Finolex Cable case: Supreme Court initiates contempt proceedings against NCLAT members

The Supreme Court on Wednesday initiated contempt proceedings against the National Company Law Appellate Tribunal (NCLAT) members in the case regarding the annual general meeting (AGM) of Finolex Cables. The notices were issued to the National Company Law Appellate Tribunal judicial member Rakesh Kumar and technical member Alok Srivastava. On October 16, the apex court ordered an inquiry against an NCLAT bench for defying its orders. 

On Friday, the top court observed that it was "prima facie of the view that judicial and technical members are liable to be proceeded against for contempt of court".

Accordingly, the apex court issued show cause notices to judicial member Rakesh Kumar and technical member Alok Srivastava, asking "why contempt (proceedings) should not be carried against them". The Chief Justice directed them to be present in court on October 30 at 1030 IST and furnish their replies to the notice.

"We have serious doubts as to how the matter has proceeded in NCLAT, and we have serious doubt about the honesty of the members here. You should know that there is often a gut of the judge when we know that not all is good... An NCLAT member who heard the matter appeared in this case... He should have recused (himself)... And then he appeared in the Supreme Court also," said Chief Justice Chandrachud. "Corporate India should know that if our orders are being subverted, they should know that there is a Supreme Court who is watching." 
The bench led by Chief Justice of India D.Y. Chandrachud directed the chairperson of the appellate tribunal, Justice Ashok Bhushan, to hear the case afresh.

On October 13, the NCLAT permitted Deepak Chhabria to continue as the chairman of Finolex Cables Limited, and putting on hold the changes that were to be brought in to the Articles of Association of the company.

On the same day, the top court set aside the NCLAT bench's October 13 order and directed NCLAT chairperson Justice (retd) Ashok Bhushan to conduct an inquiry into whether a bench of the appellate tribunal defied the apex court order.

On October 16, CJI DY Chandrachud had asked Justice Ashok Bhushan, chairperson of NCLAT to submit a report for the defiance of its order. Justice Bhushan had to submit the report by 5 pm on October 16.

The court had said: "If what is stated is correct, this will clearly constitute defiance."

Following which, NCLAT Principal Bench, New Delhi, on Monday suspended an earlier order that allowed Deepak Chhabria to continue as the chairman of Finolex Cables. 

Earlier, the top court had directed the NCLAT to proceed with its judgment and declare the results of the meeting only after getting the scrutiniser's report. However, NCLAT did not adhere to it.

Further, the top court reprimanded the scrutiniser of the annual general meeting of Finolex Cables for not disclosing its shareholders' voting results pertaining to a resolution for the reappointment of Deepak Chhabria as whole-time director of the company, despite directions from the apex court. "After they (scrutiniser) were told specifically, how can the scrutiniser take opinion from former Chief Justice of India and not declare the results?" asked Chief Justice Chandrachud.

"Let them (scrutiniser) come to this court and we will send them marching off to Tihar jail... Then they will understand the power of this court... You (counsel for scrutiniser) ask the scrutiniser to be personally present before this court and tell him that we will sentence him. These people with big resources and money think they can take the court for a ride and this will not happen at all," the Chief Justice said.

Coming down heavily on the appellate tribunal and national company law tribunals, the Chief Justice said, "NCLAT members, not Justice Ashok Bhushan, but apart from him, there is a rot... NCLT and NCLAT have gone down to a rot. This case is an object illustration of the rot. "The court has directed both the judicial member and technical member of NCLAT to personally appear before it on October 30.

On September 21, the NCLAT had called for a status quo on the AGM due to a dispute between cousins Prakash Chhabria and Deepak Chhabria. 

Seeking respite, Prakash Chhabria moved the apex court, leading to the ruling on October 13 that NCLAT should refrain from making any decisions in the case until the scrutineer had published the results.

Prakash Chhabria-controlled Orbit Electricals and Finolex Industries had voted against the re-appointment of his cousin, Deepak Chhabria, as the executive chairman of Finolex Cables. Orbit and Finolex Industries voted to oust Deepak Chhabria, with 72.34 per cent of the votes cast against the resolution of his re-appointment. Only 27.66 per cent of the votes were cast in favour of Deepak Chhabria’s re-appointment.

Orbit Electricals is a promoter of Finolex Cables and holds a 30.7 per cent stake in Finolex Cables, while Finolex Industries holds 14.51 per cent in Finolex Cables. Both these companies are controlled by Prakash Chhabria, the son of the late Prahlad Chhabria. Prakash Chhabria owns 78 per cent of Orbit Electricals, while KP Chhabria (father of Deepak Chhabria) and his children own 7 per cent.