Holding

Section 267 of the Companies Act is mandatory and disqualifies a Managing Director upon conviction, and a stay under Section 389(1) does not automatically stay its operation unless expressly sought; the appellate court may use Section 482 to stay a conviction, but the Delhi High Court did not, so the appeal fails.

Summary

The appellant, Rama Narang, was appointed Managing Director of a deemed public limited company after being convicted of offences involving moral turpitude. Respondent Ramesh Narang challenged the appointment under Section 267 of the Companies Act, 1956, which bars a person convicted of such offences from holding the office of Managing Director. The Delhi High Court, while admitting an appeal against the conviction, granted an interim stay under Section 389(1) of the CrPC but did not specifically stay the operation of Section 267. The Supreme Court held that Section 267 is mandatory and the disqualification takes effect as soon as the conviction is recorded, irrespective of a stay of sentence. A stay under Section 389(1) does not automatically stay the effect of Section 267 unless the court is expressly asked to consider that consequence. While a High Court may use its inherent powers under Section 482 to stay a conviction to avoid statutory disqualification, the Delhi High Court did not do so. Consequently, the appellant’s appeal was dismissed.

Issues considered

The applicability and mandatory nature of Section 267 of the Companies Act, 1956 to a Managing Director convicted of an offence involving moral turpitude.
Whether the interim stay granted by the Delhi High Court under Section 389(1) of the CrPC stays the operation of Section 267 and thus prevents disqualification.
Whether Section 389(1) of the CrPC can be interpreted to allow suspension of the order of conviction for the purpose of avoiding statutory disqualification.
Whether the High Court can exercise inherent jurisdiction under Section 482 of the CrPC to stay a conviction to prevent disqualification under another statute.

Legislation cited

Code of Criminal Procedure, 1973s. 374, s. 389(1), s. 482
Companies Act, 1956s. 267, s. 274, s. 283

Subjects

Companies ActSection 267Managing DirectorDisqualificationMoral turpitudeCriminal appealSection 389Section 482Corporate governance

Judgment

f
)

A RAMANARANG
v.
RAMESH NARANG AND ORS.

JANUARY 19, 1995

B [AM. AHMADI, CJ, R.M. SAHAI AND
K. JAYACHANDRA REDDY, JJ.)

Companies Act, 1956-Ss.267, 274, 283-Managing Director-Appoint-
ment of after incurring disqualification-Effect of-COmpany appointing a
--- I

C person as Managing Director after he was convicted of offence involving moral
turpitude-operation of judgment of Sessions Cowt stayed by appellate court
under s. 389(1) Cr.P.C.--Fact that stay sought of disqualification incurred
unders s.267 because of conviction not mentioned in stay application-Held,
company committed infraction. of mandatory provision of s.267-0peration
D of s.267 would take effect as soon as conviction is recorded by a competent
court-Order of appellate court can nt:Jt be extended to stay of conviction for
avoiding disqualification under s.267.

Code of Criminal Procedure 1973-Ss. 374. 389(1), 482-Suspension
of sentence or order appealed-Held, appellate court can stay operation of
E order of conviction for the purpose of avoiding disqualification under s. 267
ol Companies Act, if the precise purpose is brought to notice of the
court-High Court under s. 482 can pass orders preventing irreparable
damages to applicant.

Practice and Procedure -
F
Parties to approach· the court with clean hands-A person against
whom an order of conviction is passed by trial court cannot suppress the
precise purpose for which he seeks suspension of conviction and obtain a
general order of stay and then claim that disqualification as a resujt of \ '.·.
G conviction has ceased to operate.
The appellant and his sons, respondents no.1 and 2 had share ,.._
holding in a deemed Public Limited Company. The appellant, who was the
founder and largest shareholder of the Company was, by a resolution
dated 25.6.1990, appointed as the Managing Director of the Company.
,H Respondent no. 1 challenged the said appointment in a Company Petition
456
RAMANARANGv. RAMESH NARANG 457

before High Court of Bombay on the ground that the appellant having bee~ A
- convicted of an offence involving moral turpitude could not hold office of
Managing Director in view of provisions of S. 267 of the Companies Act,
1956. It was not disputed that the appellant had been convicted of offences
punishable under ss. 120-B and 420 l.P.C. and sentenced to rigorous
imprisonment for two and a half years, by Additional Sessions Judge, B
Delhi on 22.12.1986 and on appeal, the High Court of Delhi released him
on bail and directed stay of the operation of the order passed by Addi.
Sessions Judge. However, respondent no. 1 unconditionally withdrew the
said company petition.

