Trust Need Not Be Arraigned Under Section 138 NI Act; Trustee–Signatory Can Be Prosecuted

Case: SANKAR PADAM THAPA v. VIJAYKUMAR DINESHCHANDRA AGARWAL | Citation: 2025 INSC 1210 | Court: Supreme Court of India | Date: 09-10-2025 | Bench: Ahsanuddin Amanullah, J.; Prashant Kumar Mishra, J.

Introduction

This judgment settles a frequently litigated technical issue under the Negotiable Instruments Act, 1881 (NI Act): whether a cheque dishonour complaint is maintainable against a trustee who signs a cheque on behalf of a trust, without simultaneously arraigning the trust as an accused. The Supreme Court holds that such a complaint is maintainable against the trustee–signatory and that there is no legal requirement to implead the trust as an accused for the purposes of Section 138 proceedings.

The dispute arose out of a private university’s transition of management. Orion Education Trust (“Orion”) took over administration from the ACTS Group. The respondent, as Orion’s Chairman/authorized signatory, issued a cheque of Rs. 5 crores to the appellant for facilitation services. The cheque was dishonoured for insufficiency of funds, statutory notice was issued, and the complaint was filed against the respondent. The High Court of Meghalaya quashed the proceedings on the ground that the trust (Orion) was a necessary party and its non-joinder rendered the complaint non-maintainable. The Supreme Court reverses.

Core legal questions before the Court:

• Is a trust a juristic person, such that it must be arraigned as the principal offender under the NI Act to fasten vicarious liability on its office-bearers?
• Can a trustee–signatory be prosecuted for cheque dishonour without impleading the trust?
• What averments are necessary to proceed against a signatory/office-bearer when a cheque is issued on behalf of a non-corporate body like a trust?

Summary of the Judgment

• Maintainability against trustee–signatory without arraigning the trust: A complaint under the NI Act is maintainable against the trustee who signed the cheque on behalf of the trust, even if the trust is not made an accused. (Para 29)
• Trust is not a juristic person, in the context of the NI Act: Drawing from Sections 3 and 13 of the Indian Trusts Act, 1882, and a line of High Court decisions, the Court holds that a trust is an obligation and not a separate legal entity capable of suing/being sued; it acts through its trustees. (Paras 22–27)
• Signatory liability and averments: Reiterating SMS Pharmaceuticals, K.K. Ahuja and Sunita Palita, the Court affirms that the signatory of the dishonoured cheque is clearly liable; no specific averment about being "in charge of day-to-day affairs" is required for the signatory. (Paras 17–20)
• Distinguishing company jurisprudence: The corporate requirement from Aneeta Hada and related cases—to arraign the company to fasten vicarious liability—is inapplicable to trusts, which are not companies or juristic persons. (Paras 34–39)
• Conflicting High Court views overruled: High Court rulings that treated trusts as “companies” or “associations of individuals” for Section 141 NI Act and required impleadment of trusts are declared incorrect in law. (Paras 31–38)
• Coordinate bench discipline reinforced: The Court censures a later coordinate bench (Kerala High Court) for sidelining an earlier coordinate decision without a reference to a larger bench; reaffirms Pranay Sethi and Union Territory of Ladakh principles. (Paras 32–34, 42–44)
• Outcome: Appeal allowed; the High Court’s quashing order is set aside; the trial is restored and to proceed expeditiously. (Paras 39–41)

Factual Background and Procedural History

• William Carey University faced financial distress; ACTS Group entered into an MoU with Orion Education Trust (12.10.2017) to transfer management.
• The respondent (Chairman of Orion) authorized the appellant to liaise with authorities for the transition.
• Cheque (Rs. 5 crores) dated 13.10.2018, signed by the respondent as Orion’s authorized signatory, was dishonoured for insufficient funds upon presentation on 07.12.2018.
• Statutory notice: 19.12.2018; received 27.12.2018; reply 28.12.2018.
• Complaint filed under Sections 138, 142 NI Act and Section 420 IPC; summons issued on 11.02.2019.
• High Court (21.11.2022) quashed the proceedings for non-joinder of the trust as a necessary party.
• Supreme Court granted leave, heard on merits, and allowed the appeal, restoring the complaint.

