Finolex Cables case: SC pardons NCLAT bench, fines Deepak Chhabria and scrutiniser

The judgment comes after the apex court had summoned the bench of NCLAT on October 18 set aside the NCLAT order and directed that the case be heard afresh.

The Supreme Court on October 30 pardoned members of a bench of the National Company Law Appellate Tribunal (NCLAT) for defying its orders in a case pertaining to Finolex cables.

The apex court however fined Finolex Cables former Chairman and Managing Director Deepak Chhabria to pay a fine of Rs 1 (one) crore for his actions against the court order. The scrutiniser of the Annual General Meeting (AGM) has also been fined Rs 10 lakhs

The judgment comes after the apex court had summoned the bench of NCLAT on October 18 set aside the NCLAT order and directed that the case be heard afresh. It has ordered a new bench of the NCLAT to hear the case.

The court noted that it was setting the order aside only because of the aspersions cast on the bench and not on the merits of the case.

The NCLAT order pertained to a dispute between cousins Deepak Chhabria and Prakash Chhabria over the control of Finolex Group. The case in question, filed before the NCLAT, challenged the validity of certain resolutions passed during an Extraordinary General Meeting (EGM) held in 2019.

NCLAT and Supreme Court rulings

On September 21, while reserving the case challenging the EGM for judgment, the NCLAT directed that no Annual General Meeting (AGM) should be held by the company until it had decided on the challenges to the 2019 EGM.

Prakash Chhabria opposed this ruling in the Supreme Court. On September 26, the Supreme Court vacated the NCLAT order and said the AGM could go ahead. However, it noted, important decisions, such as the appointment of an executive chairperson, would be subject to the decision of the NCLAT.
One of the issues being decided at the AGM was the continuance of Deepak Chhabria as the chairman of Finolex cables.

Following the Supreme Court ruling, the company held its AGM late in September. However, the result of a vote on the continuance of Deepak Chhabria as the Chairman of Finolex Cables was not released by the scrutiniser. This prompted the Prakash Chhabria group to file a contempt petition against the scrutiniser for not following the Supreme Court’s order.
On the morning of October 13, the apex court asked the scrutiniser of the AGM to publish the result of the vote immediately and also directed the NCLAT to not pronounce any order till the result was published.

Despite the Supreme Court diktat, the NCLAT went ahead and ruled on the matter at 2 pm on October 13. The order, which has now been set aside, allowed Chhabria to continue as Chairman.

The scrutiniser of the AGM uploaded the result of the vote at 2.40 pm, 40 minutes after the NCLAT ruling. In an exchange filing, the company stated that shareholders had rejected the continuance of Deepak Chhabria as chairman.

On being apprised of these developments, the apex court directed NCLAT chairperson Justice Bhushan to conduct an enquiry into whether a bench of the appellate tribunal had defied the apex court’s order. Justice Bhushan was asked to submit his report by 5 pm on October 16.

On October 16, the NCLAT suspended the operation of its order, stating that it was apprised of the supreme court’s directions only at 5:30 PM on October 13.

On October 21, Deepak Chhabria stepped down from being the executive chairman of Finolex Cables.