HC Orders Bank to Pay for Encashing Forged Cheques; Cites SC Precedent

The plaintiffs, consisting of multiple sister companies, filed suits seeking damages from Vijaya Bank (now Bank of Baroda), claiming that it had negligently encashed 47 cheques containing forged signatures of their authorised signatories. Although the total number of cheques was 47, only 32 of them resulted in actual financial loss, as the money was paid to third parties. The trial court dismissed the suits on the ground that the plaintiffs failed to prove forgery and held that they lacked proper pleadings. The plaintiffs thereby appealed to the HC.

Issue Raised: Whether the plaintiffs had the right to recoup the losses brought on by these unlawful transactions and whether the bank was careless in cashing checks bearing fake signatures.

HC’s Decision: The High Court determined that the disputed checks had fake signatures and overturned the trial court’s dismissal. The plaintiffs’ internal vigilance reports, which were obtained under the RTI Act, were cited by the court as evidence that the encashed checks did not match the sample signatures found in the bank’s records. The bank did not contest this evidence or offer any counterarguments to the forgery.

The Court referred to the landmark Supreme Court rulings in Canara Bank v. Canara Sales Corporation, and Bihta Co-op Development Cane Marketing Union Ltd. v. Bank of Bihar, where it was held that a forged cheque carries no mandate, and the bank is liable for honoring such cheques. The defence that the forgery was committed by the plaintiff’s own employee was rejected.

As a result, the court found the bank negligent and granted the plaintiffs the right to recoup the money disbursed under the 32 checks, plus interest at 6% from the suit date until realisation.

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