Detailed Analysis

1) Precedents Cited and Their Influence

On signatory liability and requisite averments under the NI Act:

• SMS Pharmaceuticals Ltd. v. Neeta Bhalla (2005) 8 SCC 89 (3-Judge Bench): Established that:
  • Specific averment is necessary that the accused was in charge of and responsible for the conduct of business, except for Managing Director/Joint Managing Director and the signatory to the cheque.
  • A signatory to a dishonoured cheque is clearly liable without further averments. The Court reiterates and applies this principle. (Paras 17–18)
• K.K. Ahuja v. V.K. Vora (2009) 10 SCC 48: Clarified categories of persons liable and that a signatory, by the act of signing, attracts liability. Quoted and relied on for the rule that no special averment is necessary against the signatory. (Para 18)
• Sunita Palita v. Panchami Stone Quarry (2022) 10 SCC 152: Reaffirmed that MD/JMD and the signatory are covered under Section 141. (Para 19)
• S.P. Mani & Mohan Dairy v. Dr. Snehalatha Elangovan (2023) 10 SCC 685: Emphasized that once basic elements of Section 138 are met, the burden shifts to the accused (per the proviso to Section 141(1)) to show lack of knowledge or due diligence. The Court references this broader vicarious liability framework. (Para 20)

On the legal status of trusts:

• Pratibha Pratisthan v. Manager, Canara Bank (2017) 3 SCC 712: In the Consumer Protection Act context, held that a trust is not a "person" and thus cannot be a “consumer”. The Supreme Court uses this as persuasive support for the non-juristic character of trusts and notes it still holds the field pending a reference to a larger bench. (Paras 21, 42)
• Kerala High Court in K.P. Shibu v. State Of Kerala (2019): Held a trust is not a juristic person; trustees must sue/defend. Relied upon by the Supreme Court. (Para 23)
• Other High Courts favouring non-juristic status: Duli Chand v. MPTC Charitable Trust (Delhi, 1983); V. Chandrasekaran v. Venkatanaicker Trust (Madras, 2016); Narayana Iyer v. Anandammal Adheena Trust (Madras, 2021); Kansara Abdulrehman Sadruddin v. Trustees of Maniar Jamat (Gujarat, 1968); Vijay Sports Club v. State of Bengal (Calcutta, 2019); Chikkamuniyappa Memorial Trust v. State (Karnataka, 1997). The Supreme Court endorses this line. (Paras 24–25)

On corporate personality versus trusts:

• Salomon v. Salomon & Co. (1897) AC 22: Classic exposition of separate corporate personality. The Supreme Court invokes this to show why a company’s legal status cannot be mapped onto a trust. (Para 34)
• Tata Engineering and Locomotive Co. Ltd. v. State of Bihar (1964) 34 Comp Cas 458: A five-judge decision reinforcing the separate juristic nature of corporations and limited exceptions when lifting the corporate veil. (Para 35)

On coordinate-bench discipline and pending references:

• National Insurance Co. Ltd. v. Pranay Sethi (2017) 16 SCC 680: An earlier decision of a co-equal bench must be followed by a later bench of equal strength. (Paras 32–34, 44)
• Union Territory of Ladakh v. J&K National Conference (2023 SCC OnLine SC 1140): High Courts must not withhold decisions awaiting larger-bench references or reviews unless directed; must apply law as it stands; follow earlier co-equal bench in case of conflict. (Paras 42, 32)
• A.P. Electrical Equipment Corporation v. Tahsildar (2025 SCC OnLine SC 447): On reconciling apparently inconsistent Supreme Court decisions by assessing factual proximity; clarified as consistent with Ladakh when read together. (Para 44)
• Reference pending: Tarabai Desai Charitable Ophthalmic Trust Hospital v. Supreme Elevators India (P) Ltd. (2019; reported 2025) doubting Pratibha Pratisthan is noted, but until decided, Pratibha stands. (Para 42)

High Court decisions expressly disapproved/overruled in law (inter-parties left undisturbed):

• Prana Educational & Charitable Trust v. State of Kerala (2023): Treated trusts as covered by “company/association of individuals” under Section 141 by applying ejusdem generis; criticized for ignoring earlier coordinate bench (K.P. Shibu) and declared incorrect in law to that extent. (Paras 31–33)
• Dadasaheb Rawal Co-op. Bank (Bombay, 2008) and Abraham Memorial Educational Trust (Madras, 2012): Pre-Pratibha decisions—do not survive as correct statements of law to the extent contrary to the present holding. (Para 33)
• Mukund v. Eknath (Bombay, 2023): Equated trusts with “companies” for Section 141; rejected as a fallacy in light of corporate jurisprudence and Trusts Act. (Paras 33–36)
• Bijaya Manjari Satpathy v. State of Orissa (2022): Relied on company/firm precedents; omitted Trusts Act analysis; declared incorrect in law to the extent contrary. (Paras 37–38)

