Former Director Cannot be Forced to Represent Company in PMLA Case: Calcutta HC [Read Order]

The Calcutta High Court, in a recent case, has held that a former director cannot be compelled to represent a company in criminal proceedings under the Prevention of Money Laundering Act, 2002.

The petitioner, Suman Chattopadhyay, arraigned as accused no. 22 in a moneylaundering case linked to the Sarada Group of Companies, challenged an order of the CBI Court dated November 3, 2022, which insisted that he represent accused no. 23, M/s Disha Production & Media Pvt. Ltd., despite his resignation from the company in March 2013.

The petitioner argued that Disha Production and Akdin Media Pvt. Ltd. are independent juristic entities distinct from their directors and shareholders. He contended that he could not be compelled to represent Disha, having resigned years before the summons was issued, and that under Section 305 Cr.P.C., only a duly authorised representative appointed by the company itself can appear during trial.

He further submitted that summons were improperly served at his personal address rather than the registered office of the company, and that the Enforcement Directorate (ED) was fully aware of his resignation, as Form 32 was publicly available.

The ED opposed the plea, alleging that Chattopadhyay was directly involved in layering and parking proceeds of crime from the Sarada Group through Disha and Akdin Media. It argued that Section 70 of PMLA makes persons in charge of a company at the time of commission of the offence liable alongside the company, and that resignation after the offence period was irrelevant.

The ED maintained that Chattopadhyay had floated the companies for money laundering purposes, received illegal gratification, and was therefore rightly arraigned both individually and as representative of Disha.

Justice Ajoy Kumar Mukherjee examined the statutory framework, noting that Section 70 of PMLA is pari materia with Section 141 of the Negotiable Instruments Act, which deals with offences by companies.

He highlighted that while directors may be held liable for offences committed during their tenure, representation of a company in trial is governed by Section 305 Cr.P.C., which requires the company itself to nominate a representative.

Citing precedents including RC Cooper v. Union of India (1970), Standard Chartered Bank v. Directorate of Enforcement (2005), and rulings of the Madras, Bombay, and Gauhati High Courts, the Court held that neither the prosecution nor the court can insist that a particular individual represent a company.

The Court observed that compelling an unwilling former director to represent a company, particularly when he is separately prosecuted in his personal capacity, is unlawful. It clarified that the representation of a company must not be confused with liability for offences committed by the company.

While directors may remain liable for offences committed during their tenure, representation in trial is a matter of corporate choice.

Accordingly, the High Court set aside the trial court’s order insofar as it required Chattopadhyay to represent Disha Production & Media Pvt. Ltd. It directed that a summons be issued to the company at its registered office, and that the company nominate its own representative and if no step is taken by the company in appointing his representative in the case, learned magistrate shall proceed in accordance with the provision of law under section 305(4) of the Cr.P.C

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates