Answer By law4u team
Yes, a cheque issued by an NGO or trust can be covered under Section 138 of the Negotiable Instruments Act, 1881, if it bounces due to insufficient funds or other reasons specified under the law. Applicability of Section 138 on NGOs and Trusts Legal Entity Status An NGO or trust is a juridical entity and can enter into financial transactions. If an NGO or trust issues a cheque that bounces, it is liable under Section 138. Who is Liable? The signatory of the cheque (trustee, chairman, or authorized signatory) is personally liable. If the NGO or trust is registered as a corporate entity (e.g., Section 8 company), its office bearers, directors, or authorized officials may also be held accountable. Conditions for Section 138 Action The cheque must be for the discharge of a legally enforceable debt or liability. The cheque must be presented within 3 months from the date mentioned on it. The payee must issue a legal notice within 30 days of receiving the bank's dishonor memo. If the issuer fails to make payment within 15 days of the notice, a complaint can be filed in court within 30 days. Defenses Available for NGOs or Trusts If the cheque was issued without a legally enforceable liability, the NGO/trust can contest the case. If the signatory had no authority to issue the cheque, liability may not arise.
