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.
