TaxTMI 
TaxTMI 
2012 (8) TMI 1192
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....ues have been raised in both these Criminal Original Petitions, they have been heard together and they are disposed of by means of this common order. 3. The facts of the cases would be as follows: (i) The first accused is a public charitable trust known as "M/s.Abraham Memorial Educational Trust". The said Trust is running a school in the name and style of "Ebenezer International School" in Bangalore. The common second accused in both these cases by name Abraham Ebenezer was its Chairman and Managing Trustee. The other petitioners herein are the Trustees of the first accused Trust. (ii) It is alleged that for the purpose of developing the school run by the first accused Trust, the second accused borrowed a sum of Rs. 7,00,00,000/- on behalf of the first accused from the respondent complainant. Assuring repayment of the above loan amount, the first accused had executed a registered Deed of Mortgage dated 06.10.2008 itself. Apart from that, the second accused has also executed two other registered Deeds of Mortgage dated 06.10.2008 in favour of the complainant mortgaging land and building where the school is housed and also mortgaging the agricultural....
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....pany" as referred to in Section 141 of the Act. According to the petitioners, the first accused is only a Public Charitable Trust, which means, it is only an obligation attached to the Trust properties. The Trust by itself is not a juridical person and so, the prosecution of the first accused Trust is not maintainable. 6. The second contention of the petitioners is that since the first accused is neither a person nor a company as defined in Section 141 of the Act, the accused Nos. 3 to 9 who are only the Trustees cannot be prosecuted for the offence said to have been committed by the first accused Trust. 7. The third contention of the petitioners is that assuming that the first accused Trust is a company in terms of Section 141 of the Act, even then, the prosecution of the accused Nos. 3 to 9 is not maintainable since there are no sufficient averments to prima-facie show that these accused Nos. 3 to 9 were actually involved in the management and day-to-day affairs of the first accused Trust. 8. Since the legal issues involved in these petitions are very complex in nature and the answer to which is likely to have larger impact, this Court requested Senior Counsel Mr. N.R.El....
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....nakaran appearing for the respondent would submit that the provisions of the Indian Trust Act, 1882 cannot be made applicable to the first accused Trust since the said Act is applicable only to Private Trusts and not to Public Charitable Trusts. He would further submit that a Trust is certainly an artificial person who can either sue or be sued and may prosecute or be prosecuted. 11. Now, let us have a quick look into the history of the concept of an "Artificial Person". Every human being is a person in the eye of law. When a person is ordinarily understood to be a natural person, it only means a human being. But a person is also artificially created and recognised in law as such. Such persons are called in different names, such as "juristic person", "juridical person", "legal entity" etc., In some countries, even human beings were not treated as persons in law, for example, in Roman Law, a slave was not a person and he had no right to a family. In other words, he was treated like an animal. In French colonies also, before slavery was abolished, the slaves were not treated as legal persons. They were given legal status of person only through statute during later period. With the....
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....se alone in trust. When the donor endows for an idol or for a mosque or for any institution, it necessitates the creation of a juristic person. The law also circumscribes the rights of any person receiving such entrustment to use it only for the purpose of such a juristic person. The endowment may be given for various purposes, may be for a church, idol, gurdwara or such other things that the human faculty may conceive of, out of faith and conscience but it gains the status of juristic person when it is recognised by the society as such. (Emphasis added) 12. In the above judgment, the Hon'ble Supreme Court has referred to the judgment in Yogendra Nath Naskar Vs. Commissioner of Income Tax, Calcutta reported in 1969 (1) SCC 555 with approval. That case was decided by the a Coram of three Hon'ble Judges. The main question before the Hon'ble Supreme Court was whether a Hindu deity can be treated as a unit of assessment under Sections 3 and 4 of the Income Tax Act, 1922. While analysing the said question, the Hon'ble Supreme Court had referred to a case in Manohar Ganesh Vs. Lakshmiram reported in ILR 12 Bom 247 which is also popularly known as "Dakor temple case"....
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....the property was to be employed e.g. feeding the poor or giving relief to the poor distressed. The recipient corporate would be in a position of a trustee and would be legally bound to spend the funds for the particular purpose. The other alternative was for the donor to create an institution or foundation himself. This would be a new juristic person which depended for its origin upon nothing else but the will of the founder provided it was directed to a charitable purpose. The foundation would be the owner of the dedicated property in the eye of law and the administrators would be in the position of trustees bound to carry out the object of the foundation. (emphasis added) 15. Keeping in mind the above judgments, if we look into the definition of the term "Trust", as made in Indian Trusts Act, the word 'Trust' denotes only an obligation attached to the property. In other words, Trust is nothing but a confidence reposed on the person whether natural or artificial. Such artificial person, upon whom trust is reposed, may even be founded by the creator of the Trust. As held by the Hon'ble Supreme Court, the trust obligation can be imposed on a person already in existenc....
