2025 (10) TMI 490 - SC - Indian Laws

Trustee liable for dishonoured cheque under Section 141 when signature establishes responsibility without alleging daily control

Sankar Padam Thapa Versus Vijaykumar Dineshchandra Agarwal.

Appeal allowed. SC held a complaint under the NI Act for dishonour of cheque is maintainable against a trustee who signed the cheque without separately ... Dishonour of cheque - Cheque has been issued on behalf of a Trust - Maintainability of Complaint against the Chairman/ Trustee of the said Trust, in the absence of a Trust being accused - HELD THAT:- On the issue that it is not mandatory to make substantive averments pertaining to the responsibility of the Respondent in the conduct of the day-to-day business of the Trust, reliance was rightly placed on the decision of a 3-Judge Bench of this Court in SMS Pharmaceuticals Ltd. [2005 (9) TMI 304 - SUPREME COURT] by learned counsel for the Appellant - It is only required to reiterate the view espoused by this Court in SMS Pharmaceuticals Ltd. and K K Ahuja [2009 (7) TMI 758 - SUPREME COURT]. As such, a person designated as ‘Managing Director’ or ‘Joint Managing Director’, by virtue of the office held, would be in charge of and responsible for the daily conduct or business of the company, and thus, be covered under Section 141 of the NI Act. Further, as far as the signatory of a cheque which is dishonoured be concerned, he is responsible for the incriminating act and will be covered under Section 141 of the NI Act. On the issue of whether a Trust is capable of suing or being sued, though in the context of the Consumer Protection Act, in Pratibha Pratisthan [2017 (3) TMI 1942 - SUPREME COURT], it was observed that a Trust is not a ‘person’ and ‘therefore not a consumer’. The Court went on to hold that a Trust ‘cannot be a complainant and cannot file a consumer dispute under the provisions’ of the Consumer Protection Act, as it would not fall under the definition of ‘person’ as per Section 2(m) of the Consumer Protection Act. When a cause of action arises due to an alleged dishonour of cheque and a complaint is initiated under the NI Act, the same is maintainable against the Trustee who has signed the cheque, without the requirement to array the Trust also as an accused. There are no hesitation in quashing and setting aside the Impugned Judgment - appeal allowed. The Registry may seek suitable orders from Hon’ble the Chief Justice of India apropos constitution of an appropriate Bench to decide the pending reference in Special Leave Petition (Civil) No. 18636/2019. ISSUES PRESENTED AND CONSIDERED 1. Whether, under the Negotiable Instruments Act, 1881, a complaint for dishonour of a cheque issued on behalf of a Trust is maintainable against a Trustee/Chairman when the Trust itself has not been made an accused. 2. Whether a Trust is a juristic person capable of suing or being sued (in general and for purposes of the NI Act), and if so, whether it must be impleaded as principal accused in prosecutions under Sections 138/141 of the NI Act. 3. Whether specific averments about the accused's role in the day-to-day conduct of the Trust's affairs are mandatory in a complaint under Sections 138/141 of the NI Act to fasten vicarious liability on a Trustee/Chairman who signs a cheque on behalf of the Trust. ISSUE-WISE DETAILED ANALYSIS Issue 1: Maintainability of complaint against Trustee/Chairman when Trust is not impleaded Legal framework: Sections 138 and 141 of the NI Act impose primary liability for dishonour of cheques and prescribe vicarious liability for persons 'in charge of, and responsible to' the company/firm for conduct of business; Trusts Act sections 3 and 13 define a trust as an obligation and impose duties on trustees to 'maintain and defend' suits. Precedent treatment: The Court reaffirmed the principles in SMS Pharmaceuticals and subsequent Supreme Court authorities that a signatory of a dishonoured cheque and persons occupying certain offices can be vicariously liable; earlier High Court decisions had been split on whether a Trust must be impleaded as principal offender. Interpretation and reasoning: A Trust lacks separate legal personality and operates through trustees; trustees are the entities obliged to maintain and defend suits and are the proper subjects of legal proceedings. Where a cheque is issued on behalf of a Trust and signed by a Trustee/Chairman, the complaint against that Trustee is maintainable even if the Trust is not named as accused. The comparison equating a Trust with a company (thereby requiring impleading the Trust as principal accused) is rejected; companies possess distinct juristic personality unlike trusts, so legal fiction applicable to companies cannot be transposed to trusts. Ratio vs. Obiter: Ratio - A complaint under the NI Act alleging dishonour of a cheque issued on behalf of a Trust is maintainable against the Trustee/Chairman who signed the cheque without impleading the Trust as an accused. Obiter - Discussion distinguishing varied High Court authorities and commentary on necessary procedural steps in other factual matrices. Conclusion: Complaint is maintainable against Trustee/Chairman who signed the cheque; no legal requirement to make the Trust a separate accused in such