1994 (6) TMI 158 - HC - Companies Law

Issues Involved:
1. Legality of the injunction order restraining the appellant and respondent No. 5 from obstructing respondent No. 1 from functioning as Chairman and Managing Director.
2. Validity of the appointment of respondent No. 1 as Managing Director in light of his conviction for an offense involving moral turpitude.
3. Whether the Delhi High Court's order suspending the operation of the conviction affects the applicability of Section 267 of the Companies Act.
4. Impact of previous consent terms and settlements on the current legal standing of respondent No. 1.
5. Whether the suit is maintainable if the relief in terms of prayer (b) is not granted.

Detailed Analysis:

1. Legality of the Injunction Order:
The judgment discusses the injunction order dated 17-8-1992, restraining the appellant and respondent No. 5 from obstructing or interfering with respondent No. 1's functioning as Chairman and Managing Director of respondent No. 2 company. The court upheld the injunction preventing the appellant from acting upon decisions taken at the alleged Board meeting on 13-7-1992 but set aside the injunction restraining the appellant from obstructing respondent No. 1 from functioning as Chairman and Managing Director.

2. Validity of the Appointment:
The court examined whether respondent No. 1 could be appointed or continue as Managing Director given his conviction for offenses involving moral turpitude. Section 267 of the Companies Act prohibits the appointment of a person convicted of an offense involving moral turpitude as a Managing Director. The court concluded that respondent No. 1's appointment as Managing Director was invalid due to his conviction, despite the suspension of the sentence by the Delhi High Court.

3. Impact of Delhi High Court's Order:
The court analyzed whether the Delhi High Court's order suspending the operation of the conviction affects the applicability of Section 267. It was determined that the suspension of the sentence does not equate to the suspension of the conviction itself. Section 389(1) of the Code of Criminal Procedure allows for the suspension of the execution of the sentence or order but not the conviction. Thus, respondent No. 1's conviction remains in effect, disqualifying him from holding the position of Managing Director under Section 267.

4. Previous Consent Terms and Settlements:
The judgment considered the impact of previous consent terms and settlements where the appellant had accepted respondent No. 1's position as Managing Director despite his conviction. The court held that the doctrine of estoppel does not apply when there is a violation of statutory provisions. Therefore, previous settlements do not override the statutory disqualification under Section 267.

5. Maintainability of the Suit:
The court addressed the appellant's argument that the suit would not be maintainable if the relief in terms of prayer (b) is not granted. It was concluded that the suit is maintainable as it is not instituted solely by respondent No. 1 but also by the company and another director. Even if respondent No. 1 cannot prosecute the suit as Managing Director, he can still proceed as a shareholder.

Conclusion:
The appeal was partly allowed. The court set aside the injunction restraining the appellant from obstructing respondent No. 1 from functioning as Chairman and Managing Director but upheld the injunction preventing the appellant from acting upon decisions taken at the alleged Board meeting on 13-7-1992. The court emphasized the mandatory nature of Section 267, which disqualifies respondent No. 1 from holding the position of Managing Director due to his conviction.

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