Companies Act Case Law Rama Narang Vs Ramesh Narang And Ors

PETITIONER:
RAMA NARANG

Vs.

RESPONDENT:
RAMESH NARANG & ORS.

DATE OF JUDGMENT19/01/1995

BENCH:
AHMADI A.M. (CJ)
BENCH:
AHMADI A.M. (CJ)
SAHAI, R.M. (J)
REDDY, K. JAYACHANDRA (J)

CITATION:
1995 SCC (2) 513 JT 1995 (1) 515
1995 SCALE (1)276
ACT:

 

HEADNOTE:

 

JUDGMENT:
AHMADI, CJI,:
1. This appeal arises from the order dated 8/9th June,
1994 of the Division Bench of the Bombay High Court
rendered in Appeal No. 1992 against an order dated 17th
August, 1992 passed by the learned Single Judge making
absolute the notice of motion No. 1593 of 1992 taken out by
the appellant-Rama Narang and the respondent Nos. 4 & 5,
namely, Narang International Hotels Private Limited and
Arvind Ghei. The two reliefs granted by the learned Single
Judge were to restrain respondent Nos. 1 & 2 from (a)
acting upon, implementing, circulating, or taking any steps
in furtherance of any decision purported to have been taken
at the Board meeting alleged to have been held on 13th July,
1992 and from (b) obstructing or interfering with the
petitioner’s functioning as Chairman and Managing Director
of the respondent-company. By the impugned judgment, the
Division Bench partly allowed the appeal by setting aside
the order of the learned Single Judge in respect of grant of
prayer (b) of the motion while keeping the relief in terms
of prayer (a) of the notice of motion undisturbed.
2. M/s. Narang International Hotels Private Limited is a
deemed Public Limited Company under Section 42(a) of the
Companies Act engaged in the business of the hoteliering and
flight catering. The members of the Narang Family have
share holding in this company. Rama Narang, the appellant
before us is the founder and the largest shareholder of the
company. The respondents 1 and 2 are the sons of the
appellant. The respondent No. 3 Kantilal Sethia and the
respondent No. 5Arvind Ghei were the Secretary and Director
of the Company, respectively.
3. In a general meeting of 25th June, 1990, the appellant
was appointed the Managing Director of the Company and his
wife Mrs. Mona Rama Narang was appointed whole-time
Additional Director. On 29th June, 1990 in an extraordinary
general meeting of the company, the Articles of Association
were amended and the appellant was appointed as the Chairman
and Director for life of the Company.
4. On 14th November, 1990, the respondent No. 1 Ramesh
Narang filed a Company Petition No. 681 of 1990 before
518
the Company Judge in the High Court of Bombay under Sections
397 and 398 of the Companies Act challenging the validity of
the Board meeting of 25th June, 1990 on the ground that the
appellant being convicted for an offence involving moral
turpitude could not held office of the Managing Director in
view of the provisions of Section 267 of the Companies Act.
That Section lays down that no company shall appoint or
employ, or continue the appointment or employment of any
person as its managing or whole-time Director, who is, or
has at any time been convicted by a Court of an offence
involving moral turpitude. The appellant was tried by the
Additional Sessions Judge, Delhi in case No. 134 of 1985
(State v. Ram Lal Narang & Ors.) and was convicted on
December 22, 1986 for having committed offences punishable
under Section 120-B and Section 420 read with Section 114 of
the Indian Penal Code. He was sentenced to rigorous
imprisonment for three months on the first count and
rigorous imprisonment of two & a half years and a fine of
Rs. 5,0001 on the second count. On appeal, Criminal Appeal
No. 17 of 1987; the High Court of Delhi released the
appellant on bail and directed stay of the operation of the
impugned order.
