1. Commercial suit for recovery of security deposit paid for a road construction contract where the underlying project agreement was terminated before payment. (Para 1 , 2 , 4 , 12 , 14 )
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2026 Supreme(Sikk) 63
THE HIGH COURT OF SIKKIM : GANGTOK
A. Muhamed Mustaque, C.J., Bhaskar Raj Pradhan, J.
Ujjwal Rai (Chamling), Son of Gopal Rai - Appellant
Versus
Pawan Kumar Pradhan, Son of Moti Chand Pradhan - Respondent
COM. A. No. 4 of 2025
Decided On : 11-09-2026
Important Points
Corporate officers are personally liable for fraudulent misrepresentations used to induce a third party to part with money. This liability exists independently of whether the funds were deposited into a corporate account, and non-joinder of the company does not invalidate a suit based on individual fraud.
Subject
Civil Law - Commercial Disputes
Headnote
(A) Commercial Law - Recovery of money - Fraudulent Misrepresentation - Personal liability of corporate officers - Where corporate officers induce a third party to make payments through fraudulent misrepresentation, they can be held personally liable for the recovery of said amount, regardless of whether the funds were deposited into a corporate account (Paras 16-17).
(B) Civil Procedure - Non-joinder of necessary party - A suit based on personal fraudulent misrepresentation is maintainable against individuals even if the funds were deposited into a company's account and the company was not impleaded as a party (Para 17).
(C) Fraud - Representation made without an honest belief in its truth, especially where the party abstains from inquiring about the existence of the project or closes their eyes to its non-existence, amounts to fraud (Para 17).
Facts of the case:
The plaintiff was induced by the corporate officers of a company to deposit a security amount for a construction project. The officers represented that the work was available, whereas the underlying implementation agreement for the project had been terminated by the state government several years prior. Relying on these representations, the plaintiff deposited the security amount into the company's account. The defendants, serving as the Chairman and Engineer-in-charge, were later sued for the recovery of the amount.
Findings of Court:
The court found that the defendants knowingly deceived the plaintiff by suppressing the fact that the implementation agreement had been terminated. The issuance of a letter of acceptance and work order despite the termination of the project evidenced fraudulent intent. The defendants' actions exceeded ordinary corporate duties and constituted recklessness as to the truth.
Issues: Whether the plaintiff should be non-suited for failing to implead the company as a party since the security deposits were paid into the company's bank account.
Ratio Decidendi: Corporate officers are personally liable for fraudulent misrepresentations that induce a third party to part with money. The maxim qui facit per alium facit per se applies when officers use a corporate entity as a vehicle for fraud. Because the suit was based on personal fraud and misrepresentation rather than just a corporate debt, the non-joinder of the company as a party does not render the personal decree against the defendants illegal (Para 17).
Result: Appeal rejected.
(B) Civil Procedure - Non-joinder of necessary party - A suit based on personal fraudulent misrepresentation is maintainable against individuals even if the funds were deposited into a company's account and the company was not impleaded as a party (Para 17).
(C) Fraud - Representation made without an honest belief in its truth, especially where the party abstains from inquiring about the existence of the project or closes their eyes to its non-existence, amounts to fraud (Para 17).
Facts of the case:
The plaintiff was induced by the corporate officers of a company to deposit a security amount for a construction project. The officers represented that the work was available, whereas the underlying implementation agreement for the project had been terminated by the state government several years prior. Relying on these representations, the plaintiff deposited the security amount into the company's account. The defendants, serving as the Chairman and Engineer-in-charge, were later sued for the recovery of the amount.
Findings of Court:
The court found that the defendants knowingly deceived the plaintiff by suppressing the fact that the implementation agreement had been terminated. The issuance of a letter of acceptance and work order despite the termination of the project evidenced fraudulent intent. The defendants' actions exceeded ordinary corporate duties and constituted recklessness as to the truth.
Issues: Whether the plaintiff should be non-suited for failing to implead the company as a party since the security deposits were paid into the company's bank account.
Ratio Decidendi: Corporate officers are personally liable for fraudulent misrepresentations that induce a third party to part with money. The maxim qui facit per alium facit per se applies when officers use a corporate entity as a vehicle for fraud. Because the suit was based on personal fraud and misrepresentation rather than just a corporate debt, the non-joinder of the company as a party does not render the personal decree against the defendants illegal (Para 17).
Result: Appeal rejected.
Legal Category Hierarchy
-
practice and procedure
- parties and joinder
- pleadings
- issues
- evidence
- reliefs and remedies
- tort and civil wrongs
- commercial law
Advocates Appeared:
For the Appellant :Mr. Sunil Baraily and Mr. Leada T. Bhutia, Advocates
For the Respondent:Mr. N. Rai, Senior Advocate (Legal Aid Counsel) with Ms Tara Devi Chettri, Advocate, Mr. Umesh Ranpal and Ms Rubusha Gurung, Advocates
For the Appellant :Mr. Sunil Baraily and Mr. Leada T. Bhutia, Advocates
For the Respondent:Mr. N. Rai, Senior Advocate (Legal Aid Counsel) with Ms Tara Devi Chettri, Advocate, Mr. Umesh Ranpal and Ms Rubusha Gurung, Advocates
Table of Contents
2. Appellant, an employee, argued he was not personally liable; respondent pleaded fraudulent misrepresentation by company officers inducing payment. (Para 1 , 2 , 11 , 12 )
3. Court found defendants actively misrepresented the project's existence and connived to induce plaintiff to deposit money into the company account. (Para 9 , 10 , 13 , 14 , 16 )
4. Company officers are personally liable for fraudulent misrepresentation inducing third parties, even if payments went to the company account. (Para 17 )
