Does a Cheque-Case under NI Act Lie Against a Partnership/ Trust/ Society?

Saji Koduvath, Advocate, Kottayam.

Abstract

  • 1. A trust is a legal concept (an obligation); it is not an association of persons; and therefore, it cannot be made as a party to litigation (Sankar Padam Thapa  v. Vijaykumar Dineshchandra Agarwal (Ahsanuddin Amanullah, Prashant Kumar Mishra, JJ), 2025 INSC 1210.
  • 2. A partnership firm need not be an accused in a Complaint under Section 138, Negotiable Instruments Act. Even if the firm is a juristic entity it is not distinct from the partners and therefore, the defect, if any, is not significant. If the ‘firm commits’ any breach, all the partners would become liable for the penalties (Dhanasingh Prabhu v. Chandrasekar (Nagarathna, Satish Chandra Sharma, JJ.), 2025 INSC 831.
  • 3. A Society (both registered and unregistered) need not be an accused in a Complaint under Section 138, Negotiable Instruments Act. In Illachi Devi v. Jain Society Protection of Orphans India, AIR 2003 SC 3397, it is held that a society registered under the Societies Registration Act, even after registration, does not become distinct from its members and does not become a separate legal person like a company  (Referred to in Vivek Narayan Sharma Vs. Union of India, 2023-3 SCC 1). Therefore, the principles as to partnership laid down in Dhanasingh Prabhu v. Chandrasekar (Nagarathna, Satish Chandra Sharma, JJ.), 2025 INSC 831, apply to societies also.

S. 141 of the NI Act Refers to “firm or other association of individuals”

Section 141 of the NI Act speaks as to ‘Offences by Companies‘. It says:

  • “If the person committing an offence under Section 138 is a company, every person who, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly…”

Then it is explained in this Section as under:

  • “company” means any body corporate and includes a firm or other association of individuals; and
  • “director”, in relation to a firm, means a partner in the firm.”

Part I : PARTNERSHIP FIRM

The Scope of the Explanation:  “firm or other association of individuals”

The scope of the Explanation—“company means any body corporate and includes a firm or other association of individuals”—came up for consideration in Dhanasingh Prabhu v. Chandrasekar, 2025 INSC 831. That is, whether it is necessary –

•             (i) to join the firm as a party in Section 138 Complaint, and

•             (ii) to issue notice under Section 138 of the Act to the firm?

In Dhanasingh Prabhu v. Chandrasekar, 2025 INSC 831, the Apex Court answered the aforesaid questions in the negative.

Even if Partnership Firm is a Juristic Entity, it is Not Distinct from Partners

The Apex Court, in Dhanasingh Prabhu v. Chandrasekar, 2025 INSC 831, held as under:

  • “6.9  On considering the aforesaid judgments, we observe that even if we have to come to the conclusion that the juristic entity i.e., the partnership firm is the primary accused in the instant case it would be necessary for us to also state that such a juristic entity, namely, a partnership firm is not distinct from the partners who comprise the partnership. ….
  • 6.10 Alternatively, notice to the partners/accused could have been construed as notice to the partnership firm also. We say so for the reason that unlike a company which is a separate juristic entity from its directors thereof, a partnership firm comprises of its partners who are the persons directly liable on behalf of the partnership firm and by themselves. ….. The complainant herein has not arraigned the firm but has arraigned the partners of the firm as accused and has also issued notice to them; therefore, we find that the defect, if any, is not significant or incurable in these circumstances. Permission is therefore to be granted to the complainant to arraign the partnership firm also as an accused in the complaint.….”

Liability of Partners

The Court (Dhanasingh Prabhu v. Chandrasekar) held as under:

  • “7.19 The liability of partners for the debts of the business is unlimited and they are jointly and severally liable for all business obligations of the partnership firm. Sections 25 and 26 of the Partnership Act are relevant in this regard, which are reproduced as under:
    • “25. Liability of a partner for acts of the firm.—Every partner is liable, jointly with all the other partners and also severally, for all acts of the firm done while he is a partner.
    • 26. Liability of the firm for wrongful acts of a partner.—Where, by the wrongful act or omission of a partner acting in the ordinary course of the business of a firm, or with the authority of his partners, loss or injury is caused to any third party, or any penalty is incurred, the firm is liable therefor to the same extent as the partner.” 
  • 7.23 Moreover, since the firm by itself cannot transact any business, if a partner of the firm commits any breach, all the partners would become liable for the consequent penalties, just as the firm would be liable. Further, if a penalty is imposed on a partnership firm for contravention of a statute, it amounts to levy of penalty on the partners also and there is no separate or independent penalty on the partners for the said contravention.”

