Consumer Commission holds bank culpable for third-party cheque fraud; orders compensation for consumer

State Consumer Commission holds Indian Bank liable for third-party cheque fraud, orders ₹1.5 lakh compensation with interest.

The State Consumer Disputes Redressal Commission has held a scheduled commercial bank liable for a third-party cheque fraud and directed the entity to pay compensation of ₹1.5 lakh with interest to the aggrieved consumer.

In the ruling, S. Sundaravadivelu, Commission presiding member and S. Oumasanguery, member, directed Indian Bank to repay the principal amount and back interest of 9% interest per annum from June 26, 2012, the date of the fraudulent encashment.

The Commission gave its verdict on an appeal by Siva Raj D, a resident of Villianur, against an earlier order of the District Consumer Disputes Redressal Commission, that limited the compensation amount to ₹50,000.

According to the case, the complainant mailed an Indian Bank cheque drawn at the Mudaliarpet branch with a value of ₹1.5 lakh dated June 25, 2012 to his brother residing in Bengaluru via DTDC courier. Later, on enquiring about the delay in the delivery of consigment, he got to know that the delivery person had encashed the cheque in his Indian Bank account in Jayanagar branch after altering the payee name to his own.

The Commission concluded that the Indian Bank, specifically Jayanagar branch, had displayed gross negligence in failing to detect the obvious alteration on the cheque and processed the altered cheque. Alteration of the payee’s name, a clear violation of Reserve Bank of India (RBI) guidelines and the Negotiable Instruments Act, 1881, was easily detectable.

It also rejected the claim by the bank that the complainant could have avoided defraudment by giving a “stop payment” instruction to the bank after noting that though the consignment was booked on June 24, 2012, the complaint was informed about the status only in the month of July while the cheque was encashed on June 26, 2012. As the cheque was encashed within two days of being sent, even before the complainant came to know that the cheque was missing two months later, rendering such an action was practically impossible, the order said.

While giving its ruling, the Commission also emphasised the obligation of banks to reject such cheques to prevent fraud. Flagging the banks’ failure to adhere to RBI regulations that explicitly prohibited alterations on cheques, the order stated: “The material alteration in the cheque was apparent to the bare eyes even to a common man.”