Law · Law of Banking and Negotiable Instruments
A temporary accountant at a firm intercepts several client cheques. The criminal opens a bank account at a small urban bank using a high-quality forged passport. The bank manager accepts the passport without verifying it against the official government database. The criminal deposits 'Account Payee' crossed cheques totaling ₹85,00,000 into this new account, which the bank collects and credits. The funds are subsequently siphoned off. Analyze the statutory protection under Section 131 of the Negotiable Instruments Act for the collecting bank.
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The bank is liable for conversion because opening an account with a forged document without database verification constitutes negligence, invalidating protection under Section 131.✓
- 2The bank is protected from liability because the manager acted in good faith and the forgery was undetectable without expert forensics.
- 3The bank bears no legal responsibility as the government issued the passport format that was forged.
- 4The bank is liable for only 50 percent of the loss due to contributory negligence by the firm's internal audit.
Correct answer
The bank is liable for conversion because opening an account with a forged document without database verification constitutes negligence, invalidating protection under Section 131.
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