Kerala High Court Holds Bank Liable for Negligently Encashing 47 Forged Cheques

The Kerala High Court reaffirmed that banks cannot evade responsibility when they encash cheques bearing forged signatures due to negligence. In a batch of cases (R. Ramesh & ors. v. Bank of Baroda, formerly Vijaya Bank), the Division Bench of Justices Sathish Ninan and P. Krishna Kumar set aside the trial court’s dismissal of recovery suits. These suits were filed by companies and individuals after 47 cheques with fake signatures were encashed over three months, causing losses when 32 cheques were cashed by third parties.

The High Court clarified that the plaintiff’s claim was based on the bank’s failure to verify signatures—not fraud. It held that once forged instruments are encashed, the bank must prove that the customer was aware of the forgery or negligent in safeguarding their chequebook—a defense the bank failed to establish. Relying on bank internal vigilance reports and the Supreme Court’s landmark ruling in Canara Bank v. Canara Sales Corporation (1987), the Bench emphasised that forged cheques carry no mandate and liability lies with the bank unless it proves otherwise.

Consequently, the High Court awarded full recovery of the disputed amounts, along with 6% interest from the date of suit until realisation. The court also imposed costs on the bank, reinforcing that banks must exercise due diligence before honouring cheques, and cannot shift the burden onto customers simply because there was forgery.