JUDGMENT
T.N. Vallinayagam, J.
1. The suit filed for recovery of money from the bank which bank has allowed a forged cheque of the plaintiff to be honoured, was dismissed by the trial court, on the ground that the plaintiff was negligent in keeping unused cheque leaves which were stolen, and which later came to be used by forgery.
2. The plaintiff is a customer of Syndicate Bank-defendant and he was having a savings bank account. It is alleged that a forged cheque was entertained by the defendant-bank and the amount was paid out of the plaintiffs savings bank account to a third person. Therefore, the suit was filed for recovery of that money.
3. The defence of the bank was that the cheque which was cleared was in favour of one Baridbaran Roy who was a steward at Jayamahal Palace Hotel, working under the plaintiff. The cheque was issued towards payment of his salary. The plaintiff had kept his cheque book negligently, thereby permitted the third person to misuse the same wrongly for which the defendant is not responsible. The trial court dismissed the suit, accepting the case of the defendant. It is contended that the primary responsibility of the bank in honouring the cheque after finding out whether it is forged or not has been thrown to the winds and this was not noted and not even considered by the court below.
4. I have heard counsel.
5. The finding rendered by the trial court to the following effect is worthy of note :
“Admittedly, the defendant-bank obtained specimen signatures of the plaintiff at exhibit P-2. There is a lot of variation in the signatures found in exhibit P-2 and disputed cheque at exhibit P-3. Initially BW-1 tried to explain that the handwritings are similar, but in cross-examination, she yielded and admitted that there is lot of variation in handwriting and signatures of the plaintiff found in exhibits P-3 and P-2. It means, at present one can say that the defendant-bank has failed to apply its mind when exhibit P-3 the cheque was honoured, yet the doubt that was taken by the defendant-bank cannot be ignored.”
6. In view of the opinion on the basis of the finding itself, the suit ought to have been decreed. But it was not. Even otherwise, it was seen that in the case of Canara Bank v. Canara Sales Corporation [1987] 62 Comp Cas 280 ; AIR 1987 SC 1603, it is held as follows :
“Whenever a cheque purporting to be by a customer is presented before a bank, it carries a mandate to the bank to pay. If a cheque is forged,
there is no such mandate. The bank can escape liability only if it can establish knowledge to the customer of the forgery in the cheques. Inaction for a continuously long period cannot by itself afford a satisfactory ground for the bank to escape its liability (page 296 of Comp Cas).
Unless the bank is able to satisfy the court of either an express condition in the contract with its customer or an unequivocal ratification, it will not be possible to save the bank from its liability. The banks do business for their benefit. Customers also get some benefit. If banks are to insist upon extreme care by the customers in minutely looking into the pass book and statements sent by them, no bank perhaps can do profitable business. It is common knowledge that entries in the pass books and the statements of account sent by the bank are either not readable, decipherable or legible. There is always an element of trust between the bank and its customer. The bank’s business depends upon this trust. . . (page 295 of Comp Cas).
The relationship between the customer of a bank and the bank is that of a creditor and debtor. When a cheque which, presented for encashment, contains a forged signature, the bank has no authority to make payment against such a cheque. The bank would be acting against law in debiting the customer with the amount covered by such cheque. When a customer demands payment for the amount covered by such cheque, the bank would be liable to pay the amount to the customer. The bank can succeed in denying payment only when it establishes that the customer is disentitled to make a claim either on account of adoption, estoppel or ratification. The principle of law regarding this aspect is as follows :
When a cheque duly signed by a customer is presented before a bank with whom he has an account, there is a mandate on the bank to pay the amount covered by the cheque. However, if the signature on the cheque is not genuine, there is no mandate on the bank to pay. The bank, when it makes payment on such a cheque, cannot resist the claim of the customer with the defence of negligence on his part such as leaving the cheque book carelessly so that third parties would easily get hold of it. This is because a document in cheque form, on which the customer’s name as drawer is forged, is a mere nullity. The bank can succeed only when it establishes adoption or estoppel (page 287 of Comp Cas).”
7. In the case of Mahabir Prasad Bubna v. United Bank of India, , the following dictum has been relied on :
“The law of contract can either afford or not afford complete defence to a bank when a case of wrong payment is made out. If the bank has paid in accordance with the contractual mandate, then the bank cannot be liable on contract. If, however, the bank has not paid in accordance with the contractual mandate, then the bank is liable on contract; notwithstanding the issues of negligence or carelessness. If owing to neglect or precautions not taken by a customer of a banker dishonest person is permitted to
tamper with a cheque then the customer must bear the loss as between himself and banker . . . (headnote) :
When a person keeps money with the bank, it is the law of contract in India as between the banker and the customer that the bank shall pay money from the credit of the account upon instruction given by the account holder in that regard. Such instructions take usually the form of a duly signed cheque. A banker is bound to honour the cheque duly signed by its customer. Similarly, the bank is bound, according to the strict terms of the law of contract, not to honour any cheque which is not signed by its customer. It would be no defence for the bank to say that a cheque leaf was negligently allowed to be used by the customer and as such the money was paid out. If the cheque leaf has not been signed by the customer with the intention of charging the bank to pay, or sending a mandate to the bank to pay, then the bank has no authority to pay …. (para. 27, page 275) :
However, if the signatures on the cheque or at least one of the signatures are or is not genuine, there is no mandate on the bank to pay and the question of any negligence on the part of the customer such as leaving the cheque book carelessly so that a third party could easily get hold of it would afford no defence to the bank.” (para. 28, page 275)
8. In the light of the above dictum, it is purely by the sheer negligence of the bank in allowing money to be withdrawn from the account of the plaintiff by honouring the cheque, and therefore, the defence put forth by the bank is not at all acceptable.
9. In this view, this civil revision petition is allowed. The suit is decreed with costs, and the judgment of the court below is set aside.