Liability of Paying Banker when Customer’s Signature on Cheque is Forged :
It is said that forgery of drawer’s signature conveys no title and hence the paying banker has no authority to debit the customer’s account. The paying banker should carefully ascertain that the cheque bears the genuine signature of the drawer after comparing the same with the specimen signature card filed with the bank. The account holder may change his signature but the changed signature should be available with the bank in a fresh specimen signature card. New specimen signature card must be obtained if the banker feels that there is some variation in the style or stroke of the Signature.
If the signature on the cheque differs materially from the one filed as specimen, banker must refuse payment thereon. Cheque with a forged signature of the drawer is a nullity and gives no mandate to make any payment. Payment of a cheque with forged signature of the drawer is deemed as payment without the authority of the customer and hence a breach of the implied contract between a banker and his customer.
Banker who pays a cheque with a forged signature suffers the loss himself. Note that the banker bears this liability even if the signature of the drawer was so cleverly forged that it was difficult to detect it with reasonable degree of care and scrutiny.
The banker is not absolved of his liability on forged cheque, even if the customer was negligent in keeping the cheque book under the lock and key as required by the rules of the bank. In Lala Pirbhu Dayal v. Jwala Bank Ltd (A.I.R 1938, All. 374), the Allahabad High Court held that it is the duty of the employees of the bank to be able to identify the signature of the customer and if they fail to discharge their duty and thereby suffer loss, there is no reason why the customer should make good the loss. In this case the customer was negligent as he did not keep his cheque book under lock and key. Still the court held that the neglect on the part of the customer did not absolve the paying banker.
In this context let us study one more case. In Canara Bank vs. Canara Sales Corporation (1987, 2 Supreme Court cases 666) the company had a current Account with the bank which was operated by the company’s Managing Director. The Company’s Accountant in whose custody the cheque book was, forged the signature of the Managing Director on 42 cheque leaves totaling Rs. 3, 26,047.92 over a period of time. This was detected by another Accountant. On coming to know of the fraud the Company demanded the amount from the bank. The bank refused to pay the amount. Thereupon the Company filed a suit against the bank. The bank lost the suit but filed an appeal before the Supreme Court. The Supreme Court dismissed the appeal on the following ground:
‘Since the relationship between the customer and the bank is that of a creditor and debtor, the bank had no authority to make payment on a cheque containing a forged signature and not on a cheque from the cheque book issued to the society. The bank would be acting against the law in debiting the customer, with the amount of the forged cheque as there would be no mandate on the bank to pay. The Supreme Court pointed out that the document in the cheque form on which the customer’s name as drawer was forged, was a mere nullity. The bank succeeds only when it would establish adoption or estoppels.
Just reflect for a while. In a Joint Account, if one of the signatures is forged would there be a mandate on the bank to make payment?
In Bihta Co-operative Development and Cane Union Ltd. Vs Bank of Bihar, the Co-operative Marketing Union had an account with the bank which was authorized to be operated by the Joint Secretary and Treasurer of the Cooperative Union. The bank made payment of Rs. 11000/- on a loose leaf cheque and not on a cheque from the cheque bok issued to the society. Though the two signatures appeared on the cheque, one of them, the signature of the Secretary was forged. The bank made payment, whereupon the Co-operative Marketing Union sued the bank for recovery of the money.Though the bank admitted negligence on its part, it argued that the discharge of their duties and as such, it cannot succeed. The matter went up to the Supreme Court and the Supreme Court while allowing the case of the Union held that “One of the signatures was forged so that there never was any mandate bythe customer at all to the banker and the question of negligence of the customer in between the signature and the presentation never arose.