Court issued an order after Bank officer cleared 47 checks using forged signatures

The Kerala High Court has mandated that Bank of Baroda reimburse clients who suffered financial losses as a result of the bank clearing fraudulent checks.  47 checks with fake signatures were cleared by a Bank of Baroda (formerly Vijaya Bank) personnel.  Of them, 15 were account payee checks, which were finally recovered, and 32 were paid to third parties, making the money hard to retrieve.

Many clients suffered significant financial losses as a result of the fraud, which went unnoticed for three months.  Following their initial complaints to the bank, several clients filed lawsuits.

According to the bank, it cleared the checks in accordance with all the correct processes and shouldn't be held accountable because the forgery might have been done by an insider or someone close to the consumers.

The Kerala High Court, however, dismissed each of these claims.

Key Points from the High Court Judgment

The High Court said that:

The Bank Was Negligent

The court said that the bank did not properly verify the signatures on the cheques. Many of the forged cheques.Did not match the specimen signatures kept by the bank. In some cases, no specimen signatures were even available.

 

Forgery Confirmed by Vigilance Reports

A vigilance officer’s report, accessed by the customers under the Right to Information Act (RTI), 2005, clearly showed that the cheques were forged. This report became a key piece of evidence in court.

1.      Bank’s Refusal to Accept the Report Was Rejected

The bank said the vigilance report was invalid because proper procedure wasn’t followed. But the court ruled that:

The bank did not prove what was wrong with the procedure.

The burden was on the bank to prove that the report was incorrect, but it failed to do so.

2.      Legal Principle from the Supreme Court Applied

The High Court cited the Supreme Court case Canara Bank vs. Canara Sales Corporation (1987), which said:

o    If a cheque’s signature is forged, the bank has no legal right to process or pay it.

o    Even if the customer was careless (e.g., lost cheque book), the bank still cannot escape responsibility unless the customer knowingly allowed the fraud.

Final Court Order

The trial court’s earlier decision was overturned. Bank of Baroda was ordered to refund the full

amount of the forged cheques. The Court ordered bank to pay 6% interest per year from the date

the case was filed until full recovery. The bank was also ordered to pay legal costs.

Why Court ruled against Bank

1. Burden of Proof on the Bank

The court clarified that once a forgery is proved:

o    The bank must prove it wasn’t at fault.

o    The bank cannot blame the customer unless it proves the customer was involved or ignored signs of fraud.

2. Internal Reports Can Be Used as Evidence

     The bank’s own internal vigilance reports were used in court against it. The judgment makes it clear that if a report points to negligence, the bank must prove why it is wrong—just denying it is not enough.