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IN THE HIGH COURT OF KERALA AT ERNAKULAM
Sri. B. G. Bhaskar, J
Ramesh R. v. Vijaya Bank
R. F. A. No. 401, 399, 402, 404, 406 of 2015
Based on the provided legal document, the key legal points are as follows:
Liability of the Bank for Encashment of Forged Cheques: The court held that the bank is liable when it encashes cheques containing forged signatures if it fails to demonstrate compliance with procedural obligations. The bank's negligence in verifying signatures was established, making it liable for the losses incurred by the plaintiffs [Para 16].
Burden of Proof: The initial burden of proof rests on the plaintiffs to establish that the signatures on the cheques were forged [Para 9]. The plaintiffs successfully proved that the signatures were not those of the authorized signatories, and this remained unchallenged in cross-examination [Para 12].
Procedural Compliance and Evidence: The reports submitted by the bank’s Vigilance Officer indicated that the signatures on the cheques varied from the specimen signatures, suggesting forgery. The court emphasized that the bank failed to prove that the procedures for verifying signatures were properly followed or that the reports were unreliable, thus the reports could be relied upon [Para 13-15].
Negligence and Responsibility: The court found that the bank was negligent in encashing cheques with forged signatures. The bank's contention that the forgery was committed by an employee of the plaintiffs was rejected, citing legal principles that hold banks liable when they encash forged cheques without proper verification [Para 17].
Law on Forged Cheques: The court clarified that when a cheque bearing a forged signature is presented, there is no mandate to pay, and the bank cannot escape liability by alleging negligence of the customer. The bank's failure to establish knowledge of forgery or proper verification makes it liable [Para 23-29].
Time Limitation and Parties: The court dismissed the plea that the suit was time-barred and noted that the plaintiffs' claims were within the relevant period. It also clarified that the claim pertains only to the amounts lost due to encashment of forged cheques, not amounts subsequently credited back into the plaintiffs’ accounts [Para 5, 19-20].
Final Decree and Interest: The court reversed the trial court’s dismissal, granting a final decree in favor of the plaintiffs. It also fixed the rate of interest at 6% from the date of the suit until realization, considering prevailing banking practices [Para 22, 29].
In summary, the court established the bank’s liability for negligently encashing forged cheques, clarified the burden of proof, and outlined the legal principles governing bank liability in cases of forged signatures, ultimately awarding relief to the plaintiffs with interest.
| Table of Content |
|---|
| 1. suit dismissed by the trial court for money claims. (Para 1 , 2 , 5) |
| 2. claims arose due to negligent encashment of forged cheques. (Para 3 , 4 , 9) |
| 3. burden of proof lies upon the plaintiffs to show forgery. (Para 6 , 10 , 15) |
| 4. bank liable for negligence in not verifying signatures. (Para 16 , 18 , 21) |
| 5. final decree awarded to plaintiffs allowing claims. (Para 22) |
1. The suits for money were dismissed by the trial court. The plaintiffs are sister concerns. The defendant in all the suits is a nationalised Bank. The respective plaintiffs are in appeal.
2. Since the facts and evidence are identical and the law involved is the same, they are being considered together and are being disposed of under this common judgment.
3. For resolution of the issue involved, much details on the facts are unnecessary. The claims in these suits are for damages resulted to the plaintiffs consequent on the alleged negligent encashment of the plaintiffs' cheques by the defendant Bank. The plaintiffs had various accounts with the defendant Bank, including, current account, cash credit account, and savings account. The allegation is that the cheques of the plaintiffs containing the forged signatures of the authorised signatory, were negligently encashed by the Bank. Though a total number of 47 cheques were so encashed, payments of only 32 cheques have gone to third parties, resulting in loss to the plaintiffs. The suits are for realisation of the value of the cheques, the proceeds of which went to third parties.
4. The defendant denied the allegation of negligence. It was contended that the cheques were encashed only after following all the procedural formalities. It was claimed that the suit is time - barred. It was further contended that the suit is bad for non - joinder of necessary parties, on the failure to implead the employees of the plaintiffs, who committed the alleged fraud.
5. The trial court negatived the plea of limitation and non - joinder of parties. However, it was held that there is lack of pleadings with regard to the fraud, and also that the plaintiffs failed to prove the allegations levelled. Accordingly, the suit was dismissed.
6. We have heard Sri. B. G. Bhaskar, the learned counsel for the appellants - plaintiffs and Smt. Latha Anand, the learned Standing Counsel assisted by Adv. Vishnu S. for the respondent - Bank.
7. The points that arise for determination are:
(i) On whom lies the burden of proof regarding the alleged forgery and the negligent encashment of cheques?
(ii) Has the burden of proof been discharged by the party upon whom it rests?
(iii) Is the finding of the trial court that the plaintiffs have failed to prove their cases, sustainable on the materials on record?
8. At the very outset we are to notice that the suit is founded upon the alleged negligence of the Bank in having encashed the cheques of the plaintiffs which contained forged signature of their authorised signatories. The suit is not one alleging fraud against the defendant. We have mentioned this before proceeding to consider the pleadings and evidence since, a reading of the judgment of the trial court indicates that the Court has proceeded as if the allegation against the defendant is or includes, fraud.
9. The plaints in the respective suits are almost identical. The averment is that, the cheques which did not contain the "true signature" of the authorised signatory were negligently encashed by the Bank, and the amounts were paid out to third parties, resulting in loss to the plaintiffs. The allegation is that the signatures were forged, and due to the negligence of the defendant, they failed to notice the same. This resulted in encashment of the cheques and loss to the plaintiffs. When the plaintiffs allege that the signatures in the cheque were forged, the initial burden necessarily rests upon them to prove the same.
10. In the written statement, the allegation of negligence was denied. It was also pleaded that all the procedures and formalit
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