M/s Super Great & Company, a partnership firm is maintaining a satisfactory Current Account for the last five years with PQR bank branch. An accountant of M/s Super Great & Company, who is the regular visitor to

CS Professional · Banking - Law and Practice · PYQS · December 2020
M/s Super Great & Company, a partnership firm is maintaining a satisfactory Current Account for the last five years with PQR bank branch. An accountant of M/s Super Great & Company, who is the regular visitor to the branch, presents two cheques of ₹25,000/- each signed by a partner. The branch as a matter of routine paid the cheques. The firm, on reconciliation of their accounts, informs the branch that the accountant was removed a month back and the cheques which were paid by the bank were not signed by the partners. As such the firm demands that the debit entries be removed from the account. Give your decision on the case with reasons.

Answer & Explanation:

The bank is liable as the payment has been made on the basis of forged signature of the drawer. Forgery being a nullity, the bank has no valid mandate to debit the customer with the amount. As per Section 10 of the Negotiable Instruments Act, 1881 , the payment made in case of forged signature of the drawer, the paying bank will not get the valid discharge as the same will not be considered as payment in due course. Therefore, the bank has no mandate to debit the accounts of M/s Super Great & Company and the bank will have to reverse the entry.

Topics: Banking Operations

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