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Issues Involved:
1. Whether the cheques were forged. 2. Whether the plaintiff was negligent and thus disentitled to recover the amount. 3. Whether there was a settlement of accounts precluding the plaintiff from reopening the matter. 4. Whether the suit was barred by limitation. 5. Whether the plaintiff was estopped from claiming the amount due to conduct or negligence. Detailed Analysis: 1. Whether the cheques were forged: The trial court and the High Court both found that the cheques in question were indeed forged. The second defendant, who was the Chief Accounts Officer of the plaintiff, was found responsible for forging the signatures on 42 cheques, leading to the withdrawal of Rs. 3,26,047.92. This finding was based on the special audit conducted by a firm of Chartered Accountants, which disclosed the misappropriation. The Supreme Court did not propose to reconsider the factual findings of the lower courts on this matter. 2. Whether the plaintiff was negligent and thus disentitled to recover the amount: The appellant Bank argued that the plaintiff was negligent in not detecting the forged cheques earlier, as the bank had periodically sent pass sheets and half-yearly statements that were not questioned by the plaintiff. The Bank contended that the plaintiff's inaction constituted negligence, which should estop the plaintiff from claiming the amounts. However, the Supreme Court held that mere negligence or inaction on the part of the customer does not constitute a defense for the bank when the cheques are forged. The Court emphasized that the relationship between a bank and its customer is that of a creditor and debtor, and the bank has no authority to pay against a cheque with a forged signature. The bank can only deny payment if it establishes adoption, estoppel, or ratification by the customer. 3. Whether there was a settlement of accounts precluding the plaintiff from reopening the matter: The appellant Bank argued that there was a settlement of accounts between the parties from time to time, which precluded the plaintiff from reopening the matter and claiming the sums paid under the forged cheques. The Supreme Court rejected this argument, stating that the acceptance of periodic statements by the customer without protest does not constitute a settled account that precludes the customer from disputing the entries later. The Court clarified that there is no duty on the part of the customer to examine the passbook and communicate any errors to the bank within a reasonable time. 4. Whether the suit was barred by limitation: The appellant Bank contended that the suit was barred by limitation. However, the Supreme Court did not find merit in this argument, as the plaintiff discovered the fraud in March 1961 and took immediate action by filing a complaint with the Superintendent of Police and appointing Chartered Accountants to conduct a special audit. The suit was filed in a timely manner after the discovery of the fraud. 5. Whether the plaintiff was estopped from claiming the amount due to conduct or negligence: The appellant Bank argued that the plaintiff was estopped from claiming the amount due to its conduct or negligence in not detecting the forged cheques earlier. The Supreme Court rejected this argument, stating that estoppel by negligence requires the existence of a duty owed by the customer to the bank, which was not established in this case. The Court held that the customer is not under a duty to inform the bank of fraud committed on him of which he was unaware. Furthermore, mere inaction or failure to discover the fraud within a reasonable time does not constitute a defense for the bank. Conclusion: The Supreme Court upheld the judgments of the High Court and the trial court, confirming that the cheques were forged and that the plaintiff was entitled to recover the amount claimed. The Court dismissed the appeal with costs, emphasizing that the bank cannot escape liability for paying against forged cheques unless it can establish knowledge or ratification by the customer.
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