Kerala High Court Recommends Centre To Amend Criminal Procedural Law, Special Statutes To Effectively Prosecute Dissolved Companies

In a case concerning prosecution of a dissolved company accused of cheating various nursing aspirants of over Rs 100 crore, the Kerala High Court recommended to the Parliament to amend the criminal procedural law and if need be special statutes, for effective prosecution of dissolved companies.Justice A. Badharudeen in his order observed that Section 70 of PMLA Act does not distinguish a company as existing company or non existing company; at the same time, the "procedure law is silent" on how a company or corporation or society is prosecuted“Thus, obviously, there should be a legislation to prosecute companies, which committed various offences under various enactments, even after its dissolution or struck off and it is the legislative domain to do so. Therefore, it is high time to recommend the Central Legislature to address this question and make necessary provisions in the procedure law, so as to prosecute a dissolved or struck off company for the offences committed by the company during its existence.”The petitioner (3rd accused) was a director of the 1st accused private company, which was involved in the recruitment of manpower. As per the prosecution case, the accused persons 2 and 3 cheated nursing aspirants through the company and transferred around Rs. 100 crores to Dubai through hawala channels. After commission of the offences, the company was dissolved.Offences under IPC Sections 420 (cheating) read with 120B (criminal conspiracy), Sections 13(2), 13(1)(d) of the Prevention of Corruption Act (PC Act) and Sections 24, 25 of the Emigration Act and under Sections 3, 4 of the Prevention of Money-Laundering Act, 2002 (PMLA Act) were registered.The prosecution had named the petitioner as the representative of the 1st accused company and arrayed her as 3rd accused. She prayed before the Special Court (CBI) to remove her name as representative but the same was dismissed. Thereafter, she approached the High Court to set aside this order.In the present case, the High Court observed that in view of Section 70 PMLA and the overriding effect given under Section 71, a company can be prosecuted by following the procedure under Section 305 of Cr.P.C, if the same is in existence. It said that even though Section 250 Companies Act provides that when a company is dissolved under Section 248, it cease to operate as a company and the Certificate of Incorporation issued to it shall be deemed to have been cancelled from such date, however an exception is carved out for the purpose of realising the amount due to the company and for the payment or discharge of the liabilities or obligations of the company.The Court said that if such was the case, then it can be inferred that, even after dissolution, the liability of the company still survives; if so, then such a company could not be held as one which has ceased to operate, and would be deemed to be in existence insofar as for the payment or discharge of the liabilities or obligations of the company.It further said:"If so, is it fair to hold that a company can be proceeded for discharge of the liabilities and obligations of the company even after its dissolution, but could not be prosecuted for the offences committed by the company before its dissolution or struck off? In such view of the matter, in the absence of a specific provision to deal with the matter, the Parliament has to consider amendment of Criminal Procedure Code and if necessary the special statutes to address this situation. Till then, a company, which committed an offence before its dissolution or struck off, could not spared without being prosecuted. For the said purpose, the prosecution can get the company restored to existence and follow the procedure under Section 305 of Cr.P.C. or under Section 342 of the BNSS. If no such restoration is possible, the prosecution can show somebody who was in charge of the company in the Final Report to represent the dissolved company and continue the prosecution proceedings". The petitioner submitted that it is the prerogative of the company to appoint its representative and that she may not be compelled to do so, especially since the company is dissolved. The Enforcement Directorate, on the other hand, submitted that as per Section 248(7) of the Companies Act, the liability of the company and its officers shall continue even after dissolution.Referring to Section 305 of the Code of Criminal Procedure, the Court observed: “Reading Section 305 of Cr.P.C, it is clear that the above procedures would apply to a company in existence, so that the company could appoint a representative for the purpose of the inquiry or trial. But the company, corporation and society, which is not in existence, since it was dissolved or came to an end by operation of law, how the company, corporation or society to be prosecuted is not dealt under the Cr.P.C. or under Bharatiya Nagarik Suraksha Sanhita, 2023.”The Court noted that as per the Companies Act, when a...

Kerala High Court Recommends Centre To Amend Criminal Procedural Law, Special Statutes To Effectively Prosecute Dissolved Companies

K. Salma Jennath

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