NCLAT holds that wilful disobedience must be established by framing specific charges; directs reconsideration of contempt proceedings against directors and individuals in Mohan Motor Dealers liquidation case
In a significant judgment delivered on October 14, 2026, the National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, has set aside the contempt conviction against several appellants including Pradip Kumar Bajaj, Anju Bajaj, Harshit Bajaj, Gayetri Singh, and Rohit Kumar Singh, for alleged non-compliance with an avoidance transaction order passed under the Insolvency and Bankruptcy Code (IBC), 2016. The appeals arose from an order dated June 12, 2026, of the National Company Law Tribunal (NCLT), Kolkata Bench, which had found the appellants guilty of wilful disobedience of an earlier order dated January 30, 2024, directing them to pay amounts to the liquidation estate of Mohan Motor Dealers Private Limited.
Background:
The Corporate Debtor, Mohan Motor Dealers Private Limited, was admitted into Corporate Insolvency Resolution Process (CIRP) in August 2021. Subsequently, the NCLT had passed an avoidance transaction order on January 30, 2024, under Sections 43, 45, and 66 of the IBC, directing several entities and individuals to pay substantial sums to the liquidation estate on account of preferential, undervalued, and fraudulent transactions. The appellants were either direct parties or directors of companies found liable.
Following non-payment by the appellants, the liquidator initiated contempt proceedings alleging wilful disobedience of the order. The NCLT held the appellants guilty of contempt and imposed stringent directions including attachment and sale of their personal properties, a proposed fine of Rs. 2,00,000 each, and potential civil imprisonment for six months in case of non-payment.
Key Legal Issues and Findings:
1. Requirement of Specific Charge in Contempt Proceedings:
The NCLAT underscored that contempt is a quasi-criminal proceeding requiring the contemnor to be formally charged and informed of specific allegations. The Tribunal observed that the NCLT's order dated June 12, 2026, did not record any formal charge or give the appellants a proper opportunity to meet specific allegations of wilful disobedience. The initial show cause notice dated June 13, 2024, merely asked why a rule should not be issued but did not amount to framing of charge. The judgment emphasized that findings of guilt without framing of specific charges and recording reasons on wilfulness are unsustainable.
2. Liability of Directors in Contempt:
The appellants Gayetri Singh, Rohit Kumar Singh, and Anju Bajaj were named only as directors of the companies found liable to pay under the avoidance order. The NCLAT held that mere directorship alone is insufficient to fasten contempt liability. The adjudicating authority must record specific findings regarding each director's knowledge, role, and whether contempt was committed with their consent, connivance, or neglect. Since no such findings were made, holding these directors guilty of contempt could not be sustained.
3. Punishment Beyond Statutory Limits:
The NCLAT found that the NCLT's directions for attachment and sale of personal properties, imposition of a fine of Rs. 2,00,000 (far exceeding the Rs. 2,000 maximum under Section 12(1) of the Contempt of Courts Act, 1971), and automatic imprisonment without recording requisite findings, were beyond the jurisdiction conferred by the Contempt of Courts Act. The Tribunal clarified that imprisonment can only follow if the court finds that a fine would not meet the ends of justice and that it must be imposed with discretion. The automatic nature of imprisonment and attachment as punishment was held impermissible.
4. Effect of Execution Proceedings and Financial Inability:
The Tribunal acknowledged that pending execution proceedings do not bar contempt jurisdiction if wilful disobedience is established. However, it also recognized that financial inability to comply could be a valid defense against contempt if shown genuinely. The appellants had pleaded financial hardship and insolvency proceedings pending against them. The NCLAT noted that such pleas require full disclosure of assets and income, and mere assertions are insufficient.
5. Remand for Fresh Consideration:
Given the procedural infirmities, lack of formal charge, and absence of detailed findings on wilfulness, the NCLAT remanded the matter to the NCLT for fresh adjudication of the contempt petitions. The NCLT was directed to frame specific charges, consider all defenses including financial incapacity, and pass reasoned orders within the statutory framework.
Impact and Significance:
This judgment clarifies important procedural safeguards in contempt proceedings arising out of insolvency matters. It reiterates the quasi-criminal nature of contempt and the need for strict adherence to principles of natural justice, including the framing of specific charges and recording of reasons. The ruling also cautions tribunals against exceeding statutory limits on punishment under the Contempt of Courts Act. Moreover, it delineates the scope of directors' liability in contempt when companies are ordered to pay under avoidance transaction orders, emphasizing individualized findings rather than automatic attribution based on status.
The decision is expected to guide adjudicating authorities in future insolvency-related contempt proceedings, ensuring balanced exercise of contempt powers without compromising fairness.
The appellants have been directed to appear before the NCLT on October 26, 2026, for further proceedings.
Bottom Line:
Contempt arising out of non-compliance with avoidance transaction order under the Insolvency and Bankruptcy Code - NCLT cannot hold persons guilty of contempt without framing specific charge and recording reasons on wilful disobedience - Directors cannot be punished merely because of directorship where company alone was directed to pay - Directions for attachment and sale of personal properties and fine of Rs. 2,00,000/- are beyond jurisdiction under Contempt of Courts Act, 1971 - Matter remanded for fresh decision.
Statutory provision(s):
Insolvency and Bankruptcy Code, 2016 Sections 43, 45, 61, 66; Companies Act, 2013 Section 425; Contempt of Courts Act, 1971 Sections 2(b), 12, 17