5. The High Court of Bombay by an order dated 6th
December, 1990 restrained the company for holding any Board
meeting or general body meeting. Subsequently, on July 5,
1991, the respondent No. 1 unconditionally withdrew the Com-
pany Petition with the permission of the Company Judge. On
July 12, 1991, Sanjay Narang, nephew of the appellant,
preferred Petition No. 10 of 1991 before the Company Law
Board under Sections 397 and 398 of the Companies Act
challenging the appellant’s appointment as Managing Director
of the Company on the same ground as in the company Petition
No. 681 of 1990. During the pendency of the said petition
before the Company Law Board, some family settlement was
arrived at on 30th January 1992 between the members of the
Narang Family recognising, inter alia, that the appellant
was validly appointed as the Chairman and Managing Director
of the company and was not disqualified to act as a Managing
Director. Under the settlement Ramesh Narang ceased to be a
Director. The petition before the Company Law Board was
disposed of in terms of the said settlement.
6. On 30th June, 1992, the respondent No.1 instituted
Petition No. 28 of 1992 before the Company Law Board at New
Delhi complaining of oppression and mismanagement of the
Company by the appellant. On July 9, 1992, the appellant in
his capacity as Chairman and Managing Director issued a
notice to convene a meeting of the Board of Directors on
July 13, 1992. On July 10, 1992, the appellant informed
Rajesh Narang, respondent No. 2, that he had ceased to be a
Director of the Company. This was disputed and the
functioning of the appellant as the Managing Director was
again questioned, on the ground of his conviction. The
respondent No.1 on the other hand claimed to be the Managing
Director and purporting to act as such issued notice
convening a parallel meeting of the Board of Directors on
13th July, 1992 at the registered office of the Company.
The respondent No. 1 claimed that a meeting was held on 13th
July, 1992 at which several resolutions were passed
including the one declaring that the appellant had ceased to
be the Managing Director and Director of the Company in view
519
of the provisions of Section 267 of the Companies Act. On
this, the appellant and the respondents Nos. 4 & 5
instituted Suit No. 2090 of 1992 on July 16, 1992 praying
for:
(a) a declaration that the Board meeting
purported to have been held on July 13, 1992
was illegal and all decisions purported to
have been taken therein were null and void and
of no effect;
(b) a permanent injunction restraining
Ramesh and Rajesh Narang from in any manner
acting upon or implementing the decisions
taken in the said meeting; and
(c) damages in the sum of Rs. 1,00.000/-.
Interim relief was sought in terms of reliefs (a) and (b)
above under the Notice of Motion No. 1593 of 1992.
7. The notice of motion for the grant of interim relief
was heard for several days by a learned Single Judge, the
main contention being whether or not the appellant could be
appointed or continued as the Managing Director of the
Company after his conviction by the Additional Session
Judge, Delhi. There was also some controversy in regard to,
whether or not an meeting as alleged had taken place on July
13, 1992 and, if yes, whether it was properly convened. The
learned Single Judge came to the conclusion that the
appointment of the appellant as Director in 1988 and as
Managing Director in 1990 was not void ab-initio
notwithstanding the provision of Section 267 of the
Companies Act and in any case it was not open to respondent
No.1 Ramesh Narang to challenge the same in view of he
having not pursued the earlier challenge. The learned
Single Judge also came to the conclusion on an appreciation
of the evidence that the meeting of July 13, 1992 was not
properly and validly convened and hence the entire
proceedings were bad in law. The learned Single Judge,
therefore, granted the interim reliefs sought.