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....ation Act, the All India Council for Technical Education has been empowered to grant approval for setting up new institutions and improvement of existing ones. While dealing with the eligibility for application and requirements, it has been prescribed that the following persons are eligible for making applications viz., 2.2(a): A Society registered under the Registration of Societies Act 1860 through the Chairman or Secretary of society or (b) A Trust registered under the Charitable Trusts Act, 1950 or any other relevant Acts through the Chairman or Secretary of the trust or (c) A company established under Section 25 of Companies Act, 1956. (d) Central or State Government / UT Administration or by a Society or a Trust registered by them.(Emphasis supplied) 20. This is only an illustration to show that a Trust founded for a charitable purpose or for a private purpose has been recognised as a juristic person by the Government. Thus, a Public Charitable Trust is an organisation and the same enjoys legal status having rights, liabilities and obligations. 21. Now, let us examine the question as to whether such a Public Ch....
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....is made, drawn or negotiated by a minor, the making, drawing or negotiating entitles the holder to receive payment of such instrument and to enforce it against any party thereto other than the minor. Nothing herein contained shall be deemed to empower a corporation to make, endorse or accept such instruments except in cases in which, under the law for the time being in force, they are so empowered. 24. A cursory reading of the above provision would go to show that it refers to "every person capable of contracting". Undoubtedly, a Public Charitable Trust is capable of contracting under the Negotiable Instruments Act. A Trust is competent to issue cheques drawn as against the account maintained by the Trust. Thus, the Negotiable Instruments Act has recognised a Public Charitable Trust as a person capable of contracting and that is why the banking institutions, the Government and the customers have recognised such a Public Trust as a juristic person. Thus, Section 26 of the Negotiable Instruments Act obviates doubts, if any, and makes it crystal clear that a Public Trust is capable of contracting and thus capable of making a cheque or Bill of Exchange and so it is a ....
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....ch parts, and delivered the same, or given notice of such signing to the holder or to some person on his behalf he is called the "acceptor." "Acceptor for honour."--- When a bill of exchange has been noted or protested for non-acceptance or for better security, and any person accepts is supra protest for honour of the drawer or of any one of the endorsers, such person is called an "acceptor for honour." "Payee."---The person named in the instrument, to whom or to whose order the money is by the instrument directed to be paid is called the "payee". 28. Here again, the drawer is the one who makes a cheque. Under Section 138 of the Negotiable Instruments Act, if a drawer fails to pay the cheque amount as demanded under a Notice, he is liable for punishment. Therefore, it is undoubtedly clear that a public charitable trust, being a drawer, is liable for punishment. 29. When the Trust (an artificial person) is prosecuted, though there is compulsory sentence of imprisonment prescribed under Section 138 of the Act, a Trust can be imposed only with fine or compensation. As a matter of fact, there were conflicting views prior to the Constitution Bench Jud....
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....is proved that the offence has been committed with the consent or connivance of, or is attribute to, any neglect on the part of, any director, Manager, secretary, or other office of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly. Explanation: For the purpose of this section. - (a) "Company" means any body corporate and includes a firm or other association of individuals; and (b) "Director", in relating to a firm, means a partner in the firm." [Emphasis supplied] 31. Admittedly, a Trust is neither a Body Corporate nor a Firm as enumerated in Section 141 of the Act. According to the learned Senior Counsel appearing for the petitioners, a Trust is not an Association of Individuals also, as envisaged in Explanation (a) to Section 141(2) of the Act. In this regard, I may state as to what actually the Legislature intends to mean by the term 'Association of Individuals' came up for consideration before various Courts on number of occasions. But, there is no uniformity in the opinion between various High Courts. The....
