Does the breach of undertakings given to a court in the course of agreeing a settlement amount to contempt of court?
Ruling in Prominent Advertising Services v Koutons Retail India Limited Delhi High Court found that “wilful and intentional breach” of undertakings would constitute contempt of court as defined under section 2(b) of the Contempt of Court Act, 1971. The court held that as “dishonouring an undertaking given to the court would amount to a fraud on court and … would inevitably affect the administration of justice”, it naturally follows that “furnishing of an undertaking, being fully aware that there was a reasonable probability that it may not be possible to comply with the same” would also amount to contempt of court.
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Prominent Advertising filed a contempt petition, asking Delhi High Court to punish Koutons Retail for violating an order it had passed. Koutons had failed to pay its admitted debt of almost ₹49 million (US$812,000) to Prominent Advertising.
Koutons said it regretted the breach of the undertakings and tendered an unqualified apology. It stated that the breach was not deliberate but was due to its deteriorating financial affairs and on account of non-availability of funds.
Delhi High Court found Koutons guilty of contempt of court, holding that Koutons had been well aware that it might not be in a position to adhere to the payment schedule. Koutons had therefore committed a fraud on the court by persuading it to dispose of the winding-up petition on the basis of an undertaking which it knew it was unlikely to honour. However, in view of the apology tendered by Koutons, the court deemed it fit to impose a penalty of ₹20,000 on each of three respondents.
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The dispute digest is compiled by Bhasin & Co, Advocates, a corporate law firm based in New Delhi. The authors can be contacted at lbhasin@bhasinco.in or lbhasin@gmail.com. Readers should not act on the basis of this information without seeking professional legal advice.
