A banker is liable for payment under a forged cheque only if found negligent; good faith and standard banking practices determine liability.

1Defendant No. 1, the State Bank of India, Taliparamba Branch, in O.S. No.34 of 1983 on the file of the Sub Court, Tellicherry is the appellant. The suit was filed by the first respondent in this appeal the Kerala State Cooperative Marketing Federation, Cochin for recovery of a sum of Rs. 1,08,000/- with future interest at 12% per annum on the principal amount of Rs. One lakh till the date of payment from the appellant Bank and respondent No.2 the Cannanore District Cooperative Central Bank Limited, Taliparamba.

2The plaintiff's case, briefly stated, is as follows:
The plaintiff had dealings with the third defendant a Service Cooperative Bank, Taliparamba. A cheque Ext. X1 (No.139708) for an amount of rupees one lakh was issued by the third respondent in favour of the plaintiff. It was sent by post on 20-12-1982 along with some other cheques. But, later it was found that the cheque drawn in the name of the plaintiff was altered by one Sri. K. Narayanan by making it appear that it was drawn in his name. Sri. K. Narayanan, after opening a bank account with the first defendant on 27-12-1982 presented the cheque on 29-12-1982 for collection of the same from the second respondent. Thereafter, he withdrew a sum of Rs. 50,000/- from his account after the same was credited in his name by the first defendant Bank. Defendant No. 3 never used to issue cheques for such large amounts in the name of individuals. After coming to know about the fact that the cheque in question was forged and an amount of Rs. 50,000/- belonging to the plaintiff was withdrawn by Sri. K. Narayanan, the plaintiff intimated the fact to the first defendant through its Sales Officer at Cannanore. A complaint was lodged with the Superintendent of Police, Cannanore and the Circle Inspector of Police, Taliparamba. The investigation revealed that Sri. K. Narayanan was a fictitious person and his whereabouts could not be traced. His name was written in the place of original payee, viz. the plaintiff and the date of the cheque was also found to have been altered. Police filed the final report stating that the case could not be solved. An amount of Rs. 50,000/- is still lying with the first defendant as the balance amount covered by the said cheque (Ext. X1). It is contended that the first defendant appellant has not cared to enquire as to why and under what circumstances a new account was opened by the said K. Narayanan only for the purpose of encashing the cheque in question. An inspection of the cheque would have revealed that the payee's name has been defaced and in his place Shri K. Narayanan's name was written. The first defendant failed to verify and scrutinise the same. The first defendant acted in gross negligence of the duties imposed upon it as bankers of the plaintiff and collected the amount from defendant No.2 without making any enquiry as to the genuineness of the cheque and as such the first defendant has become responsible to pay the entire amount of rupees one lakh to the plaintiff.
It is further stated that the second defendant is perfectly aware of the fact that Primary Cooperative Service Societies such as defendant No. never used o issue cheque in the name of individuals for such a huge amount. The cheque transmitted to the 2nd defendant for collection should have been scrutinised and verified before clearing the same. Hence the 2nd defendant has also acted in gross negligence of the duties imposed on it and it is also equally liable to compensate the plaintiff for the loss sustained by them. In spite of issue of a notice calling upon them to pay the amount, neither the first defendant and the 2nd defendant paid it. Hence the suit for realisation of the amount.

3In the written statement filed by the first defendant, it is admitted that a cheque for a sum of rupees one lakh was presented by a customer named Sri. K. Narayanan, for collection and credit to his account on 29-12-1982. The cheque was sent for clearance to defendant No.2, the Cannanore District