The Bombay High Court has issued a contempt show-cause notice to a city developer for filing consent terms before the court and not complying with it.
Holding that the petitioner had succeeded in making out a prima facie case for initiation of action for civil contempt against the developer, Justice NJ Jamdar directed that a notice be issued to Samarth Erectors and Developers under Contempt of Courts Rules, 1994 to appear before the court on March 30, 2022.
According to the order dated March 9, petitioner Vinod Talwar had filed a summary suit for a money decree worth Rs 90 lakh following a settlement arrived between M/s Delta Electro-Mechanical Pvt Ltd, for whom he had carried out the construction of rehab and sale buildings, and partners in Samarth Erectors and Developers. Consent terms were signed on January 10, 2020, to amicably settle the dispute by paying Rs 90 lakh with 12 percent interest per annum aggregating to Rs 1.11 crore.
As per the consent terms, Samarth Erectors and Developers partners had agreed to pay the petitioner Rs 1.11 crore in nine instalments. If there was a default in payment, it was agreed that the petitioner would be entitled to 18 per cent interest per annum thereafter.
However, the cheque for the first instalment of Rs 15.70 lakh payable on February 20, 2020, bounced due to insufficient funds. The firm then reissued a cheque for Rs 5.70 lakh which was honoured, but the rest of the cheques were dishonoured. The petitioner then sent a notice in August, 2020 to the firm demanding the remaining amount of Rs 86.20 lakh with interest as per consent terms, but there was no response from the firm.
It is the petitioner’s case that Samarth Erectors and Developers had committed a willful break of the undertaking given to the court in the consent terms on the strength of which the suit came to be decreed and the firm had no intention to comply with the consent terms. The petitioner submitted that willful breach of the undertaking constitutes civil contempt and hence it should be initiated.
In their reply, Samarth Erectors and Developers contended that the contempt petition was not maintainable in law and denied giving any “undertaking” to the court. The reply claimed that the consent terms does not record any such undertaking to the court and there is no question of willful breach of the undertaking to the court as alleged. The reply claimed that due to the Covid-19 pandemic, there was a severe impact on their finances and resources and the firm had become non-operative and non-functional during the entire lockdown period.
Milan Desai, counsel for the developer, argued that though the High Court order dated January 10, 2020, mentioned the sentence “The undertakings given by the parties in the consent terms are accepted as the undertakings to the court.”, the consent terms do not record such an undertaking. Mohammed Zain Khan, counsel for the petitioner, argued that the consent terms unmistakably contain an undertaking to pay the amount.
After examining Supreme Court judgements cited by both parties, the court observed “We cannot lose sight of the fact that a court is made to act upon a solemn statement and pass orders thereon. A party obtains an advantage by making an assurance to the court. But for such assurance or solemn statement, the court would not have made a particular order. In such a situation, if the party who makes the court believe in its assurance is permitted to wriggle out of the situation by asserting that there is no formal undertaking, it would lead to anomalous consequences. The very authority of the court to find the parties to terms they undertake would be eroded.” The court observed that the consent terms clearly incorporate the “undertaking”.
Desai then argued that even if the failure to make payment cannot be construed as a willful breach of the undertaking in the backdrop of the Covid-19 pandemic wherein no sector was immune from economic devastation. Khan then pointed out that the default in payment had occurred before the lockdown restrictions came to be imposed. The court said it would look into the question at a later stage and directed that the contempt notice be issued.