Cheque Bounce by a Trust or Society: Who Is Liable?

Your society's cheque for ₹4,50,000 has come back marked "funds insufficient", and the contractor's advocate has sent a notice naming the secretary, the treasurer and the society itself. You are an office bearer of a charitable trust or a housing society, not a director of a company, and nobody has explained what that difference means for your personal exposure. This guide answers the question that follows every trust cheque bounce — who is liable — by separating the entity's liability from that of trustees, managing committee members and the person who actually signed the instrument.

How a Trust or Society Issues a Cheque

A trust deed, or a society's registration certificate, does not by itself give anyone the power to sign cheques. That power comes from a resolution — of the board of trustees or of the managing committee — lodged with the bank and recorded in the account opening form along with specimen signatures. The bank then honours only what the mandate permits.

This matters because in a Section 138 case the court reads three things together: whose account was debited, whose signature appears on the cheque, and who under the constitution of the entity was in charge of its finances when the cheque was issued. Titles are not decisive. A president who signs nothing may have no liability under Section 141; a treasurer who signed the cheque cannot avoid being a party.

The bank mandate is the first document that matters

Keep the following accessible in one file, because you will be asked for them within days of a notice:

• The trust deed, or the registration certificate and bye-laws.
• The resolution appointing authorised signatories, and every later resolution changing them.
• Specimen signature cards and the bank's acknowledgement of the mandate.
• The current list of trustees or committee members, with the dates their terms begin and end.

If the signatory's term had ended when he signed, the trust may have a defence on authority, but the cheque was still drawn on the trust's account. A payee's case does not collapse merely because the internal paperwork was stale.

Trust Cheque Bounce: Who Is Liable Under Section 138

Section 138 of the Negotiable Instruments Act, 1881 applies when a cheque drawn by a person on an account maintained by him is returned unpaid because of insufficiency of funds or because it exceeds the arrangement, and the cheque was issued to discharge a legally enforceable debt or liability. The provision speaks of the person who draws the cheque. In a trust or society, that person is the individual who signs, acting for the entity.

The signatory is usually the first accused

Complaints are drafted, as a matter of practice, against the signatory as the drawer, and against the entity and the other office bearers under Section 141 wherever that section is available. A trustee who signs cannot argue that the account was not in his personal name; the signature on the instrument and the mandate with the bank link him to it. Whether the money was to come from the trust's funds or his own goes to recovery and sentence rather than to whether a debt existed.

Trustees who did not sign

Bare trusteeship is not enough. Where Section 141 applies, liability attaches to those who were in charge of and responsible to the entity for the conduct of its business at the time the offence was committed, and the complaint must say so with specifics. A general averment that the accused is a trustee will not do, as the Supreme Court held in S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla. A managing trustee who runs the accounts and a trustee who attends two meetings a year stand in different positions.

Does Section 141 Apply to Trusts, Societies and Clubs?

The answer begins with the Explanation to Section 141. For the purposes of that section, "company" means any body corporate and includes a firm or other association of individuals; and "director", in relation to a firm, means a partner. The section is therefore not confined to companies incorporated under the Companies Act.

What follows from that wording:

• A partnership firm is covered, and partners in charge can be arraigned.
• A co-operative housing society is typically a body corporate under the state co-operative law it is registered under, so Section 141 applies squarely.
• A society registered under the Societies Registration Act, 1860 or a state counterpart is an association of individuals. High Courts have generally proceeded on that basis, treating committee members in charge as covered.
• An unregistered club or association has no legal personality. The office bearers who signed are proceeded against in their own right, because there is no entity to arraign.

The practical consequence is Aneeta Hada v. Godfather Travels & Tours Pvt. Ltd. The Supreme Court held that where an offence is attributed to a company under Section 141, the company must be arraigned as an accused; a complaint against the office bearers alone, without the society, is defective. This is the single most common drafting error in society cheque dishonour complaints.

Two cautions. First, whether a public charitable trust is itself a "company" or a juristic person that can be prosecuted has been answered differently by different High Courts. Second, a society cannot be imprisoned; the sentence against it is fine and compensation, while the persons in charge face the personal consequences. Check the position in your own High Court before drafting, and as a safe course, array the entity through its trustees or office bearers and name every signatory.

Defence: Cheque Issued Outside the Trust's Purpose

Section 138 punishes the dishonour of a cheque issued for a legally enforceable debt or liability. If no such debt existed, or if the debt was not the trust's, the foundation of the complaint fails. These situations recur.

