Bank collecting forged draft from customer has to bear the cross: Court

http://www.thehindubusinessline.com/industry-and-economy/banking/article3643027.ece
Author: S. MURLIDHARAN

A collecting bank enjoys immunity only when it had acted in good faith after exercising due diligence held the Delhi High Court in the Corporation Bank vs Punjab National Bank case.

An accountholder having account in the name of his firm with the appellant bank had got made a draft for a small amount, Rs 400, from the respondent bank. He thus was in possession of the draft number and other details appearing on the face of the draft.

Thereafter, he forged a draft bearing the same number for a larger amount, Rs 3 lakh or so, favouring himself rather than his firm and post-haste got the amount collected by the appellant bank which assumed that being a demand draft there was little likelihood of it bouncing and released the payment even before it got advice from the respondent as to issuance of such draft.

The trial court said that while it may be the standard practice for banks to go ahead and credit the account of the presenters of drafts even before receiving the advice from the issuing bank, in the instant case it ought not to have done this so early in the day given the fact that it had not known the customer for sufficiently long time with the personal account having been opened only a few days before the forged draft was deposited.

It, therefore, went on to hold the appellant negligent and pay a price for its negligence. The High Court endorsed this view and absolved the respondent of any liability.