<%-- Page Title--%> Star Law Report <%-- End Page Title--%>

April 11, 2004

 

Bank may be held liable for forged cheques

High Court Division ( Civil Original Jurisdiction)
Appeal from Original Decree No. 251 of 1999
Islami Bank and Others (Appellants)
Vs
Dewan Md. Yusuf (Respondent)
Before Mr. Justice Md. Tafazzal Islam and
Mr. Justice AHM Shamsuddin Chowdhury
Date of Judgement: 16.01. 2002


Background
AHM Shamsuddin Chowdhury J: This appeal is directed against the original judgement and the decree dated 28-2-1999 passed by the learned Subordinate Judge and Commercial Court No. 1, Dhaka in Money Suit No. 3 of 1995. By his judgement the Judge granted the relief the plaintiff asked for by way of monetary compensation to the tune of Taka 3,52,000 (three lack fifty-two thousand) only.

The salient facts as narrated in the plaint in this case are that the plaintiff, who accumulated some money by dint of his hard labour in South Korea, subsequently returned to Bangladesh with that money. On 20-2-1995 he opened a current account in his own name at the local branch of the defendant No. 1 bank. The plaintiff deposited a total of Taka 3,97,000 by making two deposits, on 22-2-1995. He was given a Cheque Book containing 25 pages bearing No. 1130301 to 1130325. On 22-2-1995 the plaintiff drew a cheque in favour of one Nazrul Islam for Taka 820 on page No. 1130301 of the Cheque Book, who, instead of encashing the cheque, returned the same to the plaintiff. On 22-3-1995 the plaintiff handed over a cheque drawn on page no. 11303003, for Taka 3,50,000 to his mother, Mrs. Khorsheda Aktar Gani, But the cheque was dishonoured by the defendant No. 1 bank with a memo stating "not arranged for," and returned on 23-2-1995. On receiving the news of the said bouncing, the plaintiff approached the defendant No. 2 and asked for the reasons, but the said defendant was unable to give a worthwhile explanation. A couple of correspondences, including legal notices, and replies, were exchanged between the parties afterwards, whereby the plaintiff claimed and the defendants refused to pay the sum in question. In the face of the defendants' persistent refusal to adhere to the plaintiff's request, he being left with no alternative, filed the present suit. The learned judge after hearing submission and analysing the evidences decreed the case in favour of the plaintiff.

Deliberation
The learned counsel for the defendants/appellant submitted that the bank's liability is never absolute. As long as the bank follows the principle of "due diligence" and resorts to the required degree of prudence, they are, in the prevailing state of the law, under no obligation whatsoever, to account for any loss that may be incurred by a customer in the plaintiff's position. To substantiate the claim that the bank has taken necessary precaution, and followed the required rules, and the expected standard of care, he submitted that the differences in signatures were too obscure to be detected by naked eyes. On the admitted difference as to the sizes as well as the colour of the two sets of cheques, his contention was that the variances were so minute that it was impossible to trace the differences without scientific aid. He submitted that the bank took recourse to every canon of care in disbursing the money as are done in the normal course of banking transaction.

The learned Advocate for the plaintiff/respondent contendeding that the bank's liability is generally absolute, and that the defences available to a bank are out of context in the scenario of this case, submitted that, as the differences in the signatures, in the colours and sizes of the cheques were not immediately detectable, DW 1 would not be able to identify the said differences so instantaneously with his bare vision. He also submitted that the banks bear a particularly distinctive responsibility as the custodian of the customers' money. This duty requires the banks to be on their guard in honouring cheques. He submitted further that in the instant case even a minimum degree of care was not taken. He further pointed out that the number on two sets of cheques are conspicuously different in that there is and additional letter "A" on the forged cheques.

During the proceedings before us we had an opportunity to examine the cheques in question ourselves and we encountered no difficulty whatsoever to identify the difference without any help of any apparatus. We also noted that a minute, but not invisible, difference also existed in the colour of the two sets of cheques. The additional letter "A", should raise suspicion in the mind of any careful personnel involved in banking sector.

Mr Razzaq's submission on law point required us to travel deep into the field of the veritable mine of authority on that point. The obligation of the bank, so far as those cheques are concerned, which do not carry the customers' signature at all, the liability is nothing but absolute, subject only to the defences of estoppel, adoption or ratification. The legal position in this respect can be succinctly portrayed by reproducing some passages from the Privy Council's decision in the case of Tai Hing Cotton Mills Ltd vs Liuchong Bank Ltd (1985 2 All ER 947), in which case the judicial Committee for the Privy Council, in their decision on the fundamental premises that 'a cheque without customer's signature is not the customers' cheque at all'. The business of banking is not the business of the customer but of the bank. They offer services, which is to honour their customers' cheque when drawn on an account in credit or within an agreed overdraft limit. If they pay out on cheques, which are not his, they are acting outside their mandate and cannot plead his authority in justification of their debit to his account. A customer must obviously take care in the way he draws his cheque. And must notice his bank as soon as he knows that a forger is committed in the account. The observations make it clear, that if a bank pays on a cheque which does not contain the customer's signature, the bank acts without mandate and cannot deny liability. The only limitation on bank's liability being based on customer's lack of care in drawing a cheque as well as on his deliberate abstention from informing the bank of forgery as happened in London Joint Stock Bank vs Maemillon (1918 AC 777), as well as in Greenwood vs Marting Bank Ltd (1933 AC 51 respectively.

