S.138 NI Act | Agent Not Personally Liable For Cheque Issued On Behalf Of Disclosed Principal; Can't Impose Fine And Compensation Separately: Himachal Pradesh HC - 2025-09-13

HP High Court Acquits Man in Cheque Bounce Case, Cites Agent's Immunity for Disclosed Principal

Shimla: The Himachal Pradesh High Court, in a significant ruling, has acquitted a man convicted in a cheque bounce case, emphasizing that an agent cannot be held personally liable for a contract entered into on behalf of a disclosed principal. Justice Rakesh Kainthla set aside the concurrent convictions by the trial court and the appellate court, holding that the lower courts overlooked the crucial provisions of Section 230 of the Indian Contract Act, 1872.

The Court also highlighted a procedural error, noting that a trial court cannot impose a fine and order separate compensation under Section 138 of the Negotiable Instruments (NI) Act; any compensation must be awarded out of the fine imposed.

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Background of the Case

The case originated from a complaint filed under Section 138 of the NI Act. The petitioner, Ravinder Kumar, acting as a Power of Attorney holder for his father-in-law, Shakti Chand, had entered into an agreement to sell land to the complainant. An advance of ₹4.00 lacs was paid. The agreement stipulated that if Kumar failed to execute the sale deed, he would have to return double the advance amount.

When the sale deed was not executed, Kumar issued a cheque for ₹8.00 lacs to the complainant, which was subsequently dishonoured due to 'insufficient funds'. The complainant issued a legal notice and, upon non-payment, filed a criminal complaint. Both the Judicial Magistrate First Class and the Sessions Judge in Hamirpur convicted Kumar, sentencing him to six months of simple imprisonment, a fine of ₹10,000, and compensation of ₹8.00 lacs.

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Arguments in the High Court

The petitioner, represented by Senior Advocate M.A. Khan, argued that the lower courts had failed to appreciate the evidence correctly. The primary contention was that Kumar was merely an agent (Power of Attorney holder) for a disclosed principal, Shakti Chand, who was the actual owner of the land. Therefore, any liability arising from the transaction should fall on the principal, not the agent. It was also argued that the cheque was issued as security and was misused by the complainant.

The complainant’s counsel countered that the issuance of the cheque was undisputed, thereby attracting the presumption under Section 139 of the NI Act that it was issued in discharge of a legally enforceable debt. The defence had failed to rebut this presumption.

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High Court's Legal Analysis: The Principle of Agency

Justice Rakesh Kainthla, after a careful review of the records, found that the lower courts had committed a patent error of law. The judgment heavily relied on the principles of agency law as enshrined in the Indian Contract Act.

The court noted it was an undisputed fact that the petitioner was acting as the Power of Attorney holder for Shakti Chand, the owner of the land. Citing Section 230 of the Indian Contract Act, the Court observed:

"Section 230 of the Indian Contract Act provides that an agent cannot personally enforce contracts entered into by him on behalf of his principal, nor is he personally bound by them in the absence of a contract to the contrary."

The bench referred to several Supreme Court precedents, including Marine Container Services South (P) Ltd. v. Go Go Garments , which established that an agent acting for a disclosed principal cannot be sued on transactions entered into by him.

The High Court reasoned that since the complainant was aware that Kumar was acting as an agent for Shakti Chand, the legal liability could not be fastened upon Kumar personally.

"The cheque carries a presumption that it was issued for consideration and in discharge of liability. However, when the evidence of the complainant shows that the transaction was with Shakti Chand and the accused was acting only as his agent, he cannot be held personally liable as per Section 230 of the Indian Contract Act. Thus, the evidence of the complainant rebutted the presumption of consideration, and the learned Courts below erred in holding that the accused is liable to pay the amount," the judgment stated.

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Error in Sentencing: Fine and Compensation

The High Court also pointed out a significant flaw in the sentence passed by the trial court. The trial court had ordered the petitioner to pay a fine of ₹10,000 to the State in addition to compensation of ₹8.00 lacs to the complainant. Justice Kainthla held this to be impermissible under Section 357(1) of the Cr.P.C.

Quoting the Supreme Court's decision in Dilip S. Dahanukar v. Kotak Mahindra Co. Ltd. , the Court clarified:

"It is apparent from the perusal of the Section that when the Court orders the payment of a fine, the whole or part of the fine can be ordered to be paid as compensation... it was impermissible for the learned Trial Court to impose a fine as well as compensation. The learned Trial Court could have imposed a fine and ordered the compensation to be paid out of the fine amount."

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Final Decision and Implications

Based on these two fundamental legal errors, the High Court allowed the revision petition. The judgments of conviction and orders of sentence passed by both the trial court and the appellate court were set aside, and Ravinder Kumar was acquitted of the offence under Section 138 of the NI Act. The decision serves as a crucial reminder that proceedings under the NI Act cannot ignore foundational principles of contract law, particularly the distinct legal identities of an agent and a disclosed principal.