Subsequently, in a petition before the Company Law Board, the C
functioning of the appellant as the Managing Director was again ques-
tioned on the ground of his conviction. Respondent no. 1 claimed himself
to be the Managing Director and purporti~g to act as such issued a notice
convening a meeting of the Board of Directors on 13.7.1992. It was claimed
that in the said meeting it was inter alia resolved that the appellant had D
ceased to be the Managing Director and Director of the Company by virtue
of s.267 of the Companies Act. Thereupon, the appellant and ~espondents
no. 4 and S filed a suit for declaration that the Board meeting held on
13.7.1992 was illegal and the decisions taken therein were null and void,
and for a permanent injunction restraining respondents no.1 and 2 from
implementing the decisions taken in the said meeting. A Single Judge of E
the High Court, while granting the interim reliefs sought, held that the
appointment of the appellant as Managing Director was not void ab initio
notwithstanding the provision of s.267 of the Companies Act and, that the
'
....ir meeting of 13.7.1992 was not propertly and validly convened and, therefore,
the entire proceedings were bad in law. F

On appeal, the Division Bench of the High Court held that
provisions of s.267 of the Companies Act were mandatory in nature and it
was not permissible to appoint or continue any pers~n as Managing
Director of a company on his being convicted of an offence involving moral
turpitude. As regards the e~ect of the stay order granted by the High Court G
of Delhi in appeal filed by the appellant against his conviction, the Division
Bench held that under s.389(1) of the Code of Criminal Procedure, 1973
the High Court of Delhi could only suspend the execution of the sentence;
and it neither suspended the order of conviction nor did it have the power
to do so even under s. 482 of the Code. Aggrieved, the appellant filed the H
458 SUPREME COURT REPORTS (1995) 1 S.C.R.

A appeal.
On the questions : (1) whether the appellant was liable to be visited
with the consequence of s.267 of the Companies Act n6twithstanding the
-
interim order passed by the Delhi High Court while admitting the
appellant's appeal against his conviction and sentence; (2) whether the
B interim order passed by the Delhi High Court had the effect of staying th2
operation of sJ.67 of the Companies Act; and (3) whether the scope of
s.389(1) of the Code extends to conferring power on the appellate court to
stay operation of the order of conviction. ---·
C Dismissing the appeal, this Court

HELD : 1.1. The company in appointing the appellant as Director
and Manging Director after his conviction, committed an infraction of the
mandatory prohibition contained in sJ.67 of the Companies Act, 1956. The
section not only prohibits appointment or employment after conviction but
D also expects discontinuance of appointments or employment already made
prior to conviction. This is plainly the mandate of s267. The language of
the section is intended to be mandatory in character. The word 'shall'
occurring in the section brings out its imperative character. [468-C-D-B]

E 12. The operation of s. 267 would take .effect as soon as conviction
is recorded by a competent court of an offence involving moral turpitude.
_Sections 267, 274 and 383 constitute a Code whereunder a Director,
Managing Director and a whole time Director are visited with certain
disqualifications in the event of conviction. The Act has drawn a distinc-
tion between a Director and a Managing Director in the matter of fixation
F of the point of time when the disqualification becomes effective in the
respective cases. The provisions applicable to a Managing Director are
more stringent. And so it should be, because it is the Managing Director
who is personally responsible for the business of the company. Such a
person must be above board and above all suspicion. [471-B, 469-C]
G Needle Industries (India) Ltd. v. Needle Industries Newey (India)
Holding Ltd., [1981] 3 SCR 698, referred to.

