Breaches Of Undertaking Given Before Court Or Arbitral Tribunal Shouldn't Be Pursued Under Contempt Of Courts Act: Delhi High Court

Brief Facts:

Index Hospitality Limited (Petitioner) sought to initiate contempt proceedings against Contitel Hotels And Resorts Pvt Ltd & Ors. (Respondents) under Sections 11 and 12 of the Contempt of Courts Act, 1971 alleging willful disobedience of the order.

The Petitioner leased the property to Respondent No. 1 via a registered Lease Deed for a term of three years starting from June 1, 2018 with the rent set at increasing rates over the years. The Petitioner contended that Respondent No. 1 was inconsistent in paying the lease rent and failed to vacate the property even after the lease expired on May 31, 2021. Consequently, the arbitration clause was invoked and the parties reached an amicable settlement. This settlement was formalized by the Arbitrator.

The Petitioner argued that according to an undertaking provided by Respondent No. 3 on behalf of Respondent No. 2, an ad-hoc payment of Rs. 50 lakhs was to be made to the Petitioner by September 25, 2023 in the form of a Demand Draft. Although the Petitioner has received vacant possession of the property, the Respondents have intentionally failed to make the Rs. 50 lakh payment. The Petitioner referred to an affidavit from Respondent No. 2, Mr. Ajay Dahiya, dated September 4, 2023, to support its claim that the Respondents should be held in contempt for not complying with their undertaking before the Arbitrator.

Observations by the High Court:

The High Court held that although the Petitioner presented a prima facie plausible case, the appropriate course of action for the Petitioner would be to seek enforcement of the arbitral award under Section 31 of the Arbitration and Conciliation Act, 1996.

The High Court held that breaches of undertakings given before a Court or an Arbitral Tribunal should not be addressed through the Contempt of Courts Act, especially when an effective alternate remedy is available.

The High Court referred to Rama Narang v. Ramesh Narang & Anr. where a consent decree was violated. The Supreme Court in that case held that while a breach of undertaking could be considered contempt, the preferred remedy was still the execution of the decree. It held that contempt jurisdiction is not always the appropriate forum when alternative remedies exist.

The High Court also referred to R.N. Dey & Ors. v. Bhagyabati Pramanik & Ors. where it was held that contempt should not be used excessively or inappropriately. It should not replace the execution of decrees or orders where other legal remedies are provided. The High Court reiterated that contempt of court is meant to uphold the dignity of the court and should not be employed for matters that have alternative legal remedies.

Further, in Soorajmull Nagarmull v. Brijesh Mehrotra & Ors., the Supreme Court held that where a statute, like the Land Acquisition Act, 1894, provides a comprehensive procedure, it should be followed instead of enlarging the scope through contempt petitions.

The Petitioner relied on Alka Chandewar v. Shamshul Ishrar Khan to argue that Section 17(2) of the Arbitration Act allows for orders of the Arbitral Tribunal to be enforced as court orders. However, the High Court found this argument unconvincing. Section 17 pertains to interim measures ordered by the Arbitral Tribunal before the final award is enforced. The High Court noted that once an arbitral award becomes final, it is enforceable under Section 36 of the Arbitration Act which provides that such awards should be enforced as court decrees.

The High Court dismissed the contempt petition and clarified that the Petitioner could pursue enforcement of the arbitral award through appropriate legal channels.

Case Title: Index Hospitality Limited Vs Contitel Hotels And Resorts Pvt Ltd & Ors.

Citation: 2024 LiveLaw (Del) 909

Case Number: CONT.CAS(C) 1218/2024

Advocate for the Petitioner: Mr. Anil Kher, Sr. Advocate with Ms. Chakshu Thakral, Advocates.

Advocate for the Respondent: None

Date of Judgment: 06th August, 2024

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