Trust Is 'Juristic Person', Can Be Held Liable U/S 138 NI Act For Cheque Dishonour: Kerala High Court

The Kerala High Court recently laid down that a Trust, either public, private or charitable, is a juristic person and can be made liable for dishonour of cheques punishable under Section 138 of the Negotiable Instruments Act ('NI Act').

Justice A. Badharudeen, on taking note of a plethora of precedents, further observed in this regard that such Trust would also be a company in terms of Section 141 of the N.I. Act ('Offences by companies'), and every Trustee who was in charge of the day-to-day affairs of the Trust would also be liable for punishment.

As per the facts of the case, the complainant and her husband alleged that the 2nd petitioner accused had issued a cheque for Rs.9,50,000/- drawn on the account maintained by the 1st petitioner accused Trust, which came to be dishonoured for insufficient funds. Prosecution was thus launched against the two revision petitioners herein alleging commission of offence punishable under Section 138 of NI Act. 

The trial court court and the Sessions Court convicted and sentenced the two accused. It is challenging the same that the revision petition was filed. 

The Counsel for the revision petitioners argued that their prosecution would not be legally sustainable, since a Trust is not a juristic person under Section 141 of the N.I. Act. The counsel drew the attention of the Court to the decision in K.P. Shibu & Ors. v. State of Kerala & Anr. (2019), wherein it had been held that prosecution against a Trust alleging commission of offence punishable under Section 138 NI Act would not be maintainable, since the Trust is neither a body corporate, nor an association of persons, as provided in Section 141 of NI Act. 

The counsel for the respondents however opposed the afore argument, and drew the attention of the Court to the Madras High Court decision in Crl.OP Nos. 12630 and 12661 of 2012 and M.P. Nos. 1, 1, 2 and 2 of 2012 wherein it had been held that a public charitable Trust, which is a drawer of a cheque, would be liable for punishment under the NI Act.

The counsel also took the Court through the decisions of the High Courts of Bombay and Gujarat in The Dadasaheb Rawal Co-op. Bank of Dondaicha Ltd v. Ramesh & Ors.; and Shah Rajendrabhai Jayantilal v. D.Pranjivandas and sons Prop. Dhirajlal Pranjivandas Popat, respectively wherein it had been held that a 'company' as provided in Section 141 NI Act would include any 'association of individuals' , and an 'association of individuals' would include a club, Trust, or Hindu Undivided Family (HUF) Business. 

The Court in this case was thus faced with the following questions:

1. Whether a Trust which is an Artificial Person could be prosecuted alleging commission of offence punishable under Section 138 NI Act; 

2. Whether a private or public charitable Trust could be recognized as a juristic person under the NI Act; and 

3. Whether a private or public trust is a Company in terms of Section 141 of the NI Act. 

On an analysis of the afore decisions placed before it by the counsel, the Court observed that the High Courts of Madras, Bombay, and Gujarat had rightly interpreted the provisions, while in K.P. Shibu (Supra), the Court had not interpreted the term 'association of individuals' on applying the ratio of ejusdem generis. 

The Court thus summarized the legal position as emerging from the various case laws as follows:

1. The expression 'company' in sub-clause (a) of explanation of Section 141 of N.I. Act includes any body corporate or other 'association of individuals' and the term 'association of individuals' is to be interpreted by applying the principle of ejusdem generis. The term 'association of individuals' would thus include club, trust and HUF business along with the expression 'company' or 'firm'; 
2. 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 NI Act; 
3. 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 NI Act; and 
4. For the offence under Section 138 of NI 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.

The Court noted that in the present case, the accused revision petitioners had not adduced any evidence to rebut the allegations against them, or to revisit the concurrent verdicts of conviction and sentence. 

The Court thus dismissed the revision petition after confirming the conviction and sentence. The revision petitioners were directed to pay the fine/compensation imposed by the trial court within a period of two weeks from the date of judgment. The Court added that in case of failure on the part of the accused revision petitioners to do so, the trial court ought to execute the sentence imposed without fail. 

Counsel for the Revision Petitioners: Advocates C.S. Manu and S.K. Premraj 

Counsel for the Respondents: Public Prosecutor K. Denny Devassy and Advocates Maneesh Narayanan and S.R. Sunjith

Citation: 2023 LiveLaw (Ker) 516

Case Title: Prana Educational and Charitable Trust & Anr. v. State of Kerala & Anr. 

Case Number: Crl. Rev. Pet. No. 1149 of 2019 

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