Legal Question in Banking Law in India

A "self or bearer" cheque was fictitiously endorsed on the back by way of forged signatures of the account holder and encashed at the counter of a Public Sector Bank in New Delhi. Amount withdrawn was Rs. 30,000/-.
Legal issues at hand -
(1) Does a "self or bearer" cheque require an endorsement from the account-holder on the back ? Any rules or court rulings in support ?
(2) Does the instrument remain good when the endorsement on the back is forged OR it becomes a "nullity" ?
(3) General practice followed at most banks is a requirement of endorsement from the account holder on the back. Does this practice have the force of law ?

Asked on 8/12/09, 9:34 pm

4 Answers from Attorneys

Shrichand Nahar S.V.Nahar, Advocate

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1. No such rule. It is a practice.

2. Not a nullity.

3. Yes. A practice followed consistently over a long period of time become like a rule.

Answered on 8/13/09, 1:07 am

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J. Radhakrishnan independent Practice

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bearer cheques by their very nature is payable to the bearer who presents it for payment. But banks as a matter of caution get signature of the person who presents it for payment. If payment is made to somebody who signs the same on the back of it, the bank may not be responsible. However it has to be payment in due course as defined in the N.I.Act. Your first question 'self' or bearer' shows it can be paid to a bearer. It does not become a nullity by the person presenting it signing the same on the back of it. Account holder has to blame himself for enabling somebody not authorized by him to have possession of the same and present it.

Answered on 8/13/09, 8:53 am

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