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....h is seriously refuted by the accused. This question is the basis for the instant petitions. 34. The judgment of the Andhra Pradesh High Court and Bombay High Court referred to above were also placed before me by the learned Counsel. But, after having scientifically analyzed the provisions of the Act and by having regard to the context in which Section 141 was incorporated, I had to express my inability to agree with the above views expressed by the Andhra Pradesh High Court and the Bombay High Court. According to me, a HUF is not an "Association of Individuals". The said conclusion is based on the judgment of the Hon'ble Supreme Court in Ramanlal Bhailal Patel Vs. State of Gujarat reported in 2008 (5) SCC 449. wherein, in paragraph 29 of the said judgment the Hon'ble Supreme Court has held as follows: 29. Normally, where a group of persons have not become co-owners by their volition with a common purpose, they cannot be considered as a 'person'. When the children of the owner of a property succeed to his property by testamentary succession or inherit by operation of law, they become co-owners, but the co-ownership is not by volition of parties nor....
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....at all. Had it been the intention of the Legislature to bring in the term "Trust" also within the sweep of Section 141 of the Act, the Legislature would not have omitted to expressly enumerate the same in the Statute itself, he contended. The absence of specific inclusion by express word the term 'Trust' within the sweep of Section 141 of the Act, according to the learned senior counsel, would only go to show that the Legislature has consciously kept the 'Trust' out of the purview of Section 141 of the Act. 37. In order to substantiate this contention, the learned senior counsel has brought to my notice various penal statutes wherein the term 'Company' has been defined. He would point out that in all these statutes, the term 'Trust' has been enumerated in the list of institutions falling within the definition of the term 'Company'. Let us now consider them one after the other. 38. In "Karnataka Educational Institutions (Prohibition of Capitation Fee) Act, 1984," as envisaged in Section 8 of the said Act, if a person committing an offence under the said Act is a Company, besides the Company, the other office bearers like Director etc., s....
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....es', which reads as follows: 9C. Offences by companies. - (1) Whenever an offence under this Act has been committed by a company, every person who at the time the offence was committed was in charge of, or was responsible to the company for the conduct of the business of the company, as well as the company shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly: Provided that nothing contained in this sub-section shall render any such person liable to any punishment under this Act if he proves that the offence was committed without his knowledge and that he exercised all due diligence to prevent the commission of such offence. (2) Notwithstanding anything contained in sub-section (1), where as offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary of other officer shall also be deemed to be guilty of that offence and shall be lia....
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....into its ambit the term 'Trust' also and so, there is no need to specifically incorporate the term 'Trust'. That is the reason why, I firmly believe, the term 'Trust' has not been included explicitly in the definition of the term 'Company'. 46. Now, we may examine, whether a Trust will fall within the ambit of 'Association of Individuals' as enumerated in Section 141 of the Negotiable Instruments Act. 47. As we have already extracted in the earlier paragraphs, in Ramanlal Bhailal Patel Vs. State of Gujarat reported in 2008 (5) SCC 449, the Hon'ble Supreme Court has laid down two important elements for a group of persons to constitute an 'Association of Individuals' as defined in Section 141 of the Act. To repeat, the combination of individuals should have been on their own volition and secondly the said combination is for a common purpose. If both the above elements are available, then combination of such persons will be an 'association of individuals' in terms of Section 141 of the Negotiable Instruments Act. 48. So far as a Trust having more than one Trustee, there is combination of individuals. The said combina....
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....f liabilities by making the drawer liable for penalty in case of bounce of cheque due to insufficiency of funds in the account or for the reason that it exceeds the arrangement made by the drawer with adequate safeguards to prevent harassment of honest drawer. 51. According to the learned Amicus Curiae, the explanation of the term 'Company' as made in Section 141 of the Act has to be understood in the context in which the said Chapter was inserted and the purpose which is sought to be achieved by the same. The learned Amicus Curiae would further submit that if the interpretation which is sought to be made by the learned senior counsel for the petitioners is accepted, then, it will only defeat the very object of introduction of Chapter XVII in the Act. The learned Amicus Curiae would, therefore, submit that purposive construction alone would be appropriate in the given circumstances. 52. The learned Amicus Curiae would refer to a text book on "Principles of Statutory Interpretation" by Mr. Guru Prasanna Singh, sixth edition, where the author has observed as follows: Rule in Heydon's case; purposive construction : mischief rule ---When the material wo....
