Kerala High Court ruled that a bank is responsible for paying compensation if it cashes forged cheques due to its own negligence. The Court said the customer can’t be blamed without proof they knew about the forgery.
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KOCHI: The Kerala High Court made it very clear that a bank cannot escape its responsibility if it cashes cheques with fake signatures due to carelessness.
This was said by a Division Bench of Justice Sathish Ninan and Justice P Krishna Kumar while hearing the case.
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In this case, some companies and people who had accounts like current, savings, and cash credit with the bank found that 47 cheques with forged (fake) signatures were wrongly encashed by the bank. Out of these, 32 cheques were encashed to third parties, causing a huge financial loss to the account holders.
The people who lost their money filed cases (money suits) against Bank of Baroda (which was earlier Vijaya Bank) asking for their money back. But the trial court dismissed these cases saying that there was no clear claim of fraud and that the bank’s mistake was not proved properly.
The Kerala High Court rejected this view, saying the trial court completely misunderstood the issue. It was not a case about fraud but about the bank’s negligence.
The High Court said:
“We have no hesitation in finding that the Bank was negligent in having encashed the plaintiffs’ cheques with the forged signatures of its authorised signatories.”
The judges said the lower court was wrong in putting the burden of proof on the plaintiffs. Instead, the bank should have proved that the plaintiffs (account holders) already knew about the forgery. But there was no such proof.
The High Court explained that the forged cheques were encashed over just three months, and when the plaintiffs came to know about the issue, they acted quickly and informed the bank.
There was no evidence to show that they knew about the fake signatures before the money was taken out.
The Court said clearly:
“The incidents in relation to the cheques in question occurred within a period of three months. As soon as it was detected by the plaintiffs, steps were taken. It could not be established, nor was it attempted to prove, that the plaintiffs had knowledge of the forgery prior to its encashment. Hence it can only be concluded that the Bank is liable for having effected payment of the forged cheques.”
The bank tried to say that an employee of the plaintiffs may have done the forgery, so the bank was not at fault. But the Court did not accept this argument. The bank never denied that the signatures on the cheques were fake. Also, the bank did not show any proof that the plaintiffs knew about it in advance.
In fact, the bank’s own Vigilance Officer had given two reports showing that the signatures on the disputed cheques did not match with the real signature samples available with the bank.
The Court also referred to a famous case, Canara Bank v. Canara Sales Corporation (1987).
In that case, the Supreme Court said that if a cheque has a fake signature, the bank cannot blame the customer just because the cheque book was not kept safely.
The High Court reminded that a bank can only avoid blame if it can prove that the customer was careless or already knew about the forgery. In this case, the bank could not do that.
Because of all this, the Kerala High Court set aside the trial court’s decision and allowed the plaintiffs to recover their money with 6% interest per year, starting from the date of the case filing till the amount is fully paid.
The plaintiffs were represented by advocates Biju Abraham and BG Bhaskar.
Bank of Baroda was represented by its lawyer Latha Anand, with the help of advocate Vishnu S.
CASE TITLE:
R Ramesh vs Vijaya Bank & ors and connected cases.
RFA NO. 401 OF 2015
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