The Supreme Court of India, in a significant ruling, has held that a criminal complaint filed under the Negotiable Instruments Act, 1881 (NI Act) for a dishonoured cheque issued on behalf of a Trust is maintainable against the signatory Trustee, even if the Trust itself is not arrayed as an accused party.
A two-judge bench comprising Justice Ahsanuddin Amanullah and Justice Prashant Kumar Mishra set aside a judgment of the Meghalaya High Court which had quashed proceedings against the Chairman of a Trust for non-joinder of the Trust as a necessary party. The apex court restored the criminal complaint, clarifying the legal position on the vicarious liability of trustees.
Background of the Case
The case originates from a financial dispute involving the William Carey University in Meghalaya. The university’s sponsoring body, the Agriculture Crafts Trades and Studies Group of Institutions (ACTS Group), facing a financial crisis, entered into a Memorandum of Understanding on October 12, 2017, with the Orion Education Trust (‘Orion’) to hand over the university’s management. Mr. Vijaykumar Dineshchandra Agarwal, the respondent, is the Chairman of Orion.
The appellant, Mr. Sankar Padam Thapa, was entrusted with liaisoning activities to facilitate the administrative transition. For his services, Mr. Agarwal, in his capacity as an authorized signatory of Orion, issued a cheque for ₹5,00,00,000/- (Rupees Five Crores) dated October 13, 2018. When Mr. Thapa presented the cheque for payment on December 7, 2018, it was dishonoured with the remark ‘insufficient funds’.
Following the dishonour, Mr. Thapa issued a legal notice under Section 138 of the NI Act, and subsequently filed a criminal complaint (No.44(S)/2019) before the Judicial Magistrate in Shillong against Mr. Agarwal. The respondent challenged the summoning order and the complaint itself before the High Court of Meghalaya, arguing that the complaint was not maintainable as Orion, the Trust, a juristic entity and a necessary party, was not made an accused.
The High Court, in its judgment dated November 21, 2022, accepted the respondent’s plea and quashed the criminal proceedings, leading to the present appeal before the Supreme Court.
Arguments of the Parties
Appellant’s Submissions: The appellant argued that a Trust is not a legal entity capable of being sued. Citing the Supreme Court’s decision in Pratibha Pratisthan v Manager, Canara Bank, counsel contended that a Trust is not a ‘person’. Further reliance was placed on several High Court judgments which held that a Trust is an ‘obligation’, not a juristic person, and it is the Trustees who must sue and be sued on its behalf. It was also argued that as the respondent was the Chairman and the signatory of the cheque, it was prima facie evident he was responsible for the Trust’s day-to-day affairs, and no separate averment was necessary, as per the law laid down in SMS Pharmaceuticals Ltd. v Neeta Bhalla.
Respondent’s Submissions: Conversely, the respondent argued that a Trust is a juristic person. Learned senior counsel cited various High Court decisions, including Prana Educational and Charitable Trust v State of Kerala, which held that the term ‘association of individuals’ within the explanation to Section 141 of the NI Act would include a Trust. Therefore, the Trust was the principal offender, and without impleading it, no vicarious liability could be fastened upon its Chairman.
Supreme Court’s Analysis and Conclusion
The Supreme Court first addressed the responsibility of the signatory. Reiterating its previous rulings in SMS Pharmaceuticals Ltd. and K K Ahuja v V K Vora, the bench stated, “So far as the signatory of a cheque which is dishonoured is concerned, he is clearly responsible for the incriminating act and will be covered under sub-section (2) of Section 141.”
The central issue, however, was the legal status of a Trust. The Court analyzed Sections 3 and 13 of the Indian Trusts Act, 1882, and observed that the obligation to “maintain and defend all such suits” is placed squarely on the Trustee, not the Trust. The judgment affirmed the view taken by the High Courts of Kerala, Delhi, Madras, Gujarat, Calcutta, and Karnataka that a Trust is not a ‘legal entity’ or ‘juristic person’.
The Court held, “A Trust operates through its Trustees, who are legal entities.” It further clarified that a Trust does not have a separate legal existence that would make it capable of suing or being sued in its own name.
Critically, the bench distinguished a Trust from a company, stating that equating the two is a “fallacy.” The judgment referred to the foundational case of Salomon v A Salomon and Co. Ltd. to emphasize that a company has a separate legal personality, a status that cannot be imported to a Trust in the context of the NI Act.
Consequently, the Supreme Court overruled the contrary views expressed in the High Court judgments of Prana Educational and Charitable Trust (Kerala), Dadasaheb Rawal Co-op. Bank of Dondaicha Ltd. (Bombay), Abraham Memorial Educational Trust (Madras), Mukund s/o Manohar Wazalwar (Bombay), and Bijaya Manjari Satpathy (Orissa).
The Final Decision
Answering the core legal question in the affirmative, the Supreme Court concluded that a complaint under the NI Act is maintainable against a Trustee who has signed the cheque, without the requirement of making the Trust itself an accused.
The bench held the Meghalaya High Court’s judgment to be unsustainable. “We have no hesitation in quashing and setting aside the Impugned Judgment,” the Court ordered.
The appeal was allowed, and the proceedings in Criminal Case No.44(S)/2019 were restored to the file of the Trial Court, with a direction to proceed with the matter expeditiously.