5. Appeal rejected; impugned judgment and decree upheld, directing repayment with interest. (Para 18 )
6. When can company officers be held personally liable for misrepresentation inducing a third party to pay the company?
When officers, fully aware of the termination of the underlying project, actively connive to misrepresent the project's existence and induce payment. (Para 14 , 16 , 17 )
7. What is the legal significance of an undertaking given under police direction that is never revoked?
An undertaking given under police direction, if not revoked or complained about, is binding and indicative of the defendant's acknowledgment of liability. (Para 12 )
8. Does failure to implead a company as a party defeat a personal decree for fraud against its officers?
No, because the suit is for fraudulent misrepresentation by officers personally, not for recovery from the company; the company is not a necessary party. (Para 15 , 16 , 17 )
9. What constitutes fraudulent misrepresentation in the context of a terminated project?
Issuing acceptance letters, work orders, and agreements for a project known to have been terminated, without disclosing the termination, amounts to fraudulent misrepresentation. (Para 10 , 16 )
10. What is the standard of proof for misrepresentation in a civil suit?
The plaintiff must prove misrepresentation at least by preponderance of probabilities. (Para 8 )
JUDGMENT :
Bhaskar Raj Pradhan, J.
1. The appellant Ujjwal Rai (Chamling) (Appellant/defendant no.1) assails the judgment and decree both dated 18.12.2024 in Commercial Suit No. 09 of 2023 passed by the learned Commercial Court, Gangtok, against the defendants. The respondent no. 2 – Thupden Tashi Lepcha (Respondent no.2/the defendant no.2) has not challenged the impugned judgment and decree. The learned Commercial Court decreed the Commercial Suit in favour of Pawan Kumar Pradhan (the respondent no.1/the plaintiff) and directed the defendants to pay a sum of Rs.21,00,000 along with interest @9% per annum with effect from 24.02.2022 until complete realisation.
2. The defendant no.1 who has suffered the judgment and decree passed by the learned Commercial Court seeks to assail it on the ground that he was only an employee of Green Lake Power Development Private Limited (Green Lake Company) as Engineer In- charge and therefore, he ought not to have been made liable to make repayment of the amount paid to the Green Lake Company by the plaintiff. The defendant no.1 contends that the Green Lake Company was a necessary party as the amount of Rs.21,00,000/- paid by the plaintiff was deposited into the account of the company and not to his personal account. It is contended that in fact it was also the case of the plaintiff that the defendant no.1 was the Engineer In-charge of the Green Lake Company as averred in paragraph 1 of the plaint. The defendant no.1 pleads that the defendant no.2 had admittedly issued cheque amounting to Rs.40,00,000/- dated 26.06.2017 in favour of the plaintiff as refund of the security amount deposited by him. It is contended that in fact the learned Commercial Court did not frame any issue against the defendant no.1. The defendant no.1 further submits that the written undertaking dated 27.08.2019 given by him to refund Rs.21,00,000/- within two months from the date of undertaking was an undertaking made on force, duress and coercion. In fact, according to the defendant no.1, he was not the authorised person to execute the written undertaking dated 27.08.2019 on behalf of the Green Lake Company.
3. On the rival pleadings of the plaintiff, the defendant no.1 and the defendant no.2, six issues were framed by the learned Commercial Court. The learned Commercial Court has held all the six issues in favour of the plaintiff and against the defendants.
4. According to the plaint, the defendant no.1 was the Engineer In-charge and the defendant no.2 - the Chairman of the Green Lake Company. The plaintiff has averred that he deposited Rs.18,00,000/- vide cheque no. 167994 of State Bank of India on 03.12.2016 and Rs.3,00,000/- on 24.11.2016. However, the plaintiff did not specifically state to whom he had paid this amount to and where he had deposited the amounts except Rs.1,00,000/- which according to him was deposited into the account of defendant no.1. The defendant no.1 in his written statement, however, averred that the amount of Rs.18,00,000/- was deposited in the account of Green Lake Company. However, defendant no.1 did not specifically deny or dispute the plaintiff’s contention that he had also made a payment of Rs.3,00,000/-. The defendant no.2 did not specifically deny or dispute the plaintiff’s averment of deposit of Rs.18,00,000/- and thereafter Rs.3,00,000/-.
5. The above dispute regarding deposit of Rs.18,00,000 and Rs.3,00,000/- was examined by the learned Commercial Court. The learned Commercial Court concluded that the amount of Rs.21,00,000/- went into the account of the Green Lake Company.
6. There was no issue framed by the learned Commercial Court as to whether Green Lake Company was an existing company or not and whether it had a separate Bank Account. The averments in the plaint did not indicate that the plaintiff doubted the existence of Green Lake Company as he asserted that the defendant no.1 and the defendant no.2 were the Engineer In-charge and Chairman of the Green Lake Company. The averment in t
