Trust Without Liability: The Supreme Court Clarifies Interplay Of Trusts And Cheque Dishonour Complaints Under The NI Act

Anup Koushik Karavadi and Kanishk Tiwari

Introduction

The Supreme Court’s judgment in Sankar Padam Thapa v. Vijaykumar Dineshchandra Agarwal (2025 INSC 1210) has conclusively addressed a long-standing ambiguity at the intersection of the Negotiable Instruments Act, 1881 and the Indian Trusts Act, 1882. The Court was called upon to decide whether a complaint under Section 138 of the NI Act is maintainable against a trustee without arraying the trust itself as an accused when the dishonoured cheque was issued on behalf of the trust.¹

Over the years, Indian High Courts have offered conflicting answers. Some extended the expression “company” under Section 141 of the NI Act to include a trust, treating it as an ‘association of individuals.’ Others, relying on the fiduciary nature of a trust, held that it is merely an obligation and not a juristic person capable of suing or being sued. The result was considerable uncertainty in criminal prosecutions involving charitable and educational trusts.

In Sankar Padam Thapa, the Supreme Court decisively clarified that a trust lacks independent legal personality, and therefore, a cheque dishonour complaint is maintainable solely against the trustee who issued the cheque. This interpretation rooted in Sections 3 and 13 of the Trusts Act, harmonizes fiduciary law with penal liability under the NI Act, reaffirming that commercial accountability cannot be obscured behind the non-juristic veil of a trust. This article aims to critically evaluate the contours of the supreme court ruling, and elaborate upon the genesis of the issue and divergent views in the past that have now been settled by the court.

The Legal Character of a Trust

The Trusts Act conceptualizes a trust not as a person or entity, but as an obligation arising from a confidence reposed by one person in another for the benefit of a third.² Section 3 of the Act expressly defines a trust as “an obligation annexed to the ownership of property, arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him, for the benefit of another.”³ Unlike corporations or registered societies, a trust therefore lacks independent juristic personality and cannot sue or be sued in its own name.

This distinction often blurred in practice is fundamental. A company, by virtue of incorporation under the Companies Act, 2013, possesses separate legal existence from its shareholders;⁴ a trust, on the other hand, operates only through its trustees, who are legally bound to act in furtherance of the trust’s purpose.⁵ Section 13 of the Trusts Act reinforces this by imposing a duty upon trustees to “maintain and defend all such suits … for the preservation of the trust property,”⁶ signifying that any legal action must be instituted or defended by the trustees themselves, not by the trust per se.

Judicial pronouncements have consistently affirmed this interpretation. In K.P. Shibu v. State of Kerala, the Kerala High Court held that a trust is “not capable of suing or being sued in a court of law,” since it lacks independent legal existence.⁷ Similarly, the Delhi High Court in Duli Chand v. M.P.T.C. Charitable Trust reasoned that arraying a trust as a party in its own name is “otiose,” as it can act only through its trustees.⁸

The Supreme Court’s reliance on these precedents in Sankar Padam Thapa reflects a re-affirmation of first principles, recognizing that a trust, unlike an association or company, is a relationship governed by fiduciary duties, not a juristic entity with autonomous rights and liabilities.⁹ Thus, when a cheque is issued on behalf of a trust, the drawer in contemplation of Section 138 of the NI Act can only be the trustee who signed the instrument, not the trust itself.

Criminal Liability framework under NI Act

Section 138 criminalizes the dishonour of a cheque for insufficiency of funds, while Section 141 extends liability to those in charge of, and responsible for, the conduct of business of a company at the time of commission of the offence.¹⁰

The jurisprudential foundation of Section 141 rests on vicarious liability.¹¹ This liability, however, presupposes the existence of a principal offender i.e., the company or firm, for whose actions natural persons may be held responsible.¹² The Supreme Court in Aneeta Hada v. Godfather Travels & Tours (P) Ltd. held that prosecution of directors or officers without arraigning the company as the principal accused is impermissible, as vicarious liability “cannot be fastened without prosecution of the corporate entity itself.”¹³

This posed a doctrinal quandary when applied to trusts: if a trust were treated as a non-juristic entity, could a trustee still be prosecuted without naming the trust as an accused? Whereas, if a trust were deemed an “association of individuals,” could it be the “drawer” within the meaning of Section 138, thereby invoking Section 141? High Courts provided inconsistent answers. Some, invoking the principle of ejusdem generis, extended the expression “company” in Section 141 to include trusts;¹⁴ others, drawing upon Pratibha Pratisthan v. Canara Bank, reasoned that a trust not being a “person,” could not fall within the statutory fold.¹⁵

The Sankar Padam Thapa judgment resolves this conundrum by harmonizing the NI Act with the Trusts Act, holding that a trust, lacking juristic existence, cannot be the principal offender. Consequently, the trustee who signs the cheque bears primary, not vicarious, liability for its dishonour. This interpretation maintains the conceptual coherence of both statutes while ensuring that fiduciary obligations are not used as shields against commercial accountability.

