Case: Rama Narang Vs. Ramesh Narang

This appeal arises from the order dated 8-6-1994/9-6-1994 of the Division Bench of the Bombay High Court rendered in Appeal No. 684 of 1992 against an order dated 17-8-1992 passed by the learned Single Judge making absolute the Notice of Motion No. 1593 of 1992 taken out by the appellant Rama Narang and Respondents 4 and 5, namely, Narang International Hotels Private Limited and Arvind Ghei. The two reliefs granted by the learned Single Judge were to restrain Respondents 1 and 2 from (a) acting upon, implementing, circulating, or taking any steps in furtherance of any decision purported to have been taken at the Board meeting alleged to have been held on 13-7-1992 and from (b) obstructing or interfering with the petitioners functioning as Chairman and Managing Director of the respondent-Company. By the impugned judgment, 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. M/s. Narang International Hotels Private Limited is a deemed Public Limited Company under Section 42(a) of the Companies 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 us is the founder and the largest shareholder of the Company. Respondents 1 and 2 are the sons of the appellant. Respondent 3 Kantilal Sethia and Respondent 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 extraordinary 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 14-11-1990 Respondent 1 Ramesh Narang filed a Company Petition No. 681 of 1990 before the Company Judge in the High Court of Bombay under Sections 397 and 398 of the Companies Act challenging the validity of the Board meeting of 25-6-1990 on the ground that the appellant being convicted for an offence involving moral turpitude could not hold office of the Managing Director in view of the provisions of Section 267 of the Companies Act. That section lays down that no company shall appoint or employ, or continue the appointment or employment of any person as its managing or whole-time Director, who is, or has at any time been convicted by a court of an offence involving moral turpitude. The appellant was tried by the Additional Sessions Judge, Delhi in Case No. 134 of 1985 (State v. Ram Lal Narang) and was convicted on 22-12-1986 for having committed offences punishable under Section 120-B and Section 420 read with Section 114 of the Indian Penal Code. He was sentenced to rigorous imprisonment for three months on the first count and rigorous imprisonment of two and a half years and a fine of Rs. 5000 on the second count. On appeal, Criminal Appeal No. 17 of 1987; the High Court of Delhi released the appellant on bail and directed stay of the operation of the impugned order.5. The High Court of Bombay by an order dated 6-12-1990 restrained the Company for holding any Board meeting or general body meeting. Subsequently, on 5-7-1991, Respondent 1 unconditionally withdrew the Company Petition with the permission of the Company Judge. On 12-7-1991, Sanjay Narang, nephew of the appellant, preferred Petition No. 10 of 1991 before the Company Law Board under Sections 397 and 398 of the Companies Act challenging the appellants appointment as Managing Director of the Company on the same ground as in the Company Petition No. 681 of 1990. During the pendency of the said petition before the Company Law Board, some family settlement was arrived at on 30-1-1992 between the members of the Narang family recognising, inter alia, that the appellant was validly appointed as the Chairman and Managing Director of the Company and was no disqualified to act as a Managing Director. Under the settlement Ramesh Narang ceased to be a Director. The petition before the Company Law Board was disposed of in terms of the said settlement.6. On 30-6-1992 Respondent 1 instituted Petition No. 28 of 1992 before the Company Law Board at New Delhi complaining of oppression and mismanagement of the Company by the appellant. On 9-7-1992, the appellant in his capacity as Chairman and Managing Director issued notice to convene meeting of the Board of Directors on 13-7-1992. On 10-7-1992, the appellant informed Rajesh Narang, Respondent 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. Respondent 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. Respondent 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 of the Companies Act. On this, the appellant and Respondents 4 and 5 instituted Suit No. 2090 of 1992 on 16-7-1992 praying fora declaration that the Board meeting purported to have been held on 13-7-1992 was illegal and all decisions purported to have been taken therein were null and void and of no effect;(b) a permanent injunction restraining Ramesh and Rajesh Narang from in any manner acting upon or implementing the decisions taken in the said meeting; and(c) damages in the sum of Rs. 1, 00,relief was sought in terms of reliefs (a) and (b) above under the Notice of Motion No. 1593 of 1992.7. The notice of motion for the grant of interim relief was heard for several days by a learned Single Judge, the main contention being whether or not the appellant could be appointed or continued as the Managing Director of the Company after his conviction by the Additional Sessions Judge, Delhi. There was also some controversy in regard to, whether or not any meeting as alleged had taken place on 13-7-1992 and, if yes, whether it was properly convened. The learned Single Judge came to the conclusion that the appointment of the appellant as Director in 1988 and as Managing Director in 1990 was not void ab initio notwithstanding the provision of Section 267 of the Companies Act and in any case it was not open to Respondent Ramesh Narang to challenge the same in view of he having not pursued the earlier challenge. The learned Single Judge also came to the conclusion on an appreciation of the