AUTHOR: TRIPTI ROHILLA, UNIVERSITY SCHOOL OF LAW AND LEGAL STUDIES
TO THE POINT
Cheque fraud is the most common and rapidly growing threat to the banking arena. In India where cheque-based transaction continue to play a vital role in commercial dealings, the legal framework governing the liability of banks in cases of forged cheques has evolved through a series of judicial pronouncements .The Kerala High Court’s 2025 ruling in Minar Textile Industries, Kozhikode & Others v. Bank of Baroda marks a significant change in Indian banking jurisprudence. The court held that the bank strictly liable for losses suffered by customers due to the encashment of cheques bearing forged signatures, emphasizing that bank cannot escape from their responsibility for lapses in their verification processes. The bank was held liable for every encashment marking that its bank’s responsibility to take care of the cheques and not the customers. This decision not only provides restitution to the affected parties but also sets a precedent for future cases involving cheque fraud and bank negligence.
USE OF LEGAL JARGON
There are many legal terminologies outlined in the article such as Strict Liability which refers to the legal responsibility for damages or loss, even in the absence of negligence or intent to harm. There are certain relationships where the mere connection between the parties’ vests in trust and mutual understanding, this relationship is known as; Fiduciary Duty means the obligation of the bank to act in the best interests of its customers, particularly regarding the safekeeping and disbursement of funds. According to Section 190 of the Indian Contract Act 1872, an agent cannot delegate his authority to another person until the contract suggests, similarly, the bank’s obligation to verify signatures cannot be outsourced or ignored, this duty of bank is called as; Non-Delegable Duty. Negligence refers as a failure to exercise the care that a reasonably prudent entity would exercise in similar circumstances. Whole article revolves around a term Cheque; that is a negotiable instrument instructing a bank to pay a specified sum from the drawer’s account to the payee. Specimen Signature is a official signature held by a bank to verify the authenticity of signatures on cheque. Lastly, the most important term is Forgery, the fraudulent making or alteration of a written document, such as a cheque, with intent to defraud.
THE PROOF
Facts of the case-
Parties in the case: Minar Textiles Industries, Kozhikode & Others as Petitioner and Bank of Baroda as Respondent. The case arose when Minar Textile Industries and its associates entities discovered unauthorised debits from their accounts at Bank of Baroda.
An internal audit revealed that 47 cheques purportedly, signed by the authorised signatory have been encased over a three month period. Of these, 32 were payable to third parties and 15 were account payee cheques. The total loss amounted to nearly ₹57 lakhs.
The petitioners obtained a report from the bank’s Vigilance Department under the Right to Information Act. The report confirmed that the signatures on the disputed cheques did not match the specimen signatures held by the bank. In some instances, no specimen signatures were available for comparison, indicating a serious lapse in the banks record- keeping and verification process.
Legal Issues-
Whether the bank was negligent in honouring cheques with forged signatures?
Whether the bank could shift blame to the customers for not detecting the fraud earlier?
Whether the banks internal procedures and the vigilance report were sufficient to establish liability?
Whether the petitioners were entitled to restitution and interest?
Arguments:
The petitioners argued that the bank’s failure to verify signatures constituted gross negligence. They relied on the Vigilance Department’s findings and Supreme Court’s precedents to establish the banks strict liability. They contended that the loss was directly attributable to the bank’s breach of fiduciary duty and non-delegable obligation to verify signatures.
The bank claimed adherence to standard procedures and denied negligence. It argued that the fraud was perpetrated by someone known to the customers and that the vigilance report was procedurally flawed. The bank attempted to shift blame to the customers for not detecting the fraud in a timely manner.
Legal Interpretation by the Court-
The bank’s duty to verify signatures is non-delegable and forms the cornerstone of the banker-customer relationship which is also known as fiduciary relationship.
Any payment made on a forged cheque is unauthorised and does not bind the customer.
The absence of specimen signatures or failure to match signatures constitutes gross negligence.
Attempts to shift blame to the customer are untenable, as the primary obligation to prevent fraud rests with the bank.
The court relied on Supreme Court precedents to reinforce the principle of strict liability in cases of forged cheques. It held that the bank’s failure to detect the forgeries was a clear breach of its fiduciary duty entitling the petitioners to restitution and interest. The Kerala High Court ordered Bank of Baroda to: Refund the entire amount lost by the petitioners which was ₹57 lakhs. Pay interest at 6% per annum from the date of loss and bear the cost of litigation. The court’s decision was grounded in established legal principles and aimed at reinforcing consumer protection in banking transactions.
