In a ruling that sounds a clear alarm for banks across the board, the Kerala High Court has declared—again, with emphasis—that when a cheque bearing a forged signature slips past a bank’s eyes due to negligence, the price must be paid by the institution, not the customer.
The judgment came in a case where dozens of forged cheques—47 to be precise—were encashed by the Bank of Baroda (formerly Vijaya Bank), siphoning off large sums from accounts belonging to companies and individuals. Of those, 32 cheques funneled funds into third-party accounts. And the plaintiffs weren’t going to just watch it happen.
A Division Bench comprising Justice Sathish Ninan and Justice P Krishna Kumar gave the trial court’s earlier decision a sharp rebuke. That court had dismissed the plaintiffs’ money recovery suits, misreading the whole issue as a matter of fraud, not negligence. The High Court, however, saw the picture clearly: this wasn’t about who forged the cheques, but about the bank’s failure to spot the forgeries.
“We have no hesitation in finding that the Bank was negligent,” the Bench observed. And from there, it dismantled the trial court’s stance piece by piece.
First, it noted that the plaintiffs acted promptly once the forged transactions came to light. There was no delay, no suspicious behavior, no prior knowledge. The cheques were cashed over just three months—a timeline the Court found critical. No evidence suggested the account holders were aware of the fraud before the money vanished. That alone was enough to shut the door on the bank’s attempt to dodge liability.
Bank of Baroda argued it wasn’t to blame—after all, the forgery might have been an inside job, perhaps even by someone in the plaintiffs’ own office. But the Court wasn’t buying that story, especially since the bank’s own Vigilance Officer had already flagged the signatures as mismatched—twice. Despite this, the cheques were cleared.
And the law, the Court reminded, is settled. Quoting the Supreme Court’s 1987 verdict in Canara Bank v Canara Sales Corporation, the judges made it clear: a forged cheque is a nullity. A bank cannot shift blame onto the customer for not locking away their cheque book tightly enough. That’s not how responsibility works in the banking world.
The High Court underlined the standard: a bank can only wriggle out of liability if it can prove either that the customer was in on the forgery or that they were grossly negligent. This bank did neither.
With that, the High Court reversed the trial court’s order, ruled in favour of the plaintiffs, and directed the bank to cough up the lost amounts—plus 6% interest from the date of the suit until payment is complete.
In short, the Court’s message is clear: if you’re a bank, you don’t get to be asleep at the wheel and still keep the fare.
