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

CS Professional · Banking - Law and Practice · PYQS · December 2019
M/s Super Great & Company, a partnership firm is maintaining a satisfactory Current Account for 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. Discuss the liability of the bank as well as the firm.

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 Negotiable Instruments Act, 1881 the payment made in case of forged signature of the drawer, the paying banking will not get the valid discharge as the same will not be considered as payment in due course. Therefore, bank has no mandate to debit the accounts of M/s Super Great & Company. Thus the bank will have to reverse the entry. The firm need to inform the Bank in writing about debit entries in firm's account found at the time of reconciliation.

Topics: Negotiable Instruments

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