ABSTRACT
This article examines the landmark 2025 Kerala High Court judgement in Minar Textile Industries, Kozhikode & Others v. Bank of Baroda, a case that has redefined the legal landscape regarding bank liability in cheque fraud. By holding the bank strictly liable for encashing 47 forged cheques. The court has reinforced essential legal doctrines such as the banker-customer fiduciary relationship, the principal of strict liability and the non-delegable duty of care. The article provides a precise discussion of the case, explores relevant legal jargon, presents supporting facts and authorities, analyzes related case laws, and concludes with practical recommendations.
CASE LAWS
Canara Bank v. Canara Sales Corporation (1987) 2 SCC 666- The Supreme Court held that a bank is under a duty to pay only as per the mandate of the customer. If a cheque is forged, the bank has no authority to pay, and any such payment is made at the bank’s own risk. The Kerala High Court relied on this principle to hold Bank of Baroda liable, as the cheques in question were not duly authorised by the account holders.
Indian Overseas Bank v. Industrial Chain Concern (1990) 1 SCC 484- The Supreme Court reiterated that banks must exercise due diligence and care in verifying signatures, failure to do so constitutes negligence. The Kerala High Court cited this case to emphasise the non-delegable duty of banks to verify signatures on cheques.
Syndicate Bank v. Jaishree Industries AIR 1994 SC 853- The Supreme Court held that the relationship between a banker and customer is fiduciary in nature, requiring utmost good faith and care. The Kerala High Court invoked this principal to underline the bank’s fiduciary obligation and the breach therefore in the present case.
Bank of Bihar Ltd. V. Damodar Prasad AIR 1969 SC 297- The Supreme Court held that a bank is liable to compensate the customer for losses arising from unauthorised transactions. This case served as an additional authority for the Kerala High Court’s order for restitution and interest.
CONCLUSION
The Kerala High Court Judgement in Minar Textile Industries Kozhikode & Others vs. Bank of Baroda is a landmark decision that reinforces the principle of strict liability and fiduciary duty in banking law. By holding the bank accountable for its negligence in verifying signatures, the court has sent a strong message to financial institutions about the importance of robust internal controls and customer protection. To reform the current banking law structure, banks must invest in advanced signature verification technologies and regular staff training, while the customers on the other hand, should regularly monitor their account statements and report discrepancies immediately. Regulators should enforce stricter compliance standards and conduct periodic audits of banking practises.
FAQs
Q1. What is cheque fraud?
Cheque fraud is the unauthorised alteration, forgery, or counterfeiting of a cheque to unlawfully withdraws funds from a bank account.
Q2 Can a bank shift claim to the customer in case of cheque fraud?
No, courts have consistently held that the primary responsibility to prevent cheque fraud risks with the bank not the customer as it becomes the bank responsibility to verify the process of encashment. Thus, bank cannot make customers liable.
Q3. What is the bank’s duty regarding cheque verification?
Banks have a non delegable duty to verify the authenticity of signatures on cheques before honouring them. Failure to do so constitutes negligence and in such a case, bank would be liable for compensation to the customers for any cheque fraud made by any bank employee.
Q4. What is strict liability in banking law?
Strict liability means the bank is responsible for losses caused by cheque fraud regardless of intent or negligence, if it fails to verify signatures properly.
Q5. What remedies are available to customers in case of cheque fraud?
Customers can seek restitution of the lost amount, interest, and litigation costs from the bank if the loss resulted from the bank’s negligence.
Q6. What are specimen signatures?
Specimen signatures are official signatures provided by account holders and maintained by banks for verifying cheque authenticity.
Q7. What steps can banks take to prevent cheque fraud?
Banks should implement robust verification systems, conduct regular audits, and ensure staff are trained to detect forgeries.
Q8 What is the significance of the 2025 Kerala High Court ruling and how this judgement impact customers in banks?
The ruling reinforces that banks are strictly liable for losses caused by their failure to verify signatures and sets up precedent for future cases. Customers benefit from enhanced protection while banks are compelled to strengthen internal controls and verification processes.