8. The matter was carried in appeal,Appeal No. 684 of
1992, before a Division Bench of the High Court by Ramesh
Narang. The principal contention urged in the appeal was in
respect of the capacity of the present appellant to be
appointed as Director and Managing Director of the Company
after his conviction on 22nd December, 1986. The factum of
conviction and sentence as well as that the conviction was
in respect of offences involving moral turpitude was not in
dispute. The appointment of the appellant as Director and
Managing Director having been made in 1988 and 1990, were
admittedly subsequent to the order of conviction recorded on
22nd December, 1986. It was, therefore, contended before
the Division Bench on behalf of Ramesh Narang that the
learned Single Judge had fallen in error in holding that the
appointment of the present appellant or his continuation as
Managing Director was not abinitio void and was permissible,
notwithstanding Section 267 of the Companies Act. Reference
was also made to Section 274 of the Companies Act which,
inter alia, provides that a Director whose conviction has
been recorded by a criminal court for an offence involving
moral turpitude and in respect of which imprisonment imposed
is not less than six months would be disqualified for
continuing as a Director of the Company. However,
subsection (2) of Section 274 empowers the Central
Government to remove the disqualification incurred by any
per-
520
son either generally or in relation to any company or
companies specified in the notification to be published in
the Official Gazette Such a power to remove the dis-
qualification is however, not to be found in the case of
Managing Director- under Section 267 of the Companies Act.
Section 283 of the Companies Act provides that the office of
a Director shall fall vacant on conviction for an offence
involving moral turpitude if the sentence imposed is not
less than six months. Sub-section (2) of that section,
however, provides that the disqualification shall not
take effect for 30 days from the date of imposition of
sentence. Thus, the Section keeps the disqualification in
abeyance for a period of 30 days to enable the Director to
prefer an appeal and further provides that if an appeal is
preferred then the disqualification shall not take effect
for a period of 7 days from the date of the disposal of the
appeal and so on. On a perusal of the scheme of Sections
267, 274 and 283 of the Companies Act the Division Bench was
of the opinion that the Legislature dealt with cases of
disqualification of a Director differently from that of a
Managing Director, in that, in the case of A Director the
disqualification was not to operate if the Central
Government issued a notification in that behalf or for a
period of 30 days to enable the Director to prefer an appeal
and if such appeal is preferred for a further period of 7
days after the disposal of the appeal. The Division Bench
noted that such a provision was absent when it came to
disqualification in the case of a Managing Director under
Section 267 of the Companies Act. According to the Division
Bench this distinction was crucial because the Legislature
had made special provisions for relaxing the rigour of the
disqualification attaching to a Director but had not made
any such provision when it came to the disqualification
incurred by a Managing Director. In the view of the
Division Bench the provisions of Section 267 were mandatory
in nature and it was not permissible to appoint or to
continue any person as Managing Director of a company on his
being convicted of an offence involving moral turpitude.
Dealing with the argument that while the bar imposed by
Section 267 was absolute in nature and would have squarely
applied in the case of the present appellant had it not been
for the interim order passed by the Delhi High Court in
appeal by which the impugned order of conviction and
sentence came to be suspended. The Division Bench after
referring to sub-section (1) of Section 389 of the Code
which, inter alia, provides that pending any appeal by a
convicted person the Appellate Court may order that the ex-
ecution of the sentence or order appealed against be
suspended and that he be released on bail or on his own bond
proceeded to observes under:
“The powers of the Appellate Court under
Section 389(1) of the Code cannot be construed
with reference to the expression “order” as
suspending the order of conviction itself The
powers of the Appellate Court do not entitle
such a Court to direct that the order of
conviction should stand suspended. The
conviction can only be set aside. The
contention of Mr. Cooper that the expression
“order” covers even the order of conviction
cannot be accepted because the expression used
by the Legislature is “execution of the
sentence or order”. The section makes it
clear that the Appellate Court can suspend the
execution of the sentence or the execution of
the order……….
