2019 (8) TMI 665 - HC - Indian Laws

Court Rules 'Trust' Not 'Body Corporate' in Cheque Case

K.P. SHIBU Versus STATE OF KERALA AND ANOTHER

The court held that a 'trust' is not considered a 'body corporate' or an 'association of individuals' under Section 141 of the Negotiable Instruments Act. ... Dishonor of Cheque - trust - Prosecution proceedings against the trustee who has not signed the cheque - petitioner argued that since 'trust' is not an 'association of individuals', no successful prosecution against the petitioners, invoking the provisions under section 141 of the N. I. Act, can be sustained - HELD THAT:- All the trustees are the owners of the property, but they are obliged to use the same in a particular manner. If a number of trustees exist, they are the joint owners of the property. The trustees are bound to maintain and defend all suits, for the preservation of the trust-property and the assertion or protection of the title thereto. Thus it appears that the 'trust' is not capable of suing and being sued in a court of law, even though the trustees can maintain and defend suits for the preservation and protection of the trust-property. Therefore, a 'trust' is not a juristic person or a legal entity, as the juristic person has a legal existence of its own and hence it is capable of suing and being sued in a court of law. Thus it appears that a 'trust' is not like a body corporate, which has a legal existence of its own and therefore can appoint an agent - thus 'trust' is not a body corporate. Whether the 'trust' is an 'association of individuals' or not? - HELD THAT:- A mere combination of persons or coming together of persons, without any intention to have a joint venture or carry on some common activity with a common understanding and purpose to achieve some common benefit, would not convert two or more persons into a 'body of individuals/association of persons' - it is clear from section 3 of the Act that the trustees do not get any benefit out of the trust-property and the benefit will be obtained individually by the beneficiaries or the beneficiaries and the author of the trust. Therefore, it cannot be said that the trustees are persons join together for a common action to achieve some common benefit. It is true that the beneficiaries get the benefit. However, the beneficiaries do not become the beneficiaries by their own volition. Since the common purpose of the 'trust' is not to achieve benefit to the trustees, the 'trust' cannot be said to be an 'association of persons/body of individuals'. The 'trust' is not a 'body corporate' or an 'association of individuals' as provided in the Explanation to section 141 of the N. I. Act. Therefore, no prosecution against the trustees, invoking the provisions under section 141 of the N. I. Act, can be maintained. Consequently, no successful prosecution against the petitioners, invoking the provisions of section 141 of the N. I. Act, can be sustained. Since the petitioners did not sign the cheque, no successful prosecution against the petitioners under section 138 of the N. I. Act can be sustained and consequently, no purpose will be served even if the prosecution against the petitioners is permitted to be continued - In the said circumstances, I am inclined to quash the complaint and further proceedings against the petitioners in the above said case, invoking the inherent power under section 482 of the Cr.P.C., to secure the ends of justice. Application allowed. Issues Involved:1. Whether a 'trust' is an 'association of individuals' under Section 141 of the Negotiable Instruments Act, 1881.2. Whether trustees can be prosecuted under Section 138 of the Negotiable Instruments Act, 1881.3. Specific allegations against the petitioners regarding the signing of the cheque.Issue-wise Detailed Analysis:1. Whether a 'trust' is an 'association of individuals' under Section 141 of the Negotiable Instruments Act, 1881:The petitioners argued that a 'trust' is not an 'association of individuals,' and thus, prosecution under Section 141 of the N.I. Act cannot be sustained. The court examined Section 141, which deals with offenses by companies and includes 'any body corporate and includes a firm or other association of individuals.' The court noted that a 'trust' is not a firm. To determine if a 'trust' is a body corporate, the court referred to the Indian Trust Act, 1881, which defines a trust as an obligation annexed to the ownership of property for the benefit of another. The court concluded that a 'trust' is not a juristic person or a legal entity capable of suing or being sued, unlike a body corporate. Therefore, a 'trust' is not a body corporate.2. Whether trustees can be prosecuted under Section 138 of the Negotiable Instruments Act, 1881:The court further examined whether a 'trust' is an 'association of individuals.' Citing precedents, the court stated that an 'association of persons' involves individuals joining for a common purpose or action to achieve a common benefit. The court observed that trustees are not the beneficiaries of the trust and do not derive any common benefit from the trust property. The trustees are obligated to use the trust property for the beneficiaries' benefit. Therefore, the court held that a 'trust' is not an 'association of individuals' under the N.I. Act. Consequently, prosecution against trustees under Section 141 of the N.I. Act cannot be maintained.3. Specific allegations against the petitioners regarding the signing of the cheque:The court reviewed the allegations in the complaint, noting that only accused Nos. 2 and 6 signed the cheque, and the petitioners did not. Since the petitioners did not sign the cheque, prosecution under Section 138 of the N.I. Act against them cannot be sustained. The court invoked its inherent power under Section 482 of the Cr.P.C. to quash the complaint and further proceedings against the petitioners to secure the ends of justice.Conclusion:The court concluded that a 'trust' is not a 'body corporate' or an 'association of individuals' under Section 141 of the N.I. Act. Therefore, prosecution against the trustees under Section 141 of the N.I. Act cannot be sustained. Additionally, since the petitioners did not sign the cheque, prosecution under Section 138 of the N.I. Act is not maintainable against them. The court quashed the complaint and further proceedings against the petitioners.Judgment:The Crl. MCs. were allowed, and the court appreciated the assistance provided by the Amicus Curiae.