The Pre-2025 Jurisprudential Divide

Indian courts in the past have been divided on whether a trust could be treated as a “company” or an “association of individuals” within the meaning of Section 141 of the NI Act. The interpretational difficulty arose because, unlike companies or partnerships, a trust does not possess a statutory framework granting it juristic personality.¹⁶ Courts therefore had to reconcile the penal provisions of the NI Act premised on juristic existence with the fiduciary architecture of the Trusts Act, which recognizes only the trustee as a legal actor.

The Kerala Line: The Non-Juristic Trust Doctrine

The Kerala High Court has been the most consistent proponent of the non-juristic trust doctrine. In K.P. Shibu v. State of Kerala, the Court held that a trust “is not capable of suing or being sued in a court of law,” as it is merely an obligation annexed to ownership and not a body corporate.¹⁷ Relying on Sections 3 and 13 of the Trusts Act, it held that legal capacity vests solely in the trustees, who are the real owners of trust property in law.¹⁸

The same reasoning was echoed in K.R. Rajan v. Cherian K. Cherian, where it was held that arraying a trust as a party in its own name was “otiose or redundant,” since the Code of Civil Procedure does not recognize a trust as a suable entity.¹⁹ Collectively, these decisions established that a trust cannot be treated as an “association of individuals” under Section 141 of the NI Act because trustees do not combine for their own benefit, but rather for the benefit of beneficiaries.²⁰

The Contrasting Approach: Trust as an ‘Association of Individuals’

In contrast, several other High Courts adopted a functional rather than formal approach treating trusts as juristic collectives capable of being prosecuted for cheque dishonour. The Madras High Court’s decision in Abraham Memorial Educational Trust v. Suresh Babu was among the earliest to hold that a trust, “either private or charitable, is a juristic person” for the purposes of Section 138.²¹ Applying the doctrine of ejusdem generis, the Court interpreted “association of individuals” in Section 141’s explanation to include clubs, societies, and trusts, emphasizing that to exclude them would defeat the object of the Act.²²

Similarly, the Bombay High Court in Dadasaheb Rawal Co-operative Bank of Dondaicha Ltd. v. Ramesh Jawrilal Jain endorsed the view that the term “association of individuals” could encompass a trust, thereby rendering both the trust and its trustees liable under Section 141.²³ Later, in Mukund v. Eknath Hatwar, a Single Judge of the Bombay High Court reiterated this position, equating a trust to a company and observing that a “trust being an association of persons would be a company” within Section 141.²⁴

The Orissa High Court in Bijaya Manjari Satpathy v. State of Orissa adopted similar reasoning, relying on Aparna A. Shah v. Sheth Developers Pvt. Ltd. and Pawan Kumar Goel v. State of Uttar Pradesh²⁵ to argue that trusts could fall within the legislative intent behind Section 141. However, those authorities concerned companies and partnerships, not trusts—raising questions about doctrinal transposition.

The Gujarat and Calcutta Perspectives

The Gujarat High Court, while dealing primarily with property disputes, also weighed in on the trust’s non-juristic status in Kansara Abdulrehman Sadruddin v. Trustees of the Maniar Jamat Ahmedabad, holding that trustees, and not the trust itself, must be impleaded in legal proceedings.²⁶ The Calcutta High Court in Vijay Sports Club v. State of Bengal similarly reinforced that a trust is incapable of holding independent legal personality.²⁷

The Inconsistency in Application

The split among these jurisdictions reflected problematic conceptual unease. The first line of reasoning, rooted in textual interpretation of the Trusts Act, emphasized fiduciary capacity and the absence of juristic personality; the second, rooted in purposive construction of the NI Act, stressed commercial efficacy and deterrence. Both approaches sought to reconcile the NI Act’s penal object with foundational private law doctrines but arrived at diametrically opposite conclusions.