evidence that the meeting of 13-7-1992 was not properly and validly convened and hence the entire proceedings were bad in law. The learned Single Judge, therefore, granted the interim reliefs sought.8. The matter was carried in appeal, Appeal No. 684 of 1992, before a Division Bench of the High Court by Ramesh Narang. The principal contention urged in the appeal was in respect of the capacity of the present appellant to be appointed as Director and Managing Director of the Company after his conviction on 22-12-1986. The factum of conviction and sentence as well as that the conviction was in respect of offences involving moral turpitude was not in dispute. The appointment of the appellant as Director and Managing Director having been made in 1988 and 1990 were admittedly subsequent to the order of conviction recorded on 22-12-1986. It was, therefore, contended before the Division Bench on behalf of Ramesh Narang that the learned Single Judge had fallen in error in holding that the appointment of the present appellant or his continuation as Managing Director was not ab initio void and was permissible, notwithstanding Section 267 of the Companies Act. Reference was also made to Section 274 of the Companies 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 Government to remove the disqualification incurred by any person either generally or in relation to any company or companies specified in the notification 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 of the Companies Act. Section 283 of the Companies 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 30 days to enable the Director to prefer an appeal and further provides that if an appeal is preferred then the disqualification shall not take effect for a period of 7 days from the date of the disposal of the appeal and so on. On a perusal of the scheme of Sections 267, 274 and 283 of the Companies Act the Division Bench was of the opinion that the Legislature dealt with cases of disqualification of a Director differently from that of a Managing Director, in that, in the case of a Director the disqualification was not to operate if the Central Government issued a notification in that behalf or for a period of 30 days to enable the Director to prefer an appeal and if such appeal is preferred for a further period of 7 days after the disposal of the appeal. The Division Bench noted that such a provision was absent when it came to disqualification in the case of a Managing Director under Section 267 of the Companies Act. According to the Division Bench this distinction was crucial because the Legislature had made special provisions for relaxing the rigour of the disqualification attaching to a Director but had not made any such provision when it came to the disqualification incurred by a Managing Director. In the view of the Division Bench the provisions of Section 267 were mandatory in nature and it was not permissible to appoint or to continue any person as Managing Director of a company on his being convicted of an offence involving moral turpitude. Dealing with the argument that while the bar imposed by Section 267 was absolute in nature and would have squarely applied in the case of the present appellant had it not been for the interim order passed by the Delhi High Court in appeal by which the impugned order of conviction and sentence came to be suspended. The Division Bench after referring to sub-section (1) of Section 389 of the Code which inter alia, provides that pending any appeal by a convicted person the Appellate Court may order that the execution of the sentence or order appealed against be suspended and that he be released on bail or on his own bond proceeded to observe as underpowers of the Appellate Court under Section 389(1) of the Code cannot be construed with reference to the expression order as suspending the order of conviction itself. The powers of the Appellate Court do not entitle such a Court to direct that the order of conviction 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......."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 undersubmission 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 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."Lastly it was submitted before the Division Bench that as matter of fact the Delhi High Court had, after admission of the appeal ordered suspension of conviction, right or wrong, and once such an order is passed the consequences of the conviction under Section 267 of the Companies Act cannot be visited. This contention was also spumed by the Division Bench in the following termsthe first instance, we do not read the order of the 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."is because according to the Division Bench the consequences flowing from the provisions of Section 267 of the Companies Act do not depend upon the passing of the order by the Appellate Court since the right to hold the post of Managing Director comes to an end by the thrust of the statute the moment the order of conviction is recorded. With regard to the submission that by the withdrawal of the earlier petition the grievances had come to an end on the filing of the consent terms, the Division Bench repelled the argument holding that the doctrine of estoppel could not be attracted to a case of violation of a statutory provision. The Division Bench, therefore, concluded that the view taken by the learned Single Judge in this behalf was erroneous and consequently the learned Single Judge had committed an error in granting relief in terms of prayer (b) of the notice of motion. Accordingly the appeal came to be partly allowed as stated hereinbefore. Being aggrieved by the said view taken by the Division Bench, the appellant Rama Narang has preferred this appeal by special leave.