Dhanasingh Prabhu v. Chandrasekar, 2025 INSC 831

The controversy in Dhanasingh Prabhu v. Chandrasekar, 2025 INSC 831, revolved around the interpretation of Section 141 of the NI Act.

Section 141 of the NI Act envisages that:

  • (i) a company or firm may be deemed guilty of the offence under Section 138 of the NI Act; and
  • (ii) the company or firm, along with the persons in charge of and responsible for its conduct of business, may be subjected to punishment.

Without detracting from the legal propositions in Section 141, the Supreme Court proceeded (in the light of the Partnership Act, 1932) as under:

  • (a) the Partnership firm need not (necessarily) be an accused in a complaint filed under Section 138 (“The defect, if any, is not significant“); and
  • (b) when a complaint is filed ‘against a firm’, under Section 138, all the partners are required to be prosecuted.

Part II : TRUST

Sankar Padam Thapa  v. Vijaykumar Dineshchandra Agarwal (Ahsanuddin Amanullah, Prashant Kumar Mishra, JJ), 2025 INSC 1210 (09-10-2025), is a landmark decision on trust. It held:

  • A Trust Is Not a Legal Person.
  • A Trust Operates through its Trustees.
  • Trustees Can Maintain and Defend a Suit.
  • Trust is an Obligation and not a Legal Entity.
  • No Legal Requirement For A Trust To Be Made A Party.
  • Just as a Managing Director is responsible for the affairs of a company, a Chairman or Managing Trustee is responsible for the affairs and administration of a Trust, within the powers and duties conferred by the Trust Deed and law.

Question Considered

Two principal questions arose for consideration in this case. They are:

  • (i) Whether a complaint under Section 138 of the Negotiable Instruments Act, 1881, is maintainable against the Chairman or a Trustee of a Trust when the cheque in question has been issued on behalf of the Trust, without the Trust itself being made an accused; and
  • (ii) Whether the complainant under Section 138 must make specific averments regarding the accused-trustee’s role and responsibility in the conduct of the day-to-day affairs of the Trust, even though the person is admittedly a Trustee.

Trust is NOT a Legal Person

Decisions relied on (in Sankar Padam Thapa  v. Vijaykumar Dineshchandra Agarwal) to show – Trust is not a ‘legal entity’ capable of being sued – are:

  • 1. Pratibha Pratisthan v. Manager, Canara Bank, (2017) 3 SCC 712.
  • 2. K P Shibu v. State of Kerala, 2019 SCC OnLine Ker 7585, 2019 (3) KHC 1.

Pratibha Pratisthan v. Manager, Canara Bank

In Pratibha Pratisthan v. Manager, Canara Bank, (2017) 3 SCC 712, it is held

  • A Trust is not a person.
  • It could not be a consumer.
  • A Trust cannot be a complainant.
  • It would not fall under the definition of ‘person’ as per Section 2(m) of the Consumer Protection Act.

The Apex Court (in Sankar Padam Thapa  v. Vijaykumar Dineshchandra) pointed out – it is observed in the Pratibha Pratisthan case-

  • “4. A reading of the definition of the words “complaint”, “complainant” and “consumer” makes it clear that a trust cannot invoke the provisions of the Act in respect of any allegation on the basis of which a complaint could be made. To put this beyond any doubt, the word “person” has also been defined in the Act and Section 2(1)(m) thereof defines a “person” as follows:
    • “2. (1)(m) “person” includes—
    • (i) a firm whether registered or not;
    • (ii) a Hindu undivided family;
    • (iii) a cooperative society;
    •  (iv) every other association of persons whether registered under the Societies Registration Act, 1860 (21 of 1860) or not;”
  • 5. On a plain and simple reading of all the above provisions of the Act it is clear that a trust is not a person and therefore not a consumer. Consequently, it cannot be a complainant and cannot file a consumer dispute under the provisions of the Act.”

