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E. Bapanaiah v. K. S. Raju

Criminal Appeal · Neutral citation not assigned (Criminal Appeal arising out of SLP (Criminal) No. 2479-2487 of 2009)Decided 7 Nov 2014
Criminal Appeal arising out of SLP (Criminal) No. 2479-2487 of 2009
Justice Vikramajit Sen · Justice Prafulla C. Pant

Background

Bapanaiah deposited ₹40 lakh with Nagarjuna Finance Ltd., which failed to repay under a Company Law Board scheme supported by its promoter director's undertaking. A Single Judge found K. S. Raju and other directors guilty of contempt, but the Division Bench reversed those orders. The depositor appealed, seeking accountability for the unfulfilled undertaking.

Decision Breakdown

The Supreme Court restored Raju's contempt conviction and sentence of six months' simple imprisonment and a ₹2,000 fine. His effective control of the company, continuing undertaking and attempted resignation did not support his denial of responsibility for wilful non-compliance. The Company Law Board was judicially subordinate to the High Court for the contempt jurisdiction applied here. Raju received sixty days to repay the appellant as directed; timely payment would reduce the sentence to the fine alone, otherwise he was to be taken into custody. The appeals against the other eight directors failed because they had not been named in the contempt proceeding or given an opportunity to defend themselves.

Lesson Learnt

A controlling director cannot evade a court-backed repayment undertaking merely by resigning or pointing to changed management where the obligation continues. Contempt liability still requires a proper proceeding and opportunity to defend; it is not an automatic substitute for ordinary execution of every unpaid debt.

Official source (sci.gov.in)View Judgment (PDF)

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