Court's reasoning:
In other words it was limited to the second category of cases mentioned under Section 2(b) of the Act. The Court was not called upon to decide whether there was any contumacious conduct as envisaged by the first category of cases under that Section. The observations made in that regard, are strictly speaking, obiter. The Court was not called upon to consider nor did it construe the language of Section 2(b) of the Act. If we were to accept the observations of the Court as an enunciation of the law, it would run contrary to the express language of the statute. As we have earlier noted, the section itself provides that willful violation of any order or decree etc. would tantamount to contempt. A compromise decree is as much a decree as a decree passed on adjudication. It is not as has been wrongly held by the Calcutta High Court in Nisha Kanto Roy Chowdhury (supra) merely an agreement between the parties. In passing the decree by consent, the Court adds its mandate to the consent. A consent decree is composed of both a command and a contract. The Bombay High Courts view in Bajranglal Gangadhar Khemka (supra) correctly represents the law that a consent decree is a contract with the imprimatur of the Court. Imprimatur means authorized or approved. In other words by passing a decree in terms of a consent order the Court authorizes and approves the course of action consented to. Moreover, the provisions of Order 23 Rule 3 of the Code of Civil Procedure requires the Court to pass a decree in accordance with the consent terms only when it is proved to the satisfaction of the court that a suit has been adjusted wholly or in part by any lawful agreement24. All decrees and orders are executable under the Code of Civil Procedure. Consent decrees or orders are of course also executable. But merely because an order or decree is executable, would not take away the Courts jurisdiction to deal with a matter under the Act provided the Court is satisfied that the violation of the order or decree is such, that if proved, it would warrant punishment under Section 13 of the Act on the ground that the contempt substantially interferes or tends substantially to interfere with the due course of justice. The decisions relied upon by the respondents themselves hold so as we shall subsequently see25. In such circumstances it would neither be in consonance with the statute, judicial authority, principle or logic to draw any distinction between the willful violation of the terms of a consent decree and willful violation of a decree which is passed on adjudication. The decision in Baburam Guptas case must, therefore, be limited to its own peculiar facts. Rita Markandeya Vs. Surjit Singh Arora (1996) 6 SCC 14 , which was also been relied upon by the respondents to urge that the present application for contempt was not maintainable, related to proceedings for eviction. The respondent, who was the tenant had been directed to vacate the tenanted premises. His appeal before this Court was dismissed. While dismissing the appeal the Court recorded:However, as agreed to by both the learned counsel, time to hand over vacant possession to Smt. Rita Markandey is granted till 31.3.1995. This shall be subject to the usual undertaking to be filed by thet within four weeks from today26. The respondent did not file the undertaking. He also did not vacate the tenanted premises by the agreed date. Thet then filed a petition alleging that the respondent had committed contempt of court by gaining time from the Court to vacate the premises only to file an undertaking and thereafter refusing to file the undertaking. The Court found, on an interpretation of its order, that the court had not itself passed any order fixing the time. In terms of the agreement between the parties the time had been fixed and the Court had only embodied the terms of the agreement so arrived at. Therefore, it was held that the respondent could not be held liable for contempt of that order27. The next decision relied upon by the respondents is the decision of this Court in Bank of Baroda Vs. Sadruddin Hasan Daya & Anr. 2004(1) SCC 360. The petitioner in that case had filed a suit against the respondents for recovery of money. The suit was disposed of by consent and a decree was passed incorporating the consent terms. The consent terms inter alia, provided for payment of the decretal amount in instalments. Pending the clearance of the decretal amount the respondents undertook not to sell, mortgage, alienate, encumber or charge some of its properties. Another creditor also filed the suit against the respondent for recovery of a certain amount. This second suit was also disposed of by consent and a decree passed in terms of the consent order. Like the first decree the decreed amount was to be satisfied in instalments and pending satisfaction of the decree, the respondents undertook to the Court not to alienate, encumber, or create third party rights or part with possession of the same properties which had already formed part of the undertaking in the first decree. The respondents defaulted in making payment of the instalments under the first decree. The petitioner put the decree into execution. It also filed a contempt petition alleging that the second consent decree violated the undertaking given in the first decree. The Court found that by placing the same property under attachment in the second decree the respondent had intentionally and deliberately acted in breach of the undertaking given to the Court in the first consent decree. T28. The decision in R.N. Dey and Anr Vs. Bhagyabati Pramanik & Ors 2000 (4) SCC 400 , also relied upon by the respondents, disposed of an appeal filed from an order directing the appellants to deposit certain amounts of money towards compensation money payable in respect of land acquisition proceedings. The directions were given while disposing of contempt proceedings initiated by the respondent after the Court had accepted the unqualified apology tendered by the appellants. The appellants urged that instead of filing a contempt application, the respondent should have proceeded with the execution of the decree or award made in the land acquisition proceedingsHaving regard to the facts of the case the Court felt that the contempt proceedings should not have been resorted to and that in any case since the unconditional apology has been tendered and accepted by the appellant further proceedings should have been droppedAs we read the decision, its ratio runs counter to the submission of the respondents, namely, that the contempt would not lie if the decree or order is executable. Ultimately, the matter is one of the Courts discretion having regard to the facts of the case. As we have said the fact that a decree is executable does not take away the Courts jurisdiction in contempt29. In the present case, the consent terms arrived at between the parties was incorporated in the orders passed by the Court on 12th December 2001 and 8th January 2002. The decree as drawn up shows that order dated 8th January, 2002 was to be punctually observed and carried into execution by all concerned. A violation of the terms of the consent order would amount to a violation of the Courts orders dated 12th December 2001 and 8th January 2002 and, therefore be punishable under the first limb of Section 2(b) of the Contempt of Courts Act, 1971. The question whether the respondents should not be held guilty of contempt because of any earlier confusion in the law reflected in the case of Babu Ram Gupta (supra), is a question which must be left for decision while disposing of the contempt petition on merits. It may be argued as an extenuating or mitigating factor once the respondents are held guilty of contempt. The submission does not pertain to the maintainability of the petition for contempt.