After quoting Sections 3 (definition of Trust) and 13 (Trustee to protect title to trust-property) of the Trust Act, the Apex Court observed in Sankar Padam Thapa  v. Vijaykumar Dineshchandra Agarwal as under:

  • “23. To our mind, the above-extracted Sections of the Trusts Act would also favour the view we are taking, as the obligation to ‘maintain and defend’ suits is placed on the shoulders of a Trustee and not the Trust itself. It is clear that only a Trustee has the obligation to file, maintain and defend any suit on behalf of the Trust. Meaning thereby, that a Trust does not have a separate legal existence of its own, making it incapable of suing or being sued.”

Trust is an Obligation and Not a Legal Entity

Trust, as defined under the Indian Trusts Act, 1882, is an obligation and not a legal entity.

The Apex Court (in Sankar Padam Thapa  v. Vijaykumar Dineshchandra Agarwal), while discussing this matter, referred (with approval) the following decisions placed by the Appellant:

  • KR Rajan v. Cherian K Cherian, 2019 SCC OnLine Ker 4699 (Kerala High Court)
  • Duli Chand v. M/s MPTC Charitable Trust, 1983 SCC OnLine Del 270 (Delhi High Court)
  • V Chandrasekaran v. Venkatanaicker Trust, 2016 SCC OnLine Mad 33745 (Madras High Court)
  • Narayana Iyer v. Anandammal Adheena Trust, (2021) 3 CTC 776; (Madras High Court)
  • Kansara Abdulrehman Sadruddin v. Trustees of the Maniar Jamat Ahmedabad, AIR 1968 Guj 184 (Gujarat High Court)
  • Vijay Sports Club v State of Bengal, 2019 SCC OnLine Cal 2331 (Calcutta High Court).

A Trust Operates Through its Trustees

After referring the aforestated decisions, the Apex Court (in Sankar Padam Thapa  v. Vijaykumar Dineshchandra Agarwal) said as under:

  • “25. …. A Trust is also not like a corporation which has a legal existence of its own and therefore can appoint an agent. A Trust operates through its Trustees, who are legal entities. We may gainfully refer to the decision of the Kerala High Court in KR Rajan (supra), where the said Court has rightly held:
  • ‘7. The legal status of a trust, is thus well discernible. Trust not being a legal person, and the Code of Civil Procedure not providing any enabling provision for the Trust to sue or for being sued in its name, there is no merit in the contention that the Trust is to be arrayed as a co-nominee party. The arraying of the trust in its own name is otiose or redundant. It is the trustees who are to be impleaded to represent the trust. Therefore, the contention of the petitioner on the ground of non-joinder, also fails’.”

Trust Is An Obligation Imposed On The Ostensible Owner – Trustee

The Apex Court held further as under (in Sankar Padam Thapa  v. Vijaykumar Dineshchandra Agarwal):

  • “26. Ergo, it is clear that though a Trust may act or even be treated as an entity for certain legal purposes and not all legal purposes, a Trust is an obligation imposed on the ostensible owner of the property to use the same for a particular object – for the benefit of a named beneficiary or charity, and it is the Trustee(s) who are bound to maintain and defend all suits and to take such other steps with regard to the nature, land or the value of the Trust property, that may be reasonably required for the preservation of the Trust property, and the assertion of protection of title thereto, subject to the provisions of the instructions of Trust to take such other steps.”

No Legal Requirement For A Trust To Be Made A Party

The Apex Court held further as under (in Sankar Padam Thapa  v. Vijaykumar Dineshchandra Agarwal):

  • “27. There exists no ambiguity about there being no legal requirement for a Trust to be made a party in a proceeding before a Court of Law since it is only a/the Trustee(s) who are liable and answerable for acts done or alleged to have been done for and on behalf of the said Trust. From a perusal of Orion’s Deed of Trust, of which the Respondent is the Chairman/Authorized Signatory, it emerges clearly that the relevant clauses deal with the Trustee insofar as administering and holding the funds and properties of the Trust are concerned. Which is to say that the Trust (i.e., Orion) operates only through the Trustee(s) and that the objects thereof were for charitable purposes. The Deed of Trust also provides for permitting one or more Trustees to operate a bank account. It becomes all the more apparent that it is the Trustees alone, through whom the Trust funds/property(ies) are managed and dealt with. The Trust itself is without any independent legal status.”

