Jammu & Kashmir High Court
Citizen Cooperative Bank Ltd. And Anr. vs Ritesh Mittal on 10 December, 2002
Equivalent citations: AIR2003J&K67, 2003(1)JKJ765, AIR 2003 JAMMU AND KASHMIR 67
JUDGMENT
1. Four cheques issued on different dates, the total amount where of was Rs. 1,52,100.00, were encashed by the appellant Citizens Cooperative Bank Ltd. (here-in-after referred to as the Bank). The first cheque was got encashed on 11th Aug' 93. The last cheque was encashed on 4th Dec' 93. This is not in dispute, what is in dispute is that one Vijay Kumar Mittal approached the Jammu the Kashmir State Consumer Protection Commission, Jammu. A plea was taken that four cheques from his cheque book were stolen and these were got encashed by committing forgery. It was in this manner pleaded that the appellant bank should be made liable. The appellant bank denied its liability. It was pleaded that it was a negligent act on the part of respondent complainant and therefore, the liability could not be shifted to the appellant Bank. The fact that respondent complainant was despositing the amount with the bank and never made a complaint vis-a-vis encashment of four cheques qua which the plea taken was that the payment was received by forging the signatures was put across. It was further submitted that the difference in the hand-writing which has been pointed out is such which could not be easily detected through visual comparison. It was accordingly submitted by the bank that it was the complainant who was responsible for negligence in not maintaining the cheque book and as he facilitated the act of forgery being committed, therefore he cannot claim any benefit.
2. The Commission was of the opinion that notwithstanding the fact that there is some remisness on the part of complainant in properly keeping the cheque book, but that would not absolve the bank of its liability. The fact that the cheques were stolen and that these got encashed by committing forgery was not seriously disputed was taken note of. The State Commission accordingly allowed the complaint. It was held as under:-
"In case of forged signatures not with connivance of depositor, the bank is held free of liability then no depositor is safe in depositing the money in the banks. Banks must take all precautions and apply hightech methods available in the market to check the commission of forgery regarding the signatures. For these reasons, therefore, we allow the complainant and direct the OP to make the payment of Rs. 1,52,000.00 to the complainant alongwith 6% interest. 6% interest only because the complainant has failed to maintain the custody of cheque book properly. This amount will be paid to him within six weeks failing with interest @ 12% will be charged from the OP.
3. It is the above order which is subject matter of challenge in this appeal. The legal position in this regard be examined.
4. The relationship between a bank and its customer arose for consideration before the Supreme Court of India in the case reported as Bihta Co-operative Development and Cane Marketing Union Ltd and Anr. v. Bank of Bihar and Ors., AIR 1967 SC 389. In the above case, a suit was filed by the Society for illegal withdrawal of Rs. 11000/- from the bank. The suit was decreed by the trial court and affirmed by the High Court. The case, then came before the Supreme Court of India. The plea taken by the bank was that if the customer chooses to dispense with the ordinary precautions and permits a forgery to be committed and if owing to the negligent of such precautions, it is put into the power of any dishonest person to increase the amount by forgery, the customer must bear the loss. For this argument, reliance and placed on a decision of House of Lords given in the case of London Joint Stock Bank Ltd. v. Macmillan and Arther, 1918 AC 777. The Supreme Court of India was, however, of the opinion that what was said in Macmillan's case above would not be applicable because the accepted principle of law that if signature on the cheque is genuine and there is a mandate by the customer to pay then the banker has no obligation but to discharge the liability but if the signature on the cheque or atleast one of the signature is not genuine, then there is no mandate on the part of bank to pay and there would no 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. The ratio of decision given in Bihta Cooperative's case (Supra) stands approved in the later decision reported as AIR 1987 SC 1603, Canara Bank v. Canara Sales Corporations and Ors.. In the above case, the Chief Accounts Officers of the Company who was attending the maintenance of the company's accounts and was also in charge and custody of the cheque books forged 42 cheques for a total amount of Rs. 3,26,047.92 between 1957 and 1961. The bank contended that the customer was estopped from claiming the amounts by reason of its own negligence on account of its acquiescence in, and ratification of, the payments made by the bank as