against the delinquent. The Hon ble Supreme Court in Dr. U.N. Bora Ex. Chief Executive Officer and Ors. vs. Assam Roller Flour Mills Association and Anr. 2021 (10) TMI 1435 - SUPREME COURT has reviewed the entire law of civil contempt. The contempt proceedings can be initiated only when there is wilful disobedience by a delinquent or a contumacious conduct or obstruction to the majesty of law. The present Application for initiating contempt is founded on filing of the Application by the RP under Section 12A for withdrawal of CIRP. The present is a case where RP has filed the Application under Section 12A dated 10.07.2024 on the basis of reasons and circumstances and the decision of the CoC as noticed above. It is noted above that RP is statutorily obliged to file the Application when withdrawal of CIRP is approved with 98% vote share of the CoC. The filing of the Application by the RP was statutory obligation of the RP. It is further noticed that CoC who has to pay the fee and expenses has disapproved the payment of CIRP and fee and expenses to both the former RP (Applicant) and the present RP (Respondent No.1). The CoC having not approved CIRP fee and expenses no action can be initiated on Respondent Nos.1 and 2. It is not the present RP who has to pay fee and expenses to the Applicant who was erstwhile RP replaced by the present RP. The CoC in the CIRP of the CD consist of only Homebuyers. The order of this Tribunal dated 13.01.2021 as noticed above only protected the fee and expenses of the Applicant who was erstwhile RP who was replaced by Respondent No.1. When the CoC who is to make the payment of the CIRP fee and expenses is unable to bear the fee and expenses and they have decided to withdraw the CIRP by the Minutes of the Meeting held on 18.06.2024 thus filing of the Application by RP for withdrawal cannot amount to contempt of order of this Tribunal dated 13.01.2021. Conclusion - No case has been made out for initiating any contempt proceedings against Respondent Nos.1 and 2 for alleged violation of order dated 13.01.2021 passed by this Tribunal. There are no merit in the Contempt Application. The Contempt Application is rejected.

Summary

The core legal questions considered by the Tribunal in this judgment are:

1. Whether the filing of an application by the Resolution Professional (RP) under Section 12A of the Insolvency and Bankruptcy Code (IBC), seeking withdrawal of the Corporate Insolvency Resolution Process (CIRP) without payment of CIRP costs and fees, amounts to contempt of the Tribunal's order dated 13.01.2021.

2. Whether the order dated 13.01.2021, which set aside the appointment of the Applicant as RP but protected the CIRP costs and fees incurred by him, was violated by the Respondents in pursuing withdrawal of CIRP without settling the Applicant's fees.

3. The interpretation and application of Section 12A of the IBC and Regulation 30A of the CIRP Regulations regarding withdrawal of CIRP applications and the requirement of bank guarantees for CIRP expenses.

4. The scope and threshold for initiating contempt proceedings for alleged violation of judicial orders, particularly the element of wilful disobedience under the Contempt of Courts Act, 1971.

5. The effect of Committee of Creditors' (CoC) decisions, including rejection of CIRP expenses and fees, on the rights and remedies of the erstwhile RP.

6. The applicability of various Supreme Court precedents cited by the Applicant in support of contempt proceedings.

Issue-wise Detailed Analysis

Issue 1 & 2: Whether filing of Section 12A application for withdrawal of CIRP without payment of fees amounts to contempt of Tribunal's order dated 13.01.2021

The Tribunal first examined the factual background. The CIRP was initiated by NCLT Bengaluru against the Corporate Debtor (CD) based on an application by homebuyers. The Applicant was initially appointed as Interim Resolution Professional (IRP) but was replaced by Respondent No.1 as RP by the CoC. The Tribunal's order dated 13.01.2021 set aside the appointment of the Applicant as RP but expressly protected the CIRP costs and fees incurred by him and the actions taken during his tenure.

The Applicant contended that the Respondents' filing of an application under Section 12A seeking withdrawal of CIRP without payment of CIRP costs and fees violated this protective order and amounted to contempt.

The Tribunal analyzed the application filed by the RP under Section 12A, which was supported by CoC resolutions rejecting the payment of CIRP expenses of both the former RP (Applicant) and current RP. The CoC, consisting of homebuyers with modest financial means, unanimously decided not to approve the CIRP expenses and voted overwhelmingly to withdraw the CIRP and not proceed with liquidation.

The Tribunal noted that Section 12A, inserted by Act 26 of 2018, permits withdrawal of an admitted application under Sections 7, 9, or 10 of the IBC with the approval of 90% voting share of the CoC. Regulation 30A of the CIRP Regulations prescribes the procedure for such withdrawal applications, including the requirement of a bank guarantee for estimated expenses incurred.

However, the CoC requested waiver of the bank guarantee requirement due to their inability to bear expenses, which was supported by 99% vote share. The RP filed the withdrawal application accordingly, seeking waiver of the bank guarantee and approval of withdrawal.

The Tribunal held that the RP was statutorily obliged to file the withdrawal application once the CoC approved it with the requisite voting share. The filing of the application was in compliance with the IBC and CIRP Regulations and did not amount to wilful disobedience of the Tribunal's order dated 13.01.2021. The order had protected the fees and expenses of the Applicant but did not impose an obligation on the RP or CoC to pay those fees when the CoC had refused to approve them.

