Mandatory disqualification on conviction: section 267 bars a managing director's continuance unless conviction is specifically stayed.

Section 267 of the Companies Act, 1956 was treated as mandatorily disqualifying a person convicted of an offence involving moral turpitude from appointment or continuance as managing director, reflecting the statute's protective purpose for shareholders and corporate management. The Court also recognised that an appellate court may, in an appropriate case, stay the operation of a conviction under section 389(1) of the Code of Criminal Procedure, with inherent power under section 482 also noted, where collateral statutory consequences would otherwise follow. However, the interim criminal order here was not specifically directed to the section 267 disqualification and therefore did not suspend it.

---

---

Issues: (i) Whether section 267 of the Companies Act, 1956 imposed an automatic and mandatory disqualification against appointment or continuance as managing director after conviction for an offence involving moral turpitude. (ii) Whether the interim order passed in criminal appeal under section 389(1) of the Code of Criminal Procedure, 1973 extended to staying the operation of the conviction so as to prevent the disqualification under section 267, and whether such stay of conviction could in principle be granted under section 389(1) or section 482 of the Code.

Issue (i): Whether section 267 of the Companies Act, 1956 imposed an automatic and mandatory disqualification against appointment or continuance as managing director after conviction for an offence involving moral turpitude.

Analysis: The statutory language was treated as imperative. The provision barred not only appointment after conviction but also continuance in office where conviction had already occurred. The scheme of the Act drew a distinction between a director and a managing director, with stricter consequences for the latter. The object of the provision was to protect shareholders and the company from management by a person convicted of an offence involving moral turpitude.

Conclusion: Yes. Section 267 operated mandatorily and the conviction attracted disqualification from being appointed or continued as managing director.

Issue (ii): Whether the interim order passed in criminal appeal under section 389(1) of the Code of Criminal Procedure, 1973 extended to staying the operation of the conviction so as to prevent the disqualification under section 267, and whether such stay of conviction could in principle be granted under section 389(1) or section 482 of the Code.

Analysis: An order of conviction was treated as capable of having statutory consequences even though it was not itself an executable order in the ordinary sense. The Court held that an appellate court could, in an appropriate case, stay or suspend the operation of a conviction where statutory disqualification would otherwise follow, and such relief could be considered under section 389(1) and, if necessary, the inherent power under section 482. However, the interim application in the criminal appeal had not specifically sought a stay to avoid the section 267 disqualification, and the order granted by the Delhi High Court was therefore construed as not extending to that consequence.

Conclusion: The interim stay did not cover the disqualification under section 267, though a stay of conviction may be granted in a fit case if specifically sought and considered.

Final Conclusion: The statutory disqualification survived because the interim criminal order did not specifically suspend the conviction for that purpose, and the appeal therefore failed.

Ratio Decidendi: A stay of conviction may be granted in an appropriate case to prevent collateral statutory disqualification, but such relief must be specifically sought and the court must apply its mind to that precise consequence before the order can be treated as suspending the disqualification.

---