Banking · Forgery and Bank Protection under NI Act
A bank pays an order cheque presented in due course. Later, it is discovered that: (i) the drawer's signature was a sophisticated digital forgery; and (ii) the second endorsement of the payee was also forged. Under Section 85(1) and general principles of the Negotiable Instruments Act, 1881, what is the legal position of the paying bank?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The bank and customer share equal liability under contributory negligence.
- 2The bank is liable for the forged endorsement because it must verify all endorsers' signatures.
- 3The bank is protected regarding the forged endorsement under Section 85(1), but is strictly liable for paying on a forged drawer signature.✓
- 4The bank is fully protected under Section 85(1) for both the forged signature and forged endorsement.
Correct answer
The bank is protected regarding the forged endorsement under Section 85(1), but is strictly liable for paying on a forged drawer signature.
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