Case: Ramesh Narang Vs. Rama Narang and Others

conviction under Section 267 of the Companies Act cannot be visited upon respondent No. 1. We are unable to find any merit in this submission for more than one reason. In the first instance, we do not read the order of 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. In any event, while determining whether respondent No. 1 is disqualified to hold the post of Managing Director under Section 267 of the Companies Act, it is entirely immaterial what Delhi High Court contemplated while passing such order. The consequences flowing from the provisions of Section 267 of the Companies Act do not depend upon the passing of the order by Delhi High Court. The right of respondent No. 1 to hold the post of Managing Director comes to an end the moment the order of conviction is recorded.Mr. Cooper then urged that the appellant had earlier filed Company Petition No. 681 of 1990 in this Court to challenge the appointment of respondent No. 1 as Managing Director on the ground of conviction recorded by Additional Sessions Judge but subsequently that petition was withdrawn. Identical grievance made in petition No. 10 of 1991 filed before the Company Law Board ended in consent terms filed by the parties and where the appellant accepted that respondent No. 1 can validly hold the post of Managing Director in spite of conviction. Mr. Cooper submitted that in view of the conduct of the appellant in filing consent terms before the Company Law Board, it is not open for the appellant now to claim that respondent No. 1 ceases to be Managing Director because of conviction. The submission was countered by Mr. Sibal by urging that the doctrine of estoppel cannot be attracted when there is violation of the statutory provisions. The submission is correct and the respondent No. 1 cannot avoid the consequences of the provisions of Section 267 of the Companies Act merely because the parties had earlier filed consent terms. It is necessary to note that the provisions of the Companies Act are enacted by taking into consideration the public interest and not only the interest of the shareholders or the Directors of the company.It was also urged that the order passed by the learned Single Judge on notice of motion taken out by respondent Nos. 1 to 3 is at the interlocutory stage and should not be disturbed in appeal. We are unable to accede to the submission because even at the interlocutory stage the matter was extensively debated and the decision which affects not only the shareholders but the public at lage cannot be permitted to operate when found erroneous.14. Finally, Mr. Cooper urged that respondent Nos. 1 to 3 had not specifically asked for any final relief in the suit in regard to the interim injunction sought against the appellant and respondent No. 5 restraining them from obstructing or interfering with the respondent No. 1s functioning as Chariman and Managing Director of the company. Mr. Cooper submitted that the issue as to whether the respondent No. 1 can function as Chariman and Managing Director does not arise on the strength of the averments made in the plaint and, consequently, it was not necessary for the trial Judge to examine the same. The submission is obviously one of despertion and cannot be accepted. In the first instance, the pleadings in paragraph 22 of the plaint clearly indicate that respondent No. 1 was known to secure a declaration that he is entitled to function as Chariman and Managing Director of the company. Secondly, in case the issue does not arise on the basis averments in the plaint, then respondent No. 1 need not have sought interim relief of injunction restraining the appellant and respondent No. 5 from obstructing respondent No. 1 in functioning as Chairman and Managing Director of the company. The mere perusal of prayer (e) of the plaint and prayer (b) of the notice of motion leaves no manner of doubt that respondent No. 1 was very keen to secure a declaration of his status to function as Managing Director of the company. It also cannot be overlooked that it is futile for respondent No. 1 now to claim that the issue as to whether respondent No. 1 is entitled to function as Managing Director does not arise when the respondent No. 1 argued the matter extensively before the learned Single Judge and the learned Single Judge framed specific point for determination on this aspect. A perusal of the prayers in the plaint leaves no manner of doubt that respondent No. 1 was keen to secure a declaration of his legal status as Chairman and Managing Director of the company and, therefore, it is too late in the day now to claim that the learned Single Judge should not have examined the issue.Mr. Cooper also urged that prayer (e) in the plaint should be read as seeking an injunction restraining the appellant from obstructing or interfering with the function of respondent No. 1 as Chairman and Managing Director of the company in pursuance of the resolution alleged to have been passed on July 13, 1992. Again, the submission is one of desperation because such is not the object of making the prayer in the plaint nor in the notice and such a relief was already covered by prayer (d) of the plaint and prayer (a) of the notice of motion. In our judgment, the respondent No. 1 now cannot avoid the consequences of the decision which was invited in the trial Court. In our judgment, the learned Single Judge was in error in granting relief in terms of prayers (b) of the notice of motion. As the relief granted in the terms of prayer (a) of the notice of motion is not challenged by the appellant as mentioned hereinabove, the same need not be disturbed.