The Kerala High Court has clearly stated that banks must take full responsibility if they encash cheques bearing forged signatures, emphasizing that such negligent actions cannot be excused.
A Division Bench of Justice Sathish Ninan and Justice P. Krishna Kumar passed the ruling while hearing a batch of appeals filed by several individuals and private firms based in Kozhikode. These parties had earlier filed money recovery suits against Bank of Baroda (previously Vijaya Bank), claiming the bank paid out 47 cheques fraudulently encashed with forged signatures. Out of these, while 15 cheques’ amounts were credited back, 32 cheques were paid to third parties, causing significant losses.
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The trial court had rejected the suits, citing a lack of adequate evidence and insufficient fraud pleadings. However, the High Court clarified that the case was based on the bank’s negligence, not on proving fraud by the plaintiffs.
Quoting the Supreme Court decision in Canara Bank v. Canara Sales Corporation, the Court observed:
"Whenever a cheque purporting to be by a customer is presented before a bank it carries a mandate to the bank to pay. If a cheque is forged there is no such mandate. The bank can escape liability only if it can establish knowledge to the customer of the forgery in the cheques."
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The Court found that the cheques had forged signatures, and this was not even contested by the bank. Investigation reports from the bank’s own vigilance officer, obtained through RTI, confirmed that many cheques were passed despite discrepancies in signatures and missing specimen records. The Court said it was the bank’s duty to challenge the findings in those reports if they wished to disprove them—but the bank failed to do so.
Furthermore, the Court held that negligence on the part of the plaintiffs, such as employees committing forgery or poor internal safeguards, does not absolve the bank of its duty. There was no proof that the plaintiffs knew about the forgery before the cheques were cleared.
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Reversing the trial court’s judgment, the High Court ruled in favour of the plaintiffs, ordering the bank to repay the amounts lost due to forged cheques, along with 6% annual interest from the date the suits were filed until the amounts are fully recovered.
"The Bank is liable for having effected payment of the forged cheques," the Court concluded.
Case Title: R Ramesh v. Vijaya Bank & Ors. and connected cases
Case No.: RFA No. 401 of 2015 and connected matters
Petitioners’ Counsel: Shri. Biju Abraham and Sri. B.G. Bhaskar
Respondent’s Counsel: Smt. Latha Anand, Standing Counsel, Vijaya Bank
