Recovery Suit Against Bank for Fraudulent Withdrawals from Current Account Maintainable Before Commercial Court: Karnataka High Court

The High Court held that a recovery suit against the bank for fraudulent withdrawals from a current account is maintainable before the Commercial Court.

The Karnataka High Court Single-Judge Bench of Justice M. Nagaprasanna, while adjudicating a writ petition, held that misappropriation of funds from a current account maintained with a bank qualifies as a “commercial dispute” under Section 2(1)(c) of the Commercial Courts Act, 2015, as it arises from an ordinary transaction between a customer and a financial institution. Accordingly, such a dispute is triable by a Commercial Court.

The High Court, while allowing the writ petition filed by the plaintiff, set aside the order dated 30.08.2022 passed by the concerned Civil Court, which had rejected the plaintiff’s plea to treat the dispute as a commercial dispute under Section 2(1)(c) of the Commercial Courts Act, 2015. The Court held that the misappropriation of funds from the plaintiff’s current account with the defendant bank, allegedly through forged cheques by an employee, amounted to a commercial dispute arising from an ordinary banking transaction. Accordingly, the High Court directed that the suit be treated and tried as a commercial original suit.

The plaintiff, a partnership firm in the garment business, maintained a current account with the defendant bank and discovered in December 2019 that large sums were withdrawn using forged cheques by its Accountant, defendant No. 3. These withdrawals were passed by the bank without due diligence, and the registered mobile number linked to the account had been changed to that of the accused employee, enabling unauthorised access. After a police complaint and charge sheet, the plaintiff issued a legal notice to the defendants seeking recovery of ₹4.58 crores. When the matter was instituted before the Civil Court and later transferred to the Commercial Court, the latter framed a preliminary issue and held that the matter was not maintainable as a commercial dispute.

In its analysis, the High Court referred to the statutory definition under Section 2(1)(c) of the Commercial Courts Act and a series of judicial precedents, including those from the Supreme Court and High Courts of Delhi and Calcutta. The Court emphasised that disputes involving ordinary banking transactions, particularly those relating to current accounts and involving mercantile documents like cheques, fall within the scope of commercial disputes. The Court found that the petitioner’s claim stemmed from a contractual relationship with the bank, and the transactions involved were inherently commercial in nature.

The High Court concluded that the Commercial Court had erred in refusing to entertain the suit and declared that the Commercial Court possessed the jurisdiction to try the matter. The impugned order was quashed, and the Commercial Court was directed to proceed with the trial of the suit in accordance with law.

Mr. Hemanth R. Rao, Advocate for Mr. Rukkoji Rao H.S., Advocate, represented the Petitioner.

Mr. Jai M. Patil, Advocate, appeared for the Respondent No. 1.

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REEDLAW 2025 Kant 06022