Repelling the argument that even if section 389(1) of the
Code did not confer
521
power on the Appellate Court to suspend the conviction, the
said power can be gathered from the language of Section 482
of the Code the Division Bench observed as under:
“The submission is fallacious and cannot be
acceded to. The inherent powers cannot be
exercised to find means to pass orders which
are not permissible under the Code. We are
unable to appreciate how it can be even
suggested that conviction can be suspended to
secure the ends of justice. In any event, it
is not for the Criminal Appellate Court
hearing an appeal to decide what are the ends
of justice in respect of enforcement of
provisions of some other statutes. The powers
of the Appellate Court flow from the
provisions of the Code and we are not prepared
to accept the contention that the Appellate
Court hearing the Criminal appeal should pass
orders to avoid consequences flowing from the
provisions of statutes like Companies Act or
Representation of Peoples Act”
9. Lastly it was submitted before the Division Bench that
as a matter of fact the Delhi High Court had, after
admission of the appeal ordered suspension of conviction,
right or wrong, and once such an order is passed the
consequences of the conviction under Section 267 of the Com-
panies Act cannot be visited, This contention was also
spurned by the Division Bench in the following terms:
“In the first instance, we do not read the
order of the Delhi High Court as suspending
the order of conviction and, secondly, even
assuming it to be so, in our judgment, the
Delhi High Court had no power to suspend the
order of conviction.”
That is because according to the Division Bench the
consequences flowing from the provisions of Section 267 of
the Companies Act do not depend upon the passing of the
order by the Appellate Court since the right to hold the
post of Managing Director comes to an end by the thrust of
the statute the moment the order of conviction is recorded.
With regard to the submission that by the withdrawal of the
earlier petition the grievances had come to an end on the
filing of the consent terms, the Division Bench repelled the
argument holding that the doctrine of estoppel could not be
attracted to a case of violation of a statutory provision.
The Division Bench, therefore, concluded that the view taken
by the learned Single Judge in this behalf was erroneous and
consequently the learned Single Judge had committed an error
in granting relief in terms of prayer (b) of the notice of
motion. Accordingly the appeal came to be partly allowed as
stated hereinbefore. Being aggrieved by the said view taken
by the Division Bench, the appellant Rama Narang has
preferred this appeal by special leave.
10.The above resume would show that the principles question
which falls for our determination is whether the appellant
is liable to be visited with the consequence of Section 267
of the Companies Act notwithstanding the interim order
passed by the Delhi High Court while admitting the
appellants appeal against his conviction and sentence by the
Additional Sessions Judge, Delhi. As we have said earlier
the factum of his conviction and the imposition of sentence
is not in dispute. Section 267 of the Companies Act, to the
extent it is relevant for our purposes, may be set out:
“267. No company shall, after the com-
mencement of this Act, appoint or
522
employ, or continue the appointment or
employment of any person as its managing or
whole-item Director who
(a)………………………
(b)………………………
(c) is, or has at any time been convicted by
a court of an offence involving moral
turpitude.”
On a plain reading of this Section it seems clear to us from
the language in which the provision is couched that it is
intended to be mandatory in character. The use of the word
‘shall’ brings out its imperative. character. The language
is plain, simple and unambiguous and does not admit of more
than one meaning, namely, that after the commencement of the
Companies Act, no person who has suffered a conviction by a
court of an offence involving moral turpitude shall be
appointed or employed or continued in appointment or
employment by any company as its managing or wholetime
Director. Indisputably, the appellant was appointed a
Director in 1988 and Managing Director in 1990 after his
conviction on 22nd December, 1986. On the plain language of
Section 267 of the Companies Act, the Company had, in making
the appointments, committed an infraction of the mandatory
prohibition contained in the said provision. The Section
not only prohibits appointment or employment after
conviction but also expects discontinuance of appointment or
employment already made prior to his conviction. This in
our view is plainly the mandate of Section 267. As rightly
pointed out by the Division Bench of the High Court, Section
274 of the Companies Act provides that a disqualification
which a Director incurs on conviction for an offence involv-
ing moral turpitude in respect of which imprisonment of not
less than six months is imposed, the Central Government may,
by notification, remove the disqualification incurred by any
person either generally or in relation to any company or
companies specified in the notification to be published in
the Official Gazette. Such a power is, however, not
available in the case of a Managing Director. Secondly,
Section 2&3 of the Companies Act provides that the office of
a Director shall become vacant if convicted and sentenced as
stated hereinabove but sub-section (2) thereof, inter alia,
provides that the disqualification shall not take effect for
thirty days from the date of sentence and if an appeal is
preferred during the pendency of appeal and till seven days
after the disposal of the appeal. This benefit is not
extended in the case of a Managing Director. The Companies
Act has, therefore, drawn a distinction between a Director
and a Managing Director; the pro-visions in the case of the
latter are more stringent as compared to that of the former.
