A company cannot act on its own but works through its directors. Crooked directors cheat consumers and even attempt to avoid compliance with orders of consumer disputes fora by trying to take shelter behind a corporate identity. Such directors can be criminally prosecuted, by lifting the corporate veil.
Manipal Sowbhagya Nidhi opened an office in Goa and lured investors with attractive schemes. Many investors were senior citizens dependent on interest income from investments. Later, the company closed its Goa office and defrauded the investors.
The investors formed an 'All Goa Manipal Finance Group of Companies Creditors Association' and filed a consumer complaint before the Goa State Commission. The company questioned the validity of the proceedings in Goa, claiming the case would have to be filed in Manipal, since its registered office was there. It also claimed a consumer complaint would not be maintainable, as a company petition was pending in the Karnataka high court.
Overruling these objections, the State Commission held a complaint could be filed in Goa because the company had accepted the investments in Goa. It ordered the company to refund investors' money with interest and costs. The company approached the National Commission, which directed the maturity value of the investments be repaid at nine per cent and Rs 2,000 as costs to each of the 269 investors. The company then approached the Supreme Court, which dismissed the petition.
The company failed to pay and money could not be recovered through civil proceedings. The investors filed execution proceedings for holding the company's managing director, Tonse Narayana M Pai, criminally guilty of disobedience of the order.
Pai claimed he was not a party in the original proceedings and no vicarious liability could be fastened on him. Rejecting this objection, the State Commission observed a company acted through its board of directors and is managed by the managing director. He cannot hide behind the company to delay the recovery of dues. To secure Pai's presence, the State Commission issued an arrest warrant against him, which Pai challenged before the National Commission.
Relying on various judgements, the National Commission observed the person in charge of the company was liable to comply with the order passed by consumer fora, and could be prosecuted for non-compliance. This was permissible by invoking the principle of lifting corporate veil. In this case, the order could have been complied with by selling the company's properties and repaying the investors but Pai had failed to do so and objected to the attachment of properties. Hence, he was guilty of wilful and deliberate disobedience of consumer fora orders.
The National Commission dismissed Pai's appeal and directed him to be present before the State Commission to face trial. If he failed to appear, his presence should be obtained by issuing a non-bailable arrest warrant.
The National Commission also observed no leniency should be shown to litigants who go on filing meritless petitions in order o cover their faults. Equity demands, it held, that such unscrupulous litigants, whose only aim is to deprive the consumer of the fruits of the decree must be dealt with a heavy hand, otherwise it would encourage wrongdoers.
Accordingly, the National Commission imposed a cost of Rs 25,000 per appeal, totalling to Rs 1 lakh for the four appeals filed by Pai. The amount was directed to be paid to the Consumer Legal Aid Account within two months, and would attract additional nine per cent interest in delayed.
This judgement should send a strong signal to wrongdoers that gimmicks to delay justice will not be tolerated.
The writer is a consumer activist
