Case: Rama Narang Vs. Ramesh Narang

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 High Court in collateral civil proceedings to overlook it on the ground that the scope of Section 389(1) of the Code did not extend to granting of such a stay order. However, it was open to the Bombay High Court to interpret the order in the background of the fact that in the application seeking the interim order there was no mention whatsoever that stay of conviction was sought to avoid the disqualification under Section 267 of the Companies Act. It was perfectly open to the Bombay High Court, without questioning the legality and validity of the interim order passed by the Delhi High Court, to examine it in the context of the averments in the application by which the interim order was sought. We are, therefore, of the opinion that the Bombay High Court in collateral civil proceedings could not overlook the interim order passed by the Delhi High Court on the ground that the latter had no power or jurisdiction to grant such an order having regard to the scope and ambit of Section 389(1) of the Code. However, it was perfectly open to the Bombay High Court to interpret the scope of the interim stay granted by the Delhi High Court in the context of the averments made in the application seeking such an order.18. Be that as it may, we have, on interpretation of the interim order passed by the Delhi High Court in the context of the averments made in the application seeking such an order, come to the conclusion that the Delhi High Court while granting stay of the impugned judgment did not and could not have intended to stay the operation of the disqualification under Section 267 of the Companies Act consequent upon conviction. To that extent the interpretation put by the Bombay High Court on the interim stay is unassailable. We are afraid the appellant did not approach the Delhi High Court with clean hands if the intention of obtaining the stay was to avoid the disqualification under Section 267 of the Companies Act. That is why we have said that a litigant cannot play hide and seek with the court and must approach the court candidly and with clean hands. It would have been so if the intention of the appellant in obtaining the interim stay was to avoid the disqualification he was likely to incur by the thrust of Section 267 of the Companies Act. If that was his intention he was clearly trying to hoodwink the Court by suppressing it instead of coming clean. If he had frankly and fairly stated in his application that he was seeking interim stay of the conviction order to avoid the disqualification which he was likely to incur by virtue of the language of Section 267 of the Companies Act, 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 of the Companies Act.19. That takes us to the question whether the scope of Section 389(1) of the Code 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 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 established guilt. Therefore, when an appeal is preferred under Section 374 of the Code the appeal is against both the conviction and sentence and therefore, we see no reason to place a narrow interpretation on Section 389(1) of the Code not to extend it to an order of conviction, although that issue in the instant case recedes to the background because High Courts can exercise inherent jurisdiction under Section 482 of the Code if the power was not to be found in Section 389(1) of the Code. We are, therefore, of the opinion that the Division Bench of the High Court of Bombay was not right in holding that the Delhi High Court could not have exercised jurisdiction under Section 482 of the Code if it was confronted with situation of there being no other provision in the Code for staying the operation of the order of conviction. In a fit case if the High Court feels satisfied that the order of conviction needs to be suspended or stayed so that the convicted person does not suffer from a certain disqualification provided for in any other statute, it may exercise the power because otherwise the damage done cannot be undone; the disqualification incurred by Section 267 of the Companies Act and given effect to cannot be undone at a subsequent date if the conviction is set aside by the Appellate Court. But while granting a stay of (sic or) suspension of the order of conviction the Court must examine the pros and cons and if it feels satisfied that a case is made out for grant of such an order, it may do so and in so doing it may, if it considers it appropriate, impose such conditions as are considered appropriate to protect the interest of the shareholders and the business of the company.