And so it should be because it is the Managing Director who
is personally responsible for the business of the Company.
The law considers it unwise to appoint or continue the
appointment of a person guilty of an offence involving moral
turpitude to be entrusted or continued to be entrusted with
the affairs of any company as that would not be interests of
the share-holders or for that matter even in public
interest. As a matter of public policy the law bars the
entry of such a person as Managing Director of a company and
insists that if he is already in position he should
forthwith be removed from that position. The purpose of
Section 267 is to protect the interest of the shareholders
and to ensure that the management of the affairs of the
company and its control is not in the hands of a
523
person who has been found by a competent court to be guilty
of an offence involving moral turpitude and has been sen-
tenced to suffer imprisonment for the said crime. In the
case of a Director. who is generally not in-charge of the
day to day management of the company affairs, the law is not
as strict as in the case of a Managing Director who runs the
affairs of the company and remains in overall charge of the
business carried on by the company. Such a person must be
above board and beyond suspicion.
11.That brings us to the next question, namely, whether the
interim order passed by the Delhi High Court has the effect
of staying the operation of Section 267 of the Companies
Act? Admittedly, the appellant before us, on conviction and
sentence, preferred an appeal under Section 374(2) of the
Code in the Delhi High Court. The learned Judge of the said
High Court while admitting the appeal passed an interim or-
der purporting to be one under Section 389(1) of the Code to
the following effect:
“Accused be released on bail on his furnishing
a personal bond in the sum of Rs. 10,000/-
with one surety in the like amount to the
satisfaction of the trial judge. The
operation of the impugned order shall remain
stayed. ”
Section 389 of the Code is entitled “suspension of sentence
pending the appeal, release of appellant on bail”. Sub-
section (1) then provides that pending any appeal by a
convicted person the Appellate Court may, for reasons to be
recorded by it in writing, order that the execution of the
sentence or order appealed against be suspended and, also,
if he is in confinement, that he be released on bail, or on
his own bond. On a plain reading of sub-section (1) of
Section 389 of the Code it becomes clear that pending an
appeal by a convicted person, the Appellate Court may order
that the execution of the sentence or order appealed against
be suspended.
12. Chapter XVIII relates to trial before a Court of
Sessions. Sections 225 to 227, relate to the stage prior to
the framing of charge. Section 228 provides for the framing
of charge against the accused person. If after the charge
is framed the accused pleads guilty, Section 229 provides
that the Judge shall record the plea and may, in his
discretion, convict him thereon. However, if he does not
enter a plea of guilty Sections 230 and 231 provide for
leading of prosecution evidence. If, on the completion of
the prosecution evidence and examination of the accused, the
Judge considers that there is no evidence that the accused
committed the offence with which he is charged, the Judge
shall record an order of acquittal. If the Judge does not
record an acquittal under Section 232, the accused would
have to be called upon to enter on his defence as required
by Section 233. After the evidence-in-defence is completed
and the arguments heard as required by Section 235, Section
235 requires the Judge to give a judgment in the case. If
the accused is convicted, sub-section (2) of Section 235
requires that the Judge shall, unless he proceeds in
accordance with the provisions of Section 360, hear the
accused on the question of sentence and then pass sentence
on him according to law. It will thus be seen that under
the Code after the conviction is recorded, Section 235(2)
inter alia provides that the Judge shall hear the accused on
the question of sentence and then pass sentence on him
according to law. The trial, therefore, comes to an end
only after the sentence is awarded to the convicted person.
