Company Law Case: Rishi Prasad Jaisi vs. Dilli Prasad Sapkota, NKP 2078 B.S, Vol.9, Pages 1313
Case: Corporate Criminal Liability, cheating
Plaintiff: Government of Nepal, on the complaint of Rishi Prasad Jaisi and other victims.
Defendant: Dilli Prasad Sapkota,Tulsi Devi Kandel, Hum Lal Kandel
Decision No: 10744
This case is related to corporate criminal liability and cheating
Facts of the Case:
Trimurti Marketing was initially registered in the name of Shyam Prakash Sapkota and was later transferred to Hum Lal Kandel. Shiv Shakti Traders and Suppliers was registered in the name of Tulsi Devi Kandel. The businesses operated from the premises of the Surkhet Chamber of Commerce. The businesses were involved in remittance-related transactions, but the evidence showed that they also accepted money from members of the public by promising attractive interest, opened accounts for them, and retained their money. The registered purpose of Trimurti Marketing was related to remittance activities; it did not have authorization for the broader deposit taking or banking type activities that it was carrying out. Several complainants stated that money had been sent from abroad through the businesses for payment to them. Instead of paying the intended recipients, the operators allegedly persuaded people to leave the money in the business by promising attractive interest. When the depositors later demanded their money, they were repeatedly given excuses and were not paid. Eventually, the business offices were closed and the operators became unavailable. Some complainants also alleged that they had deposited substantial amounts after being promised 12% interest, while another transaction involved the purchase of a vehicle for which payment had been made but the vehicle was allegedly not transferred to the buyer’s name. The prosecution claimed a total cheating amount of approximately Rs. 1,02,08,807/-, relating to Trimurti Marketing, and an additional Rs. 6,00,000/- concerning Shiv Shakti Traders. However, after the criminal case was filed, many complainants subsequently received their money and gave receipts or statements acknowledging repayment. Several complainants also testified that their dealings were actually loan transactions rather than cheating.
Plaintiff’s Claim:
The Government argued that defendants had deliberately misled members of the public, collected their money without proper authority, promised high interest, failed to return the money when demanded, and eventually closed the businesses and disappeared. The prosecution argued that this was not merely a civil dispute. According to the Government, defendants had intentionally used Trimurti Marketing and Shiv Shakti Traders as vehicles for obtaining and retaining other people’s money and therefore their conduct constituted cheating under the Chapter of Cheating of the Muluki Ain. The Government further argued that High Court had made a serious error by converting the criminal case into a civil transaction/loan dispute merely because some complainants later received their money after the criminal proceedings had already begun. It sought punishment according to the original criminal charge.
Defendants’ Arguments:
Dilli Prasad Sapkota: He argued that the transactions were essentially financial/loan transactions, not cheating. He stated that Trimurti Marketing was registered in his father-in-law’s name but that he personally operated it, while Shiv Shakti Traders was registered in his wife’s name and he handled its transactions. He maintained the accounts and ledgers could establish what amounts were owed and that the matter should therefore be treated as a civil transaction.
Tulsi Devi Kandel: Tulsi Devi denied committing cheating. She argued that although Shiv Shakti Traders was registered in her name, the actual financial transactions were handled by her husband, Dilli Prasad Sapkota. She therefore claimed that she should not be criminally liable merely because the firm was registered in her name.
Hum Lal Kandel: Hum Lal Kandel argued that he did not actually operate Trimurti Marketing or conduct its financial transactions. Although the firm had been transferred into his name, he claimed that he had not participated in the alleged cheating and had not taken the complainants’ money.
The defense also emphasized that many complainants themselves testified that their dealings were ordinary financial transactions and that they had eventually received their money.
Legal Issues:
- Whether the conduct of defendants constituted cheating under the Muluki Ain?
- Whether repayment of money after the filing of the criminal case removes criminal liability?
- Whether the unauthorized acceptance of public money and promise of high interest constituted cheating?
- Whether a registered owner of a firm can automatically be held criminally liable merely because the firm is registered in his/her name?
- Whether Dilli Prasad Sapkota, Tulsi Devi Kandel and Hum Lal Kandel each had the necessary criminal involvement and intention?
- Whether criminal liability must be established through evidence of the individual’s actual involvement rather than merely through registration of the business?
Decision of Courts:
Surkhet District Court: District Court found that defendants had committed cheating. It held that Hum Lal Kandel, Tulsi Devi Kandel and Dilli Prasad Sapkota had been involved in receiving money, conducting the transactions and failing to return the money. It therefore convicted them.The sentences were:
Hum Lal Kandel: 1 year imprisonment + Rs. 38,02,936/- fine
Tulsi Devi Kandel: 4 years imprisonment + Rs. 38,02,936/- fine
Dilli Prasad Sapkota: 5 years imprisonment + Rs. 38,02,936/- fine
The District Court also ordered recovery of the amounts due to the complainants.
Surkhet High Court: The High Court took a different view, It considered the statements of many complainants who testified that their dealings were loan/financial transactions rather than cheating. It also considered that many complainants had received their money after the criminal case was filed. The High Court therefore reversed the District Court’s judgment and converted the matter from a criminal cheating case into a civil transaction/loan dispute under Section 27 of the Government Cases Act, 2049.
Supreme Court: The Supreme Court reversed the High Court’s decision and held that the conduct did amount to cheating under Section 1 of the Chapter on Cheating of the Muluki Ain. The Court emphasized that defendants had taken money belonging to others, promised attractive interest, retained money that they were required to pay, conducted activities beyond the authorized purpose of the firm, failed to return money when demanded and ultimately closed the business and became unavailable. These circumstances showed the required deceptive conduct and therefore fall within the legal definition of cheating.
Repayment did not erase the offence; The Supreme Court made an important distinction.
Many complainants received their money after the criminal case had already been filed. The Court held that such later repayment could affect the amount of loss (bigo) , but it did not completely eliminate the criminal offence that had already been committed. The Supreme Court held:
Dilli Prasad Sapkota: guilty of cheating; 1 year imprisonment + Rs. 5,000/- fine
Tulsi Devi Kandel: acquitted
Hum Lal Kandel: acquitted
The Court did not determine an additional bigo against Dilli Prasad because the record did not clearly establish which complainants still had amounts outstanding. Those who could establish that money remained unpaid could pursue recovery according to law. Although the District Court had imposed substantially heavier punishment, the Supreme Court ultimately imposed 1 year imprisonment and Rs. 5,000/- on Dilli Prasad. The record further shows that he had already spent 2 years, 4 months and 24 days in custody, resulting in the sentence and fine being effectively accounted for as directed by the Court.
Established Principles:
- A person cannot be held criminally liable merely because a firm or company is registered in that person’s name: Where a crime is committed through a firm or company, the court must examine the actual conduct and criminal intention of the particular individual. The mere fact that someone is the registered owner or proprietor is not sufficient by itself to establish criminal liability.
- The business may be registered in your name, but that alone does not make you a criminal. The prosecution must prove that you actually participated in the criminal act or had the necessary criminal intention.”
- Separate registration/ownership of a business ≠ automatic criminal liability of the registered person.
