Dishonour of Cheque - Complaint maintainable against the trustee who signed the cheque, not the trust
Supreme Court Rules Trusts Cannot Be Sued Under Negotiable Instruments Act; Trustees Held Accountable for Dishonoured Cheques. The apex court overrules conflicting High Court judgments, affirming trustees' liability for cheques issued on a trust's behalf without the trust being an accused party.
In a landmark decision, the Supreme Court of India has ruled that trusts cannot be considered legal or juristic persons under the Negotiable Instruments Act, 1881, and therefore cannot be sued for dishonoured cheques issued on their behalf. The apex court determined that trustees, rather than the trust itself, are responsible for the trust's financial obligations, including those arising from the issuance of dishonoured cheques.
The ruling came in the case of Sankar Padam Thapa v. Vijaykumar Dineshchandra Agarwal, where a cheque issued by the Orion Education Trust was dishonoured, leading to a legal dispute. The Supreme Court's decision overturns a previous judgment by the High Court of Meghalaya, which had quashed a complaint against the chairman of the trust, Vijaykumar Dineshchandra Agarwal, on the grounds of non-joinder of the trust as a necessary party.
The central question in the case was whether a complaint under the Negotiable Instruments Act could be maintained against a trustee who signed a dishonoured cheque on behalf of a trust, without the trust being named as an accused party. The Supreme Court, through Justices Ahsanuddin Amanullah and Prashant Kumar Mishra, concluded that a trust is not a legal or juristic person and cannot be sued directly under the Act. Instead, trustees are responsible for the actions performed on behalf of the trust.
The Supreme Court's ruling aligns with its previous decisions in cases such as SMS Pharmaceuticals Ltd. v. Neeta Bhalla and K K Ahuja v. V K Vora, reinforcing that individuals holding significant positions within an organization, like managing directors or authorized signatories, are responsible for the organization's financial dealings, including the issuance of cheques.
In delivering the judgment, Justice Ahsanuddin Amanullah emphasized the necessity of holding trustees accountable for the actions of the trust, as they are responsible for its obligations and liabilities. This ruling clarifies a critical aspect of the Indian Trusts Act, 1882, which defines a trust as an obligation rather than a legal entity.
The Supreme Court's decision highlights that while trusts may be considered entities for certain legal purposes, they lack the independent legal status required to sue or be sued under the Negotiable Instruments Act. The judgment has set a precedent, overruling previous decisions from various high courts that treated trusts as juristic persons under the Negotiable Instruments Act. The ruling is expected to have significant implications for how financial liabilities are attributed to trustees and trusts in India.
The appeal, thus, stands allowed, and the High Court's judgment has been set aside. The Supreme Court expects the lower court to expedite proceedings, as the case has been ongoing since 2019.
Bottom Line:
The complaint under the Negotiable Instruments Act, 1881, is maintainable against the trustee who signed a dishonoured cheque, even without making the trust an accused party, as the trust itself is not a legal or juristic person capable of being sued.
Statutory provision(s):
- Negotiable Instruments Act, 1881 - Sections 138, 141
- Indian Trusts Act, 1882 - Sections 3, 13
- Code of Criminal Procedure, 1973 - Section 482
Sankar Padam Thapa v. Vijaykumar Dineshchandra Agarwal, (SC) : Law Finder Doc Id # 2791682