524
13. Chapter XXVII deals with judgment. Section 354 sets out
the contends of judgment. It says that every judgment
referred to in Section 353 shall, inter alia, specify the
offence (if any) of which and the Section of the Indian
Penal Code or other law under which, the accused is con-
victed and the punishment to which he is sentenced. Thus a
judgment is not complete unless the punishment to which the
accused person is sentenced is set out therein. Section 356
refers to the making of an order for notifying address of
previously convicted offender. Section 357 refers to an
order in regard to the payment of compensation. Section 359
provides for an order in regard to the payment of costs in
non-cognizable cases and Section 360 refers to release on
probation of good conduct. It will thus be seen from the
above provisions that after the court records a conviction,
the accused has to be heard on the question of sentence and
it is only after the sentence is awarded that the judgment
becomes complete and can be appealed against under Section
374 of the Code.
14. The provisions contained in the Companies Act have
relevance to the management of the affairs of Companies in-
corporated under that law. The operation of Section 267
would take effect as soon as conviction is recorded by a
competent court of an offence involving moral turpitude.
Sections 267, 274 and 283 referred to earlier constitute a
code whereunder a Director, Managing Director and the whole-
time Director are visited with certain disqualifications in
the event of conviction. As already pointed out above, the
Companies Act itself Makes a distinction in the matter of
fixation of the point of time when the disqualification
becomes effect in the case of a Director and a Managing
Director. That is because of the fiduciary nature of the
relationship, vide Needle Industries India Ltd. v. Needle
Industries Ltd. (1981) 3 SCR 698.
15.Under the provisions of the Code to which we have already
referred there are two stages in a criminal trial before a
Sessions Court, the stage upto the recording of a conviction
and the stage postconviction upto the imposition of
sentence. A judgment becomes complete after both these
stages are covered. Under Section 374(2) of the Code any
person convicted on a trial held by a Sessions Judge or an
Additional Sessions Judge may appeal to the High Court.
Section 384 provides for summary dismissal of appeal if the
Appellate Court does not find sufficient ground to entertain
the appeal. If, however, the appeal is not summarily
dismissed, the Court must cause notice to issue as to the
time and place at which such appeal will be heard. Section
389(1) empowers the Appellate Court to order that the execu-
tion of the sentence or order appealed against be suspended
pending the appeal. What can be suspended under this provi-
sion is the execution of the sentence or the execution of
the order. Does ‘Order’ in Section 389(1) empowers the
Appellate Court to order that the execution of the sentence
or order appealed against be suspended pending the appeal.
What can be suspended under this provision is the execution
of the sentence or the execution of the order. Does ‘Order’
in Section 389(1) mean order of conviction or an order simi-
lar to the one under Sections 357 or 360 of the Code?
Obviously the order referred to in Section 389(1) must be an
order capable of execution. An order of conviction by
itself is not capable of execution
525
under the Code. It is the order of sentence or an order
awarding compensation or imposing fine or release on
probation which are capable of execution and which, if not
suspended, would be required to be executed by the
authorities. Since the order of conviction does not on the
mere filing of an appeal disappear it is difficult to accept
the submission that Section 267 of the ‘Companies Act must
be read to apply only to a ‘final’ order of conviction.
Such an interpretation may defeat the very object and
purpose for which it came to be enacted. It is, therefore,
fallacious to contend that on the admission of the appeal by
the Delhi High Court the order of conviction had ceased to
exist. If that be so why seek a stay or suspension of the
Order?