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....us have a look into yet another judgment of the Hon'ble Supreme Court in M/s.Mahalakshmi Oil Mills Vs. State of Andhra Pradesh reported in (1989) 1 SCC 164. That was a case where the Hon'ble Supreme Court was called upon to interpret the clause "means and includes" as employed in Andhra Pradesh General Sales Tax Act, 1957. In that judgment, the question was whether tobacco seed oil and tobacco seed cake will fall within the meaning of tobacco as contained in item 4 of the First Schedule of the Act, which reads as follows: Tobacco means any form of tobacco, whether cured or uncured and whether manufactured or not, and includes the leaf, stalks and stems of the tobacco plant, but does not include any part of a tobacco plant while still attached to the earth. The Hon'ble Supreme Court was mainly concerned with the phrase "means and includes". The contention before the Hon'ble Supreme Court on behalf of the State was that the definition, which covers both the expressions means as well as what it includes, is exhaustive. Since there is no mention of tobacco seed within the definition, it was contended before the Hon'ble Supreme Court that toba....
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....her establishments in more than one province and includes Imperial Bank of India. Similarly, Section 2(kk), which was also introduced by Act 54 of 1949, defines Insurance Company as "an Insurance Company defined in Section 2 of the Insurance Act, 1938 (IV of 1938), having branches or other establishments in more than one province". It is trite to say that when in the definition clause given in any statute the word "means" is used, what follows is intended to speak exhaustively. When the phrase "means" is used in the definition, to borrow the words of Lord Esher M.R. in Gough vs. Gough, it is a "hard and fast" definition and no meaning other than that which is put in the definition can be assigned to the same. On the other hand, when the word "includes" is used in the definition, the legislature does not intend to restrict the definition; makes the definition enumerative but not exhaustive. That is to say, the term defined will retain its ordinary meaning but its scope would be extended to bring within it matters, which in its ordinary meaning may or may not comprise. Therefore, the use of the word "means" followed by the word "includes" in Section 2(bb) of the ID Act is clearly ind....
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....use shall carry its fullest natural meaning and bring into its ambit everything that falls within the ordinary natural meaning of the expression. If the Legislature wants to bring any other thing within the definition which does not otherwise fall within the ordinary natural meaning of the expression in the 'means' clause then the Legislature will normally enumerate such things in the later 'inclusive' clause. As has been held by the Hon'ble Supreme Court, the said list is exhaustive and in general by means of judicial interpretation, no other thing which does not fall within the natural meaning of the expression may be included by the Court. 60. Section 141 of The Negotiable Instruments Act defines the term 'company' by using the words "means and includes". As per the explanation a company means a body corporate and includes a firm or association of individuals. Therefore, any person who falls within the ordinary natural meaning of the expression "body corporate" will be undoubtedly a company. In the later inclusive clause, the Legislature has enumerated two persons viz., 'a firm' or 'association of individuals' which will not fall wi....
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....ing the expression 'Trust' into the interpretation clause of Section 141 of the Act. In this regard, I may refer to the Constitution Bench Judgment of the Hon'ble Supreme Court in Punjab Land Development and Reclamation Corporation Ltd., Chandigarh Vs. Presiding Officer, Labour Court, Chandigarh reported in 1990 (3) SCC 682, wherein the Hon'ble Supreme Court has held as follows:- However, a judge facing such a problem of interpretation can not simply fold his hands and blame the draftsman. Lord Denning in his Discipline of Law says at p. 12: "Whenever a statute comes up for consideration it must be remembered that it is not within human powers to foresee the manifold sets of facts which may arise, and, even if it were, it is not possible to provide for them in terms free from all ambiguity. The English language is not an instrument of mathematical precision. Our literature would be much the poorer if it were. This is where the draftsman of Acts of Parliament have often been unfairly criticised. A judge, believing himself to be lettered by the supposed rule that he must look to the language and nothing else, laments that the draftsmen have not provided....
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.... as follows:- (i) A Trust, either private or public / charitable or otherwise, is a juristic person who is liable for punishment for the offence punishable under Section 138 of the Negotiable Instruments Act. (ii) A Trust, either private or public / charitable or otherwise, having either a single trustee or two or more trustees, is a company in terms of Section 141 of the Negotiable Instruments Act. (iii) For the offence under Section 138 of The Negotiable Instruments Act, committed by the Trust, every trustee, who was in-charge of the day-to-day affairs of the Trust shall also be liable for punishment besides the Trust. 67. Now turning to the facts of the case on hand, it should be examined as to whether the petitioners 2 to 8 who are the accused 3 to 9 were in-charge of the day-to-day affairs of the Trust during the relevant point of time. A perusal of the complaint would go to show that there are sufficient averments to the effect that these petitioners being the trustees of the Trust (Company) were in-charge of running of the Trust along with the second accused and they all entered into a Memorandum of Understanding on 06.10.2008,....