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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-

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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

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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

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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

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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

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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

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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/-.