The relationship between the customer of a Bank and the Bank is that of a creditor and debtor. When a cheque which presented for encashment contains a forged signature the Bank has no authority to make payment against such a cheque. The Bank would be acting against law in debiting the customer with the amounts covered by such cheques. When a customer demands payment for the amount covered by such cheques, the Bank would be liable to pay the amount to the customer. The Bank can succeed in denying payment only when it establishes that the customer is disentitled to make a claim either on account of adoption, estoppel or ratification. The principle of law regarding this aspect is as follows :
When a cheque duly signed by a customer is presented before a Bank with whom he has an account there is a mandate on the Bank to pay the amount covered by the cheque. However, if the signature on the cheque is not genuine, there is no mandate on the Bank to pay. The Bank, when it makes payment on such a cheque, cannot resist the claim of the customer with the defence of negligence on his part such as leaving the cheque book carelessly so that third parties would easily get hold of it. This is because a document in cheque form, on which the customer’s name as drawer is forged, is a mere nullity. The Bank can succeed only when it establishes adoption or estoppel.”
The Bank therefore may have valid reasons and therefore can always refuse payments. In this case admittedly, cheques did not contain any account number. The account also has no sufficient funds. The Bank was therefore under no obligation, in the absence of any contract or agreement, for overdraft. Order of sanction for overdraft admittedly did not exist. The reliance, therefore, on the aforesaid authorities is thoroughly misplaced.