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]It is not possible to accede to the contention of Mr. Sibal that the relief in terms of prayer (a) cannot be granted, once the relief in terms of prayer (b) is set aside. We are unable to find any merit in the contention that the suit will not be maintainable in case respondent no. 1 was not entitled to be appointed and continued as Managing Director and Chairman of the company. The suit is not instituted only by respondent no. 1 but by the company and one more Director. Even assuming that respondent no. 1 is not entitled to prosecute the suit as Director or Managing Director, still we are unable to appreciate how the suit will not be maintainable because the respondent no. 1 is a shareholder of the company and can certainly proceed with the suit and challenge the validity of the meeting alleged to have been held by appellant on July 13, 1992. It is, therefore, not possible to accede to the contention that in case prayer (b) cannot be granted, then prayer (a) should also be denied.8. The principal contention in this appeal, and which was also vehemently argued before the learned Single Judge, was in respect of capacity of respondent no. 1 to be appointed as Director and Managing Director of the company after recording of conviction by Additional Sessions Judge, Delhi. The fact that the respondent no. 1 was convicted by order dated December 22, 1986 and sentenced to undergo rigorous imprisonment for 2 1/2 years for an offence punishable under Section 420 read with Section 114 and Section 120B of the Indian Penal Code is not in dispute. It is equally not in dispute that respondent no. 1 was convicted of offences involving moral turpitude. The appointment of Respondent No. 1 after amalgamation of the two companies as Director and Managing Director were made on September 21, 1988 and June 25, 1990. It is not in dispute that respondent no. 1 was appointed as Director and Managing Director in the board meeting after the date of conviction, i.e., after December 22, 1986. Relying on these undisputed facts, itwas contended on behalf of the appellantthat the learned Single Judge was in error in holding that the appointment of respondent no. 1 or continuation of respondent no. 1 as Managing Director is permissible inspite of clear bar under Section 267 of the Companies Act. Reference was made to provisions of Section 274 of the Companies Act which deal with disqualification of a Director on a conviction being recorded by a Criminal Court for offence involving moral turpitude and in respect of which imprisonment of not less than six months is imposed.(2) of Section 274 entitles the Central Government to remove the disqualification incurred by any person either generally or in relation to any company or companies specified in a notification to be published in the Official Gazette. Such a power to remove the disqualification is not available in respect of Managing Director and the provisions of Section 267 of the Companies Act make the bar to the appointment on conviction absolute. Section 283 of the Companies Act provides that the office of a Director shall become vacant if the Director is convicted by a Court of any offence involving moral turpitude and sentenced in respect thereof for not less than six months.(2) of Section 283, inter alia, provides that the disqualification shall not take effect for thirty days from the date of imposition of sentence. This is a period in which the Director, who is convicted, can prefer an appeal. Thethen provides that in case an appeal is preferred, then the disqualification shall not take effect for a period of seven days from the date of disposal of the appeal and this rule is applied to further appeals which the accused can prefer. The perusal of the provisions of Sections 267, 274 and 283 makes it clear that the Legislature had contemplated cases of disqualification of a Director on the one hand and Managing Director on the other. In case of a Director, the disqualification may not operate if the Central Government issues a notification or the Director files an appeal within the period of limitation. Such a provision is absent in respect of disqualification incurred by a Managing Director on being convicted of an offence involving moral turpitude. The distinction in the two cases is of crucial relevance because it is obvious that the Legislature was very particular that the benefit of an appeal or the power to remove the disqualification by the Central Government should not be available in the case of Managing Director. The Legislature has enacted the provisions of Section 267 by taking into consideration the public interest and the interest of not only the shareholders but of the general public, or it will be difficult for a person convicted of an offence involving moral turpitude to carry out the affairs of the company and which is likely to result into adverse impact on the functioning of the company. It is, therefore, obvious that respondent no. 1 cannot be appointed or continued as Managing Director of the company in view of the specific provisions of Section 267 of the Companiessection makes it clear that the Appellate Court can suspend the execution of the sentence or the execution of the order and in respect of the order of conviction there is no question of execution and consequentlyare unable to find any merit in the contention. The Appellate Court exercising powers under(1) of Section 389 of the Code is not concerned with the consequences which may flow from the order of conviction in regard to the provisions of some other statute.The Appellate Court which entertains appeal against the order of conviction is entitled to suspend the execution of the sentence or the orders which flow as a consequence of the judgment either of conviction or acquittal and such a Criminal Appellate Court is not concerned with the consequences in respect of some other statutes which are visited upon the person who is convicted by a Criminal Court. The submission of Mr. Cooper that the order of conviction will have automatic impact with reference to some other statutes is devoid of any merit because the Legislature has taken sufficient precaution in respect of those other statutes to protect a person who has preferred an appeal against the order of conviction. As mentioned hereinabove, as regards the recording of order of conviction against a Director, the conviction will not automatically disqualify the Director of a company from holding the post, in case where appeal is preferred within stipulated period of limitation or where the Central Government exempts such person or the company from disqualification. Section 8 of the Representation of the People Act, 1951, provides that the disqualification shall not take effect until three months have elapsed from the date of conviction or, if an appeal or revision application against the order of conviction is preferred, then until that appeal or application is disposed of by the