NCLT Hyderabad Holds Port Authority Officers Guilty Of Contempt Of Court, Imposes Month Imprisonment And Fine

Background Facts:

Between July 2011 and April 2016, Lanco Babandh Power Ltd. (the Corporate Debtor) imported goods, items, and machinery to establish a Thermal Power Plant in Odisha, filing 45 Bills of Entry for the import and clearance. However, the goods remained unreleased due to the Corporate Debtor's failure to provide the necessary documents. Out of 45 Bills of Entry, 3 bills didn't receive OOC because no Bill of Entry was filed even after more than a year had passed since the import.

On 29.08.2018 the Corporate Debtor was admitted into the Corporate Insolvency Resolution Process ('CIRP'), and in the absence of any Resolution Plan, a Liquidation order was passed on 27.11.2019. Jindal Steels and Power Limited acquired the assets, including the imported goods of the Corporate Debtor, through an e-auction. However, the successful bidder has not paid the remaining sale consideration because the cargo and goods are still in the custody of the Respondents.

The Liquidator initiated contempt proceedings against the Respondents when they did not release the goods despite requests. Via Order dated 29.03.2023, NCLT Hyderabad allowed the application and directed the Respondents to release the Corporate Debtor's goods without requiring the filing of an Installation Certificate, reconciliation statement, final payment certificate, or payment of customs duty by the Corporate debtor under liquidation, within 30 days. It also instructed the Deputy Commissioner Paradeep Customs Division to issue a No Objection Certificate for the sale of these goods to be made within 3 months by the Liquidator under IBC. It directed the Liquidator to deposit the sale proceeds into Corporate Debtor's liquidation account.

The Liquidator sent notices to the Respondents requesting the release of goods. However, no action was taken, leading to the filing of the application before NCLT Hyderabad.

NCLT Verdict:

The NCLT Hyderabad allowed the application and held Respondents guilty of contempt for disobeying the directions of the Adjudicating Authority and sentenced them to simple imprisonment of 1 month each with a fine of Rs 1000. In case of default in making payment of fine, they shall further under go simple imprisonment for 15 days each.

The Tribunal observed that initiating contempt proceedings serves a dual purpose: it upholds the majesty of the law by punishing the contemnor and coerces the contemnor to comply with legal requirements.

The Tribunal observed that the imported goods held by the Paradeep Port Authority are part of the "liquidation estate," which includes assets as defined under Section 36(3) of the IBC. Following the issuance of the liquidation order, the Liquidator was responsible for taking custody and control of all assets, property, effects, and actionable claims of the Corporate Debtor. Sections 35(a) to 35(f) of IBC empower the Liquidator to seize and sell the cargo or goods held by the Respondents, subject to the provisions of Section 52.

It also noted that both the Deputy Commissioner of Paradeep Customs Division and the Traffic Manager of Paradeep Port Authority have submitted their claims to the Liquidator. Despite this, the goods were not released. Although the Deputy Commissioner of Paradeep Customs Division complied after the order was issued, however, the Respondents refused to follow the Authority's directions and even failed to appear before the Authority, seemingly overpowered by their sense of authority.

If the Respondents had any concerns regarding the disbursement of the Corporate Debtor's property under Section 53 of the IBC, they should have contested the liquidator's order within 14 days of receiving it, as stipulated by Section 42 of the IBC. However, their actions suggest an intention to derail the time-bound liquidation process.

NCLT reaffirmed the view that provisions of the IBC take precedence over the Customs Act and relied upon the Supreme Court's decision in Sudarshan Bhatt, Liquidator of ABG Shipyard vs. Central Board of Indirect Taxes and Customs which held that issuing demand notices to enforce customs dues during the moratorium period would violate IBC. Therefore, any conflicting provisions in the Customs Act or the aforementioned circulars by the Deputy Traffic Manager New Mangalore Port Authority do not constitute the law of the land. Thus, no action can be taken to keep the Corporate Debtor's goods post the liquidation order.

Further, it pointed out that there is record that the Respondents were informed of the position of law and the orders. Even the successful bidder, Jindal Steel & Power Limited, notified both Respondents about the order.

The Tribunal highlighted that it is improper for a Government Authority to ignore the lawful directions issued by the Adjudicating Authority. The Respondents have neither complied with these directions nor filed any appeal. Despite being fully aware of the lawful orders from a competent authority, they remained inactive. Due to the Paradeep Port Authority's gross disobedience, the matter has been unnecessarily prolonged, resulting in a loss to the exchequer as the goods in their possession remain unutilized and are not being put to productive use.

NCLT Hyderabad observed that the Respondents have intentionally undermined the administration of justice, and their deliberate actions cannot be overlooked. It also held that disregarding an order from any Authority impairs the administration of justice. It relied upon the Supreme Court's decision in Commissioner, Karnataka Housing Board vs C. Muddaiah and observed that once a direction is issued by a competent Court, it must be obeyed and implemented without reservation.

In conclusion, it held that no one has the authority to conduct which would demean and disgrace the majesty of justice which is dispensed by a Court of law. It remarked that non-compliance with the Court's order undermines the Rule of Law. If the party against whom the order is made has any grievances, their only recourse is to challenge the order through appropriate legal proceedings.

Case Title: Mr.Sanjay Gupta Liquidator of Lanco Babandh Power Limited vs. Mr. Tarun Kumar Panda & Ors.

Case No.: Contempt Petition No.16 of 2023 in IA No.939 of 2020 in CP (IB) No.296/7/HDB/2018

Counsel for Applicant: Ms. Shalya Agarwal, Advocate

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