Financial Hardship is No Defence Against Wilful Disobedience of Conditional Interim Orders Ensuring Security

The Petitioner (Union of India - UOI) awarded two construction contracts to KRR Infra Projects Pvt Ltd (Respondent No. 2/KRR), for which KRR furnished several Bank Guarantees (BGs).

On 15.02.2013, the High Court granted interim protection to KRR on the condition that the BGs be kept alive.

Despite this, the BGs expired in February/March 2013 without renewal.

UOI filed contempt petitions alleging "wilful disobedience." The Respondents pleaded financial distress (NPA status), resignation of certain directors, and lack of authority as defenses.

1. Whether the non-renewal of Bank Guarantees, despite a conditional court order to keep them alive, constitutes "wilful disobedience" under Section 2(b) of the Contempt of Courts Act, 1971.

2. Whether directors or employees can be held liable for contempt for a corporate entity's breach based on their roles and knowledge of the proceedings.

The court primarily applied Section 2(b) of the Contempt of Courts Act, 1971, which defines "civil contempt" as wilful disobedience to any judgment or order.

It relied on Ashok Paper Kamgar Union v. Dharam Godha and Celir LLP v. Sumati Prasad Bafna to establish that "wilful" signifies a deliberate, conscious action done with bad motive or purpose, rather than an accidental or involuntary act.

The court further applied Sections 12(4) and 12(5) of the Contempt of Courts Act to determine the liability of directors and officers of a company.

It distinguished Vijay Kumar Bhatia v. Som Datt Enterprises Ltd., clarifying that financial hardship does not excuse a breach of a solemn undertaking provided to secure equitable relief.

The Court determined that the foundational ingredients of civil contempt—existence of an order, breach, and wilfulness—were satisfied.

It rejected the defense of financial hardship, noting that Respondents provided no evidence beyond a bare assertion of NPA status and failed to show any follow-up with banks or attempts to provide alternative security after the 15.02.2013 order.

The court found that Respondent No. 1 (B. Vasu), though claiming to be a mere employee, held himself out as "Director (Projects)" and was actively involved in the litigation, establishing his knowledge and responsibility.

Respondent No. 3 (Kunam Raghava Reddy) was a Director at the time of the breach and could not escape liability through a later resignation in 2016.

Conversely, the court exonerated Respondent No. 4 (Kunam Rajani) as she had resigned nearly a year before the order was passed and had no nexus to the disobedience.

The proceedings against Respondent No. 5 abated due to death.

Respondent No. 4 was discharged as her resignation predated the order. The proceedings against Respondent No. 5 were abated. The Court directed Respondent Nos. 1 and 3 to be present in person for hearing on sentencing on 17.07.2026.