Legal Question in Banking Law in India

The chief accounts officer of AB Insurance Company, who was in service with the company for

over 15 years, was the custodian of the cheque books. He has forged the signature of the

managing director on 50 cheques and misappropriated a total amount of Rs.15 lakhs during a

period of four years. On discovery of the forgery, the company wanted the bank to recredit the

account with the amount in question. The bank refused to comply with the request and took the

following defense:

a. Even if the cheque were forged, the company has acquiesced to the payment.

b. The company was stopped from its claim because it had not objected to the payments

which were brought to its notice through monthly statements and half yearly account.

c. The company was stopped from its claim since it was negligent in entrusting the custody

of the cheque books to the accounts officer leading to contributory negligence.

d. The suit was time barred since the company had not objected to the payment for a period

of four years.

- In view of the above defense taken by the bank, the company has proceeded against the

bank and the chief accounts officer and the issue is whether the suit is maintainable.


Asked on 12/26/10, 12:06 am

1 Answer from Attorneys
J. Radhakrishnan independent Practice

The claim is not barred by limitation. If it is a current account, the date of discovery of fraud is the starting point for limitation. Within three years suit can be filed against the Bank. If the signatures on the cheques are forged, it is no defence for the Bank to say that the company was negligent in the custody of cheque book. There is no question of contributory negligence in the case of forgery of cheques. The Bank is liable to remimburse.

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Answered on 12/27/10, 2:12 am


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