2) Legal Reasoning

a) Trusts are obligations, not juristic entities: Sections 3 and 13 of the Indian Trusts Act define a trust as an obligation annexed to ownership, with trustees bearing the duty to “maintain and defend” suits for protecting trust property. This textual scheme shows the trust itself lacks an independent legal persona; it acts through trustees, who alone sue or are sued in relation to trust affairs. (Paras 22–27)

b) Distinction from corporate entities under Section 141 NI Act: The NI Act’s vicarious liability regime in Section 141 is tailored to “companies,” “bodies corporate,” and “other association of individuals.” A company’s separate legal personality (Salomon; TELCO) is the premise for treating it as the principal offender whose officers may also be liable via Section 141. A trust, however, is neither a body corporate nor an “association of individuals” in the statutory sense; trustees do not associate for personal benefit but hold property subject to fiduciary obligations. Treating a trust as a “company” is doctrinally unsound. (Paras 34–36)

c) Signatory liability applies mutatis mutandis: The Court draws on SMS Pharmaceuticals, K.K. Ahuja, and Sunita Palita to underscore that the signatory of a cheque is liable in cheque dishonour cases without elaborate averments. That reasoning carries over to a trustee–signatory who signs on behalf of a trust. Consequently, the absence of the trust as an accused does not defeat maintainability against the signatory trustee. (Paras 17–20, 29)

d) Aneeta Hada line distinguished: The “principal offender must be arraigned” requirement from Aneeta Hada (company context) does not compel impleadment of a trust because a trust is not a juristic entity akin to a company. Insisting on arraigning a non-juristic trust would be a category error; in trust contexts, trustees are the proper parties. (Paras 33–39)

e) Coordinate bench discipline and interpretive integrity: The Court censures a later single-judge High Court decision (Prana Educational) that departed from an earlier coordinate bench (K.P. Shibu) without reference to a larger bench or a per incuriam/sub silentio analysis. It restates that High Courts must follow earlier co-equal benches in case of conflict and cannot delay decisions pending references unless instructed. (Paras 32–34, 42–44)

f) Caveat on the breadth of the holding: While the Court’s reasoning on the non-juristic character of trusts draws from the Trusts Act, it expressly states that its conclusion is confined to the NI Act context (i.e., on whether a complaint can proceed against a trustee–signatory without impleading the trust). (Para 28)

3) Likely Impact and Forward Trajectory

• Immediate procedural effect: Complaints under Section 138 NI Act against trustee–signatories will no longer fail for non-joinder of the trust. Technical objections premised on Aneeta Hada (company-context) will not succeed in trust cases.
• Drafting simplification: For trustee–signatories, specific averments that they were “in charge and responsible for the conduct of business” are not mandatory; the fact of signing suffices. Nevertheless, prudent pleadings describing the trustee’s role remain advisable.
• Scope for other trustees: The judgment squarely covers the signatory–trustee. Liability of non-signatory trustees was not decided and will depend on pleadings, proof of participation/consent/connivance, and the precise application of NI Act principles in trust settings. Parties should proceed cautiously in attempting to extend Section 141 logic beyond signatories.
• Harmonization across High Courts: High Court decisions that demanded impleadment of the trust as a “company” under Section 141 are overruled in law. Ongoing and future cases must align with the present ruling.
• Trust-sector compliance: Trustees who operate bank accounts for educational/charitable trusts should anticipate heightened personal exposure if cheques bounce. Internal controls, due diligence, and prudent signatory practices will be critical risk mitigants.
• No waiting for larger-bench outcomes: High Courts cannot adjourn or withhold decisions in the hope of larger-bench clarifications unless specifically directed; they must apply the law as it stands.

