2006 (11) TMI 340 - HC - Companies Law

Summary

Issues:
Review of order restraining a director from participating in company management due to disqualification.

Analysis:
The petitioners sought a review of an order restraining a director from participating in the company's management due to disqualification incurred by him. The petitioners filed a suit regarding the board of directors and management of the company, leading to multiple revisions. The court's order directed the participation of both petitioners and respondents in the company's affairs until the suit's disposal. The review petition contended that the first respondent's disqualification as a director arose from a conviction and sentence under the Companies Act. The first respondent argued that his sentence was suspended pending appeal, providing him protection to continue as a director.

The main issue was whether the first respondent's disqualification warranted his removal from the board of directors. The first respondent was convicted for offenses involving moral turpitude and sentenced to imprisonment. Section 274 of the Companies Act outlines disqualifications for directors, including convictions for moral turpitude. However, a different provision in section 283 addresses the vacation of office by directors if they incur disqualifications during their term. Subsection (2) of section 283 provides protection to directors facing disqualification until the appeal process is exhausted.

The judgment highlighted the distinction between disqualifying a person from appointment as a director and causing the cessation of office for an existing director due to disqualification. The Act's provisions ensure that a director facing disqualification can continue in office until the appeal process is concluded. The judgment compared this distinction to similar provisions in other enactments, emphasizing the protection granted to directors under section 283 until the appeal process is finalized.

Ultimately, the court dismissed the review petition, stating that the first respondent, despite incurring disqualification, could not be compelled to vacate the office due to the protection provided under section 283(2) of the Companies Act. The judgment concluded that the first respondent's appeal against the conviction and sentence justified his continuation as a director.