16. In certain situations the order of conviction can be
executable, in the sense, it may incur a disqualification as
in the instant case. In such a case the power under Section
389(1) of the Code could be invoked. In such situations the
attention of the Appellate Court must be specifically
invited to the consequence that is likely to fall to enable
it to apply its mind to the issue since under Section 389(1)
it is under an obligation to support its order ‘for reasons
to be recorded by it in writing’. If the attention of the
Court is not invited to this specific consequence which is
likely to fall upon conviction how can it be expected to
assign reasons relevant thereto? No one can be allowed to
play hide and seek with the Court; he cannot suppress the
precise purpose for which he seeks suspension of the
conviction and obtain a general order of stay and then con-
tend that the disqualification has ceased to operate. In
the instant case if we turn to the application by which
interim ‘stay’ of the operation of the impugned judgment was
secured we do not find a single word to the effect that if
the operation of the conviction is not stayed the
consequence as indicated in Section 267 of the Companies Act
will fall on the appellant. How could it then be said that
the Delhi High Court had applied its mind to this precise
question before granting ‘stay’? That is why the High Court
order granting interim stay does not assign any reason
having relevance to the said issue. By not making a
specific reference to this aspect of the matter, how could
the appellant have persuaded the Delhi High Court to stop
the coming into operation of Section 267 of the Companies
Act? And how could the Court have applied its mind to this
question if its pointed attention was not drawn? As we said
earlier the application seeking interim stay is wholly
silent on this point. That is why we feel that this is a
case in which the appellant indulged in an exercise of hide
and seek in obtaining the interim stay without drawing the
pointed attention of the Delhi High Court that stay of
conviction was essential to avoid the disqualification under
Section 267 of the Companies Act. If such a precise request
was made to the Court pointing out the consequences likely
to fall on the continuance of the conviction order, the
Court would have applied its mind to the specific question
and if it thought that case was made out for grant of
interim stay of the conviction order, with or without con-
ditions attached thereto, it may have granted an order to
that effect. There can be no doubt that the object of
Section 267 of the Companies Act is wholesome and that is to
ensure that the management of the company is not in soiled
hands. As we have pointed out earlier the Managing Director
of a company holds a fiduciary
526
position qua the company and its shareholders and,
therefore, different considerations would flow if an order
is sought from the Appellate Court for staying the operation
of the disqualification that would result on the application
of Section 267 of the Companies Act. Therefore, even on
facts since the appellant had not sought any order from the
Delhi High Court for stay of the disqualification he was
likely to incur under Section 267 of the Companies Act on
account of his conviction, it cannot be inferred that the
High Court had applied its mind to this specific aspect of
the matter and therefore granted a stay of the operation of
the impugned judgment. It is for that reason that we do not
find in the order of the High Court a single reason relevant
to the consequence of the conviction under Section 267 of
the Companies Act. The interim stay granted by the Delhi
High Court must, therefore, be read in that context and
cannot extend to stay the operation of Section 267 of the
Companies Act.
17.There is, however, substance in the argument that the
Bombay High Court whilst dealing with the interim stay order
of the Delhi High Court in collateral civil proceedings
could not have held that the latter had not power or
jurisdiction to suspend the order of conviction. If the
Delhi High Court had ‘consciously’ passed an order even in
purported exercise of power under Section 389(1) of the
(lode granting stay of the order of conviction so as not to
result in the disqualification envisaged by Section 267 of
the Companies Act, it would not be open to the Bombay High
Court in collateral civil proceedings to overlook it on the
ground that the scope of Section 389(1) of the Code did not
extend to granting of such a stay order. However, it was
open to the Bombay High Court to interpret the order in the
background of the fact that in the application seeking the
interim order there was no mention whatsoever that stay of
conviction was sought to avoid the disqualification under
Section 267 of the Companies Act. It was perfectly open to
the Bombay High Court, without questioning the legality and
validity of the interim order passed by the Delhi High
Court, to examine it in the context of the averments in the
application by which the interim order was sought. We are,
therefore, of the opinion that the Bombay High Court in
collateral civil proceedings could not overlook the interim
order passed by the Delhi High Court on the ground that the
latter had no power or jurisdiction to grant such an order
having regard to the scope and ambit of Section 389(1) of
the Code. However, it was perfectly open to the Bombay High
Court to interpret the scope of the interim stay granted by
the Delhi High Court in the context of the averments made in
the application seeking such an order.
