Delivery of Cheque to a Third Party Without Authorization Doesn’t Discharge Liability: Andhra Pradesh High Court Affirms Decree Against L&T Officials

“If the plaintiff had not received the payment that is due from these appellants, the liability of the appellants did not cease.” Andhra Pradesh High Court upheld a civil court’s decree against officials of Larsen & Toubro (L&T) for failing to pay the balance due for supply of sand, despite having issued a cheque. The cheque was handed to a third party without authorization and subsequently misappropriated.

 Justice Dr. V.R.K. Krupa Sagar dismissed the appeal, holding that the defendants’ act of handing over the cheque to a person not authorized by the plaintiff did not extinguish their liability.  

“Simply Because Appellants Gave a Cheque to Their Own Agent Does Not Mean Debt Towards Plaintiff Was Discharged”

 The case arose from O.S. No. 410 of 2009, filed by Sri Voleti Venkateswarlu, proprietor of Sri Venkateswara Transport, against the Project Manager and General Manager of L&T, for recovery of dues amounting to Rs. 8,54,726 (including interest). The plaintiff had supplied sand worth Rs. 67,80,704, out of which Rs. 60,44,945 had been paid.  

L&T claimed to have discharged the remaining liability by issuing a cheque to Sri Y. Seshaiah, who allegedly used to deliver cheques to the plaintiff in the past. However, the plaintiff denied ever receiving this particular cheque and asserted that Seshaiah had no authority to collect payments.

The High Court observed:

 “The legal character of Sri Y. Seshaiah was that of an agent on behalf of the appellant’s company. Mischief played by him by fraudulently opening an account and encashing the cheque is thus a matter between the principal/company and the agent, with which the plaintiff had no concern.”

“No Evidence to Show Plaintiff Authorized Seshaiah to Receive the Cheque”

 L&T contended that Seshaiah was either the plaintiff’s partner or agent. However, the Court categorically held:  

• “There has been no partnership deed between Sri Y. Seshaiah and Sri V. Venkateswarlu and no written authorization… authorizing Seshaiah to collect cheques.”  

Further, L&T’s own Accounts Officer (DW.2) admitted in cross-examination that he had no basis to show that Seshaiah was acting on behalf of the plaintiff.

 The plaintiff’s firm operated from Axis Bank, Ongole, while the cheque in question was encashed by Seshaiah through a new account opened in SBI, Markapur, solely for that purpose. The Court noted:

 “Failure to elicit any information from the bank officer and failure to furnish any documentary evidence… is one determining factor in this dispute.”

“The Company Agent Misappropriated Funds – Plaintiff Entitled to Claim”

 The trial court, which had earlier ruled in favour of the plaintiff, found that L&T’s officials unlawfully delivered the cheque to a third party, and hence, remained liable for the unpaid amount.

 The High Court endorsed this conclusion:

 “The appellants failed to exercise reasonable care and caution… and their good hearts have no place when the liabilities and rights are considered on the touchstone of facts and law.”

While noting that the trial court ought to have passed a decree against Seshaiah as well, the High Court remarked:

 “Since Seshaiah had played the mischief, it was very well possible for the trial court to grant a decree as against him also… However, in this appeal, the appellants did not implead his legal representatives after his death.”

 The Andhra Pradesh High Court upheld the decree passed by the Additional Senior Civil Judge, Ongole, against the L&T officials, holding them personally liable for Rs. 8.54 lakhs, along with applicable interest.

 “If the plaintiff had not received the payment… the liability of the appellants did not cease.”

Date of Decision: April 16, 2025