Read Also:

Requirement of Averments – Role of Trustee-Accused in Affairs of Trust

The position of a Managing Director in a company carries responsibility for its affairs. A similar principle applies to Trusts — the Trustees (authorised signatory or Managing Trustee, where designated) are responsible for the administration and conduct of the Trust’s affairs, subject to the powers and duties defined by the Trust Deed and applicable law.

The Apex Court (in Sankar Padam Thapa  v. Vijaykumar Dineshchandra Agarwal) relied upon the decision SMS Pharmaceuticals Ltd. v Neeta Bhalla, (2005) 8 SCC 89 [3-Judge Bench], wherein it was held that a position of a Managing Director would suggest responsibility of the person holding the said position, in the day-to-day affairs of the Company.

The following portion from SMS Pharmaceuticals Ltd. (supra) is quoted by the Apex Court.

  • “…. The answer to the question posed in sub-para (b) has to be in the negative. Merely being a director of a company is not sufficient to make the person liable under Section 141 of the Act. A director in a company cannot be deemed to be in charge of and responsible to the company for the conduct of its business. …
  • …. the managing director or joint managing director would be admittedly in charge of the company and responsible to the company for the conduct of its business. When that is so, holders of such positions in a company become liable under Section 141 of the Act. By virtue of the office they hold as managing director or joint managing director, these persons are in charge of and responsible for the conduct of business of the company. Therefore, they get covered under Section 141. So far as the signatory of a cheque which is dishonoured is concerned, he is clearly responsible for the incriminating act and will be covered under sub-section (2) of Section 141.”

The Apex Court also sought support from KK Ahuja v. VK Vora, (2009) 10 SCC 48, which held as under:

  • “27. The position under Section 141 of the Act can be summarised thus:
  • .(i) If the accused is the Managing Director or a Joint Managing Director, it is not necessary to make an averment in the complaint that he is in charge of, and is responsible to the company, for the conduct of the business of the company. It is sufficient if an averment is made that the accused was the Managing Director or Joint Managing Director at the relevant time. This is because the prefix “Managing” to the word “Director” makes it clear that they were in charge of and are responsible to the company, for the conduct of the business of the company.”

The Apex Court also relied on Sunita Palita v. Panchami Stone Quarry, (2022) 10 SCC 152, where it was observed:

  • “36. The High Court also rightly held that the Managing Director or Joint ManagingDirector would admittedly be in charge of the company and responsible to the company for the conduct of its business by virtue of the office they hold as Managing Director or Joint Managing Director. These persons are in charge of and responsible for the conduct of the business of the company, and they get covered under Section 141 of the NI Act.”

Part III : SOCIETY

Registration does not Confer Juristic Personality

In Board of Trustees, Ayurvedic & Unani Tibia College, Delhi Vs. The State, AIR 1962 SC 458, it is held that the registration of Societies under the Central or State Societies Registration Act does not give the society a corporate status.

In Illachi Devi Vs. Jain Society Protection of Orphans India: AIR 2003 SC 3397, it is held that a society registered under the Societies Registration Act as a society even after registration does not become distinct from its members and does not become a separate legal person like a company. (Referred to in Vivek Narayan Sharma Vs. Union of India, 2023-3 SCC 1)

In Illachi Devi Vs. Jain Society Protection of Orphans India, AIR2003 SC 3397, says as under: 

  • i) The mere fact of registration will not make a society distinct from association of persons. (Para 20)
  • ii) A Society registered under the Societies Registration Act is not a body-corporate as is the case in respect of a company registered under the Companies Act. In that view of the matter, a Society registered under the Societies Registration Act is not a juristic person.  (Para 21)
  • iii) A society, whether registered or unregistered, may not be prosecuted in criminal court, nor is it capable of ownership of any property or of suing or being sued in its own name. (Para 22) Vesting of property does not take place in the Society. Similarly, the society cannot sue or be sued. It must sue or be sued through a person nominated in that behalf. (Para 26)