Court. Section 11 of the Representation of the People Act confers power upon the Election Commission to remove any disqualification or reduce the period of such disqualification. It is, therefore, obvious that whenever the Legislature thought it fit, statutory provisions were made to lessen the rigour of the consequences of recording of conviction. The Legislature, in its wisdom, did not make any such provision under Section 267 of the Companies Act when conviction in recorded against a person who is Managing Director. In our judgment, it is not permissible for the Appellate Court which entertains the appeal against the order of conviction to suspend the order of conviction and the only power available under Section 389(1) of the Code of Criminal Procedure is to suspend the execution of the sentence of the order and which expression does not includesubmission is fallacious and cannot be acceded to. The inherent powers cannot be exercised to find some 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 the People Act. Such other statutes have taken care of the consequences which flow from the order of conviction recorded by the Criminal Court. In our judgment, the provisions of Section 482, of the Code of Criminal Procedure are not at all attracted to claim that order of conviction can be suspended by an order of therespect, we are unable to share the view taken by the Division Bench for the reasons which have been set out hereinabove. The mere fact that the order of conviction leads to some consequences in respect of provisions of other statutes is not sufficient for assuming powers which the Appellate Court does not possess under the Code of Criminal Procedure. It was not brought to the attention of the Division Bench that the other statutes like Representation of the People Act, Companies Act etc. do make specific provisions to reduce the rigour of the order of conviction and the Legislature did not expect the Appellate Court exercising powers under the Code to examine the harm which may be caused by order of conviction. The powers of the Criminal Court flow from the Code and it is not open for the Criminal Court to assume powers only because the convicted person is likely to suffer certain disqualification under the provisions of otherare unable to accept the conclusion that it is open for the Appellate Court to suspend the order of conviction. A reference was made to a decision reported, in AIR 1956 All 297   : (1956 Cri LJ 561) (Bansi v. Hari Singh), but save and except some stray observations, Mr. Cooper could not point out anything to support his submission as regards suspension of order ofhardly requires to be stated that the purpose of appeal is to get the conviction order vacated but pending appeal it is not open to wipe out the order of conviction by claiming that the order of conviction can be suspended. The decision of the Supreme Court, in our judgment, is of noare unable to find any merit in this submission for more than one reason. In the first instance, we do not read the order of 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. In any event, while determining whether respondent No. 1 is disqualified to hold the post of Managing Director under Section 267 of the Companies Act, it is entirely immaterial what Delhi High Court contemplated while passing such order. The consequences flowing from the provisions of Section 267 of the Companies Act do not depend upon the passing of the order by Delhi High Court. The right of respondent No. 1 to hold the post of Managing Director comes to an end the moment the order of conviction issubmission is correct and the respondent No. 1 cannot avoid the consequences of the provisions of Section 267 of the Companies Act merely because the parties had earlier filed consent terms. It is necessary to note that the provisions of the Companies Act are enacted by taking into consideration the public interest and not only the interest of the shareholders or the Directors of theare unable to accede to the submission because even at the interlocutory stage the matter was extensively debated and the decision which affects not only the shareholders but the public at lage cannot be permitted to operate when foundsubmission is obviously one of despertion and cannot be accepted. In the first instance, the pleadings in paragraph 22 of the plaint clearly indicate that respondent No. 1 was known to secure a declaration that he is entitled to function as Chariman and Managing Director of the company. Secondly, in case the issue does not arise on the basis averments in the plaint, then respondent No. 1 need not have sought interim relief of injunction restraining the appellant and respondent No. 5 from obstructing respondent No. 1 in functioning as Chairman and Managing Director of the company. The mere perusal of prayer (e) of the plaint and prayer (b) of the notice of motion leaves no manner of doubt that respondent No. 1 was very keen to secure a declaration of his status to function as Managing Director of the company. It also cannot be overlooked that it is futile for respondent No. 1 now to claim that the issue as to whether respondent No. 1 is entitled to function as Managing Director does not arise when the respondent No. 1 argued the matter extensively before the learned Single Judge and the learned Single Judge framed specific point for determination on this aspect. A perusal of the prayers in the plaint leaves no manner of doubt that respondent No. 1 was keen to secure a declaration of his legal status as Chairman and Managing Director of the company and, therefore, it is too late in the day now to claim that the learned Single Judge should not have examined thethe submission is one of desperation because such is not the object of making the prayer in the plaint nor in the notice and such a relief was already covered by prayer (d) of the plaint and prayer (a) of the notice of motion. In our judgment, the respondent No. 1 now cannot avoid the consequences of the decision which was invited in the trial Court. In our judgment, the learned Single Judge was in error in granting relief in terms of prayers (b) of the notice of motion. As the relief granted in the terms of prayer (a) of the notice of motion is not challenged by the appellant as mentioned hereinabove, the same need not be disturbed.