Bank accountable for clearing forged cheque

Citing a Reserve Bank of India circular, the National Commission stated that the liability for honouring a forged cheque vests with the paying bank

Sameer Jain, proprietor of Net Solutions, held a Business Gold Account with IDBI Bank, Chandigarh Branch. On April 24, 2008, he was notified that Rs 42.8 lakh had been transferred from his account through a cheque payable to “Spectra Computer”.

Jain contacted his vendor “Spectra Computech”, which denied receiving this amount. Upon inquiry with his bank, Jain discovered that the cheque was drawn in favour of “Spectra CompuPech”, which had its account with Kotak Mahindra Bank, and his signature was forged. He repeatedly requested the bank to furnish a copy of the cheque, but the bank did not comply.

Jain approached the Economic Offences Wing, and the Manimajra Police Station and registered a First Information Report (FIR) on November 30, 2008. Forensic analysis of the cheque conducted by the police confirmed that the signature was forged.

Jain requested IDBI Bank to recredit the funds to his account, but the bank did not pay any heed. Consequently, he filed a complaint with the Chandigarh State Commission against both IDBI Bank and Kotak Mahindra Bank.

IDBI Bank argued that the case was a criminal dispute requiring detailed evidence to resolve complex factual questions that were beyond the purview of the Consumer Protection Act. The bank maintained that there was no negligence on its part since the signature on the cheque matched the specimen in its records. Additionally, IDBI blamed Kotak Bank for not freezing the account where the cheque was deposited or refunding the transferred amount.

Kotak Bank argued that the typographical error stating Spectra Computech was irrelevant as it had correctly opened the account in the name of Spectra CompuPech after having followed the KYC procedure.

The State Commission allowed the complaint and ordered IDBI Bank to pay Rs 42.8 lakh along with 6 per cent interest and Rs 10,000 towards litigation costs.

IDBI Bank appealed the order, arguing that the complaint was flawed due to the non-inclusion of Spectra CompuPech, a necessary party since the money was transferred to its account. The bank also accused Jain of negligence for not securing his chequebook, leading to its loss by a trainee account executive in his office. Moreover, IDBI criticised Jain for not issuing stop payment instructions after misplacing the cheque. The bank reiterated that the cheque was processed after verifying that the signature matched their records and claimed that any liability should vest with Kotak Mahindra Bank, whose customer received the fraudulent transfer.

The National Commission observed that established precedents and laws clearly state that a criminal case or its investigation does not impede proceedings under the Consumer Protection Act. It emphasised that the primary issue was to determine whether there was a deficiency in service on the bank’s part, which does not require involving the party that fraudulently withdrew the funds.

The Commission held that a bank is only obliged to honour a cheque if the signature is authentic. It deemed the safekeeping of the cheque book as immaterial, as the bank should not process a cheque with a forged signature. Citing a Reserve Bank of India circular, the Commission stated that the the liability for honouring a forged cheque vests with the paying bank. It concluded that the forensic report had established IDBI Bank’s failure to perform due diligence.

Accordingly, by its order of April 26, 2014, delivered by Sadhna Shanker, the National Commission upheld the order in Jain’s favour and ordered a refund with interest. It, however, disallowed the litigation costs.

The writer is a consumer activist