Finolex Cables case: SC calls out 2 NCLAT members for flouting order

While judicial member Rakesh Kumar resigned from the tribunal, technical Member Alok Srivastava has submitted an unconditional apology for not complying with the directives of the apex court.

A three-judge bench, led by Chief Justice DY Chandrachud, noted that both members willfully defied the court order. This conclusion was drawn after reviewing the CCTV footage in the court from an NCLAT proceeding dated 13 October. During this NCLAT session, lawyers from both sides informed the tribunal bench about the Supreme Court’s order to refrain from passing any directives until the release of the AGM results. Despite this, the NCLAT bench proceeded against the Supreme Court’s directives.

Furthermore, the court found the scrutinizer of the company liable for defying the court order by withholding the results of AGM based on legal advice given by former executive chairman of Finolex Cables, Deepak Chhabria. Consequently, the court has ordered a fine for Deepak Chhabria and instructed him to deposit ₹1 crore to the Prime Minister’s fund within two weeks. The scrutinizer has also been directed to deposit ₹10 lakh to the Prime Minister’s Relief Fund within the same period.

The court disposed of this case by emphasizing that it should set a precedent for all tribunals and courts, asserting that none should defy the orders of the Supreme Court in the future.

On 18 October, the Supreme Court issued show-cause notices to both NCLAT members and summoned them to explain why they should not be liable for contempt of court. The Chief Justice remarked, ‘I am not talking about Justice Ashok Bhushan… but NCLT and NCLAT have gone down to rot now. This case is an illustration of that decline.

Also Read: Finolex, SC and the NCALT rot – A Mint explainer

The dispute began with the NCLAT imposing a status quo on the Annual General Meeting (AGM) of Finolex Cables held on September 26. This led to Prakash Chhabria approaching the Supreme Court against the NCLAT’s decision, which the court overturned on 26 September. The top court instructed the meeting’s scrutinizer to release the AGM results and directed the NCLAT not to issue any order until the results were released.

However, the NCLAT defied this directive and announced its order on 13 October, prior to the release of the scrutineer’s results, leading the Supreme Court to initiate an inquiry into tribunal’s actions. The inquiry was assigned NCLAT chairperson, Ashok Bhusan, who had to determine whether NCLAT members were aware of the Supreme Court’s order and what circumstances led them to defy it. The NCLAT suspended its order on 16 October following the Supreme Court’s intervention.

Finolex Cables’ succession saga

Founded in 1958 by Pralhad Chhabria and his brother Kishandas, the Finolex Group initially sold electrical supplies door-to-door, later establishing Finolex Cables. The company grew into two public entities, Finolex Cables Ltd and Finolex Industries Ltd, with several joint ventures. While Pralhad managed commercial aspects like finance and sales, Kishandas handled technical facets, such as production and R&D.

In 1989, to address tax laws, Pralhad suggested a strategy to transfer Finolex Cables shares to investment companies. By 2009-10, the brothers aimed to consolidate their holdings under a single entity, Orbit Electricals. After various transfers and mergers, Pralhad’s shares in Orbit were eventually entrusted to the Pralhad Chhabria Trust, with specific governance conditions.

The succession feud intensified after Pralhad’s death in 2016, with disputes over share transfers and company governance decisions leading to legal battles.

Prahlad Chhabria had drafted a succession plan in 2012, designating his daughter Aruna Katara, son Prakash Chhabria, and nephew Deepak Chhabria as successive trust chairpersons.

The plan also outlined a structure ensuring that each trust beneficiary chaired a company within the Finolex Group.

However, before his death, Prahlad transferred 80% of his share to his son Prakash and nominated him to the board, bypassing the 2012 trust deed. These changes were made through a board meeting in 2016, leading Deepak and Vinni Chhabria to challenge the legality of this meeting in the company tribunal.

“Exciting news! Mint is now on WhatsApp Channels 🚀 Subscribe today by clicking the link and stay updated with the latest financial insights!” Click here!

Updated: 30 Oct 2023, 01:56 PM IST