This conflicting decisions generated significant uncertainty for prosecution under Section 138 where cheques were issued on behalf of charitable or educational trusts. In some jurisdictions, trustees were discharged for want of proper arraignment of the trust; in others, both were prosecuted concurrently. The absence of uniformity not only undermined legal certainty but also complicated compliance obligations for trustees acting in representative capacities.

Judgment in Sankar Padam Thapa

Supreme Court confronted a narrow but long-contested question: Whether a complaint under Section 138 of the NI Act is maintainable against a trustee who issues a cheque on behalf of a trust, without arraying the trust itself as an accused?

The case arose from the dishonour of a ₹5 crore cheque issued by the Chairman of the Orion Education Trust in favour of the complainant for services rendered during the transition of a university’s management.²⁸ When the cheque was dishonoured, proceedings were initiated against the Chairman alone under Sections 138 and 142 of the NI Act. The High Court of Meghalaya quashed the complaint, holding that the absence of the trust as an accused rendered the proceedings non-maintainable.²⁹

When the matter reached the Supreme Court, it drew upon Section 3, which defines a trust as “an obligation annexed to ownership,”³⁰ and Section 13, which imposes upon trustees the duty to “maintain and defend” suits relating to trust property.³¹ These provisions, the Court held, “place the obligation to act in law upon trustees alone,” thereby excluding the possibility of the trust being treated as a juristic entity.³²

In reaffirming this position, the Court cited with approval the Kerala High Court’s reasoning in K.P. Shibu v. State of Kerala, where it was held that “a trust is not capable of suing or being sued in a court of law.”³³ The Court also referred to Duli Chand v. M.P.T.C. Charitable Trust,³⁴ V. Chandrasekaran v. Venkatanaicker Trust³⁵, and Narayana Iyer v. Anandammal Adheena Trust³⁶ to reinforce the proposition that the trust itself is a non-juristic body incapable of independent legal action.

Rejecting the Juristic Trust Theory

The Court expressly disapproved of decisions by certain High Courts, particularly Prana Educational and Charitable Trust v. State of Kerala³⁷ and Mukund v. Eknath Hatwa³⁸ which had extended the meaning of “company” in Section 141 of the NI Act to include trusts. Justice Amanullah noted that such an approach “wrongly equated a trust with a company,” ignoring the foundational principle in Salomon v. Salomon & Co. Ltd., that a company’s separate legal personality arises only through statutory incorporation.³⁹

The Court observed that the functional analogy drawn between trusts and companies by these judgments amounted to “judicial legislation,” as the NI Act’s penal provisions must be construed strictly.⁴⁰ Accordingly, the ejusdem generis principle could not be stretched to include non-juristic bodies such as trusts within the phrase “association of individuals.”

More importantly, the Court did not restrict itself and recognized in reiteration of the otherwise settled law on cheque dishonour that trustees, acting as authorized signatories, are directly responsible for the act of issuing a cheque, and thus squarely fall within the scope of Section 138.⁴¹ This does not depend on vicarious liability, but rather on personal agency by doing the act of signing and authorizing the instrument.

By construing the trustee’s liability as direct rather than derivative, the Court harmonized the fiduciary and penal frameworks without distorting either statute. It emphasized that while a trust may serve public or charitable purposes, its representatives cannot evade statutory obligations by invoking the non-juristic nature of the entity they administer.⁴² Hence, the Court restored the trial proceedings against the trustee.⁴³

Conclusion

The Supreme Court’s judgment in Sankar Padam Thapa marks a critical consolidation of Indian jurisprudence on the interface between the Trusts Act and the NI Act. In clarifying that trusts lack juristic personality and that trustees who sign dishonoured cheques bear personal liability, the Court reaffirmed the coherence of India’s statutory scheme while ensuring commercial accountability in fiduciary settings.

This decision harmonizes two 19th-century enactments, one rooted in equity, the other in commercial pragmatism, without compromising either’s conceptual integrity. It preserves the fiduciary essence of trusts by denying them corporate attributes, yet upholds the NI Act’s deterrent function by ensuring that those who exercise control over financial instruments cannot shelter behind legal abstractions. Beyond its immediate effect on cheque dishonour prosecutions, the judgment also strengthens institutional discipline among trustees of charitable and educational bodies. Trustees, now clearly identified as the direct bearers of financial responsibility, must exercise prudence and compliance in issuing negotiable instruments.