the customer was being supplied by the bank monthly statement of accounts and half yearly accounts over a period of four years and he had not raised any objection at the appropriate time to the correctness of the accounts. The Supreme Court of India observed that when a cheque duly signed by a customer is presented before a bank, it carries a mandate to the bank to pay. If a cheque is forged, then 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. In action for a continuously long period cannot by itself as for a satisfactory ground for the bank to escape its liability. The customer in the above case swung into action immediately on the discovery of the fraud committed by its accountant. The Supreme Court of India observed that there is no duty for a customer to inform the bank about the fraud committed on him of which he was unaware. There is a duty of the customer to inform the bank of irregularities when he comes to know of them. He can be estopped when he remained silent even after knowing the truth of the matter. The Supreme Court of India in the above case took note of the decision given in the case of Tai Hing Cotton Mills Ltd v. Liu Chong Bank Ltd., (1985) 3 WLR 317: (1985) 2 A;; ER 947 (PC). In Babulal Agarwalla v. State Bank of India, Bikaner and Jaipur, (1988) 64 comp. Cas 461, the Calcutta High Court, followed the view expressed by the Supreme Court of India in Canara Bank's case (Supra). The Calcutta High Court held that the mandate of the customer to bank to pay the cheque signed by him for the bearer, which is statutorily recognised by Section 85(2) of the Negotiable Instruments Act, cease as soon as it is proved that the cheque paid by the bank was a forged one, beceause a forged cheque is no cheque issued by the customer. There is no mandate of the customer to the bank to pay on such a forged cheque. Therefore, the protection given to the bank by Section 85 is not available to the bank in respect of a forged cheque. The bank is not liable to debit the said amount of the cheque even if it is found that the customer did not take proper care to keep the cheque or the relevant cheque book in proper custody. It was held that the bank cannot avoid the liability by merely proving that it made payment in due course according to the apparent tenor of the cheque or by verifying the signatures in the cheque with the specimen signature and finding no apparent discrepancy it was observed that the bank can avoid the liability only if it can prove that there was ratification or estoppel.
5. As a matter of fact in an earlier decision given by the Allahabad High Court reported as AIR 1983 Allahabad 374, L:Pirbhu Dayal v. The Jwala Bank, the cheque book was allowed to remain in an unlocked box. The Allahabad High Court held that negligent on the part of plaintiff was not the proximate cause of loss to the bank. It was observed that it was the duty of the employees of the bank to be able to identify the signatures of their customers and if they failed to discharge their duty and thereby suffered the loss, there is no reason why the plaintiff should make good that loss. It was observed that the loss in the above case was entirely due to the negligence of the employees of the bank in not comparing the signature on the forged cheque with the specimen signatures of the plaintiff. The Allahabad High Court in the above case placed reliance on a decision of Calcutta High Court reported as Bhagwan Das. v. Creet, (1903)31 Cal 249, wherein it was held that when a banker makes a payment on a forged cheque, he cannot make the customer liable except on the ground of negligence imputable to the customer. The Allahabad High Court referred to a passage from Beven on Negligence Edition 4, Vol II, Chap. 3 p 1471. This is instructive and is being repoduced below:-
"The banker's obligation is to honour his customer's cheque. To that end he is bound to know his customer's handwriting. If in any way he is deceived without the instrumentality of his customer, he must himself abide the loss".
6. The Allahabad High Court also referred to a decision of Rangoon High Court reported as AIR 1924 Rang 264, Ahmed Moola Dawood v. Firm Pereinan Chetty, in which decision it was held "that the money paid by the bank under a forged cheque could not be debited to the customer merely on the ground that the customer was negligent to this extent that he allowed his cheque book to remain unlocked." similar to that which existed in Canara Bank's case (Supra). In the above case 42 cheques were encashed from time to time. That arguments that it was the duty of the customer to inform the bank and that the customer should have examined the accounts and the fact that as many as 42 cheques were subject matter of forgery was pointed out with a view to bring home the negligence to the customer. This argument was repelled the position in this case is similar.
8. In view of the above, we do not find any merit in this appeal which is dismissed as such.