2025 (7) TMI 1548 - HC - Money Laundering

Money Laundering - criminal conspiracy - reasonable cause to believe that the company is not carrying on any business or operation - Director or an authorized representative of a company can be complelled to be an accused to represent the company and it is the option of the company to appoint a representative or not - offences punishable under Section 420 read with 120B of the Indian Penal Code under Sections 13(2) read with 13(1)(d) of the Prevention of Corruption Act - HELD THAT - In the instant case in view of Section 70 of the PMLA Act 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. Section 250 of the Companies Act even though provides that when a company is dissolved under Section 248 of the Companies Act the same cease to operate as a company and the Certificate of Incorporation issued to it shall be deemed to have been cancelled from such date 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. If so it has to be inferred that even after dissolving a company the liability of the company still survives. If so such a company could not be held as ceased to operate as such and the same deemed to be in existence insofar as for the payment or discharge of the liabilities or obligations of the company. Be it so a dissolved company can be proceeded by initiating civil litigation for discharge of the liabilities or obligations of the company. 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. Holding so it has to be held that the action of the prosecution in arraying the 3rd accused as the representative of the 1st accused company who was the director of the company is only to be justified in the interest of justice. In such view of the matter the prayer in this petition to set aside the order whereby the Special Court was not inclined to remove the petitioner as the person who is representing the 1st accused company is liable to fail. The impugned order stands confirmed - Petition dismissed.

Summary

ISSUES:

Whether a dissolved company can be prosecuted for offences committed during its existence.Whether a director or authorized representative can be compelled to represent a dissolved company in criminal proceedings.The applicability and interpretation of Section 305 of the Code of Criminal Procedure, 1973, regarding representation of companies in criminal trials.The effect of Sections 248 and 250 of the Companies Act, 2013, on the prosecution and liabilities of dissolved companies.The scope and application of Section 70 of the Prevention of Money-Laundering Act, 2002 (PMLA Act) concerning offences by companies and their officers.The procedural lacuna regarding prosecution of dissolved companies and the need for legislative intervention.The relevance of judicial precedents on vicarious liability of directors and partners in criminal prosecutions when the company or firm is not prosecuted.

RULINGS / HOLDINGS:

A dissolved company can be prosecuted for offences committed during its existence by restoring its status or by prosecuting the persons who were in charge at the time of the offence, as "liability ... shall continue and may be enforced as if the company had not been dissolved."The prosecution cannot compel a director or authorized representative to represent a dissolved company; however, in the absence of specific legislative provisions, appointing a director as representative is justified "in the interest of justice."Section 305 of Cr.P.C. applies only to companies in existence that can appoint representatives; it does not expressly provide for prosecution of dissolved companies.Section 248(7) of the Companies Act, 2013, clarifies that liabilities of dissolved companies and their officers continue and can be enforced post-dissolution.Section 70 of the PMLA Act deems every person in charge of a company at the time of contravention and the company itself guilty of offences, without distinction between existing or dissolved companies.In the absence of specific procedural provisions to prosecute dissolved companies, the prosecution may seek restoration of the company or proceed against responsible individuals; legislative amendment is necessary to address this lacuna.Judicial precedents confirm that vicarious liability of directors or partners arises only when the company or firm is also prosecuted; partners can be liable jointly and severally with the firm, but a company cannot be prosecuted without being impleaded as an accused.

RATIONALE:

The Court applied Sections 248 and 250 of the Companies Act, 2013, establishing that dissolution does not extinguish corporate liabilities or the capacity to enforce them.Section 305 of Cr.P.C. was interpreted as procedural guidance applicable only to existing companies for appointing representatives in criminal trials.The Court relied on Section 70 of the PMLA Act, which imposes criminal liability on companies and persons in charge without limiting applicability to existing companies.Precedents from the Supreme Court clarified that directors' vicarious liability depends on prosecution of the company itself, emphasizing the necessity to arraign the company as an accused to hold officers liable.The Court recognized a procedural gap in prosecuting dissolved companies and recommended legislative intervention to amend procedural laws, including the Cr.P.C. and special statutes, to explicitly address prosecution of dissolved or struck-off companies.The Court noted that until such legislative provisions are enacted, prosecution may restore dissolved companies to the register or proceed against individuals responsible for the company's conduct to ensure accountability.The decision aligns with corporate criminal liability doctrines, including the doctrine of attribution, which holds companies liable for acts of persons in positions of authority, and ensures that dissolution does not provide impunity for offences committed during corporate existence.