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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

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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

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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

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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

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             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

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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

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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

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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

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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

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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 527 Companies  Act  That  is why we have said  that  a  litigant cannot  play hide and seek with the court and must  approach

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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 528 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

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and the appeal is, therefore, dismissed.  The appellant will pay  the  costs of this appeal which is  quantified  at  Rs. 25,000/-.