Banks Liable if it Negligently Encashes Cheque with Forget Signatures : Kerala High Court

The Kerala High Court held that banks are liable for encashing forged cheques if done negligently, even without the customer's knowledge.

The court found that Bank of Baroda (formerly Vijaya Bank) negligently honoured 47 cheques with forged signatures, causing financial loss to account holders. 

Referring to Canara Bank v Canara Sales Corporation (1987), the Supreme Court made it clear that if a cheque contained a fake signature, the bank cannot use the excuse that the customer was careless in keeping their cheque book safe.

The court rejected the bank’s claim that the forgery was committed by a customer’s employee. The bank was directed to settle claims with 6% annual interest until paid. The next hearing is scheduled for July 31.