State Bank of India Vs Jyoti Structures Limited (NCLAT Delhi)
The National Company Law Appellate Tribunal (NCLAT) considered an appeal filed by lender banks against an order of the National Company Law Tribunal (NCLT), Mumbai, which had disposed of contempt applications filed by the corporate debtor and its shareholders. The NCLT had directed the banks to release rolled-over bank guarantee (BG) limits in terms of the approved resolution plan and ordered that failure to comply within one month would result in one day’s simple imprisonment in civil prison.
The corporate debtor had entered the Corporate Insolvency Resolution Process (CIRP) in July 2017. A resolution plan approved in March 2019 provided for the roll-over and issuance of bank guarantees and letters of credit (LCs) by the lender banks. Pursuant to the plan, a Non-Fund Based Facility Agreement (NFB Agreement) was executed. After the “Closing Date” was achieved in November 2021 and investors infused funds in accordance with the plan, the corporate debtor contended that the lenders were obligated to release the agreed non-fund-based facilities.
As the lenders allegedly failed to release the facilities, applications were filed before the NCLT under Section 60(5) of the Insolvency and Bankruptcy Code. By an order dated 20 August 2024, the NCLT held that the non-fund-based limits ought to have been released at the first instance as contemplated under the resolution plan and directed the lenders to release them. The NCLAT subsequently affirmed this order on 9 December 2024, observing that the terms of the NFB Agreement must be interpreted in a manner that gives effect to the approved resolution plan.
The dispute later shifted to contempt proceedings. The corporate debtor and shareholders alleged that the lenders had failed to comply with the NCLT and NCLAT directions. They contended that the lenders were attempting to impose fresh conditions through newly issued sanction letters instead of releasing the rolled-over BG and LC limits as required under the approved plan and the NFB Agreement. According to them, the issuance of fresh sanction letters several years after the Closing Date was contrary to the approved framework and amounted to wilful disobedience of judicial orders. They argued that the lenders’ conduct jeopardised the revival of the corporate debtor and frustrated the implementation of the resolution plan.
The lenders opposed the contempt proceedings. They argued that the contempt applications were defective because no individual officers had been identified as alleged contemnors. They further submitted that the NCLT had imposed punishment without first recording a prima facie finding of contempt, issuing a proper show-cause notice, framing charges, or giving an opportunity to the concerned individuals to defend themselves. The lenders also contended that the resolution plan and the NFB Agreement permitted project appraisal and compliance with applicable laws and banking regulations. According to them, issuance of sanction letters containing conditions consistent with banking requirements did not amount to disobedience of the earlier orders. They maintained that the conditions imposed were bona fide and that there was no deliberate or wilful violation of judicial directions.
The NCLAT examined the nature of contempt jurisdiction and emphasised that contempt proceedings, particularly where imprisonment may result, are quasi-criminal in character and require strict adherence to procedural safeguards. The Tribunal observed that a court must first form a prima facie opinion that contempt has been committed and then issue a show-cause notice communicating the specific allegations or charges to the alleged contemnor. The concerned individuals must be given an effective opportunity to respond before any punishment can be imposed.
The Tribunal found that the NCLT had not recorded a prima facie satisfaction regarding wilful disobedience before proceeding further. It noted that the NCLT had issued routine notices calling for replies rather than show-cause notices setting out specific contempt charges. The NCLAT further observed that the contempt applications themselves did not identify specific individuals alleged to have committed contempt. Despite this, the NCLT had directed imprisonment without naming the officers responsible for the alleged violation. The Tribunal held that contempt proceedings and punishment cannot be directed against unspecified persons and that compliance with principles of natural justice is mandatory.
The NCLAT also noted that different sanction letters had been issued by different banks and that the NCLT had not examined how each sanction letter individually violated court directions before passing a composite contempt order. The Tribunal held that the procedural requirements governing contempt proceedings had been overlooked. Since the contempt jurisdiction had not been exercised in accordance with law, the order directing imprisonment could not be sustained.
Accordingly, the NCLAT allowed the appeal and set aside the NCLT’s contempt order. It directed that the corporate debtor may send written communications to each lender bank separately seeking release or disbursal of non-fund-based limits in accordance with the earlier NCLT and NCLAT orders. The banks were directed to provide their responses within one month and also identify the specific officers dealing with the release or disbursal of such limits. The Tribunal further granted liberty to the corporate debtor and shareholders to revive the contempt proceedings before the NCLT, if aggrieved by the responses received, by specifically identifying the officers concerned and filing appropriate pleadings. The parties were directed to bear their own costs.
FULL TEXT OF THE NCLAT JUDGMENT/ORDER
