Kerala HC Upholds Prosecution of Director as Representative of Dissolved Company in ₹100 Crore PMLA Case | Recommends Legal Framework to Prosecute Non-Existent Entities
Sanchayita Lahkar
The High Court of Kerala Single Bench of Justice A. Badharudeen dismissed a plea seeking removal of an individual as the representative of a dissolved company in criminal proceedings. The court held that the prosecution is justified in continuing proceedings against the company through its former director, even after its dissolution. In doing so, the court confirmed the validity of a lower court order which had declined the request to relieve the director from representing the company. The judgement permits the prosecution to continue trial proceedings against the company by utilising the representation of the former director.
The judgment clarified that statutory provisions do not preclude the prosecution of companies that ceased to exist, particularly where the alleged offence occurred during their operational period. The court stated that legal liability persists beyond corporate dissolution for actions committed prior to that dissolution. The court dismissed the plea and confirmed the impugned order, thereby allowing the prosecution to proceed. A copy of the order was directed to be sent to the Law Secretary of the Union of India to consider legislative amendments to address prosecution of dissolved entities.
The matter originated from a criminal case involving M/s. Al Zarafa Travels and Manpower Consultants Pvt. Ltd., a private limited company formerly engaged in manpower recruitment. The prosecution alleged that during the period from December 2014 to March 2015, accused Nos. 2 and 3, acting on behalf of the company, engaged in a conspiracy to defraud nursing aspirants. The alleged fraudulent activities resulted in the collection of substantial sums, approximately Rs. 100 crores, which were transferred to Dubai through illegal hawala channels.
According to the prosecution, the 1st accused was the company itself, M/s. Al Zarafa Travels and Manpower Consultants Pvt. Ltd. The 2nd accused was identified as the kingpin of the operation and initially controlled the company before appointing his wife as director and an employee, Renny Eapen, as a second director. Subsequently, the 2nd accused resigned from the directorship.
The 3rd accused, the petitioner in the present matter, was also a director of the company during the time of the alleged offence. The prosecution asserted that she assisted in generating and transferring proceeds of crime.
Charges were framed under Section 420 read with Section 120B of the Indian Penal Code, Sections 13(2) read with 13(1)(d) of the Prevention of Corruption Act, Sections 24 read with 25 of the Emigration Act, 1983, and Sections 3 and 4 of the Prevention of Money Laundering Act, 2002 (PMLA).
The petitioner challenged her representation of the dissolved company before the Special Court. She relied on a notification from the Registrar of Companies dated 15.07.2021, indicating that the company had been dissolved under Section 248 of the Companies Act, 2013. It was argued that since the company had ceased to exist, it could no longer appoint a representative, and she could not be compelled to represent it.
The petitioner cited Section 305 of the Criminal Procedure Code (Cr.P.C), which outlines the procedure for prosecuting corporations or registered societies. Under this provision, a corporation may appoint a representative for inquiry or trial. The petitioner argued that, as the company was no longer in existence, such representation was not legally permissible.
Reference was also made to Section 70 of the PMLA, which states that when a company commits a contravention, persons in charge at the relevant time shall be deemed guilty. However, the petitioner contended that this does not empower the court or prosecution to appoint someone to represent a non-existent company.
The petitioner further cited case law from the Karnataka High Court in Krishnaswamy Sridhar v. State by CBI [CDJ 2021 Kar HC 1543], wherein the court addressed the procedure under Section 305(4) Cr.P.C. when no representative appears.
On behalf of the Enforcement Directorate, it was submitted that under Section 248(7) of the Companies Act, the liability of directors and officers of a dissolved company continues and may be enforced as though the company had not been dissolved.
The court was thus required to examine the procedural viability of prosecuting a company that had been dissolved by operation of law, and whether an individual formerly associated with the company could be compelled to represent it in criminal proceedings.
The court observed that "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." It noted that neither the Criminal Procedure Code nor the Bharatiya Nagarik Suraksha Sanhita (BNSS) specifically address prosecution of dissolved entities.
On the question of corporate liability, the court stated: "Where the company ceases to exist as a legal entity after being struck off, its liabilities and the liability of its officers for actions taken during its existence remain." The court stated that dissolution does not absolve the company or its officers from prosecution.
The judgment explained that "If a company commits an offence, not only the company be prosecuted, but also the individuals who were responsible for the affairs of the company and for the offences within the company can be prosecuted."
Regarding the issue of how to proceed with prosecution after dissolution, the court remarked: "When a company is dissolved or came to an end by operation of law, then also the offence committed by the company can be prosecuted, because striking off or dissolution does not erase liability of the company and in such cases the company has to be restored to the register."
It also stated that "Section 252 of the Companies Act, 2013, allows aggrieved parties or regulators like ROC, SEBI, IT Department, to apply to the National Company Law Tribunal (NCLT) for restoration, within three years from the date of dissolution or striking off."
Further, the court cited a recent Supreme Court decision in Dhanasingh Prabhu v. Chandrasekar and another [2025 SCC OnLine SC 1419]. In that case, the Supreme Court clarified that vicarious liability for company-related offences requires the company to be arraigned as an accused unless the law states otherwise.
Drawing from the Supreme Court's observations, the Kerala High Court remarked: "The commission of an offence by a company is an express condition precedent to attract the vicarious liability of others such as directors or employees of a company."
It further reasoned: "If a company can be proceeded for discharge of 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?"
Ultimately, the court concluded: "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."
The court concluded by affirming the prosecution’s approach in continuing proceedings against the company through its former director. The court stated:
"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 consequence, the court declined to interfere with the lower court’s decision and dismissed the petition. It stated: "In the result, this petition stands dismissed and the impugned order stands confirmed."
The court issued further administrative directions:
"Registry is directed to forward a copy of this order to the Law Secretary of the Union of India, forthwith, for further steps in tune with paragraph Nos.23 and 24 of this order."
"Registry is further directed to forward a copy of this order to the Special Court, within seven days, for information and further steps."
Advocates Representing the Parties:
For the Petitioners: Sri. S. Rajeev, Sri. V.V. Vinay, Sri. M.S. Aneer, Shri. Prerith Philip Joseph, Shri. Sarath K.P.
For the Respondents: Public Prosecutor; Shri. Jaishankar V. Nair, Standing Counsel, Enforcement Directorate; Special Public Prosecutors VACB – Rajesh A, Rekha S.
Case Title: Susan Thomas v. State of Kerala & Anr.
Neutral Citation: 2025: KER:54879
Case Number: Crl.M.C. No. 6570 of 2022
Bench: Justice A. Badharudeen
