Introduction
In the case of Biman Bangladesh Airlines Limited v. Kuka Travels Private Ltd.[i], the High Court of Calcutta ('HC') addressed the issue of accountability of directors of a struck-off company, following the dishonour of an account payee cheque issued by Kuka Travels (P) Limited (Opposite Party 1). The decision reaffirmed the principle that the liability arising from a dishonoured cheque extends to the directors of a struck-off company, which cannot be evaded by simply dissolving the company. The HC’s ruling underscores the importance of upholding legal obligations and preventing individuals from exploiting corporate structures to escape liability, thereby safeguarding the integrity of the legal system.
Facts
Opposite Party 1, in fulfilling its business obligations, issued an account payee cheque to Biman Bangladesh Airlines Limited (‘Petitioner’).
The cheque was subsequently dishonoured due to insufficient funds in Opposite Party No.1’s account. Despite having issued a subsequent legal demand notice, Opposite Party No.1 failed to settle the outstanding dues.
As a result of the non-payment, the Petitioner filed a complaint under ss. 138/141 of the Negotiable Instrument Act, 1881 (‘NI Act’). Upon the issuance of summons by the Magistrate, Opposite Party 2 and 3 appeared before the Ld. Magistrate’s Court, however, service could not be affected on Opposite Party 1 due to its undisclosed new address.
The Petitioner then applied for substitute service under s. 65 of the Code of Criminal Procedure, 1973 (‘CrPC’), which was, however, rejected by the Ld. Metropolitan Magistrate on the ground that there was no provision for substituted service of summons under the CrPC.
Aggrieved by this order, the Petitioner filed a revision application before the HC to question whether the liability of the directors of a company is affected by the company’s dissolution when the offence was committed while the company was operational.
Held
The HC set aside the order of the Ld. Metropolitan Magistrate held that the dishonoured cheque's liability extends to the directors of the company that was struck off, i.e., Opposite Party 1. This decision was based on the fact that the directors (Opposite Parties 2 & 3) were managing the activities of the company while it was operational.
The HC emphasized that the directors' liability persists beyond the company's dissolution and directed the Trial Court to proceed personally against the directors for the liabilities incurred.
Analysis
This decision marks a significant point in corporate jurisprudence by affirming that the accountability of directors extends beyond the dissolution of their company, underlining the enduring nature of directorial responsibilities. The ruling in this case emphasizes that dissolving a company does not shield its directors from financial liabilities incurred during its operational period. This precedent has broad implications for the legal landscape, potentially influencing future legal interpretations and prompting legislative changes to strengthen corporate governance and accountability frameworks. By establishing that directorial liabilities persist past corporate dissolution, the judgment encourages a re-evaluation of existing corporate law frameworks, advocating for clearer definitions and stricter enforcement of directorial duties.
End Note
[i] 2024 SCC OnLine Cal 2142
Authored by Pranav Dabas, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.
AUTHORED BY
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