Complex Concepts Simplified

• Trust vs. juristic person: A trust is not a person at law; it is an obligation tied to property, carried out by trustees. A juristic person (e.g., a company) has its own legal identity and can sue/be sued independently.
• Trustees’ role: Trustees legally hold and manage trust property and must “maintain and defend” suits involving it. They are the proper parties in litigation involving trust affairs.
• Section 138 NI Act (cheque dishonour) essentials: Drawing a cheque, dishonour due to insufficiency, issuing demand notice within prescribed time, and failure to pay within 15 days of receipt of notice.
• Section 141 NI Act (vicarious liability): Applies primarily to “companies,” extending liability to those in charge of and responsible for business at the time of offence. Managing Directors/JMDs and the signatory are covered without elaborate averments; others require specific assertions.
• Why Aneeta Hada doesn’t apply to trusts: The premise of vicarious liability in Aneeta Hada is that a company (a juristic person) is the principal offender; trusts are not juristic entities, so that architecture does not translate.
• “Association of individuals” and ejusdem generis: Some High Courts tried to treat trusts as “associations of individuals” under Section 141 by using the ejusdem generis rule (general words following specific ones are read in the same class). The Supreme Court rejects this for trusts, which are conceptually distinct from companies and bodies corporate.
• Signatory liability: The person who signs the cheque on behalf of the account holder (company/firm/trust) is directly liable in cheque dishonour cases; special averments about day-to-day control are not needed for the signatory.
• Coordinate bench discipline: A later bench of equal strength cannot disregard an earlier coordinate bench; it must follow or refer to a larger bench. High Courts cannot suspend adjudication waiting for larger-bench decisions unless the Supreme Court directs.
• “Overruled in law; inter-parties undisturbed”: The Supreme Court declares a legal proposition incorrect for the future and in principle but does not reopen or alter the result between the parties in the earlier decided High Court cases.

Practical Guidance

• For complainants:
  • Proceed directly against the trustee–signatory when a trust cheque bounces; impleading the trust is not required.
  • Attach the trust deed or authorization showing the signatory’s authority where available, to forestall factual disputes.
  • Maintain strict compliance with limitation and notice timelines under the NI Act.
• For trustees/defence:
  • Non-signatory trustees should be vigilant about attempts to implicate them without specific and credible averments.
  • The signatory can seek to establish defences on merits (e.g., no legally enforceable debt, security cheque, satisfaction, or compliance with due diligence where relevant) at trial; bald Section 482 petitions will require “sterling incontrovertible material” to quash.
• For trial courts:
  • Do not dismiss Section 138 complaints for non-joinder of the trust where the accused is a trustee–signatory.
  • Apply SMS Pharmaceuticals/K.K. Ahuja principles on pleadings and role-based liability to the signatory; for others, insist on clear role-specific averments and evidence.

Key Distinctions Clarified by the Court

• Company/firm vs. trust: Companies and firms are recognized legal entities (or treated as such) for Section 141; trusts are not.
• Principal offender rule (Aneeta Hada): Applies to companies; does not compel impleadment of trusts in NI Act prosecutions.
• Signatory liability: Common to both spheres—a cheque signatory is exposed to prosecution; no special averments needed regarding control.

Open Questions and Caveats

• Non-signatory trustees: The judgment does not lay down a comprehensive framework for prosecuting non-signatory trustees. Future cases will likely clarify the degree to which Section 141’s vicarious liability logic may be adapted to trusts beyond signatories.
• Scope beyond NI Act: Although the Court’s trust-as-non-juristic reasoning draws from the Trusts Act, the Court expressly confines its holding to the NI Act context. The general status of trusts across different statutes remains context-sensitive.
• Consumer protection overlap: Pratibha Pratisthan (trust not a “person” under the Consumer Protection Act) stands pending a larger-bench reference. This judgment will likely influence, but does not resolve, that reference.

Conclusion

The Supreme Court’s decision in Sankar Padam Thapa v. Vijaykumar D. Agarwal establishes a clear, litigation-friendly rule for cheque dishonour complaints involving trusts: a trustee who signs the cheque may be prosecuted under Section 138 of the NI Act without impleading the trust. Anchoring its reasoning in the Trusts Act’s conception of trusts as obligations (not juristic persons) and in settled NI Act jurisprudence on signatory liability, the Court rejects efforts to treat trusts as “companies” or “associations of individuals” for Section 141. In doing so, it also corrects the methodological course on coordinate-bench discipline and reminds High Courts to apply the law as it stands without awaiting larger-bench references absent specific directions.

The ruling will streamline NI Act prosecutions involving educational and charitable trusts and reduce technical dismissals based on non-joinder. While the liability of non-signatory trustees remains an area for careful development, the core message is unequivocal: the signatory–trustee stands answerable, and the trust need not be arraigned for Section 138 to take its course.