Delhi High Court: Contempt Petitions Dismissed as Breach of MOU Was Complete in 2016; Delay in Filing and Subsequent Adjournments Do Not Constitute a “Continuing Wrong”

Court’s Decision

The Delhi High Court dismissed the contempt petitions filed by the petitioner, holding that they were barred by limitation. The court observed that while the respondents had reneged on the terms of the Memorandum of Understanding (MOU), the limitation period for initiating contempt proceedings began from the date the MOU was breached, and not from when subsequent delays occurred.

Facts

The petitioner company, along with its associates, extended financial assistance amounting to ₹36.50 crores to a firm represented by the respondents, who are family members and directors of the company. Disputes arose regarding the repayment of the amount, leading to the initiation of criminal proceedings. The parties entered into an MOU dated May 27, 2013, wherein the respondents undertook to repay a sum of ₹116 crores along with interest at 15% p.a. within three years. However, the respondents failed to fulfill their obligations under the MOU, including the payment of the agreed amount and the deposit of title documents of secured properties.

Issues

1. Whether the contempt petitions were barred by limitation under Section 20 of the Contempt of Courts Act, 1971.
2. Whether the breach of the MOU could be considered a “continuing wrong” to circumvent the limitation period.

Petitioner’s Arguments

The petitioner argued that the respondents were guilty of a “continuing wrong” as they continued to evade their liabilities and sought adjournments in related criminal proceedings, thereby the limitation period should not apply. The petitioner relied on Supreme Court decisions that allow exemption from limitation in cases of continuing wrongs.

Respondent’s Arguments

The respondents contended that the petitions were filed after an unreasonable delay and that the breach of the MOU was not a “continuing wrong.” They also argued that contempt proceedings cannot substitute for execution proceedings and that the present matter did not involve any specific undertaking given to the court but rather to the opposing party.

Analysis of the Law

The court analyzed Sections 20 and 23 of the Contempt of Courts Act, which prescribe a one-year limitation period for initiating contempt proceedings. Referring to Supreme Court precedents, the court distinguished between a “continuing wrong” and the continuous effect of a completed wrong. It emphasized that the limitation period starts from the date of the initial breach unless the wrongful act itself is ongoing.

Precedent Analysis

The court referred to S. Tirupathi Rao v. M. Lingamaiah & Ors., which discussed what constitutes a “continuing wrong.” The Supreme Court had clarified that a continuing wrong requires an obligation that extends beyond a single act. The court held that the mere ongoing effect of the respondents’ non-compliance did not amount to a continuing wrong.

Court’s Reasoning

The court reasoned that the respondents’ obligation to deposit the title deeds and repay the amount under the MOU expired on May 27, 2016. Any subsequent adjournments or representations to settle the matter did not revive the limitation period. The act of breach was complete once the respondents failed to meet their obligations within the stipulated time.

Conclusion

The contempt petitions, filed in May 2019, were held to be time-barred as the cause of action arose when the respondents first breached the MOU. The court dismissed the petitions while allowing the petitioner the liberty to pursue appropriate civil remedies for enforcing the MOU.

Implications

This judgment clarifies the application of the limitation period under Section 20 of the Contempt of Courts Act and underscores that a “continuing wrong” must involve ongoing wrongful conduct rather than the continued effect of a past wrong. It serves as a caution against delayed legal actions in contempt matters.

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