Hiding Behind The Company Did Not Work When The Promise Itself Was False
A contractor paid Rs 21 lakh as security for a power company's tender that went nowhere. Its engineer and chairman were held personally liable, and a Chief Justice-led bench has upheld the decree.
The Court held the officers' acts went beyond ordinary corporate duties, and they owed a duty to the contractor as a third party. A representation made without honest belief in its truth, or recklessly, is fraud. With fraudulent inducement proved, a personal decree was valid even though the company was not a party. The appeal was rejected.
- Recklessness about the truth is enough to make a statement fraudulent.
- Officers can be personally liable where they induce a third party by misrepresentation.
- The company need not be a party for a personal decree to stand.
- Rs 21 lakh with 9 per cent interest must now be paid by the officers.
- Court
- High Court of Sikkim at Gangtok
- Bench
- Justice HON'BLE THE CHIEF JUSTICE MR. A. MUHAMED MUSTAQUE, Justice HON'BLE MR. JUSTICE BHASKAR RAJ PRADHAN
- Citation
- Com. A. No. 4 of 2025
- Case
- Com. A. No. 4 of 2025
- Decided
- 11 September 2026
- Outcome
- Commercial appeal rejected; personal decree for Rs 21 lakh with interest upheld
The deposit
The plaintiff paid Rs 18,00,000 and Rs 3,00,000 in late 2016 as a security deposit to bid for a tender of a power development company. The defendants were its engineer-in-charge and its chairman.
The Commercial Court at Gangtok found the Rs 21,00,000 went into the company's account, and in December 2024 decreed the suit against both defendants personally, with interest at 9 per cent.
Only the engineer appealed, arguing he was an employee, that the company was a necessary party, and that his written undertaking to refund was given under duress.
Why the officers were liable
The Court held the defendants' defence that they acted on behalf of the company had to be rejected: their acts went beyond carrying out ordinary corporate duties, and as officers they owed a duty to the plaintiff as a third party.
Their acts reflected, at the least, recklessness as to the truth, which is enough. A representation made without an honest belief in its truth amounts to fraud. The engineer had abstained from enquiring into, or closed his eyes to, whether the project existed at all.
With fraudulent inducement and misrepresentation proved, a personal decree against the defendants was not illegal merely because the company had not been made a party.
The result
The appeal was rejected and the Commercial Court's judgment and decree upheld.
Who argued it
Appearances as recorded in the judgment of the Court.
Frequently asked
Can a company's officers be personally liable for money paid to the company?
Yes, where they induced the payment by fraudulent misrepresentation, as found here.
Must the company be sued too?
Not for a personal decree against officers who committed the fraud, the Court held.
Recovering money from a company's officers
- Record exactly what each officer told you and when.
- Show whether the officers checked, or ignored, whether the project was real.
- Keep any written undertaking to refund.
- Plead fraud against the officers personally, not only the company.
Source. High Court of Sikkim at Gangtok, Com. A. No. 4 of 2025, decided 11 September 2026 by Justice HON'BLE THE CHIEF JUSTICE MR. A. MUHAMED MUSTAQUE, Justice HON'BLE MR. JUSTICE BHASKAR RAJ PRADHAN. This explainer is written from the judgment text as reported.
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