Misappropriation Of Funds By Encashing Forged Cheques Is Subject Matter Of Commercial Dispute: Karnataka High Court

The Karnataka High Court observed that misappropriation of funds from the current account maintained by the banking institution would become the subject matter of a commercial dispute, as it is arising from the ordinary transaction between the firm and banking institution.

The High Court considered the question whether misappropriation of funds or loss of funds, in a current account maintained in a banking institution, would become the subject matter of a commercial dispute.

A Bench of Justice M. Nagaprasanna observed, “A coalesce of the judgments rendered by the Apex Court and the other High Courts, would unmistakably infer that the suit instituted by the petitioner-plaintiff for misappropriation of funds, or loss of funds from the current account maintained by the banking institution, based on the withdrawals of money by defendant No.3 by encashing forged cheques would become the subject matter of a commercial dispute, as it is arising from the ordinary transaction between the petitioner-plaintiff and defendant No.1 - banking institution.”

Advocate Hemanth R. Rao represented the Petitioner, while Advocate Jai M. Patil represented the Respondents.

Case Brief

The Petitioner is a partnership firm having its bank account at ICICI Bank, wherein, one of the employees of the ICICI Bank was appointed as the accountant of the firm. Since 2019, huge sums of money have been withdrawn in cash through cheques by the said employee from the current account by allegedly forging the signatures of the partners of the firm. All the said cheques have been passed by the ICICI Bank without due verification.

Further, the registered mobile number of the firm’s banking account to his personal number and thereby all the OTP would come to his mobile number. Accordingly, a complaint for misappropriation of funds was filed. Later, the firm sends a legal notice on the defendants calling upon them to jointly and severally pay a sum of Rs.4,58,75,000/- with 18% interest per annum. A suit was filed in Commercial Court, however, the Commercial Court held that the suit is not commercial, hence, not maintainable.

The Petitioner contended that If there were to be misappropriation in a savings bank account, it would not have become a commercial dispute, but what has happened is in a current account, as day to day business happens in that account. Therefore, it becomes a commercial dispute.

While the ICICI Bank submitted that it never objected to the maintainability of the commercial OS nor objecting now. The Court by itself has framed a preliminary issue and answered the said issue.

Court's Analysis

The question before the Court was whether misappropriation of funds or loss of funds, in a current account maintained in a banking institution, would become the subject matter of a commercial dispute?

The Court referred to Section 2(1)(c) of the Commercial Courts Act which defines the term commercial dispute. After referring to various judgements, the Court observed that the suit instituted by the firm for misappropriation of funds, or loss of funds from the current account maintained by the banking institution, based on the withdrawals of money by the employee of the ICICI bank by encashing forged cheques would become the subject matter of a commercial dispute, as it is arising from the ordinary transaction between the firm and banking institution.

Accordingly, the Petition was allowed.

Cause Title: M/S. Viswas Textile Processors V. ICICI Bank Limited (2025:KHC:21666)

Appearance:

Petitioner: Advocates Hemanth R. Rao and Rukkoji Rao H.S

Respondent: Advocate Jai M. Patil For Respondent No. 1

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