The National Company Law Appellate Tribunal (NCLAT) has set aside an order by the National Company Law Tribunal (NCLT), Kolkata Bench, which previously held several individuals guilty of contempt for failing to comply with payment directions regarding the liquidation of Mohan Motor Dealers Private Limited. Ruling on a series of appeals, the appellate bench highlighted significant procedural infirmities in the initial contempt proceedings and remanded the matter back to the adjudicating authority for a fresh decision after ensuring that proper legal processes are followed.

The underlying dispute stems from a January 30, 2024 order passed under Sections 43, 45, and 66 of the Insolvency and Bankruptcy Code, 2016, which identified several preferential and undervalued transactions. The order directed multiple parties to restore specific sums to the corporate debtor’s liquidation estate. When those payments remained outstanding, the liquidator initiated contempt proceedings, culminating in an order dated June 12, 2026, where the NCLT held the appellants guilty of wilful disobedience, imposed significant fines, and directed the attachment of personal properties.

In its decision to remand, the NCLAT bench, comprising Judicial Member Justice Mohammad Faiz Alam Khan and Technical Member Naresh Salecha, emphasized that contempt jurisdiction is quasi-criminal in nature and demands rigorous adherence to procedural safeguards. The tribunal found that the NCLT had failed to frame formal charges against the individuals, a prerequisite for adjudicating potential contempt. Furthermore, the NCLAT observed that the initial show-cause notice was insufficient to sustain a finding of guilt without an explicit, established prima facie view of wilful disobedience.

Procedural Safeguards and Legal Limits

A central issue addressed by the appellate tribunal was the scope of punishment and the nature of evidence required. The NCLT’s original order had proposed a fine of ₹2,00,000 for each appellant—a figure the NCLAT noted was far in excess of the statutory limit of ₹2,000 prescribed under Section 12(1) of the Contempt of Courts Act, 1971. The appellate order clarified that judicial authorities are bound by the statutory framework regarding penalties and cannot impose fines exceeding those authorized by the legislation.

Regarding the appellants’ defense of financial incapacity, the tribunal provided vital guidance on the standard of proof. While acknowledging that genuine inability to pay can serve as a valid defense against a charge of "wilful" disobedience, the NCLAT bench warned that a bare assertion of poverty is insufficient to negate such liability.

"We need to be cautious of the fact that only wilful disobedience is contempt , and genuine inability is a defense," the tribunal noted. "But once non-payment of an order for money is shown, the reasons a person cannot pay are within his own knowledge. He must bring them forward, with full disclosure of his assets and income. A bare claim of poverty is not enough."

The NCLAT further addressed the position of individuals named as directors in the contempt petition. The liquidator had argued that directors cannot avoid responsibility for company defaults by claiming they were not directly involved. However, the NCLAT pointed out that holding directors liable in contempt requires specific findings regarding their individual roles, their control over the company at the time of the alleged violation, and evidence of their consent or connivance. Merely holding a directorship is not, by itself, sufficient to ground a finding of contempt unless the statutory ingredients under Section 12 of the Contempt of Courts Act are satisfied.

Distinguishing Execution from Contempt

The appellate tribunal also addressed the relationship between execution proceedings and contempt jurisdiction. The appellants had argued that because the liquidator had already pursued execution applications, the contempt route was either redundant or improperly invoked. Referencing the Supreme Court's judgment in Rama Narang vs. Ramesh Narang , the NCLAT clarified that the existence of execution avenues does not strip a court of its power to punish for contempt.

The court distinguished the two: execution is concerned with the enforcement of substantive rights through the recovery of assets, while contempt jurisdiction addresses the wilful flouting of a judicial command. The tribunal maintained that the possibility of executing an order does not automatically preclude the court from dealing with the contumacious conduct of a party, provided the elements of "wilful disobedience" are proven to the required standard.

Remand and Compliance Expectations

The NCLAT’s decision ensures that the underlying avoidance order—which mandated payments to the liquidation estate—remains final and binding. The appellate tribunal stressed that its intervention was limited to correcting the procedural lapses and the lack of jurisdiction regarding penalties in the contempt order. The dismissal of earlier appeals by the NCLAT on December 6, 2024, meant that the directions for restoration of assets had already attained finality.

By remanding the matter, the tribunal has directed the adjudicating authority to hold a fresh inquiry. In this process, the NCLT is tasked with framing specific charges, allowing the appellants an opportunity to file detailed affidavits regarding their assets and income, and determining, with clear reasoning, whether the failure to pay constituted wilful and intentional disobedience.

The tribunal’s order effectively serves as a reminder to liquidators and creditors that while the recovery of funds for a liquidation estate is paramount, the process of enforcing such recovery through the coercive power of contempt requires a strict adherence to the rules of natural justice. The parties are now expected to appear before the NCLT on October 26, 2026, to resume the contempt proceedings in accordance with the appellate court’s guidance. Until such time as the NCLT reaches a fresh determination, the status of the appellants remains subject to the forthcoming judicial scrutiny, and the requirement for them to demonstrate their bona fides through full financial disclosure remains in effect.