Society is the Compendium of its Members

A society or a club, both registered and unregistered, is the compendium of its members. When it sues or is sued all its members should be made parties. Registration of Societies under the Central or State Societies Registration Act does not give the society a corporate status. (Board of Trustees, Ayurvedic & Unani Tibia College, Delhi Vs. The State: AIR 1962 SC 458. Illachi Devi Vs. Jain Society Protection of Orphans India: AIR 2003 SC 3397; Tata Vs. Tata, AIR 2010 SC 2943)

‘Property Belonging to a Society’, “Merely Describes” Property Vests in Gover. Body

Expressions in the Societies Registration Act, ‘property belonging to a society’ (Societies Registration Act: Sec. 5) and ‘property of the society’, (Societies Registration Act: Sec. 8 and 10) do not give the society a corporate status; and it “merely describes the property which vests in trustees or Governing Body”. (Board of Trustees, Ayurvedic & Unani Tibia College, Delhi Vs. The State: AIR 1962 SC 458)

‘Suit By or Against a Regd. So.’ is Virtually Suit By or Against Entire Members

Following the above propositions, it can be legitimately concluded that the common expression, ‘suit by or against a society’, legally and virtually denotes suit by or against its entire members.

How Sec. 6 is an Enabling Provision

The earlier view taken by various courts in India was that the registered societies were legal persons and they could sue or be sued in their own name; and that Sec. 6 was only an enabling (or added) provision to sue or be sued in the name of the president, secretary, etc.. (Shanti Sarup Vs. Radhaswami Satsang Sabha, Dayalbagh Agra: AIR 1969 All. 248; K.C. Thomas Vs. R.B. Gadaook, AIR 1970 Pat 163;  Khiri Ram Gupta and Another versus Nana Lal:  AIR 1964 Pat. 114, Satyavart Sidhantalankar Vs. Arya Samaj, Bombay : AIR 1946 Bom. 516; Nabadwip Bhajan Asram Vs. Commissioner of Nabadwip Municipality : AIR 1959 Cal 361; Sonar Bangala Bank Vs. Calcutta Engineering College: AIR 1960 Cal 409)

This view does not hold good in the light of Unani Tibia College case, AIR 1962 SC 458, Illachi Devi case,  AIR 2003 SC 3397, and Tata Vs. Tata,  AIR 2010 SC 2943.

Suing entire members of the society, either in person or invoking Order I Rule 8 CPC, is the normal rule. But, Sec. 6 enables ‘to sue or be sued’ every registered society in the name of its president, secretary, etc., as shall be determined by the rules and regulations of the society (or through such person as shall be appointed by the governing body for the occasion).

Suit shall be in the Personal Name of President, Chairman, etc.

From the expression in Sec. 7 of the Societies Registration Act that ‘proceedings shall be continued in the name of or against the successor of such person’, it is clear that the words in Sec. 6 of the Societies Registration Act, ‘sue or be sued in the name of President, Chairman, or Principal Secretary, or Trustees,’ refers to filing suit by or against the President, Chairman, Principal Secretary or Trustees in their ‘personal name’; and not in their ‘official status’ as President, Chairman, Principal Secretary or Trustees.

Sec. 6: Impliedly Bars Filing a Suit in the Name of Society

As already stated, our Apex Court has repeatedly  made it clear that Sec. 6 of the Societies Registration Act provides that a registered society must sue or be sued through the office bearer or a nominee, as provided in that section. Therefore, it can be concluded that Sec. 6 impliedly bars filing a suit in the name of the society, otherwise than through its President, Secretary or the nominated person. (Board of Trustees, Ayurvedic & Unani Tibia College, Delhi Vs. The State: AIR 1962 SC 458; Illachi Devi Vs. Jain Society Protection of Orphans India AIR 2003 SC 3397; Tata Vs. Tata,  AIR 2010 SC 2943.)

Principles in Prosecuting a Cheque Case as to Partnership Apply to Societies Also

In Illachi Devi v. Jain Society Protection of Orphans India, AIR 2003 SC 3397, it is held that a society registered under the Societies Registration Act, even after registration, does not become distinct from its members and does not become a separate legal person like a company  (Referred to in Vivek Narayan Sharma Vs. Union of India, 2023-3 SCC 1). Therefore, the principles as to partnership, in prosecuting a cheque case under Sec. 138 NI Act, laid down in Dhanasingh Prabhu v. Chandrasekar (Nagarathna, Satish Chandra Sharma, JJ.), 2025 INSC 831, apply to societies also.

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