Source: Kerala High Court

Why in News?

The Kerala High Court has laid down that a trust, whether it is a public, private, or charitable entity, is a Juristic Person and can be made liable for the offence of dishonor of cheques under Section 138 of the Negotiable Instruments Act (NI Act).

What is the Background of the Case?

• A cheque was issued to the complainant in discharge of liability, drawn on the account maintained by the accused (Prana Educational and Charitable Trust) and the same was dishonored for the reason “funds insufficient”.
• The complainant initiated prosecution against the accused alleging commission of offence punishable under Section 138 of the NI Act in the court of Judicial Magistrate First-Class (Trial Court).
• The trial court convicted and sentenced the accused under Section 138, the sentence and conviction was challenged by the accused before the Sessions Court.
• The learned Sessions Judge also confirmed the conviction and the sentence imposed by the trial court.
• Challenging the concurrent verdicts of conviction and sentence imposed by the trial court as well as the Appellate Court, the present revision petition was filed in the High Court of Kerala (HC) under Sections 397 and 401 of Code of Criminal Procedure, 1973.
  • The Counsel for the petitioners primarily argued that the prosecution by the complainant was not legally sustainable, since a Trust is not a juristic person under Section 141 of the NI Act.
• Petitioners' reliance was placed on the case K.P. Shibu & Ors. v. State of Kerala & Anr. (2019), in which the Kerala High Court held that prosecution against a Trust alleging commission of offence punishable under Section 138 NI Act would not be maintainable, since the Trust is neither a body corporate, nor an association of persons, as provided in Section 141 of NI Act.
• The respondent placed reliance on:
  • Abraham Memorial Educational Trust v. C. Suresh Babu (2012), the Madras High Court held that, a Trust can be prosecuted, though there is compulsory sentence of imprisonment prescribed under Section 138 of the NI Act, a Trust can be imposed only with fine or compensation.
  • In the case of Dadasaheb Rawal Co-op. Bank of Dondaicha Ltd v. Ramesh & Ors. (2008) and Shah Rajendrabhai Jayantilal v. D.Pranjivandas and sons Prop. Dhirajlal Pranjivandas Popat (2015) of Mumbai and Gujarat HCs respectively, it was held that a 'company' as provided in Section 141 NI Act would include any 'association of individuals', and an 'association of individuals' would include a club, Trust, or Hindu Undivided Family (HUF) Business.

What were the Court’s Observations?

• The Court provided a summary of the legal stance that has evolved from multiple precedents in the following manner.:
  • The expression 'company' in sub-clause (a) of explanation of Section 141 of N.I. Act includes anybody corporate or other 'association of individuals' and the term 'association of individuals' is to be interpreted by applying the principle of ejusdem generis.
    • Ejusdem generis means “of the same kind.” Where general words or phrases follow a number of specific words or phrases, the general words are specifically construed as limited and apply only to persons or things of the same kind.
    • For example, if in a sentence reference is made to ships, boats, steamers and other vehicles, the court might use ejusdem generis to hold that such vehicles would include only water transport vehicles.
  • A Trust, either private or public, charitable or otherwise, is a Juristic Person and is liable for punishment for the offence punishable under Section 138 of the NI Act.
  • A Trust, either private or public, charitable or otherwise, having either a single trustee or two or more trustees, is a company in terms of Section 141 of NI Act.
  • In cases where a Trust commits an offense under Section 138 of the NI Act, every trustee responsible for overseeing the daily operations of the Trust shall be subject to punishment in addition to the Trust itself.
• Justice A. Badharudeen of Kerala HC dismissed the revision petition, and the petitioners were directed to pay the fine/compensation imposed by the trial court within a period of two weeks from the date of judgment.

Who is a Juristic Person?

A juristic person is a non-human legal entity recognized by the law and entitled to rights and duties in the same way as a human being.

What are the Legal Provisions of NI Act Involved?

Section 138 - Dishonour of cheque for insufficiency, etc., of funds in the account -

Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for a term which may be extended to two years, or with fine which may extend to twice the amount of the cheque, or with both:

Provided that nothing contained in this section shall apply unless—

(a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier;

(b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice; in writing, to the drawer of the cheque, within thirty days of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and

(c) the drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice.

Section 141 - Offences by companies —

(1) 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: Provided that nothing contained in this sub-section shall render any person liable to punishment if he proves that the offence was committed without his knowledge, or that he had exercised all due diligence to prevent the commission of such offence:

Provided further that where a person is nominated as a Director of a company by virtue of his holding any office or employment in the Central Government or State Government or a financial corporation owned or controlled by the Central Government or the State Government, as the case may be, he shall not be liable for prosecution under this Chapter. (2) Notwithstanding anything contained in sub-section (1), where any offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to, any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.

What are the Legal Provisions of CrPC Involved?

Section 397 - Calling for records to exercise powers of revision —

(1) The High Court or any Sessions Judge may call for and examine the record of any proceeding before any inferior Criminal Court situate within its or his local jurisdiction for the purpose of satisfying itself or himself; to the correctness, legality or propriety of any finding, sentence or order, recorded or passed, and as to the regularity of any proceedings of such inferior Court, and may, when calling, for such record, direct that the execution of any sentence or order be suspended, and if the accused is in confinement that he be released on bail or on his own bond pending the examination of the record.

Explanation — All Magistrates, whether Executive or Judicial, and whether exercising original or appellate jurisdiction, shall be deemed to be inferior to the Sessions Judge for the purposes of this sub-section and of section 398.

(2) The powers of revision conferred by sub-section (1) shall not be exercised in relation to any interlocutory order passed in any appeal, inquiry, trial or other proceeding.

(3) If an application under this section has been made by any person either to the High Court or to the Sessions Judge, no further application by the same person shall be entertained by the other of them.

Section 401 - High Court's powers of revision —

(1) In the case of any proceeding the record of which has been called for by itself or which otherwise comes to its knowledge, the High Court may, in its discretion, exercise any of the powers conferred on a Court of Appeal by sections 386, 389, 390 and 391 or on a Court of Session by section 307, and, when the Judges composing the Court of Revision are equally divided in opinion, the case shall be disposed of in the manner provided by section 392.

(2) No order under this section shall be made to the prejudice of the accused or other person unless he has had an opportunity of being heard either personally or by pleader in his own defence.

(3) Nothing in this section shall be deemed to authorize a High Court to convert a finding of acquittal into one conviction.

(4) Where under this Code an appeal lies and no appeal is brought, no proceeding by way of revision shall be entertained at the instance of the party who could have appealed.

(5) Where under this Code an appeal lies but an application for revision has been made to the High Court by any person and the High Court is satisfied that such application was made under the erroneous belief that no appeal lies thereto and that it is necessary in the interests of Justice so to do, the High Court may treat the application for revision as a petition of appeal and deal with the same accordingly.