Banking · Negotiable Instruments Act
Mr. Z, a customer with a modest transaction history, presents a high-value cheque of ₹75,00,000 for collection. The cheque was originally an 'Account Payee' corporate cheque drawn by 'Global Tech Ltd', but the crossing was cancelled on the face of it with a forged signature of the drawer, and a handwritten endorsement to Mr. Z was added on the reverse with a forged signature of the MD. The bank collects the cheque into Mr. Z's account, and he subsequently siphons off the funds. Global Tech Ltd sues the bank for conversion and negligence. Analyze the bank's position.
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The bank is liable only if the managing director can prove he was out of the country on the date specified on the cheque.
- 2The bank is liable because cancelling a crossing is a 'Material Alteration' requiring extreme caution, and collecting a high-value corporate cheque for a private individual's account without verification constitutes negligence.✓
- 3The bank is protected under Section 131 as it acted in good faith based on a long-standing customer relationship.
- 4The bank is protected because it collected a bearer cheque, and crossings can be cancelled by the drawer.
Correct answer
The bank is liable because cancelling a crossing is a 'Material Alteration' requiring extreme caution, and collecting a high-value corporate cheque for a private individual's account without verification constitutes negligence.
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