Whether a Company’s Director Can be Criminally Liable for Dud Cheque Issued on Behalf of a Company?

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CASE TITLE: SHEHU v. FRN & ORS (2022) LPELR-58922(CA)

JUDGMENT DATE: 21ST NOVEMBER 2022

JUSTICES:             

  • AMINA AUDI WAMBAI, JCA
  • ABUBAKAR MAHMUD TALBA, JCA
  • MOHAMMED BABA IDRIS, JCA

COURT DIVISION: KADUNA

PRACTICE AREA:  CRIMINAL LAW

FACT

The Appellant along with two companies were arraigned before the High Court of Justice of Kaduna on a 22-count amended charge dated the 5th day of November, 2015 for the offences of issuance of dud cheque among other charges.

At the trial, the 1st Respondent (Prosecution) called 6 (six) witnesses who testified as PW1 – PW6 respectively, and the witnesses tendered over 30 documents which were admitted in evidence and marked as exhibits. At the close of the Prosecution’s case, the Appellant filed a no-case submission, and the 1st Respondent filed a reply to same. The learned trial judge however overruled the no-case submission and called upon the Appellant to enter his defence.

The Appellant then opened his defence and called 3 (three) witnesses including himself and also tendered documents which were admitted in evidence and marked as exhibits.

In delivering judgment, the learned trial judge held that the 1st Respondent had proved the guilt of the Appellant and the two co-defendants beyond reasonable doubt and consequently found them guilty of the entire 22 counts of the charge and they were accordingly convicted.

Being dissatisfied with the decision of the trial Court, the appellant appealed to the Court of Appeal.

ISSUES

The Court determined the appeal based on a sole issue thus:

Whether in the light of the totality of evidence led, the trial Kaduna State High Court Judge was justified in finding the Appellant guilty of the offences of obtaining by false pretences and issuance of dud cheques?

COUNSEL SUBMISSIONS

With regard to the offence of issuance of dud cheque for which the Appellant was convicted by the trial Court, it was submitted by the Appellant that there is no justifiable reason to sustain the said conviction. It was submitted that the 2nd and 3rd Respondents (co-defendants at the trial Court) were duly registered with the Corporate Affairs Commission and they had company accounts. The contract as well as all the agreement/undertakings and documents leading up to the issuance of the alleged dud cheques were executed in the name of the two registered companies the 2nd and 3rd Respondents. It was argued that the Appellant was the Managing Director of the 2nd and 3rd Respondents and acted as such and not in his personal capacity throughout the transaction leading to the instant case and which act of the 2nd and 3rd Respondents cannot be visited on the Appellant. It was further submitted that there is no evidence before the Court that the veil of incorporation was lifted before the Appellant was convicted.

The Respondent in his response submitted that the Appellant is charged in his capacity as the Managing Director and sole signatory of the 2nd and 3rd Respondents and also stood trial alongside the companies who owns the cheques and, on whose behalf, he signed the cheques. By this, it was argued that the Appellant being the Managing Director of the 2nd and 3rd Respondents acted on behalf of them and thus, the learned trial judge was right in convicting him. Reference was made to Section 2 of the Dishonoured Cheque Offences Act.

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DECISION/HELD

In the final analysis, the Court dismissed the appeal.

RATIO

COMPANY LAW- “ALTER EGO”: Whether companies act through human alter ego and position of the law where the alter ego of an artificial person uses his position to commit a crime through the instrumentality of company cheques

“The learned counsel for the Appellant has also argued that the Appellant was sued in his personal capacity and not as the Managing Director of the 2nd and 3rd Respondents and thus, he could not be held liable. In the case of UDOFIA VS. COP (2020) LPELR – 51084 (CA), it was held that the Appellant indeed cannot hide under the principle or cloak of separate legal entity as a defence to absolve himself from the offence of issuance of dishonoured cheques which he committed. It is settled that companies act through human alter egos. See also the cases of CHEMIRON (INT’L) LTD VS. STABILINI VISINONI LTD (2018) LPELR – 44353 (SC) and KATE ENTERPRISES LTD VS. DAEWOO NIG. LTD (1985) 2 NWLR (PT. 5) 116. Therefore, if the alter ego of an artificial person uses his position to commit a crime through the instrumentality of company cheques, he must bear responsibility because the transaction herein was not company’s business. It is preposterous for the Appellant to want to use that to escape criminal liability.

It is settled law that where a company acts and its actions affects the rights of a person negatively, the veil of the company can be lifted to see and hold those behind the act liable. In the case of AKINGBADE VS. STATE (2015) LPELR – 25850, it was held that:

“It is also well settled that directors, officers and employees of a company can be criminally liable for any criminal acts that they personally commit regardless of whether they were acting in furtherance of the corporation’s interests. The directors, officers and/or employees must answer for any personal wrongdoing and cannot be shielded by the corporate entity. The Court will, when the occasion demands, lift the veil of incorporation to identify wrongdoers.”

​On the issue raised by the Appellant in paragraph E 43 of the Appellant’s brief of argument that there is no iota of evidence from the entire record of appeal showing that the corporate veil of the 2nd and 3rd Respondents who were standing trial alongside the Appellant before the trial Court, was lifted before the Appellant was convicted and that this is fatal to the Respondent’s case. In the case of AKEEM VS. FRN (2018) LPELR 43892, it was held that:

“One of the consequences of the incorporation of a company is that it becomes a legal entity separate and different from its subscribers and directors. The consequence of recognizing the separate personality of a company is to draw a veil of incorporation over the company. One is therefore generally not entitled to go behind or lift the veil. However, since a statute will not be allowed to be used as an excuse to justify illegality or fraud, it is in the quest to avoid the normal consequences of a statute which may result in grave injustice that the Courts as occasion demands have to look behind or pierce the veil of incorporation. This is also referred to as lifting the veil of incorporation which is the judicial act of imposing personal liability on otherwise immune corporate officers, directors or shareholders for the corporation’s wrongful act. See NDIC v Vibelko (Nig.) Ltd (2006) All FWLR (Pt. 336) 386, Alade v Alic (Nig) Ltd (2010) 19 NWLR (pt. 1226) 111 and Oyebanji v State (2015) 14 NWLR (Pt. 1479) 270.

