Bank is responsible if Forged Cheque Passed: Court

The Kerala High Court has stated that a bank is responsible if it makes a payment on a cheque with a forged signature, especially when it fails to detect the forgery due to negligence. This ruling was made in the case R Ramesh v. Vijaya Bank & others, and similar connected cases.

What Happened in the Case?

Some companies and individuals who had different types of accounts (like savings, current, and cash credit) with Vijaya Bank (now merged with Bank of Baroda) noticed a major issue.

A total of 47 cheques with forged (fake) signatures were encashed from their accounts. Out of these, 32 cheques were used to transfer money to unknown third parties. This caused a big financial loss to the account holders.

The affected people (plaintiffs) filed money recovery cases against the bank to get back the lost money.

What Did the Trial Court Say?

The trial court had rejected their case and said:

• The plaintiffs did not properly explain if it was a case of fraud.
• They failed to prove that the bank was negligent.

As a result, the trial court dismissed their money suits.

What Did the High Court Say?

The plaintiffs appealed to the Kerala High Court, which reviewed the case in detail. The High Court disagreed with the trial court and made the following key observations:

1. This is not about fraud, but about negligence by the bank in not checking the signatures properly.
2. The trial court misunderstood the case and wrongly shifted the burden of proof onto the plaintiffs.
3. The bank was careless in encashing cheques with forged signatures.
4. The plaintiffs acted quickly and reported the issue as soon as they found out about the forgeries.
5. There was no proof that the plaintiffs knew about the fake cheques before they were encashed.

Important Points from the Court

• A bank is expected to verify signatures before paying out money from a cheque.
• In this case, the bank’s own Vigilance Officer had submitted reports saying that the signatures on the disputed cheques were clearly different from the original ones in the bank’s records.
• The bank admitted that the cheques were forged but tried to blame the plaintiffs’ own employee for the issue.
• However, the Court said the bank cannot escape responsibility just because someone else may have committed the forgery.

The High Court also referred to a Supreme Court decision (Canara Bank v. Canara Sales Corporation, 1987) which said that a bank can’t blame its customers for not keeping cheque books safe if the bank itself fails to verify the authenticity of the signature.

Final Judgment

• The Kerala High Court overturned (cancelled) the trial court’s decision.
• It ruled in favor of the plaintiffs and said that Bank of Baroda (formerly Vijaya Bank) must pay back the lost amounts.
• The Court also added 6% interest per year, from the date the case was filed until the money is paid back.

Representation

• The plaintiffs were represented by Advocates Biju Abraham and BG Bhaskar.
• Bank of Baroda was represented by its Standing Counsel, Advocate Latha Anand, assisted by Advocate Vishnu S.

Summary

The Kerala High Court has made it clear:

If a bank pays out money on forged cheques due to its own negligence, it must compensate the customer — unless it can prove the customer knew about the forgery or was careless.

In this case, the bank could not prove either, so the Court ordered it to return the money with interest.

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