2.1. The Delhi High Court while granting stay under s.389(1) of the
Code of Criminal Procedure 1973, of the judgment passed by the Sessions
H Court, in the context of the averments made in the application seeking
RAMANARANGv. RAMESHNARANG 459

such an order, did not and could not have intended to extend the stay of A
~ conviction for the purpose of avoiding the disqualification under Sectioµ
267 of the Companies Act. To that extent the interpretation put by the
Bombay High Court on the interim stay is unassailable. [474-B]

2.2. In a situtation, where the order of conviction may incur dis-
qualification under any other statute, as in the instant case, the power B
under s. 389(1) of the Code can be invoked and the attention of the
I appellate court must be specifically invited to the consequence that likely
~-
tc fall, to enable it to apply its mind to the issue, since under s. 389(1) it
is under an obligation to support its order 'for reasons to be recorded by
it in writing'. [472-B] c
2.3. The appellant in his application for interim stay had not sought
any order from the Delhi High Court for stay of the disqualification h~
was likely to incur under s. 267 of the Companies Act on account of his
conviction and, therefore, it cannot be inferred that the High Court had
applied its mind to this specific aspect of the matter and had thereafter D
granted stay of the operation of the judgment of the Sessions Court. That
is why in the order of the High Court there is not a single reason relevant
to the consequence of the conviction under s.267 of the Companies Act.
The interim stay granted by the Delhi High Court must, therefore, be read
in that context. [473-B-C] E
2.4. 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 to open to the,
., Bombay High Court in collateral civil proceedings to overlook it on the F
ground that the scope of Section 389(1) of the Code did not extend to grant
of such a stay order. However, 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 interpret the scope of the ~aid order
in the context of the averments made in the application seeking such an
G
order. [473-E-G]

2.6. Since the order of conviction does not on the mere filing of an
appeal disappear, it cannot be said that s.267 of 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. H
\
I

460 SUPREME COURT REPORTS (1995) 1 S.C.R.

A Therefore it cannot be said that on the admission· of appeal by the Delhi
High Court the order of conviction had ceased to exist.

2.7. A person against whom an order ofconviction is passed by the
trial court, cannot suppress the precise purpose for which he seeks suspen-
sion of the conviction, and obtain a general order of stay and then claim
B that the disqualification has ceased to operate. In the instant case, the
appellant did not approach the Delhi High Court with clean hands but
indulged in an exercise of hide and seek in obtaining the interim stay _._I -

without drawing the pointed attention of the Delhi High Court that stay of
conviction was essential to avoid the disqualification under s.267 of the
C Companies Act. [472-C, 474-C-D]

3.1. There is no reason to place a narrow interpretation on s.389(1)
of the Code not to extend it to an order of conviction. Under the provisions
of the Code there are two stages in a criminal trial before the Sessions
Court - the stage upto the recording of conviction and the stage post-con-
D viction up to the imposition of sentence. It is only after these stages are -r---
covered that a judgment becomes complete and can be appealed against
under s. 374. The appeal under s.374 of the Code of Criminal Procedure
is essentially against the order of conviction because the order of sentence
is merely consequential thereto; albeit even the order of sentence can be
E independently challenged if it is harsh and disproportionate to the estab-
lished guilt. Therefore, when an appeal is preferred under s.374, the appeal
is against both the conviction and the sentence. (475-A, 474-H]

3.2. The Division Bench of the High Court of Bombay was not right
in holding that the Delhi High Court could not have exercised jurisdiction
F under s. 482 of the Code if it was confronted with a situation of there being
no other provision in the Code for staying 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
G statute, it may exercise the power because otherwise the damage done
cannot be undone; the disqualification incurred bys. 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. [475-C]

3.3. While granting a stay of suspension of the order of conviction
H the court must examine the pros and cons and if it feels satisfied that a
{

RAMANARANGv. RAMESHNARANG'[AHMADI,O.) 461

case is made out for grant of such an order, it may do so and impose such A
conditions as are considered appropriate. [475-D]

CIVIL APPEALLATE JURISDICTION : Civil Appeal No. 5620 of
1994.

From the Judgment and Order dated 8/9.6.94 of the Bombay High B
Court in A No. 684 of 1992.