Issue 3: Interpretation of Section 12A and Regulation 30A of CIRP Regulations

Section 12A allows the Adjudicating Authority to permit withdrawal of an admitted application with 90% CoC approval. Regulation 30A outlines the procedure, including the filing of Form FA and submission of a bank guarantee for estimated expenses incurred. The Tribunal emphasized that the RP must file the withdrawal application after CoC approval, and the Adjudicating Authority may approve it subject to conditions including deposit of expenses or invocation of bank guarantee.

In the present case, the CoC, composed of financially constrained homebuyers, unanimously rejected payment of expenses and requested waiver of bank guarantee. The Tribunal found this to be a legitimate commercial decision of the CoC and not a violation of any order. The RP's filing of the withdrawal application was thus proper and in accordance with law.

Issue 4: Threshold for initiating contempt proceedings and element of wilful disobedience

The Tribunal extensively relied on Supreme Court precedents to elucidate the principles governing civil contempt proceedings. The Contempt of Courts Act, 1971 defines civil contempt as wilful disobedience of a court order. The mental element of wilfulness requires deliberate, conscious, and intentional violation beyond mere negligence or inadvertence.

The Tribunal cited authoritative judgments emphasizing that contempt proceedings are quasi-criminal and require proof beyond reasonable doubt. Mere non-compliance or disputed factual issues do not suffice. The court must consider the entire order and the context, and if two reasonable interpretations exist, contempt cannot be presumed.

The Tribunal also highlighted that contempt jurisdiction cannot be used as a substitute for regular legal remedies and that the court should not conduct a roving inquiry into disputed facts in contempt proceedings.

Applying these principles, the Tribunal found no evidence of wilful disobedience by the Respondents. The RP acted pursuant to CoC decisions and statutory provisions. The Applicant's grievance related to non-payment of fees, which is a matter for adjudication under appropriate legal proceedings, not contempt.

Issue 5: Effect of CoC decisions rejecting CIRP expenses and fees

The Tribunal noted that the CoC unanimously rejected the CIRP expenses of both the former RP and the current RP, citing their inability to bear the costs. The CoC also voted overwhelmingly to withdraw the CIRP and not proceed with liquidation.

The Tribunal observed that the order dated 13.01.2021 protected the fees and expenses incurred but did not create an enforceable obligation on the CoC or RP to pay those fees if the CoC refused approval. The CoC's commercial wisdom in rejecting expenses is binding, and the RP cannot be held liable for non-payment.

The Tribunal further noted that the Applicant's remedy lies in appropriate proceedings for recovery of fees and not in contempt proceedings against the RP or CoC.

Issue 6: Applicability of Supreme Court precedents relied upon by the Applicant

The Tribunal examined the judgments cited by the Applicant, including a recent Supreme Court decision on contempt jurisdiction and other decisions relating to payment of fees and salaries in CIRP contexts.

The Tribunal distinguished the facts of those cases from the present matter, noting that none supported the initiation of contempt proceedings against the Respondents for filing a withdrawal application under Section 12A in compliance with CoC decisions and statutory provisions.

The Tribunal emphasized that the present case involved no deliberate attempt to frustrate or circumvent the Tribunal's order but rather a bona fide exercise of statutory rights by the RP and CoC.

Conclusions

The Tribunal concluded that the filing of the withdrawal application by the RP under Section 12A, with CoC approval and waiver of bank guarantee, did not violate the order dated 13.01.2021. There was no wilful disobedience or contumacious conduct warranting contempt proceedings.

The Tribunal rejected the contempt application, holding that the Applicant's grievance regarding non-payment of fees must be pursued through appropriate legal remedies and not by way of contempt.

Significant Holdings

"The filing of the Application by the RP was statutory obligation of the RP. We have further noticed that CoC, who has to pay the fee and expenses has disapproved the payment of CIRP and fee and expenses to both the former RP (Applicant) and the present RP (Respondent No.1) as noticed above. The CoC having not approved CIRP fee and expenses, no action can be initiated on Respondent Nos.1 and 2."

"The law for initiating proceedings of civil contempt are well settled. Willful violation of order passed by Court can give cause for initiating contempt proceedings against the delinquent."

"The Contempt of Courts Act, 1971 explains a civil contempt to mean a wilful disobedience of a decision of the Court. Therefore, what is relevant is the 'wilful' disobedience. Knowledge acquires substantial importance qua a contempt order."

"If two views are possible, the element of wilfulness vanishes as it involves a mental element. It is a deliberate, conscious and intentional act. What is required is a proof beyond reasonable doubt since the proceedings are quasi-criminal in nature."

"The order dated 13.01.2021 only protected the fee and expenses of the Applicant, who was erstwhile RP. When the CoC, who is to make the payment of the CIRP fee and expenses is unable to bear the fee and expenses and they have decided to withdraw the CIRP... filing of the Application by RP for withdrawal, cannot amount to contempt of order of this Tribunal dated 13.01.2021."

"The contempt jurisdiction of this court cannot be construed by any formulaic or rigid approach... The authority of courts must be respected not only in the letter of their orders but also in the broader spirit of the proceedings before them."

"Any contumacious conduct of the parties to bypass or nullify the decision of the court or render it ineffective, or to frustrate the proceedings of the court, or to enure any undue advantage therefrom would amount to contempt."

"We are satisfied that no case has been made out for initiating any contempt proceedings against Respondent Nos.1 and 2 for alleged violation of order dated 13.01.2021 passed by this Tribunal."