Section 391 stay power limited to civil proceedings; no interim restraint without balance of convenience and irreparable injury.

Section 391(6) of the Companies Act, 1956 was treated as a discretionary power limited to staying civil or financial proceedings connected with the company's liabilities during consideration of a scheme of arrangement, and it was held not to extend to criminal prosecutions, including proceedings under section 138 of the Negotiable Instruments Act. The Court also found no basis for interim stay of the pending civil proceedings, because the applicant did not establish irreparable injury or a favourable balance of convenience, and the debt recovery proceedings had already been set aside in appeal. The general request for stay was therefore refused, while the scheme proceedings were allowed to continue.

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Issues: (i) Whether section 391(6) of the Companies Act, 1956 empowers the Court to stay criminal proceedings pending consideration of a scheme of arrangement. (ii) Whether the applicant-company made out a case for interim stay of the civil proceedings pending before the debt recovery and company fora.

Issue (i): Whether section 391(6) of the Companies Act, 1956 empowers the Court to stay criminal proceedings pending consideration of a scheme of arrangement.

Analysis: The provision confers a discretionary power to stay the commencement or continuation of suits or proceedings against the company after an application for arrangement is made. The expression "suit or proceeding" was read in its context and purpose, namely to protect the company from coercive civil or financial claims while a rehabilitation scheme is under consideration. Criminal prosecution was held to be distinct in character, directed toward punishment and not toward adjustment of civil liabilities. The Court followed the view that section 391(6) does not extend to criminal proceedings, including proceedings under section 138 of the Negotiable Instruments Act.

Conclusion: Section 391(6) does not empower the Court to stay criminal proceedings.

Issue (ii): Whether the applicant-company made out a case for interim stay of the civil proceedings pending before the debt recovery and company fora.

Analysis: Interim stay was treated as discretionary relief governed by settled principles of prima facie case, balance of convenience, and irreparable injury. The Court found that the pending debt recovery proceedings had already been set aside in appeal and that the remaining company petition could proceed along with the present scheme proceedings. The applicant failed to show how continuation of the civil proceedings would cause irreparable loss or upset the balance of convenience in its favour.

Conclusion: No case for interim stay of the civil proceedings was made out.

Final Conclusion: The application for a general stay of proceedings was refused, while the scheme proceedings were left to continue without the requested interim restraint.

Ratio Decidendi: The power under section 391(6) of the Companies Act, 1956 is discretionary and is confined to civil or financial proceedings connected with the company's liabilities; it does not extend to criminal prosecutions, and interim stay will not be granted unless the applicant establishes balance of convenience and irreparable injury.

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