Banks Ought To Exercise Due Diligence To Avoid Issuance Of Cheque-book To Unauthorized Persons, West Delhi District Commission Holds Bank of India Liable

Brief Facts:

Mr Umesh Arora (“Complainant), as the sole proprietor of M/s Kailash Overseas, held a current account with the Bank of India (“Bank”) at Kirti Nagar, Delhi Branch, for the past twenty years. On 10.05.2010, the Complainant applied for a new chequebook through a requisition slip and was informed by the Bank official that it would be ready within two weeks. However, upon visiting the Bank on 24.05.2010, the Complainant was informed that his records were untraceable, and the chequebook had been inadvertently issued to someone else. Subsequently, it was discovered that two cheques from the new book, totalling Rs. 1,26,500/-, were transferred from the Complainant's account. In response to the incident, the complainant reported the matter to the AGM of the Bank, filed a police complaint, and sent a legal notice demanding compensation for the losses suffered. The Bank asserted that the encashed cheques belonged to an employee introduced to the Bank by the Complainant's father, thereby, denying any wrongdoing on its part. Thereby, the Complainant raised suspicion of forgery and collusion between unknown individuals and Bank officials. The Complainant made several communications with the Bank but didn't receive a satisfactory reply from them. Feeling aggrieved, the Complainant filed a consumer complaint in the District Consumer Disputes Redressal Commission-III, West Delhi, Delhi (“District Commission”).

In response, the Bank argued that the complaint was based on a fabricated fraud to pressure the Bank into compensating losses caused by the Complainant's negligence. The Bank contended that the two cheques were issued from the Complainant's account, without negligence on the Bank's part. Furthermore, it claimed that the chequebook was issued as per the Complainant's instructions. The funds were transferred to an account belonging to one Rajesh Gupta, an employee introduced to the Bank by the Complainant's father. The Bank maintained that any connivance would be between the Complainant and Rajesh Gupta, not involving Bank officials. It also submitted that the alleged fraud was reported to the police for investigation, emphasizing that such cases should be adjudicated by the civil or criminal court.

Observations by the Commission:

The District Commission referred to the Cheque Truncating System (CTS) Scheme, which was introduced by the Reserve Bank of India (RBI) in the financial year 2010. It noted that the scheme emphasizes payment processing based on cheque images, placing the onus of due diligence on the presenting Bank, particularly under Clause 3.1 Preliminary Verification Scheme in the CTS Scheme. The scheme further mandates strict adherence to Know Your Customer (KYC) norms, including verification of the instrument's apparent tenor, physical feel, and any visible tampering. Further, the District Commission noted that the Bank is required to exercise due diligence under the Negotiable Instrument Act, of 1881. Further, the District Commission noted that the Bank, in its defence, failed to provide sufficient documentary evidence regarding the person to whom the chequebook was handed over and did not prove the verification of the Complainant's signatures on the disputed cheques.

Therefore, the District Commission held the Bank liable for deficiency of service for non-compliance with CTS norms. The District Commission referred to the decision in NCDRC in Abdul Razak Vs South Indian Bank [(2003) CPJ 20 (NC)], where the Bank was held guilty of a "double default" for not verifying signatures on cheques and handing over the cheque book without due diligence.

Consequently, the District Commission directed the Bank to pay compensation of Rs. 50,000/- to the Complainant. Additionally, it directed the Bank to pay Rs. 25,000/- for the litigation costs incurred by the Complainant.

Case Title: Umesh Arora vs Bank of India

Case No.: Complaint Case No. 564/2010

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