11 hours ago
Banks liable for effecting payment on forged cheques, rules Kerala high court
Kochi: Kerala high court has held that banks are liable for effecting payment on forged cheques and, in one case, directed the Bank of Baroda to return the lost amount of Rs 57 lakh to the petitioners, along with 6% interest per annum, for having encashed cheques bearing forged signatures.
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A bench of Justices Sathish Ninan and P Krishna Kumar passed the order on June 13 while allowing the petitions filed by Minar Textile Industries, Kozhikode, and its sister concerns. The petitioners had challenged the trial court's order dated Jan 30, 2015, which dismissed their suits seeking recovery of the amount.
According to the petitioners, cheques bearing forged signatures of the authorised signatory were negligently honoured by Vijaya Bank (now merged with Bank of Baroda).
While 47 cheques were encashed in total, 32 were found to have been paid to third parties, causing a loss of Rs 57 lakh to the petitioners. The suits were instituted for the recovery of these amounts, but the trial court dismissed them, prompting the appeal.
In response, the bank contended that the forgery had been committed by an employee of the petitioners and that it could not be held liable. High court rejected this defence, holding that the contention was unsustainable in view of the binding principles laid down by the Supreme Court regarding a banker's liability on forged cheques.
The court relied on the apex court's ruling in Canara Bank vs Canara Sales Corporation (1987), which held that if the signature on a cheque is not genuine, there is no mandate to the bank to make payment, and the bank cannot evade liability by citing customer negligence, such as carelessly leaving a cheque book accessible to third parties.
HC also noted that all incidents related to the forged cheques took place within a span of three months, and that the petitioners acted promptly upon discovering the fraud. There was no evidence to suggest that the petitioners were aware of the forgery before the encashment of the cheques. Accordingly, the court held that the bank was liable for having effected payment on forged cheques and set aside the trial court's order.
Taking into account prevailing interest rates in banking transactions, HC directed the Bank of Baroda to return the amount of Rs 57 lakh to the petitioners with interest at 6% per annum from the date of the suit till the date of realisation.