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Lifting of the veil becomes necessary where the canopy of legal entity is to be used to defeat public convenience, justify wrong or perpetrate a crime. Thus, where fraud is committed by top officials of the company and such officials want their fraudulent activities to appear as acts of the company, the corporate veil will be lifted. See ACB Ltd v Apugo (1995) 6 NWLR (Pt. 399) 90, 177, Public Finance Securities Ltd v Jafia (1998) 3 NWLR (Pt. 543) 602, 612, Adeyemi v Lan Baker (Nig.) Ltd (2000) 7 NWLR (Pt. 663) 33, 51, FDB Financial Services Ltd v Adesola (2002) 8 NWLR (Pt. 668) 170, 174.

In this instance, appellant is the Chief Executive Officer/Managing Director of Hakkim-B Universal Ventures Ltd. He was charged with conspiracy to obtain money by false pretence with intent to defraud. The contract in respect of which the charge arose was awarded to his company and he acted in the capacity stated above. Assuming, for the purpose of treating this issue, that it was proved that there was such a conspiracy that would be a proper case for the lifting of the corporate veil, vis-a-vis the appellant.

It was contended by appellant’s counsel that assuming (without conceding) that it was established that the appellant used the company to perpetrate fraud, the corporate veil ought to be lifted first before the appellant could be proceeded against and that this was not done by the trial Court.

Indeed, the trial Court did not make any pronouncement on the lifting of the veil of the company. However, still guided by my earlier assumption in the last but one paragraph, this would be an appropriate case for the lifting of the corporate veil. The fact that the trial Court did not expressly pronounce that it had lifted the veil of incorporation does not detract from the correctness of its decision. The concern of an appellate Court is more about whether a trial Court arrived at the right conclusion than whether the reason therefore was right. See Ukpakara v. Ebevube (1996) 40/41 LRCN 1481, 1497.” (Emphasis provided)

Lifting the “veil of incorporation” or “piercing the corporate veil” is defined in Black’s Law Dictionary, 9th Edition as:

“The judicial act of imposing personal liability on otherwise immune corporate officers, directors or shareholders for the corporation’s wrongful acts.”

The circumstance under which the “veil of incorporation” of a company may be lifted was succinctly stated in the case of ALADE VS. ALIC (NIG.) LTD & ANOR (2010) 19 NWLR (PT. 1226) 111 @ 130 E – H and 142 C – E, where the Supreme Court held per Galadima, JSC at 130 E – H that:

“One of the occasions when the veil of incorporation will be lifted is when the company is liable for fraud as in the instant case.”

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In the case of FDB FINANCIAL SERVICES LTD VS. ADESOLA (2000) 8 NWLR (PT. 668) 170 AT 174, while considering the power of a Court to lift the veil of incorporation, it was held:

“The consequence of recognizing the separate personality of a company is to draw a veil of incorporation over the company. One is therefore generally not entitled to go behind or lift this veil. However, since a statute will not be allowed to be used as an excuse to justify illegality or fraud it is in the quest to avoid the normal consequences of the statute which may result in grave injustice that the Court as occasion demands have a look behind or pierce the corporate veil.”

The Supreme Court also held in the case of ADEYEMI VS. LAN & BAKER (NIG.) LTD (2000) 7 NWLR (PT. 663) 33 AT 51, it was held per Muntaka-Coomassie, JSC at 142 C – E:

“It must be stated unequivocally that this Court, as the last Court of the land, will not allow a party to use his company as a cover to dupe, cheat and or defraud an innocent citizen who entered into a lawful contract with the company only to be confronted with the defence of the company’s legal entity as distinct from its directors.”

In the instant case, there was evidence that monies were paid in cash directly to the appellant for the purchase of goods, which he failed to deliver. There was no evidence that the monies were paid into the company’s account. Letters of credit, which he opened expired and were not renewed. The money was not returned in spite of repeated demands. The actions of the appellant were clearly fraudulent and showed an intention to permanently deprive the owners of their money. He then sought refuge behind his company’s corporate veil. The Court has a responsibility to look behind the facade and prevent the appellant from benefiting from his fraudulent acts by relying on legal technicalities.”

I do not know of a formal procedure or ceremony that need to be conducted before the veil of incorporation of a corporate body can be lifted. Companies and corporate bodies are controlled by humans who act as their alter egos. Even though it is true that a company is a separate legal entity from its officers, our Courts will not hesitate to lift the veil of incorporation in order to hold liable any officer who uses the company as a vehicle to perpetrate fraud. In UABOI G. AGBEBAKU VS. THE STATE (2015) LPELR – 25763 (P. 24, PARAS C – F) (CA), it was held per Otisi, JCA that:

“It is also well settled that directors, officers and employees of a company can be held criminally liable for any criminal acts that they personally commit regardless of whether they were acting in furtherance of corporation’s interests. The directors, officers and or employees must answer for any personal wrongdoing and cannot be shielded by the corporate entity. The Court will, when the occasion demands, lift the veil of incorporation to identity wrongdoers. See FDB Financial Services Ltd v Adesola (2002) 8 NWLR (PT. 668) 170 at 173 relied upon in Alade v. ALIC Nig. Ltd. (supra), Adeyemi v. Lan & Baker (Nigeria) Ltd (supra).” Per IDRIS, J.C.A.

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