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

Explanation:
0[ds]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) of the Code 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 expected to assign reasons relevant thereto ? No one can be allowed to play hide and seek with the Court; he cannot suppress the precise purpose for which he seeks suspension of the conviction and obtain a general order of stay and then contend that the disqualification has ceased to operate. In the instant case if we turn to the application by which interim stay of the operation of the impugned judgment was secured we do not find a single word to the effect that if the operation of the conviction is not stayed the consequence as indicated in Section 267 of the Companies Act will fall on the appellant. How could it then be said that the Delhi High Court had applied its mind to this precise question before granting stay ? That is why the High Court order granting interim stay does not assign any reason having relevance to the said issue. By not making a specific reference to this aspect of the matter, how could the appellant have persuaded the Delhi High Court to stop the coming into operation of Section 267 of the Companies Act ? And how could the Court have applied its mind to this question if its pointed attention was not drawn ? As we said earlier the application seeking interim stay is wholly silent on this point. That is why we feel that this is a case in which the appellant indulged in an exercise of hide and seek in obtaining the interim stay without drawing the pointed attention of the Delhi High Court that stay of conviction was essential to avoid the disqualification under Section 267 of the Companies Act. If such a precise request was made to the Court pointing out the consequences likely to fall on the continuance of the conviction order, the Court would have applied its mind to the specific question and if it thought that case was made out for grant of interim stay of the conviction order, with or without conditions attached thereto it may have granted an order to that effect. There can be no doubt that the object of Section 267 of the Companies Act is wholesome and that is to ensure that the management of the company is not in soiled hands. As we have pointed out earlier the Managing Director of a company holds a fiduciary position qua the company and its shareholders and therefore, different considerations would flow if an order is sought from the Appellate Court for staying the operation of the disqualification that would result on the application of Section 267 of the Companies Act. Therefore, even on facts since the appellant had not sought any order from the Delhi High Court for stay of the disqualification he was likely to incur under Section 267 of the Companies Act 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 had thereafter 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 of the Companies Act. 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 of the Companies Act.17. 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 High Court in collateral civil proceedings to overlook it on the ground that the scope of Section 389(1) of the Code did not extend to granting of such a stay order. However, it was open to the Bombay High Court to interpret the order in the background of the fact that in the application seeking the interim order there was no mention whatsoever that stay of conviction was sought to avoid the disqualification under Section 267 of the Companies Act. It was perfectly open to the Bombay High Court, without questioning the legality and validity of the interim order passed by the Delhi High Court, to examine it in the context of the averments in the application by which the interim order was sought. We are, therefore, of the opinion that the Bombay High Court in collateral civil proceedings could not overlook the interim order passed by the Delhi High Court on the ground that the latter had no power or jurisdiction to grant such an order having regard to the scope and ambit of Section 389(1) of the Code. However, it was perfectly open to the Bombay High Court to interpret the scope of the interim stay granted by the Delhi High Court in the context of the averments made in the application seeking such an order.18. Be that as it may, we have, on interpretation of the interim order passed by the Delhi High Court in the context of the averments made in the application seeking such an order, come to the conclusion that the Delhi High Court while granting stay of the impugned judgment did not and could not have intended to stay the operation of the disqualification under Section 267 of the Companies Act consequent upon conviction. To that extent the interpretation put by the Bombay High Court on the interim stay is unassailable. We are afraid the appellant did not approach the Delhi High Court with clean hands if the intention of obtaining the stay was to avoid the disqualification under Section 267 of the Companies Act. That is why we have said that a litigant cannot play hide and seek with the court and must approach the court candidly and with clean hands. It would have been so if the intention of the appellant in obtaining the interim stay was to avoid the disqualification he was likely to incur by the thrust of Section 267 of the Companies Act. If that was his intention he was clearly trying to hoodwink the Court by suppressing it instead of coming clean. If he had frankly and fairly stated in his application that he was seeking interim stay of the conviction order to avoid the disqualification which he was likely to incur by virtue of the language of Section 267 of the Companies Act, 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 of the Companies Act.19. That takes us to the question whether the scope of Section 389(1) of the Code 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 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 established guilt. Therefore, when an appeal is preferred under Section 374 of the Code the appeal is against both the conviction and sentence and therefore, we see no reason to place a narrow interpretation on Section 389(1) of the Code not to extend it to an order of conviction, although that issue in the instant case recedes to the background because High Courts can exercise inherent jurisdiction under Section 482 of the Code if the power was not to be found in Section 389(1) of the Code. We are, therefore, of the opinion that the Division Bench of the High Court of Bombay was not right in holding that the Delhi High Court could not have exercised jurisdiction under Section 482 of the Code if it was confronted with situation of there being no other provision in the Code for staying the operation of the order of conviction. In a fit case if the High Court feels satisfied that the order of conviction needs to be suspended or stayed so that the convicted person does not suffer from a certain disqualification provided for in any other statute, it may exercise the power because otherwise the damage done cannot be undone; the disqualification incurred by Section 267 of the Companies Act and given effect to cannot be undone at a subsequent date if the conviction is set aside by the Appellate Court. But while granting a stay of (sic or) suspension of the order of conviction the Court must examine the pros and cons and if it feels satisfied that a case is made out for grant of such an order, it may do so and in so doing it may, if it considers it appropriate, impose such conditions as are considered appropriate to protect the interest of the shareholders and the business of the company.