G. Ramaswamy, Yashank Adhyaru, R.N. Karanjawala, P.K. Mullick,
Manik Karanjawala and Ms. Suruchi Aggarwal for the Appeallant.

F.S. Nariman, Jagjit Singh, Ms. Monika Mohil and Ms. Bina Gupta C
for the Respondent No.1.

P. Chidambram, Dilip Jhangiani and Anip Sachthey for the Respon-
dent No. 4.

The Judgment of the Court was delivered by D

AHMADI, CJI. This appeal arises from the order dated 8/9th June,.
1994 of the Division Bench of the Bombay High Court rendered in Appeal
No. 684 of 1992 against an order dated 17th August, 1992 passed by the
learned Single Judge making absolute the notice of motion No. 1593 of E
1992 taken out by the appellant-Rama Narang and the respondents Nos. 4
& 5, namely, Narang International Hotels Private Limited and Arvind
Ghei. The two i;eliefs granted by the learned Single Judge were to restrain
respondent Nos. 1 & 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 13th July, 1992 F
and from (b) obstructing or interfering with the petitioner's 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 G
the notice of motion undisturbed.

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 share holding in this company. Rama Narang, the H
462 SUPREME COURT REPORTS [1995] 1 S.C.R.

A appellant before us is the founder and the largest shareholder of the
company. The respondents 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,

In a general meeting of 25th June, 1990 the appellant was appointed
B the Managing Director of the Company and his wife Mrs. Mona Rama
Narang was appointed whole-time Additional Director. On 29th June, 1990
• general meeting of the company, the Articles of As-
in an extraordinary
sociation were amended and the appellant was appointed as the Chairman
and Director for life of the Company.
c
On 14th November, 1990, the respondent No.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 25th June. 1990 on the
D 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
E turpitude. The appellant was tried by the Additional Sessions Judge, Delhi
in case No. 134 of 1985 (State v. Ram Lal Narang & Ors.) and was convicted
on December 22, 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
F first count and rigor~us imprisonment of two & a half years and a fine of ..
Rs. 5,000/- 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.
,,
The High Court of Bombay by an order dated 6th December, 1990
G restrained the company for holding any Board meeting or general body
meeting. Subsequently, on July 5, 1991, the respondent No.1 uncondition-
ally withdrew the Company Petition with the permission of the Company
Judge. On July 12, 1991, Sanjay Narang, nephew of the appellant, preferred
Petition No. 10 of 1991 before the Company Law Board under Sections
H 397 and 398 of the Companies Act challenging the appellant's appointment
RAMA NARANGv. RAMESH NARANG (AHMADI, CJ.] 463
I

as Managing Director of the Company on the same ground as in the A
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 30th January 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 not disqualified B
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.

On 30th June, 1992, the respondent No. 1 instituted Petition No. 28
of 1992 before the Company Law Board at New Delhi complaining of C
oppression and mismanagement of the Company by the appellant. On July
9, 1992, the appellant in his capacity as Chairman and Managing Director
issued a notice to convene a meeting of the Board of Directors on July 13,
1992. On July 10, 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 D
was again questioned, on the ground of his conviction. The respondent
No.l on the other hand claimed to be the Managing Director and purport-
ing to act as such issued notice convening a parallel meeting of the Board
of Directors on 13th July, 1992 at the registered office of the Company..
The respondent No.1 claimed that a meeting was held on 13th July, 1992 E
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 the respondents Nos. 4 & 5 instituted Suit No.
2090 of 1992 on July 16, 1992 praying for :
F
(a) a declaration that the Board meeting purported to have been
held on July 13, 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 Rajer;h G
Narang from in any manner acting upon or implementing the
decisions taken in the said meeting; and

(c) damages in the sum of Rs. 1,00,000/-.

Interim relief was sought in terms of reliefs (a) and (b) above under the H
464 SUPREME COURT REPORTS [1995] 1 S.C.R.

A Notice of Motion No. 1593 of 1992.

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
B Judge, Delhi. There was also some controversy in regard to, whether or
not any meeting as alleged had taken place on July 13, 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
C provision of Section 267 of the Companies Act and in any case it was not
open to respondent No.1 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 July 13, 1992 was not properly and validly convened and hence the entire
D proceedings were bad in law. The learned Single Judge, therefore, granted
the interim reliefs sought.

