TaxTMI 
TaxTMI 
1995 (1) TMI 268
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....dgment, 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. Narang International Hotels (P.) Ltd. is a deemed public limited compa-ny under section 42(a) of the Companies Act, 1956 ('the Act'), engaged in the business of the hoteliering and flight catering. The members of the Narang family have shareholding in this company. Rama Narang, the appellant before use is the founder and the largest shareholder of the company. The respondent Nos. 1 and 2 are the sons of the appellant. The respondent No. 3-Kantilal Sethia, and the respondent No. 5-Arvind Ghei, were the secretary and director of the company, respectively. 3. In a general meeting of 25-6-1990, the appellant was appointed the managing director of the company and his wife, Mrs. Mona Rama Narang, was appointed whole-time additional director. On 29-6-1990, in an extra ordinary 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....
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.... 1992 before the CLB at New Delhi complaining of oppression and mismanage- ment of the company by the appellant. On 9-7-1992, the appellant in his capacity as chairman and managing director issued a notice to convene a meeting of the Board of directors on 13-7-1992. On 10-7-1992, 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 13-7-1992, at the registered office of the company. The respondent No. 1 claimed that a meeting was held on 13-7-1992, at which several resolutions were passed including the one declaring that the appellant had ceased to be the managing director and director of the company in view of the provisions of section 267. On this, the appellant and the respondent Nos. 4 and 5 instituted Suit No. 2090 of 1992 on 16-7-1992, praying for : (a)a declaration that the Board meeting purported to have been h....
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....s not ab initio void and was permissible, notwith-standing section 267. Reference was also made to section 274 of the 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, sub-section (2) of section 274 empowers the Central Govern-ment to remove the disqualification incurred by any person either generally or in relation to any company or companies specified in the notifica- tion to be published in the Official Gazette. Such a power to remove the disqualification is, however, not to be found in the case of managing director under section 267. Section 283 of the 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 ....
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....iction 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 the order..........." Repelling the argument that even if section 389(1) of the Code did not confer 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....
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....dispute. Section 267 to the extent it is relevant for our purposes, may be set out : "Certain persons not to be appointed managing directors.- No company shall, after the commencement of this Act, appoint or employ, or continue the appointment or employment of, any person as its managing or whole-time director who- (a)and (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 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 appoint-ment or employment by any company as its managing or whole-time director. Indisputably, the appellant was appointed a director in 1988 and managing director in 1990 after his conviction on 22-12-1986. On the plain anguage of section 267, the company....
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....o be guilty of an offence involving moral turpitude and has been sentenced 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. Admittedly, the appellant before us, on conviction and sentence, preferred an appeal under section 374(2) of the Code of Criminal Procedure in the Delhi High Court. The learned Judge of the said High Court while admitting the appeal passed an interim order purporting to be one under section 389(1) 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 is entitled 'suspe....
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.... 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 convicted 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 Indian Penal Code. 14. The provisions contained in the Companies Act have relevance to the management of the affairs of companies incorporated under that law. The operation of section 267 would take effect as soon as conviction is recorded by ....
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.... 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) 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 expec....
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....ot sought any order from the Delhi High Court for stay of the disqualification, he was likely to incur under section 267 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. 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. 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 no 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 Code 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....
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.... conviction order to avoid the disqualification which he was likely to incur by virtue of the language of section 267, 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. 19. That takes us to the question whether the scope of section 389(1) 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 Indian Penal 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 estab-lished guilt. Th....