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Banks must pay for clearing fraud cheques

A bank is supposed to keep your money safe. Yet there are any number of instances of fraudulent withdrawal of money from bank accounts.

delhi Updated: Sep 05, 2010 01:24 IST
P Girimaji

A bank is supposed to keep your money safe. Yet there are any number of instances of fraudulent withdrawal of money from bank accounts. While in some cases, such fraud takes place with the connivance of the bank staff, in others, the negligence of the bank staff results in clearance of forged cheques.

Whatever may be the cause, the law is clear — the bank has to take responsibility for its action in clearing a forged cheque and refund the amount illegally withdrawn from the customer's account. Yet, the response of the bank to such complaints is never positive.

The banks refuse to accept that a fraud has taken place. And then they try to escape liability by pointing to "contributory negligence" on the part of the customer. Here are a few decided cases of the National Consumer Disputes Redressal Commission and the Supreme Court that clearly show the way to victims of such fraud.

In the case of N Venkanna VS Andhra Bank (RP No 1990 of 1999), for example, the National Commission made it clear that banks cannot escape liability by making out a case of contributory negligence on the part of the customer. It also pointed out that banks had a duty to meticulously cross check the signature on a cheque or a withdrawal slip and failure to do so constituted negligence.

Similarly, in the case of Uma Shankar Bhatt VS Punjab and Sind Bank (OP no 98 of 2002) , the National Commission held that those who worked in banks ought to have a reasonable degree of intelligence and skill required of a person in that post. Failure to exhibit that skill (and recognize a forgery) constituted negligence and banks had to pay for its consequences.

Similarly, in the case of Canara Bank Vs Canara Sales Corporation & others (1987) 2 SCC 666, (para 24) the Supreme Court held that "When a cheque which is presented for encashment contains a forged signature the bank has no authority to make payment against such a cheque. The bank would be acting against law in debiting the customer with the amounts covered by such cheques."

The banking regulator's instructions to banks can also come to the rescue of consumers in such cases. In its Master Circular on Customer Service in Banks, compiled and put out on July 1, 2010 on its website, the RBI says that "if the branch is convinced that an irregularity/fraud has been committed by its staff towards any constituent, branch should at once acknowledge its liability and pay the just claim. (ii) in cases where banks are at fault, the banks should compensate customers without demur, and (iii) in cases where neither the bank is at fault nor the customer is at fault but the fault lies elsewhere in the system, then also the banks should compensate the customers (upto a limit) as part of a Board approved customer relations policy".

Sunil Kumar Sharma: I deposited a crossed cheque for Rs 60,000 to be credited to my account in another bank, in the ATM of that bank. The amount never got deposited into my account. Instead, someone has encashed the amount with a forged signature. How do I get my money back?

A: Write to the bank's Nodal Officer, asking for refund of the money with interest and compensation. If you fail to get a positive response, file a complaint before the Banking Ombudsman. You can also go to the consumer court, but this is a quicker process. You can file your complaint online at

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