The matter was carried in appeal, Appeal No. 684 of 1992, before a
Division Bench of the High Court by Ramesh Narnag. The principal
contention urged in the appeal was in respect of the capacity of the present
E appellant to be appointed as Director and Managing Director of the
Company after his conviction on 22nd December, 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 <:1ppointment of
the appellant as Director and Managing Director having been made in 1988
F and 1990, were admittedly subsequent to the order of conviction recorded
on 22nd December, 1986. It was, therefore, contended before the Division
Bench on behalf of Ran1esh 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
G was also made to Section 274 of the Companies Act which, inter alia,
provides that a Director whose conviction has been recorded by a criniinal
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
H Section 274 empowers the Central Government to remove the disqualifica-
RAMA NARANGv. RAMESH NARANG [AHMADI, CL] 465

tion_ incurred by any person either generally or in relation to any co~pany A
or companies specified· in the notification to be published in the Official
---r 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 Com-
panies 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
B
(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 c
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
D
.......... 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 futher 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 a Managing Director under Section 267 of the
Companies Act. According to the Division Bench this distinction was E
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
F
or to continue any person as Managing Director of a company on his being
convicted of an offence involving moral turpitude. Dealing with the argu-
ment 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 G
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
"'
H
466 SUPREME COURT REPORTS [1995) 1 S.C.R.

A on bail or on his own bond. proceeded to observe as under :

"The powers 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
B 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
c 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
D 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
E 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 enforcem.ent 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
F
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
Peoples Act".

G Lastly it was submitted before the Division Bench that as a mattar
_9f 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 spurned by the Division ""
H Bench in the following terms :
RAMA NARANGv. RAMESH NARANG [AHMADI, CJ.] 467

"In the first instance, we do not read the ~rder of the Delhi High _ A
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."

That is because according to the Division Bench the conseqm:nces flowing B
from the provisions of Section 267 of the Companies Act do not depend
upon the passing of the order by the Appellate <;::ourt 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 C
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 D
of motion_ Accordingly the appeal came to be part~y 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.

The above resume would show that the principal question which falls -E
for our determination is whether the appellant is liable to be visited with
the consequence of Section '267 of the Companies Act notwithstanding the
interim order passed by the Delhi High Court while admitting the
appellant's appeal against his conviction and sentence by the Additional
Sessions Judge, Delhi. As we have said earlier the factum of his conviction F
and the imposition of sentence is not in dispute. Section 267 of the
Companies Act, to the extent it is relevant for our purposes, may be set
out :

"267. No company shall, after the commencement of this Act,
appoint or employ, or continue the appointment or employment G
of any person as its managing or whole-time Director who

(a) .................... .

(b) ..................... . H
468 SUPREME COURT REPORTS (1995) 1 S.C.R.

A (c) is, or has at any time been convicted hy 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 provisions is couched that it is intended to be mandatory in
B 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 Companies
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
appointment or employment by any company as its managing or whole-time
C Director. Indisputably, the appellant was appointed a Director in 1988 and
Managing Director in 1990 after his conviction on 22nd December, 1986.
On the plain language of Section 267 of the Companies Act, the Company
had, in making the appointments, committed an infraction of the man-
datory prohibition contained in the said provision. The Section not only
D prohibits appointment or employment after conviction but also expects
discontinuance of appointment or employment already made prior to his
conviction. This in our view is plainly the mandate of SeCtion 267. As rightly
pointed out by the Division Bench of the High Court, Section 274 of the
Companies Act provides that a disqualification which a Director incurs on
conviction for an offence involving moral turpitude in respect of which
E imprisonment of not less than six months is imposed, the Contra! Govern-
ment may, by notification, 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 is, however, not available in the case of a Managing Director.
F Secondly, Section 283 of the Companies Act provides that the office of a
Director shall become vacant if convicted and sentenced as stated
hereinabove but sub-section (2) thereof, inter alia, provides that the dis-
qualification shall not take effect for thirty days from the date of sentence
and if an appeal is preferred during the pendency of appeal and till seven
days after the disposal of the appeal. This benefit is not extended in the
G case of a Managing Director. The Companies Act has, therefore, drawn a
distinction between a Director and a Managing Director; the provisions in
the case of the latter are more stringent as compared to that of the former.
And so it should be because it is the Managing Director who is personally
responsible for the business of the Company. The law considers it unwise
H to ,appoint or continue the appointment of a person guilty of an offence
RAMA NARANGv. RAMESH NARANG (AHMADI, CJ.) 469

