JSA successfully represented foreign directors and an authorised signatory of an Indian JV entity in contempt of court proceedings before the Bombay High Court

By a judgment of 26 April 2024, a single judge of the Bombay High Court dismissed a contempt petition filed by a company against an Indian JV company for failing to deposit certain amounts with the Court registry within the period prescribed in the order of the court (“Order”). The Order also stated that the JV company’s right to file a statement of defence or counter claim in pending arbitration proceedings with the applicant company was conditional upon the deposit being made. The deposit was not made, and the entity’s right of defence in the arbitration was lost.

The contempt petition, filed by the applicant company, was admitted and show cause notices were issued to the directors and the authorised signatory of the Indian JV entity. At the final hearing of the contempt petition, the directors and authorised signatory of the Indian JV entity contended, amongst other things, that –

Given the non-compliance with the Order, a contempt petition was filed and subsequently admitted; and show cause notices were issued to the directors and the authorised signatory of the Indian JV entity. In the contempt proceedings, the directors and authorised signatory of the Indian JV entity contended that there was no wilful disobedience of the Order since –

• the Indian JV entity was in a precarious financial condition and did not have the requisite funds to comply with the Order.
• amounts available with the Indian JV entity during the concerned period were expended to meet legitimate expenses, including tax dues and staff salaries.
• the Indian JV entity had expected to recover substantial amounts from its creditors to comply with the Order, but no amounts were recovered on account of the COVID-19 pandemic.
• the Order was self-operating and provided for drastic consequences for non-compliance, which had in fact taken place.

The Hon’ble High Court observed that in the face of the self-operative clause in the Order for adverse consequences upon failure to make the deposit, such an order could not be the basis for initiating contempt proceedings, and the consequences of the failure to deposit had been suffered and execution proceedings were being faced by the Indian JV entity. The Hon’ble Court also took into consideration the financial crunch suffered by the JV entity, the closure of its business, and the impact of the Covid-19 pandemic and the lockdowns. It concluded that while the fact that the Order could not be obeyed was made out, the court was not inclined to hold that there was wilful disobedience of the order. Accordingly, the contempt petition was dismissed.

Our Disputes Team Comprised Lead Partner – Farhad Sorabjee, Partner – Shanaya Cyrus Irani and Principal Associate – Siddhesh Pradhan.