In spelling out the limitation on bankers' liability, Lord Scarman, in Tai Hing Cotton Mills case expressed the view that in the absence of express agreement to the contrary, the duty of care owed by a customer to his bank in the operation of his current account was limited to a duty to refrain from drawing a cheque in such a manner as to facilitate fraud or forgery. And a duty to inform the bank of any unauthorised cheques purportedly drawn on the account as soon as the customer became aware of it. And that the customer was under not a duty to take reasonable precautions in the management of his business with the bank to prevent forged cheques being presented for payment, nor was he under a duty to check his periodical bank statements so as to enable him to notify the bank of any unauthorised debited items.

The Supreme Court of India in Canara Bank vs Canara Sales Corporation and other (AIR) 1987 SC 1603) approving of the ratio in Tai Hing Cotton Mills Ltd case in toto. The court stated that whenever a cheque purporting to be by a customer is presented before a bank it carries a mandate to the bank to pay. And if the signature on a cheque is a forged one, it is not the customers' signature and hence, that cheque carries no such mandate. And as such, the bank can, in such a case, escape liability only if it can establish knowledge of the customer about the forgery in the cheque. And that inaction for continuously long period, cannot by itself, afford a satisfactory ground for the bank to escape liability.

Having analysed the above legal position as enunciated by preponderance of authorities, we are unable to be swayed by Mr Razzaq's submission, rhetoric though it was, that the banks responsibility goes no further than adhering to the general duty of care in comparing the signatures in the normal way. And that the bank incurs no liability if it pays on a cheque does not bear the customer's signature, the liability, subject to the defence of estoppel, ratification and adoption, none of which falls within the context of the factual state of the present case, the bank's obligation is rather an absolute one. The protection as afforded by section 85 of the negotiable Instruments Act, 1881, in respect of payment made in 'due to course" as defined by section 10 of the said Act, is relevant only in Macmillan (Supra) type situation, namely, where undetectable material alternation is caused to a cheque which does, nevertheless, contain customer's signature.

Mr Razzaq, when he argued that bank's liability is not absolute, possibly had sections 10, 85, 87, 88 and 89 of the Negotiable Instruments Act 1881, and the principle of payment "in due course" as is contemplated by section 85 of the said Act, in mind. But a cheque form, which, when drawn, is a bill of exchange, cannot attract section 5 of the Negotiable Instruments Act, as it pre-requires such a cheque to be "signed by the customer". This follows that none of the provisions of the said Act can be canvassed in aid by the bankers in respect to a cheque which does not satisfy section 5 as stated above. Provisions of the said Act can be availed only in a situation like that of Macmillan case (Supra), such as, where the amount in the cheque from, which contains customer's actual signature is enhanced by forgery. But that is not the case before us.

As to Mr Razzaq's submission that the plaintiff himself was a functionary in the process of forgery, we have to say that there is nothing in the evidence to back up the accusation that the plaintiff was instrumental to such a horrendous mischief. Mr Razzak may be right, he may not be. None can dwell on speculation in the absence of concrete evidence. Not only that the burden of proving alleged fraud and deceit falls squarely and vertically on the bank, because of the rule "Probandi necessitas incumbit illi qui agit,". But also, as the House of Lords unequivocally ordained in the widely acclaimed case of R vs Secretary of State for Home Department ex parle Khawja and Khera, 1984, AC 74, that although all questions in a civil case are to be determined on preponderance of probability, an allegation of criminal nature in a civil case is to be proved with a higher degree of probability.

Apart from the legal aspect discussed above, we must also make it clear that the fate of this appeal would not have been any different even if the legal position were otherwise, for, the weight of evidence is overwhelming to dispel the contention that the bank officials resorted to practicable degree of diligence and that the forgery was not detectable without the aid of scientific device.

Decision
Having perused the papers and the evidence and analysed the legal position as above, we are in no hesitancy to hold that nothing would justify our interference to disturb the judgement and the decree passed by the learned Court below. In view of above the appeal is dismissed without any order as to cost.

Advocate Abdur Razzaq with Advocate Shafiul Alam Mahmood for the appellants; Advocate Syed AB Mahmudul Huq with Syed Mahmudul Ahsan, for the respondent.