Banks can be hauled up for not verifying customer signature

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Service providers can be held liable under the Consumer Protection Act for payment of compensation in case of loss caused due to negligence. But what happens when there is also some contributory negligence on the part of the consumer?

N Venkanna had a savings bank account with Andhra Bank's Hyderabad branch. He lost the cheque book that had been issued to him. The bank rejected his request for a duplicate one. So, he made two cash withdrawals of Rs 150 and Rs 80 by using withdrawal forms.

Subsequently, Venkanna found his cheque book. Later, when he wanted to withdraw Rs 35,000, he used a cheque payable to ‘self’. The bank refused to honour it on the ground of insufficient funds, claiming that Rs 34,000 had been withdrawn earlier by using a withdrawal form. Venkanna stated he had not withdrawn this amount and wasn't even present in Hyderabad on the day this withdrawal was made. He alleged fraud had been committed by forging his signature.

The bank's stand was that the withdrawal form was accompanied by the pass book. Since the pass book was required to be kept by a customer in safe custody, the bank could not be held liable for making payment on a withdrawal slip that was accompanied by the pass book.

The dispute that was filed through the Dilsukhnagar consumers council reached the district consumer forum,. The forum obtained Venkanna's specimen signatures and sent the admitted signatures as well as the disputed ones for examination and opinion of the director, Forensic Science Laboratory, Government of Andhra Pradesh. The examination revealed the signature on the disputed withdrawal slip was indeed forged.

The forum concluded the bank had been negligent by making payment on a forged withdrawal slip without verification of the signature, but at the same time the complainant Venkanna was also at fault and there was contributory negligence on his part by failing to keep his pass book in safe custody. Hence, the forum apportioned the bank's liability at 50 per cent and directed it to pay Rs 17,000 (along with the interest at 12 per cent), compensation of Rs 5,000 and costs of Rs 500.

Venkanna's appeal for the remaining amount was dismissed by the state commission, which confirmed the view taken by the district forum.

Venkanna then filed a revision petition before the national commission. The question posed by the commission was: "Does it absolve a banker from making payment to a wrong person by rushing to clear it on the basis of a forged withdrawal form?"

The commission held that when the bank cleared payment by seeing the pass book without verifying the signature on the withdrawal form, it would be guilty of deficiency in service.

While coming to this conclusion, the commission had considered several judgements of the High Court and the Supreme Court. In the case of Canara Bank v/s Canara Sales Corporation [(1987) 2 SCC 666], the Supreme Court had held that: "..... if the signature on a cheque is not genuine, there is no mandate on the bank to pay. The bank when it makes payment on such a cheque cannot resist the claim of the customer with the defence of negligence on his part such as leaving the cheque book carelessly so that third parties would easily get hold of it. This is because a document in cheque form, on which a customer's name as drawer is forged, is a nullity. ..... Nor can inaction for a reasonably long time in not discovering fraud or irregularity be made a defence to defeat a customer in an action for loss."

Accordingly, the national commission held the bank was liable to compensate Venkanna for the entire amount of Rs 34,000 lost due to payment made on the forged slip. However, the interest was lowered to six per cent, provided the order would be complied within six weeks, failing which the original rate of 12 per cent would continue to apply [N Venkanna v/s Andhra Bank VII-2005 (2) CPR 73].

This judgement should make banks realise the importance of functioning in a professional manner. Now, the customer can no longer be made a scapegoat and the bank will have to squarely shoulder the liability of its own negligence.

The author is a consumer activist.