18. Be that as it may, we have, on interpretation of the
interim order passed by the Delhi High Court in the context
of the averments made in application seeking such an order,
come to the conclusion that the Delhi High Court while
granting stay of the impugned judgment did not and could not
have intended to stay the operation of the disqualification
under Section 267 of the Companies act consequent upon
conviction. To that extent the interpretation put by the
Bombay High Court on the interim stay is unassailable. We
are afraid the appellant did not approach the Delhi High
Court with clean hands if the intention of obtaining the
stay was to avoid the disqualification under Section 267 of
the
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Companies Act That is why we have said that a litigant
cannot play hide and seek with the court and must approach
the court candidly and with clean hands. It would have been
so if the intention of the appellant in obtaining the
interim stay was to avoid the disqualification he was likely
to incur by the thrust of Section 267 of the Companies Act.
If that was his intention he was clearly trying to hoodwink
the court by suppressing it instead of coming clean. If he
had frankly and fairly stated in his application that he was
seeking interim stay of the conviction order to avoid the
disqualification which he was likely to incur by virtue of
the language of Section 267 of the Companies Act, the Delhi
High Court would have applied its mind to that question and
would have, for reasons to be stated in writing, passed an
appropriate order with or without conditions. We are,
therefore, satisfied that the scope of the interim order
passed by the Delhi High Court does not extend to staying
the operation of Section 267 of the Companies Act.
19.That takes us to the question whether the scope of
Section 389(1) of the Code extends to conferring power on
the Appellate Court to stay the operation of the order of
conviction. As stated earlier, if the order of conviction
is to result in some-disqualification of the type mentioned
in Section 267 of the Companies Act we see no reason why we
should give a narrow meaning to Section 389(1) of the Code
to debar the court from granting an order to that effect in
a fit case. The appeal under Section 374 is essentially
against the order of conviction because the order of
sentence is merely consequential thereto; albeit even the
order of sentence can be independently challenged if it is
harsh and disproportionate to the established guilt.
Therefore, when an appeal is preferred under Section 374 of
the ode the appeal is against both the conviction and
sentence and therefore, we see no reason to place a narrow
interpretation on Section 389(1) of the Code not to extend
it to an order of conviction. Although that issue in the
instant case recedes in the background because High Courts
can exercise inherent jurisdiction under Section 482 of the
Code if the power was not to be found in Section 389(1) of
the Code. We are, therefore, of the opinion that the
Division Bench of the High Court of Bombay was not right in
holding that the Delhi High Court could not have exercised
jurisdiction under Section 482 of the Code if it was
confronted with a situation of there being no other
provision in the (lode for staying the operation of the
order of conviction. In a fit case if the High Court feels
satisfied that the order of conviction needs to be suspended
or stayed so that the convicted persons does not suffer from
a certain disqualification provided for in any other
statute, it may exercise the power because otherwise the
damage done cannot be undone; the disqualification incurred
by Section 267 of the Companies act and given effect to
cannot be undone at a subsequent date if the conviction is
set aside by the Appellate Court. But while granting a stay
of suspension of the order of conviction the Court must
examine the pros and cons and if it feels satisfied that a
case is made out for grant of such an order, it may do so
and in so doing it may, if it considers it appropriate,
impose such conditions as are considered appropriate to
protect the interest of the shareholders and the business of
the company.
20. For the above reasons we are of
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the opinion that since the interim order of stay did not
specifically extend to the stay of conviction for the
purpose of avoiding the disqualification under Section 267
of the Companies Act, there is no substance in the appeal
and the appeal is, therefore, dismissed. The appellant will
pay the costs of this appeal which is quantified at Rs.
25,000/-.

 

 

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