Bank of Baroda Fraud: Why Kerala High Court Ordered It to Refund Customers for Forged Cheques with 6% Interest?

In a significant ruling for consumer protection, the Kerala High Court has held Bank of Baroda (formerly Vijaya Bank) liable for fraudulent encashment of 47 cheques with forged signatures, ordering a full refund to affected customers along with 6% interest per annum. The court emphasised that banks have a strict responsibility to verify signatures and cannot shift blame to customers for such fraud.

Details of Bank of Baroda Fraud

The fraud, skilfully carried out by a bank officer, went unnoticed by both the customers and the bank for three whole months. During this period, an officer cleared 47 cheques with forged signatures. Out of these, 32 cheques were paid to third parties, making recovery extremely difficult, while the remaining 15 were account payee cheques, allowing for the money to be recovered. Many customers suffered significant financial losses and initially filed complaints with the bank before escalating the matter to the court.

Arguments Heard by the Court in the Bank of Baroda Fraud Case

Bank of Baroda argued that all necessary procedures were followed and that they were not responsible for the losses. They also claimed that the forgery was done by someone known to the customers, and they even tried to discredit their own Vigilance Department's report, which stated that the forged signatures did not match the specimen signatures, or that no specimen signatures were available in some instances. This report was obtained by customers through the Right to Information Act, 2005.

However, the Kerala High Court firmly rejected all the bank's arguments.

Why Did the Court Hold Bank of Baroda Liable?

The Kerala High Court, citing a Supreme Court judgment (Canara Bank v. Canara Sales Corporation and Ors.), highlighted key legal principles:

• No Mandate to Pay Forged Cheques: A bank is mandated to pay a cheque only if the signature is genuine. If the signature is forged, the bank has no authority to pay, and the cheque is considered "a mere nullity."
• Bank's Responsibility, Not Customer's Negligence: The bank cannot blame customers for negligence, such as carelessly handling a chequebook. The bank is liable unless it can prove the customer "adopted" or "facilitated" the fraud or failed to inform the bank upon discovery.
• Vigilance Report Upheld: The court found the bank's own Vigilance Department reports, which confirmed the forged signatures, to be genuine and reliable. The bank failed to prove why these reports should be disregarded.
• Bank's Negligence: The court concluded that the bank was negligent in encashing cheques with forged signatures, especially since the incidents occurred over three months and customers took immediate action upon detection.

What Does This Mean for Bank’s Customers?

This judgment is a major victory for consumers and strengthens their protection against banking fraud. Legal experts emphasise several key implications:

• Enhanced Protection from Loss: Banks can no longer easily escape liability by blaming customers for their negligence in verifying signatures. Customers are entitled to reimbursement for losses due to the bank's failure in this duty.
• Shifted Burden of Proof: Once customers establish that signatures are forged, the burden largely shifts to the bank to prove it acted properly.
• Internal Reports as Evidence: Banks' internal vigilance or investigation reports can be used as evidence against them, pushing banks to ensure their internal audits are robust.
• Banks Must Increase Vigilance: This ruling compels banks to strengthen their internal checks, improve their vigilance mechanisms, and exercise greater caution when clearing cheques to prevent fraud and avoid liability.

Bank of Baroda share price was trading at ₹241.40, up by 0.86% today as of 3:23 PM IST. 

Read more: Best PSU Stocks in July 2025: Rail Vikas Nigam, Garden Reach & More Based on 5-Yr CAGR.

Conclusion

This landmark Kerala High Court ruling strongly reinforces banks' responsibility to prevent fraud from forged cheques. It sends a clear message: banks must maintain stringent verification processes and cannot shift blame to customers. This judgment significantly strengthens consumer protection, ensuring banks are held accountable for negligence and safeguarding public trust. 

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