prosecutions under the NI Act. Issue 2: Legal status of a Trust - juristic person or mere obligation Legal framework: Trusts Act sections 3 and 13 (definition of trust as an obligation and trustee's duty to maintain and defend suits) and general principles distinguishing juristic entities (e.g., companies) with separate legal personality. Precedent treatment: The Court surveyed decisions holding both ways. It followed a line of High Court precedent and statutory text indicating a trust is an obligation and trustees are the legal actors; it rejected contrary High Court rulings treating trusts as juristic persons for purposes of the NI Act. Interpretation and reasoning: The Trusts Act places responsibility on trustees, not on a non-existent separate legal person called the Trust; therefore a Trust ordinarily does not have independent legal personality akin to a company. Reliance on company jurisprudence to treat a Trust as a 'company' or juristic person is misplaced; Salomon and company law principles establishing separate corporate personality are inapposite to a trust which is an obligation annexed to property and administered through trustees. Ratio vs. Obiter: Ratio - For purposes of the NI Act (and generally), a Trust is not a separate juristic person capable of suing or being sued in its own name; trustees are the proper legal actors. Obiter - Remarks confined to the present context and not extending to every statutory or contractual regime where a trust may be treated as an entity for specific purposes. Conclusion: A Trust, being an obligation under the Trusts Act, is not a legal entity separate from its trustees for the purposes considered; trustees must be impleaded or prosecuted as appropriate, and there is no legal requirement to implead the Trust itself as an accused in NI Act prosecutions where trustees can be proceeded against. Issue 3: Necessity and sufficiency of averments about in-charge/responsible role of Trustee/Chairman in complaint under Sections 138/141 Legal framework: Section 141 requires that persons sought to be made vicariously liable be shown to have been 'in charge of, and responsible to' the company/firm for the conduct of business; SMS Pharmaceuticals and subsequent jurisprudence clarify when specific averments are required and when designation/positional facts suffice; burden at trial to prove absence of control or due diligence rests on accused. Precedent treatment: The Court reaffirmed binding precedent that (i) holders of positions such as Managing Director are deemed to be in charge by virtue of office (no elaborate averments necessary); (ii) signatories of cheques on behalf of the entity can attract liability under Section 141(2) without detailed averments about day-to-day control; and (iii) for other officers specific averments may be necessary. Interpretation and reasoning: The position of Chairman/Authorized Signatory who signs a cheque on behalf of the Trust falls within the category where the very fact of signing and designated role gives rise to prima facie responsibility under the NI Act. The complainant's duty is to make specific averments sufficiently identifying those in charge; if challenged by a Section 482 petition, the accused must produce compelling incontrovertible material to justify quashing process on grounds of mere bald averments. Ratio vs. Obiter: Ratio - Where a Trustee/Chairman signs a cheque on behalf of a Trust, specific averments as to control may not be necessary; signing itself gives rise to prima facie responsibility to face prosecution, with accused bearing burden at trial to show lack of control or due diligence. Obiter - Practical guidance on evidentiary expectations at trial and on the threshold for quashing under Section 482. Conclusion: Specific detailed averments of day-to-day control are not mandatory where the accused's designation and/or cheque-signature establish prima facie responsibility; trustees challenging process must satisfy a high threshold to quash proceedings pre-trial. Treatment of conflicting High Court decisions and scope of present holding Analysis: The Court reviewed conflicting High Court decisions that treated trusts as juristic persons for NI Act purposes and overruled them to the extent they are inconsistent with the present ratio, while noting that those rulings remain undisturbed inter-partes. The Court emphasized adherence to binding precedent of co-equal Benches and prescribed that a later co-equal Bench cannot disregard an earlier one without proper processes. Conclusion: Conflicting High Court decisions treating Trusts as principal juristic offenders under Section 141 are overruled insofar as they conflict with this judgment; the present holding applies to the NI Act context and the facts considered and does not foreclose other legal consequences in different statutory contexts. Final Disposition (operative legal conclusion) The complaint for dishonour of cheque issued on behalf of a Trust is maintainable against the Trustee/Chairman who signed the cheque without impleading the Trust as an accused; trustees remain the proper subjects of legal proceedings and the accused must meet a stringent threshold to obtain pre-trial quashing of prosecution for lack of averments regarding control.