The trustee borrowed for himself

A managing trustee signs a cheque on the trust's account to repay his own lender. The trust owes nothing. The payee's remedy lies against the trustee personally as the drawer, and the trust can show through its accounts that no funds ever came to it. This defence works only when the books, resolutions and correspondence support it; a bare assertion in the reply notice rarely does.

Donation, subscription or gift

A cheque given towards a donation or a sponsorship is not issued for a legally enforceable debt, and neither is one handed over as a gesture the payee had no right to enforce. The payee must first show a liability, not merely possession of the cheque.

Security cheque or blank cheque

Where a cheque was given as security, or with the particulars left blank, the payee must establish that a debt had crystallised and that the cheque was issued in discharge of it. The presumption under Section 139 helps the payee, but it is rebuttable.

Ultra vires the trust

If the trust deed permits only education and the cheque was issued for a commercial venture, the trustees have acted beyond their powers. The entity's liability is then doubtful, though the signatory may still be answerable for his signature.

One defence that usually fails is that the signatory was not authorised by the bank. Authority as between the trust and its banker is an internal matter; a payee who received a signed cheque for a genuine debt is not fixed with knowledge of the mandate.

Notice, Records and Authority to Defend

Once the bank returns the cheque, the clock runs. The payee must send a demand notice within thirty days of receiving the bank's return memo. The drawer then has fifteen days from receipt to pay. If no payment comes, the cause of action arises when that window closes, and the complaint must be filed within one month thereafter, with the court able to condone delay on sufficient cause. The complaint is filed where the payee's bank branch is situated.

For a trust or society, the notice and the reply decide much of the case. A reply that merely denies the transaction, without producing the ledger, the invoices and the resolutions, achieves little. Interim compensation under Section 143A, of up to twenty per cent of the cheque amount, can be ordered during trial. An appeal against conviction requires a deposit of at least twenty per cent under Section 148. The offence is compoundable under Section 147, which is how most of these matters end.

Worked scenario

A housing society in Pune owes a lift maintenance contractor ₹4,50,000. On 12 January 2026 the secretary and the treasurer sign a cheque on the society's bank account. The bank returns it on 20 January 2026 with the remark "funds insufficient". The contractor sends a demand notice on 5 February 2026, which the society receives on 7 February. The society's advocate replies on 18 February saying the secretary's term had ended and the cheque was issued outside the committee's authority. No payment follows.

The complaint filed on 10 March 2026 should array the society through its chairperson, and the secretary and treasurer who signed. The secretary's defence turns on the mandate file: if the resolution appointing him had been superseded and the bank informed, he has an authority argument, though he remains the signatory on the instrument. The treasurer, who also signed, cannot distance himself. The society's grievance that the contractor's invoices were inflated is a civil issue; it does not answer the dishonour, though it may affect the sum awarded. The court can order interim compensation of up to ₹90,000 under Section 143A.

Checklist for office bearers

• Obtain the bank's return memo and note the exact date of dishonour.

• Pull out the resolution that authorised the signatory, and every later resolution changing signatories.

• Trace the cheque in the books and identify the invoice or liability it was meant to discharge.

• Reply to the demand notice within fifteen days, attaching documents rather than denials.

• Decide with the committee whether to pay, settle or contest, keeping Section 147 in view.

• If contesting, confirm that the society or trust is arraigned alongside every signatory.

• Pass a fresh committee resolution authorising the defence, so the advocate is properly instructed.

Common mistakes

Three errors account for most losses. Suing the secretary alone, without the society, invites dismissal on the Aneeta Hada principle. Keeping no record of signatory changes makes the mandate impossible to prove at trial. And treating the demand notice as a formality, then filing a bare denial, forfeits the fifteen-day window in which a payment or a settlement could have ended the matter cheaply.

Documents to keep

Maintain the trust deed or bye-laws, all signatory resolutions, the bank mandate and return memo, the ledger extract for the disputed cheque, the vendor invoices, minutes of the meeting at which the payment was approved, and the demand notice with its postal proof and your reply. In a Section 141 case these records decide who was in charge far more reliably than designations on a letterhead.

If a cheque on your trust's or society's account has just been returned, collect the return memo from the bank today and place the mandate file and the matching invoices before the committee before the fifteen-day reply period closes.

This article is for general information only and is not legal advice. Consult a qualified professional for your specific facts.