Multiple choice

A cheque of Rs. 10000 issued by Ram Chander, one of your account holders, in favour of Shivaji is stolen by one Radhey Shyam who forges Shivaji’s signature and endorses it in favour of Ganeshi Lal, who obtains the payment from the bank. In this situation, what would be the bank’s position?

  1. Bank will be liable for the forgery.

  2. Bank will be liable only if the drawer proves that the instrument is forged.

  3. Bank will not be liable if Ganeshi Lal agrees to refund the amount.

  4. Bank will get protection available to it under Section 85(1) NI Act and will not be liable for the payment made.
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D Correct answer
Explanation

Section 85 in the Negotiable Instruments Act, 1881 Cheque payable to order states

  1. Where a cheque payable to order purports to be indorsed by or on behalf of the payee, the drawee is discharged by payment in due course.
  2. Where a cheque is originally expressed to be payable to bearer, the drawee is discharged by payment in due course to the bearer thereof, notwithstanding any indorsement whether in full or in blank appearing thereon and notwithstanding that any such indorsement purports to restrict or exclude further negotiation.

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