23 Cheque is payable to R or Order. It is stolen and the thief forges R’s signature and presents it to the Banker who makes payment in due course. Can R recover the amount from the Bank?

Facts of the Case

A cheque was drawn and made payable to “R or order”, indicating that R’s endorsement is necessary for negotiation.
The cheque was stolen before it reached R.
The thief forged R’s signature and presented the cheque to the bank.
The bank, unaware of the forgery, made the payment in due course.
R, having neither received nor endorsed the cheque, seeks to recover the amount from the bank.

Whether the bank was authorized to make payment on a forged endorsement.
Whether the bank can be held liable despite making payment in due course.
Whether R, as the rightful payee, retains the right to claim the amount from the bank.
The effect of a forged endorsement on the title to a cheque.

Under the Negotiable Instruments Act, a cheque payable “to order” must be endorsed by the payee for a valid transfer of title.
A forged endorsement is legally a nullity; it gives no title to the holder.
A banker who pays a cheque bearing a forged endorsement, even in good faith and without negligence, does not make a valid payment and cannot debit the drawer’s account nor discharge the instrument.
The concept of “payment in due course” under Section 10 of the Act does not protect payments made under a forged endorsement.
Relevant case laws include:
- Canara Bank Ltd v Canara Sales Corporation – held that a forged signature does not operate to transfer any right or title.
- Bank of Bihar Ltd v Damodar Prasad – ruled that a banker paying on a forged endorsement is not protected and must bear the loss.
- Smith v Union Bank of London – reaffirmed that forged endorsements do not convey title.

The bank, by paying on the basis of a forged endorsement, did not obtain a valid discharge of its liability.
R, the true payee, never endorsed the cheque and therefore never lost title to the amount.
The payment made by the bank was unauthorized and invalid under law.
The bank is liable to R for the amount of the cheque and must compensate the loss.
The principle that a forged endorsement gives no title is decisive, making the bank’s payment wrongful despite acting in good faith.