The bank's liability in cases of forged signatures on cheques is bound by the knowledge of the customer's handwriting, and the bank can escape liability only if it can establish knowledge to the customer of the forgery in the cheques.

1. Heard learned Counsel. Admitted.

2. Four cheques issued on different dates, the total amount whereof was Rs. 1,52,100/- were encashed by the appellant Citizen Co-operative Bank Ltd. (hereinafter referred to as the Bank). The first cheque was got encashed on 11th August, 1993. The last cheque was encashed on 4th December, 1993. This is not in dispute. What is in dispute is that one Vijay Kumar Mittal approached the Jammu and Kashmir State Consumer Protection Commission, Jammu. A plea was taken that four cheques from his cheque book were stolen and these were got encashed by committing forgery. It was in this manner pleaded that the appellant bank should be made liable. The appellant bank denied its liability. It was pleaded that it was a negligent act on the part of respondent-complainant and, therefore, the liability could not be shifted to the appellant bank. The fact that respondent-complainant was depositing the amount with the bank and never made a complaint vis-a-vis encashment of four cheques qua which the plea taken was that the payment was received by forging the signatures was put across. It was further submitted that the difference in the handwriting which has been pointed out is such which could not be easily detected through visual comparison. It was accordingly submitted by the bank that it was the complainant who was responsible for negligence in not maintaining the cheque book and as he facilitated the act of forgery being committed, therefore, he cannot claim any benefit.

3. The Commission was of the opinion that notwithstanding the fact that there is some remissness on the part of the complainant in properly keeping the cheque book, but that would not absolve the bank of its liability. The fact that the cheques were stolen and that these were got encashed by committing forgery was not seriously disputed was taken note of. The State Commission accordingly allowed the complaint. It was held as under :

“In case of forged signatures not with connivance of depositor, the bank is held free of inability then no depositor is safe in depositing the money in the banks. Banks must take all precautions and apply hightech methods available in the market to check the commission of forgery regarding the signatures. For these reasons, therefore, we allow the complainant and direct the O.P. to make the payment of Rs. 1,52,000.00 to the complainant along with 6 per cent interest. 6 per cent interest only because the complainant has failed to maintain the custody of cheque book properly. This amount will be paid to him within six weeks failing which interest at the rate of 12 per cent will be charged from the O.P.”

It is the above order which is subject-matter of challenge in this appeal. The legal position in this regard be examined.

4. The relationship between a bank and its customer arose for consideration before the Supreme Court of India in the case of Bihta Co-operative Development & Cane Marketing Union Ltd. v. Bank of Bihar, AIR 1967 SC 389. In the above case, a suit was filed by the Society for illegal withdrawal of Rs. 11,000/- from the bank. The suit was decreed by the Trial Court and affirmed by the High Court. The case then came before the Supreme Court of India. The plea taken by the bank was that if the customer chooses to dispense with the ordinary precautions and permits a forgery to be committed and if owing to the negligence of such precautions, it is put into the power of any dishonest person to increase the amount by forgery, the customer must bear the loss. For this argument, reliance was placed on a decision of House of Lords given in the case of London Joint Stock Bank Ltd. v. Macmillan & Arther, 1918 AC 777. The Supreme Court of India was, however, of the opinion that what was said in Macmillan and Arther’s case (supra) would not be applicable because the accepted principle of law that if signature on the cheque is genuine and there is a mandate by the customer to pay then the banker has no obligation