The High Court of Kerala has held that no prosecution is possible against a trust and its trustees for dishonour of cheque invoking section 141 of the Negotiable Instruments Act, 1881 ("NI Act"). Section 141 deals with the liability of companies in case of dishonour of cheques. The judgment was rendered by Justice B. Sudheendra Kumar.
As per the facts of the case, the petitioners, who were the trustees of a trust along with the trust, were arraigned as the accused persons in a complaint filed by a person before the Magistrate Court for offence under Section 138 of the NI Act. The petitioners approached the High Court seeking to quash the complaint filed against them.
The primary question before the High Court was whether a trust and its trustees fall within the definition of 'company' under the explanation to section 141.
As per the definition of 'company' under explanation to section 141, "company" means any body corporate and includes a firm or other association of individuals. Therefore, in order to answer whether section 141 can be invoked in case of a trust and its trustees, it became necessary for the Court to find out whether a trust means a 'body corporate', 'a firm' or an 'association of individuals'. The findings of the Court are given below.
Trust is not a body corporate or juristic person
As per S.3 of the Trusts Act, a "Trust" is an obligation annexed to the ownership of property, and arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him, for the benefit of another, or of another and the owner. The person who reposes or declares the confidence is called the author of the Trust, the person who accepts the confidence is called the trustee and the person for whose benefit the confidence is accepted, is called the beneficiary. The subject - matter of the trust is called trust - property.
Looking into the definition of trust and other provisions of the Indian Trust Act, 1882, Court observed that 'Trust' is not capable of suing and being sued in a court of law, even though the trustees can maintain and defend suits for the preservation and protection of the trust property.
Hence the Court held that a "'Trust' is not like a juristic person or a legal entity, as a juristic person has a legal existence of its own and hence it is capable of suing and being sued in a court of law. Hence a 'Trust' is not like a body corporate, which has a legal existence of its own and therefore can appoint an agent.
Trust is not a 'firm'
The Court categorically observed that a trust is not a firm.
Trust is not an 'Association of Individuals'
On going through various precedents, Court observed that an association of persons/ body of individuals are a combination of persons coming together for a common action with a common understanding and a purpose to achieve some common benefit. As trustees are not beneficiaries and not have any common benefit, court held that trustees are not association of persons/ body of individuals.
"It appears from S.3 of the Act that a "Trust" is created for the benefit of another, or of another and the owner of the property / author of the Trust. The trustees are not the beneficiaries of the Trust. S.51 of the Act would also show that a trustee cannot use or deal with the trust - property for his own profit. Therefore, there can be no doubt that the trustees are not the beneficiaries and hence the trustees do not have any common benefit. The duty of the trustee is to utilise the trust property for the benefit of the beneficiaries in accordance with the terms of the agreement of Trust", observed the Court
Further, Court also relied on the ratio in Pratibha Pratisthan & Ors. v. Manager, Canara Bank & Ors (2017 (3) SCC 712) where it was held that Trust is not a 'person' as defined in Consumer Protection Act, 1986 based on the reasoning that Trust is not an 'association of persons'.
"it is clear from S.3 of the Act that the trustees do not get any benefit out of the trust - property and the benefit will be obtained individually by the beneficiaries or the beneficiaries and the author of the trust. Therefore, it cannot be said that the trustees are persons join together for a common action to achieve some common benefit. It is true that the beneficiaries get the benefit. However, the beneficiaries do not become the beneficiaries by their own volition. Since the common purpose of the "Trust" is not to achieve benefit to the trustees, the "Trust" cannot be said to be an "association of persons / body of individuals", the Court added.
Thus, the Court concluded that a trust is not a body corporate or association or individuals and that it does not fall within the meaning of 'company' under section 141 of the NI Act. Therefore, the Court held that no prosecution is possible against the petitioner trust and trustees invoking section 141 and quashed the complaint invoking powers under section 482 of CrPC.
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