The Kerala High Court recently reiterated that a bank cannot escape liability for encashing a cheque with a forged signature if it does so negligently [R Ramesh v, Vijaya Bank & ors and connected cases]..A Division Bench of Justice Sathish Ninan and Justice P Krishna Kumar noted that the bank can escape liability in such cases only if it is proved that the bank's customer was aware of the forgery.The High Court, therefore, set aside a trial court's order dismissing money suits filed against the Bank of Baroda (earlier Vijaya Bank) in one such case, after it found the bank had negligently encashed cheques which had fake signatures of the authorised signatories."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," it found. The High Court noted that the trial court had completely misunderstood the case by treating it as one of fraud rather than one involving the bank's negligence.It said that the trial court had wrongly shifted the burden of proof on the plaintiffs who had filed the money recovery suit against the bank. The High Court clarified that the plaintiff's case was about the bank's negligence in failing to detect forged signatures, and not fraud..The Bench pointed out that the forged cheques were encashed within a short span of three months, and that as soon as the plaintiffs realised what had happened, they took prompt steps to report and address the issue.The Court observed that there was no evidence to show that the plaintiffs knew about the forgery before the cheques were encashed by the bank.Therefore, it held that the bank was liable to compensate the plaintiffs, as it had failed to verify the signatures before making payment."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 Court's ruling said..The plaintiffs in this case were companies and individuals maintaining various accounts, including current, cash credit, and savings accounts, with the bank.They found that 47 cheques containing fake signatures were encashed by the bank, and that money from 32 of these cheques went to third parties, causing them financial lossThe plaintiffs, therefore, filed money suits in order to recover these amounts from the bank. However, the trial court dismissed their suits on the ground that there was no proper pleading regarding fraud and that the companies had failed to prove the bank's negligence.Aggrieved, the plaintiffs moved appeals before the High Court seeking to set aside the trial court's dismissal and to recover the amounts lost due to the bank's failure to detect the forged cheques. The bank denied the allegations of negligence, adding that it cannot be faulted for forgery that was allegedly committed by one of the plaintiffs' employees. .The Court found that the bank did not deny the fact that the cheques had forged signatures, nor did it take steps to prove that the plaintiffs had knowledge of the forgery.It noted that the bank's own Vigilance Officer had, in two separate reports, pointed out that the signatures on the disputed cheques did not match the genuine specimen signatures available in the bank's records.The Court further referred to the Supreme Court's decision in Canara Bank v Canara Sales Corporation (1987), which made it clear that if a cheque contained a fake signature, the bank cannot use the excuse that the customer was careless in keeping their cheque book safe.Further, the High Court clarified that a bank can shift responsibility to the customer only if it can prove that the customer was negligent or had prior knowledge of the forgery, which, in this case, the bank failed to do.In light of these findings, the Court set aside the trial court's verdict and decided the suits in favour of the plaintiffs, allowing them to recover the amounts claimed along with interest at 6 per cent per annum from the date of the suit until realisation..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..[Read Judgement]