involving moral turpitude to be entrusted or continued to be entrusted with A
the affairs of any company as that would not be in the interests of the
share-holders or for that matter even in public interest. As a matter of
public policy the law bars the entry of such a person as Managing Director
of a company and insists that if ht: is already in position he should forthwith
be removed from the position. The purpose of Section 267 is to protect the
interest of the shareholders and to ensure that the management of the
B
affairs of the company and its control is not in the hands of a person who
has been found by a competent court to 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 c
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.

That brings us to the next question, namely, whether the interim
order passed by the Delhi High Court has the effect of staying the opera- D
tion of Section 267 of the Companies Act? Admittedly, the appellant before
us, on conviction and sentence, preferred an appeal under Section 374(2)
of the Code 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) of the Code to the following effect : E
"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."
F
Section 389 of the Code is entitled "suspension of sentence pending the
appeal, released of appellant on bail". Sub-section (1) then provides that
pending any appeal by a convicted person the Appellate Court may, for
reasons to be recorded by it in writing, order that the execution of the
sentence or order appealed against be suspended and, also, if he is in G
confinement, that he be released on bail, or on his own bond. On a plain
reading of sub-section (1) of Section 389 of the Code it becomes clear that
pending an appeal by a convicted person, the Appellate Court may order
that the execution of the sentence or order appealed against be suspended.

Chapter XVIII relates to trial before a Court of Sessions. Sections H
470 SUPREME COURT REPORTS [1995] 1 S.C.R.

A· 225 to 227 relate to the stage prior to the framing of charge. Section 228
provides for the framing of charge against the accused person. If after the ~
(
charge is framed the accused pleads guilty, Section 229 provides that the
Judge shall record the plea and may, in his discretion, convict h.im thereon.
>-
However, if he does not enter a plea of guilty, Sections 230 and 231 provide
for leading of prosecution evidence. If, on the completion of the prosecu-
B tion evidence and examination of the accused, the Judge considers that
there is no evidence that the accused committed the offence with which he
is charged, the Judge shall record an order of acquittal. If the Judge does
_..
not record an acquittal under Section 232, the accused would have to be
called upon to enter on his defence as required by Section 233. After the
c evidence-in-defence is completed and the arguments heard as required by
Section 234, Section 235 requires the Judge to give a judgment in the case.
If the accused is convicted, sub- section (2) of Sect\on 235 requires that
the Judge_ shall, unless he proceeds in accordance with the provisions of
Section 360, hear the accused on the question of sentence and then pass
sentence on him according to law. It will thus be seen that under the Code
D after the conviction is recorded, Section 235(2) inter alia provides that the .....,..,
Judge shall hear the accused on the question of sentence and then pass
sentence on him accordmg to law. The trial, therefore, comes to an end
only after the sentence is awarded to the convicted person.

E Chapter XX.VII deals with judgment. Section 354 sets out the con-
tents of judgment. It says that every judgment referred to in Section 353
shall, inter alia, specify the offence (if any) of which and the Section of the f"
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
-;i>J
F 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
G 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 Code. ""'
H The provisions contained in the Companies Act have relevance to
RAMANARANGv. RAMESHNARANG(AHMADl,CJ.] 471