As the Court awaits resolution of the pending reference of the similar issue by a 3-judge bench in Tara Bai Desai Charitable Ophthalmic Trust Hospital v. Supreme Elevators (India) Pvt. Ltd.,⁴⁴ the court has clarified the definitive application of the present holding as a statement of law that: fiduciary obligation does not dilute legal accountability, and the absence of juristic personality does not imply immunity from liability.

References

1. Yash Mittal, S.138 NI Act | Cheque Dishonour Complaint Maintainable Against Trustee Without Arraying Trust As Accused : Supreme Court, LIVELAW (2025) https://www-livelaw-in-dsnlu.knimbus.com/supreme-court/s138-ni-act-cheque-dishonour-complaint-maintainable-against-trustee-without-arraying-trust-as-accused-supreme-court-306429.
2. See Indian Trusts Act, No. 2 of 1882, § 3, INDIA CODE (1882).
3. Id.
4. Salomon v. A. Salomon & Co. Ltd., [1897] A.C. 22 (H.L.).
5. Tata Eng’g & Locomotive Co. Ltd. v. State of Bihar, (1964) 34 Comp Cas 458 (SC).
6. Trusts Act, § 13.
7. K.P. Shibu v. State of Kerala, 2019 SCC OnLine Ker 7585.
8. Duli Chand v. M.P.T.C. Charitable Tr., 1983 SCC OnLine Del 270.
9. See judgment text – Sankar Padam Thapa, 2025 INSC 1210 (India).
10. Negotiable Instruments Act, No. 26 of 1881, §§ 138–142, INDIA CODE (1881).
11. See generally S.M.S. Pharms. Ltd. v. Neeta Bhalla, (2005) 8 SCC 89.
12. K.K. Ahuja v. V.K. Vora, (2009) 10 SCC 48.
13. (2012) 5 SCC 661.
14. Prana Educ. & Charitable Tr. v. State of Kerala, 2023 SCC OnLine Ker 8449.
15. (2017) 3 SCC 712.
16. Indian Trusts Act, No. 2 of 1882, § 3, INDIA CODE (1882).
17. K.P. Shibu v. State of Kerala, 2019 SCC OnLine Ker 7585, ¶ 16.
18. Id.
19. K.R. Rajan v. Cherian K. Cherian, 2019 SCC OnLine Ker 4699, ¶ 7.
20. See id.
21. Abraham Mem’l Educ. Tr. v. Suresh Babu, 2012 SCC OnLine Mad 2986.
22. Id. at ¶¶ 20–22.
23. Dadasaheb Rawal Co-op. Bank of Dondaicha Ltd. v. Ramesh Jawrilal Jain, 2008 SCC OnLine Bom 794.
24. Mukund v. Eknath Hatwar, 2023 SCC OnLine Bom 3015, ¶ 12.
25. Aparna A. Shah v. Sheth Devs. Pvt. Ltd., (2013) 8 SCC 71; Pawan Kumar Goel v. State of U.P., 2022 SCC OnLine SC 1598.
26. Kansara Abdulrehman Sadruddin v. Trustees of the Maniar Jamat Ahmedabad, AIR 1968 Guj 184.
27. Vijay Sports Club v. State of Bengal, 2019 SCC OnLine Cal 2331.
28. Sankar Padam Thapa v. Vijaykumar Dineshchandra Agarwal, 2025 INSC 1210 (India), See ¶ 5.
29. Id. ¶ 8.
30. Indian Trusts Act, No. 2 of 1882, § 3, INDIA CODE (1882).
31. Id. § 13.
32. Sankar Padam Thapa, ¶ 23.
33. K.P. Shibu, ¶ 16.
34. Duli Chand v. M.P.T.C. Charitable Tr., 1983 SCC OnLine Del 270.
35. 2016 SCC OnLine Mad 33745.
36. (2021) 3 CTC 776 (Mad.).
37. 2023 SCC OnLine Ker 8449.
38. 2023 SCC OnLine Bom 3015.
39. [1897] A.C. 22 (H.L.).
40. Sankar Padam Thapa, ¶ 32.
41. Id. at ¶¶ 17–18.
42. Id. at ¶ 27.
43. Id. at ¶ 40.
44. Tara Bai Desai Charitable Ophthalmic Tr. Hosp. v. Supreme Elevators (India) Pvt. Ltd., (2025) 3 SCC 80.