Breach of undertaking given to the Court amounts to playing fraud on the Court #indianlaws

Dishonoring an undertaking given to the court would amount to a fraud on court and that would inevitably affect the administration of justice

The present contempt petition was filed against the Company upon its failure and negligence in honouring the settlement arrived at between the Parties in a winding up petition whereby statement of the Directors of the Company were recorded and accordingly undertakings by them were also furnished to this effect. It was undertaken that the failure in compliance would amount to contempt of Court. Based on the above, the said winding up petition was disposed. However after the first instalment of repayment towards amount due, Company failed to honour the terms of the settlement. A contempt petition was accordingly moved alleging that the statement/ undertaking was made on behalf of the Company with complete knowledge that a huge amount was due to be paid and also the Company would not be in a position to clear the dues as undertaken and infact the undertaking given was just an attempt to avoid any immediate order of winding up of the Company. The Directors tendered unqualified apology and submitted that disobedience of the Court order was not wilful or deliberate and further the financial obligations could not be met due to slow down in the economy.

The Court held that a wilful and intentional breach of the undertaking, as in the present case, would constitute contempt of court as defined under section 2(b) of the Contempt of Court Act, 1971. The rationale being that dishonoring an undertaking given to the court would amount to a fraud on court and that would inevitably affect the administration of justice. It was apparent that undertaking given was only to enable the Company to avoid an order of winding up at the material time and the Directors were obviously aware that the Company was not likely to meet all its financial obligations.

The contention that there had been a general slowdown in the economy was rejected as defence for breach of undertaking and infact, as held, at the time of filing the undertaking the Directors were well aware that it was quite possible that they would not be in a position to adhere to the payment schedule agreed upon. Accordingly, they were held liable for playing a fraud on the Court by persuading the Court to dispose of the winding up petition on the basis of undertakings being fully aware of the fact that at the material time that it was unlikely that the same would be honoured. Though the Company was held liable for committing contempt of court, a penalty was imposed on each of the Directors and official liquidator was held to be appointed.

[Prominent Advertising Services vs. Koutons Retail India Limited]

(Delhi HC, 26.03.2014)