the management_ of the affairs of Companies incorporated under that law. A
The operation of Section 267 would take effect as soon as conviction is .
recorded by a competent court of an offence involving moral turpitude.
Sections 267, 274 and 283 referred to earlier constitute a code whereunder
a Director, Managing Director and the whole-time Director are visited with
certain disqualifications in the event of conviction. As already pointed out B
above, the Companies Act itself makes a distinction in the matter of
fixation of the point of time when the disqualification becomes effect in the
case of a Director and a Managing Director. That is because of the
fiduciary nature of the relationship, vide Needle Industries India Ltd. v,
Needle Industries Ltd., [1981) 3 SCR 698.
c
Under the provisions of the Code to which we have already referred
ther.e are two stages in a criminal trial before a Sessions Court, the stage
upto the recording of a conviction and the stage post-conviction upto the
imposition of sentence. A judgment becomes complete after both these
stages are covered. Under Section 374(2) of the Code any person convicted D
on a Trial held by a Sessions Judge or an Additional Sessions Judge may
app_eal to the High Court. Section 384 provides for summary dismissal of
appeal if the Appellate Court does not find sufficient ground to entertain
the appeal. If, however, the appeal is not summarily dismissed, the Court
must cause notice to issue as to the time and place at which: such appeal
will be heard. Section 389(1) empowers the Appellate Court to order that E
the execution of the sentence or order appealed against be suspended
pending the appeal. What can be suspended under this provision is the
execution of t~e sentence or the execution of the order. Does 'Order' in
Section 389(1) mean order of conviction or an order similar to the one
under Sections 357 or 360 of the Code? Obviously the order referred to in p
Section 389(1) must be an order capable of execution. An order of convic-
tion by itself is not capable of execution under the Code. It is the order of
sentence or an order awarding compensation or imposing fine or release
on probation which are capable of execution and which, if not suspended,
would be required· to be executed by the· authorities. Since the -order of
conviction does not on the mere filing of an appeal disappear it is difficult G
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 H
472 SUPREME COURT REPORTS (199511 S.C.R.

A be so why seek a stay or suspension of ~he Order?

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
B 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
t
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 '
'
C one can be allowed to play hide and seek with the Colirt; he cannot
suppress the precise purpose for which he seeks suspension of the convic-
tion and obtain a general order of stay and then contend that the dis-
qualification ceased to operate. In the instant case if we turn to the
application by which interim 'stay' of the operation of the impugned
D judgment was secured we do not find a single 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.
E 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
F 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
pojnting out the consequences likely to fall on the continuance of the
G ~nviction 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 Seetion 267 of the Companies Act is wholesome and that is to ensure
H that the management of the company is not· in soiled hands. As we have
RAMANARANGv. RAMESHNARANG[AHMADI,CJ.) 473

pointed out earlier the Managing Director of a company holds a fiduciary A
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 B
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 C
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.

There is, however, substance in the argument that the Bombay High D
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 E
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 F
interim order there was no mention whatsoever that stay of conviction was
sought to avoid the disqualifcation under Section 267 of the Companies
Act. It was perfectly open to the Bombay High Court, without qilestioning
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 G
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 H
474 SUPREME COURT REPORTS (1995) 1 S.C.R.

A interim stay granted by. the Delhi High Court in the context of the aver-
ments made in the application seeking such an order.
.,,.
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
B Delhi High Court while granting stay of the impugned judgment did not
and could not have intended to stay the operation of the the disqualifica-
tion 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
c 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
D Section 267 of the Companies Act. If that was his intention he was clearly
..oh
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 Com-
E panies 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
apP.ropriate 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.
"j-...i
F
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
G 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 estab-
H lished guilt. Therefore, when an appeal is preferred under Section 374 of
{

RAMANARANGv. RAMESH NARANG [AHMADJ, CJ.] 475

the Code the appeal is against both the co!1viction and sentence and - A
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 in 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, B
therefore, of tke 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 a 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 C
so that the conviction 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. D
But while granting a stay of 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 ap-
propriate to protect the interest of the shareholders and the business of
~~~ E
For the above reasons we are of the opinion that since the interim
order of stay did not specifically extend to the stay of conviction for the
purpose of avoiding the disqualification under Section 267 of the C!Jm-
panies Act, there is no substance in the appeal and the appeal is, therefore,
dismissed. The appellant will pay the costs of this appeal which is quan- F
tified at Rs. 25,000/-.

R.P. Appeal dismissed.

'