Trustee Who Signed Dishonoured Cheque Can Be Prosecuted Without Suing the Trust, Supreme Court Holds

A bench of Justice Ahsanuddin Amanullah and Justice Prashant Kumar Mishra heard an appeal arising from a High Court order that had quashed proceedings under Section 138 of the Negotiable Instruments Act. The question before the Supreme Court was whether a criminal complaint for dishonour of a cheque issued on behalf of a Trust was maintainable against the Chairman/Trustee who signed the cheque when the Trust itself had not been made an accused.

The Court allowed the appeal and restored the trial court proceedings, holding that a complaint under the NI Act was maintainable against the Trustee who signed the cheque without the necessity of arraying the Trust as an accused. The Court emphasised that a Trust did not possess a separate juristic personality in the same sense as a company and that Trusts normally operated through their trustees who were “bound to maintain and defend all such suits.” The Court, in its reasoning, observed: The judgment further noted that “it is the Trustees who are bound to maintain and defend all suits” and that a Trust was “without any independent legal status” for the limited purpose examined.

Background The dispute arose between the appellant, who alleged that he had rendered services to William Carey University after management was handed over to Orion Education Trust, and the respondent, the Chairman of Orion. The appellant claimed the respondent issued a cheque dated 13.10.2018 for Rs. 5 crore in his favour; the cheque was dishonoured on presentation with the endorsement “insufficient funds.” A Section 138 notice was sent and a criminal complaint was filed against the respondent for offences under Sections 138 and 142 of the NI Act and Section 420 IPC. The respondent challenged maintainability before the Trial Court and then before the High Court, contending that Orion Trust — a juristic entity in his submission — was a necessary party and that proceedings could not continue against him alone.

A Single Judge of the Meghalaya High Court quashed the complaint and the summoning order, reasoning that the Trust ought to have been impleaded. The appellant appealed to the Supreme Court. The Supreme Court reviewed authorities including SMS Pharmaceuticals Ltd. v Neeta Bhalla on averments required to fasten vicarious liability and surveyed divergent High Court decisions on whether a Trust is a juristic person capable of being sued under the NI Act. The Court distinguished decisions that equated a Trust to a company and relied on provisions of the Indian Trusts Act (notably Sections 3 and 13) to observe that trustees — not the trust itself — had the obligation to “maintain and defend” suits. The Court held that while a Trust may be treated as an entity for some purposes, it did not possess independent legal existence requiring impleadment in the context of a cheque dishonour complaint under the NI Act. The Supreme Court found the High Court’s quashing order unsustainable, set it aside, and directed that Criminal Case No.44(S)/2019 be restored and proceeded with in accordance with law. The Court expected the trial court to take steps with due expedition and clarified that the judgment did not affect other factual or legal contentions to be raised at trial.

Case Details: Case No.: Special Leave to Appeal (Criminal) No.4459/2023 Case Title: Sankar Padam Thapa v. Vijaykumar Dineshchandra Agarwal Appearances: For the Petitioner(s): [Not indicated in the judgment] For the Respondent(s): [Not indicated in the judgment]