A Forged Endorsement on an ‘Account Payee’ Cheque
On 5 April 2024, Meera draws a cheque for ₹50,000 on her account with Bank A in favour of her supplier, Ravi, crossed 'account payee'. Ravi endorses it in blank and hands it to his cousin, Dev, as security for a loan. Dev alters the date to 5 April 2025, forges Ravi's endorsement to himself, and deposits the cheque into his account with Bank B, which collects it. Bank A pays the cheque on 7 April 2025 without noticing the alterations. Meera discovers the fraud on 20 April 2025 and demands that Bank A reimburse her. Bank A says the cheque was apparently regular and points to Bank B. Ravi says he never signed the endorsement and that the 'account payee' crossing should have protected him. The cheque was otherwise validly drawn and Meera's balance was sufficient.
1. Is Bank A protected in paying the cheque? Analyse the effect of the altered date and the forged endorsement.
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Altered date. Changing the year from 2024 to 2025 is a material alteration. A materially altered cheque is void unless the alteration is not apparent and the paying bank pays in due course. Section 89 of the Negotiable Instruments Act protects a paying bank that pays a cheque in good faith and without negligence where the alteration is not apparent. Here the alteration changed the year, which is the kind of change a diligent examiner should notice. If it was apparent, Bank A cannot claim protection and must reimburse Meera.
Forged endorsement. Ravi's endorsement was forged. Section 85 protects a paying bank that pays a cheque payable to order which purports to be endorsed by the payee, provided payment is in due course. But that protection is not absolute where the bank is negligent. The 'account payee' crossing required Bank B to collect only for Ravi. Bank B collected for Dev, who was not the payee, without verifying the endorsement.
Conclusion. Bank A's liability depends on whether the alteration was apparent. On the facts, the year change is likely to be treated as apparent or at least as putting the bank on inquiry. Even if Bank A is protected, Bank B is liable for negligent collection and must indemnify Bank A. Meera can recover from Bank B; Bank A cannot simply point to Bank B without showing its own due-course payment.
2. Does the 'account payee' crossing protect Ravi? What are the consequences for Bank B?
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Meaning of the crossing. 'Account payee' does not stop transfer; it directs the collecting bank to credit the proceeds only to the payee's account. It is a warning to the collecting bank and makes it negligent to collect for anyone else.
Bank B's position. Bank B collected the cheque for Dev even though the payee was Ravi. It did not verify Dev's identity or the endorsement. Section 131 protects a collecting bank only if it receives payment in good faith and without negligence for a customer. Bank B cannot satisfy that test. It therefore loses the statutory protection and must make good the loss to the true owner.
Ravi's position. Ravi's signature was forged; he is not liable as an endorser. However, he handed the cheque to Dev as security, so he may have a claim against Dev. The drawer Meera can sue Bank B for conversion or negligence, and Bank B can sue Dev. The forged endorsement does not give Dev any title, so Bank B's credit to Dev is reversible.
3. What should Meera do, and what is the position if the alteration had been from ₹5,000 to ₹50,000 by adding a zero?
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Immediate steps. Meera should inform Bank A in writing, lodge an FIR, and claim from Bank B as the collecting bank. If Bank A has debited her account, she should demand reversal. She can use the banking ombudsman or file a civil suit for recovery. Bank A should also investigate its own payment process.
If the amount had been altered. Adding a zero to change ₹5,000 to ₹50,000 is also a material alteration. The paying bank is protected under Section 89 only if the alteration is not apparent. A zero added carelessly may be apparent; a skilfully altered amount may not be. The bank's negligence is judged objectively. Even if Bank A is protected, Bank B remains liable for collecting a cheque that on its face was altered or for a payee it did not verify. The final loss should fall on the party whose negligence was the effective cause; on these facts that is likely Bank B, with Bank A liable if it failed to detect an apparent alteration.