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Absolute rot in NCLAT: SC sets aside Finolex Cables case order
The NCLAT order had paved the way for Deepak Chhabria, who is at loggerheads with his cousin Prakash Chhabria over the management control of the company
The National Company Law Appellate Tribunal (NCLAT) has gone to “absolute rot”, the Supreme Court observed on Wednesday, as it proceeded to issue show-cause notice of contempt to a presiding judge and a technical member of the appellate body for reportedly breaching the orders of the top court and rendering “false” explanations.
“Corporate India should know that if you want to subvert a judicial process, there is the Supreme Court watching,” remarked a bench, headed by Chief Justice of India Dhananjaya Y Chandrachud, as it set aside the impugned order of NCLAT and ordered the personal presence of the NCLAT members in court on October 30.
The NCLAT order had paved the way for Deepak Chhabria, who is at loggerheads with his cousin Prakash Chhabria over the management control of the company, to continue as chairman of Finolex Cables.
The court took strong exception to the manner in which a NCLAT bench, comprising Rakesh Kumar (judicial member) and Alok Srivastava (technical member), went ahead and delivered its ruling relating to the management control of Finolex on October 13 despite the court order to do so only after getting the scrutiniser’s report on AGM results.
On October 13, the bench, also comprising justices JB Pardiwala and Manoj Misra, directed NCLAT to proceed only after scrutinisers disclosed the results of the vote on the resolution during the AGM. The resolution was for the reappointment of Deepak Chhabria as a whole-time director designated as executive chairman. The court also allowed the parties to inform the NLCAT bench about it so that they stayed their hands till the scrutiniser’s report.
The Supreme Court order was uploaded on its website at 1.55 pm and the counsel for the parties informed the development to the NCLAT bench, which was scheduled to deliver the judgment at 2 pm. However, the two-member bench went ahead and pronounced the order, while the scrutiniser’s report was uploaded at 2.40 pm on October 13. Both Kumar and Srivastava defended their action by saying that the practice of NCLAT was to first deliver the judgment and then hear any mentioning by lawyers. On October 16, the NCLAT bench suspended its order permitting Deepak Chhabria to continue as the chairman of Finolex Cables on the premise that it was apprised of the court order only at 5.35 pm on October 13.
Directing Kumar and Srivastava to remain present before the court on October 30, the bench said that the explanations rendered by the two NCLAT members reeked of “falsehood” and that they also have failed to disclose full facts to the NCLAT chairman, justice Ashok Bhushan, who was earlier asked by the court to undertake an inquiry into the conduct of the members.
“NCLAT and NCLT have gone down to an absolute rot. And this case is an abject illustration of the rot,” an anguished bench, remarked, noting that the NCLAT members also tried to “incorrectly” create records subsequently to suggest that they were not made aware of the Supreme Court order. It clarified that the strictures of the court were confined to the two members and that the NCLAT chairperson, a former top court judge, was one of the most dignified and disciplined judges.
“The manner in which the judgment was passed by NCLAT on October 13 is unbecoming of a judicial tribunal. NCLAT, which is subject to the jurisdiction of this court, was duty bound to comply with the orders of this court,” the bench recorded in its order, issuing contempt notices to Kumar and Srivastava.
Noticing the objectionable manner in which the NCLAT bench passed its order on October 13 despite the court’s caveat, the bench also set aside the order, stating it was constrained to pass such an order “in extraordinary circumstances”. The bench clarified that the matter will be heard afresh by a bench, led by the NCLAT chairperson.
“Ultimately there is a gut inside a judge when a matter has been decided honestly or not. We have serious doubts about the honesty in this case,” observed the bench.
It also issued a show-cause notice of contempt to scrutinisers, noting they were under the order of the Supreme Court to declare the result of the AGM but they delayed the result and sought an opinion from a retired judge despite a categorical direction by the court.
The court order on October 13 came on a petition filed by Prakash Chhabria led Orbit Electricals, which is a promoter entity in Finolex Cables. He sought disclosure of the outcome of voting in the AGM, pertaining to the reappointment of Deepak Chhabria as executive chairman. Orbit Electricals and Finolex Industries, controlled by Prakash Chhabria, had voted against the reappointment of his cousin, Deepak Chhabria, as the executive chairman of Finolex Cables.
