Discretionary stay under Companies Act section 391(6) may be vacated for lack of fair disclosure and bona fide conduct.

A stay under section 391(6) of the Companies Act, 1956 is discretionary equitable relief and depends on full, fair and truthful disclosure, together with bona fide conduct by the applicant. Where the stay was obtained ex parte without notice to secured creditors, on a materially inaccurate statement, and without producing all relevant material, the Court treated the lack of bona fides as decisive and declined to restrain creditors, banks, and debt recovery proceedings. The earlier ex parte stay was therefore recalled, and creditors were left free to pursue their remedies.

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Issues: Whether an ex parte stay granted under section 391(6) of the Companies Act, 1956 ought to be vacated and the company application for stay of proceedings against the company ought to be allowed.

Analysis: An order under section 391(6) is discretionary and cannot be claimed as a matter of course. The Court must consider the applicant's conduct, the completeness and truthfulness of the disclosure made, and whether there is a bona fide attempt to discharge creditor liabilities. The stay sought in this case had far-reaching consequences, including suspension of proceedings before debt recovery fora and criminal proceedings, yet it had been obtained ex parte without notice to the secured creditors and on a materially inaccurate statement regarding the purpose of deposits made with the police authorities. The company had failed to make fair disclosure, had not produced all relevant material, and the circumstances showed a lack of bona fides. In such a situation, the Court declined to restrain secured creditors and banks from pursuing their remedies, particularly where proceedings before the Debt Recovery Tribunals were involved.

Conclusion: The ex parte stay order was liable to be recalled and the application for stay was allowed only to the extent of recalling the earlier stay, thereby leaving the creditors free to proceed with their remedies.

Final Conclusion: Relief under section 391(6) was refused on the merits because the applicant had not made a fair and bona fide disclosure, and the earlier ex parte stay was withdrawn.

Ratio Decidendi: A stay under section 391(6) of the Companies Act, 1956 is a discretionary equitable relief that can be refused or vacated where the applicant has not made full and fair disclosure or where the materials show absence of bona fides.

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