First Block the Card ASAP, hope you have done it by now.
Yes merchants are supposed to look at the signature at the back of the card and compare it with what the Thief has signed on the Transaction receipt. You have the right to dispute the transaction that is when the signature part will come into picture and if they don't match, Merchant should be black listed and you should be given the refund. Then it is the headache between the bank and the merchant.
During this exercise, bank will try to put pressure on you, so don't yield to them and fight it. Correspond in writing and always take bank seal and signature on the copy of the letter you submit or use Registered AD post only.
