Court Refuses to Void Transfers Made in Violation of Status Quo Order Where Petitioner Settled Claims

The Petitioners (Amkhim and Kotak) were partners with Zaveri Constructions in a redevelopment project. Following disputes, the High Court passed a Status Quo Order on October 19, 2018, regarding unsold flats.

In May 2019, Zaveri Constructions sold three unsold flats ("Subject Flats") to Respondents 3–6 ("Purchaser-Respondents").

These flats were previously mortgaged to Fedbank, which had issued a SARFAESI possession notice; the Purchaser-Respondents paid Fedbank directly to clear the debt and secure title.

The Petitioners alleged this sale violated the Status Quo Order.

However, after filing the contempt petition, the Petitioners executed a Memorandum of Understanding (MOU) in 2022, accepting "financial assistance" from the Purchasers and committing to withdraw the contempt case.

This settlement was later recorded in a Consent Decree in a related suit (CS 1453 of 2019).

1. Whether the sale of the Subject Flats to third-party purchasers during the subsistence of a status quo order constitutes "wilful disobedience" amounting to civil contempt.

2. Whether the Court is duty-bound to nullify transactions conducted in violation of an injunction even if the parties have subsequently settled the dispute.

The Court applied Section 2(b) of the Contempt of Courts Act, 1971, defining "civil contempt" as wilful disobedience.

It relied on the principle that third parties are liable if they act with the intention of impeding the administration of justice (AG v. Times Newspapers Ltd.).

Crucially, the Court applied the Supreme Court’s ruling in Balwantbhai Somabhai Bhandari v. Hiralal Somabhai Contractor, which clarified that transfers pendente lite are not void ab initio; rather, a contempt court may declare them void only if necessary to maintain the "majesty of law".

It further noted that internal partnership disputes do not automatically erode the rights of prior mortgagees or bona fide third parties under the SARFAESI Act.

The Court reasoned that for contempt to be "wilful," there must be a mala fide intent to disregard the law.

Here, the Purchaser-Respondents acted to protect their existing interests from Fedbank’s SARFAESI actions, rather than to collude with the primary contemnor (the deceased Kirti Zaveri).

Furthermore, the Court found the Petitioners’ conduct inconsistent with their prayer for nullification: they had accepted money, signed an MOU confirming the Purchasers' title, and entered into a Consent Decree promising to complete work on the very flats they now sought to "void".

The Court determined that the "majesty of the law" would actually be injured if it allowed the Petitioners to use the contempt jurisdiction to resile from a binding Consent Decree and pocketed settlement funds.

The Court dismissed the Contempt Petition.

Given the death of the primary contemnor (Kirti Zaveri), the lack of personal allegations against the remaining director, and the Petitioners' subsequent voluntary settlement and acceptance of consideration, the Court refused to exercise its discretionary contempt jurisdiction to annul the Sale Deeds.

The Court concluded that the administration of justice was not frustrated, particularly as the Petitioners had already "bought peace" via the 2022 MOU and Consent Decree.