1995 (1) TMI 268 - SC - Companies Law

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? Held that - 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 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 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. 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 there is no substance in the appeal and the appeal is therefore dismissed.

Summary

Issues Involved:
1. Validity of the appointment of the appellant as Managing Director after his conviction.
2. Legality of the Board meeting held on 13-7-1992.
3. Interpretation of the interim order passed by the Delhi High Court.
4. Scope of Section 389(1) of the Code of Criminal Procedure.
5. Applicability of Section 267 of the Companies Act, 1956.

Detailed Analysis:

1. Validity of the appointment of the appellant as Managing Director after his conviction:
The primary contention was whether the appellant could be appointed or continue as the Managing Director of the company after his conviction in 1986 for offences involving moral turpitude. The Division Bench of the High Court concluded that the appointment of the appellant as Managing Director was not permissible under Section 267 of the Companies Act, which explicitly prohibits the appointment or continuation of a person as Managing Director if they have been convicted of an offence involving moral turpitude. The Division Bench emphasized that the provisions of Section 267 are mandatory, and the company had committed an infraction of this provision by appointing the appellant.

2. Legality of the Board meeting held on 13-7-1992:
The learned single Judge found that the Board meeting purported to have been held on 13-7-1992 was not properly and validly convened, and thus, the entire proceedings of that meeting were bad in law. This finding was based on the appreciation of evidence presented. Consequently, the interim reliefs sought by the appellant, including the declaration that the Board meeting was illegal and the decisions taken therein were null and void, were granted.

3. Interpretation of the interim order passed by the Delhi High Court:
The Division Bench of the High Court interpreted the interim order passed by the Delhi High Court, which stayed the operation of the impugned order, as not extending to the suspension of the conviction itself. The Division Bench opined that the powers of the Appellate Court under Section 389(1) of the Code of Criminal Procedure do not include the power to suspend the order of conviction. The Bombay High Court further held that the consequences flowing from 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 ends by the statute's mandate the moment the conviction is recorded.

4. Scope of Section 389(1) of the Code of Criminal Procedure:
The Supreme Court examined whether Section 389(1) of the Code of Criminal Procedure empowers the Appellate Court to stay the operation of the order of conviction. The Court concluded that Section 389(1) does not extend to suspending the order of conviction. The provision allows for the suspension of the execution of the sentence or order, but not the conviction itself. The Court also noted that the inherent powers under Section 482 of the Code cannot be exercised to pass orders not permissible under the Code.

5. Applicability of Section 267 of the Companies Act, 1956:
The Supreme Court affirmed that Section 267 of the Companies Act is mandatory and prohibits the appointment or continuation of a person as Managing Director if they have been convicted of an offence involving moral turpitude. The Court emphasized that the language of Section 267 is plain, simple, and unambiguous, and it intends to protect the interests of shareholders and ensure that the management of the company is not in the hands of a person convicted of such an offence. The Court also highlighted that the provisions for disqualification of a director under Sections 274 and 283 of the Act are different from those for a Managing Director, with the latter being more stringent.

Conclusion:
The Supreme Court dismissed the appeal, holding that the interim order passed by the Delhi High Court did not extend to staying the operation of Section 267 of the Companies Act. The Court emphasized the mandatory nature of Section 267 and the importance of ensuring that the management of a company is not in the hands of a person convicted of an offence involving moral turpitude. The appellant was ordered to pay the costs of the appeal, quantified at Rs. 25,000.