Jammu & Kashmir Bank Ltd. Vs.
Attar-Ul-Nissa & Ors  INSC 207 (7 October 1966)
07/10/1966 WANCHOO, K.N.
CITATION: 1967 AIR 540 1967 SCR (1) 792
Indian Contract Act (Act 9 of 1872), s. 72State
Government making excess payments into bank account of a constituent of
bank-Bank whether can change entries to cancel such overpayment without consent
S took a loan from the appellant bank on the
strength of an arrange merit whereby the State Government of Jammu -and Kashmir
would repay it in installments out of the land revenue to be collected by it
from S's lands. Such payments on behalf of the Government were mistakenly made
each year both by the Accountant General and by the Treasury so that the amount
credited by the bank in S's account -represented an over payment by the State.
When the Accountant General realised the mistake he asked the bank to reverse
the relevant entries in S's account so as to cancel the overpayment, which the
bank after initial objection, did.
Thereafter, on the basis of the reversed
entries the bank filed a suit for the recovery of its debt. It was objected by
the respondents (successors-in-interest to S) that it was not open to the bank
to reverse the credit entries in the account of S after they had been made in
the manner it was done. The trial Court held that the amount was paid twice
over by mistake and therefore the bank was entitled to reverse the entries at
the instance of the Accountant General without reference to S. The High Court
however, in appeal, rejected the argument on behalf of the bank that s. 72 of
the Indian Contract Act allowed it to reverse the entries. In appeal to this
HELD : Section 72 of the Indian Contract Act
will only apply when it is a case of two persons one paying the money and the
other receiving the money on behalf of the person paying it. The section has no
application where money is paid by a person to a bank with instructions that it
should be deposited in the account of a third person who is a constituent of
the bank. [795 G] In the present case, for the purpose of payment, Government
was the agent of S and whatever money was paid to be credited to the account of
S,, even though it was paid through Government, became his money and it could
not be paid out of his account which was in substance the effect of reversing
the entries, without his consent. [796 C] Imperial Bank of Canada v. Bank of
Hamilton, L.R.  A.C. 49, distinguished.
CIVIL APPELLATE JURISDICTION: Civil Appeals
Nos. 702 and 768 of 1964.
Appeals by certificate/special leave from the
judgment and decree dated June 7, 1962 of the Jammu and Kashmir High Court in
Civil First Appeals Nos. I of 1957 and 15 of 1961 respectively.
Naunit Lal, for the appellant (in both
K. R. Chaudhuri, for the respondent (in C. A.
793 The Judgment of the Court was delivered
by Wanchoo J. These are two connected appeals on certificates granted by the
Jammu and Kashmir High Court and raise a common question of law. We shall
therefore give the facts of one appeal (No. 702) in order to appreciate the
question of law which calls for decision.
Sultan Mohd. Matawali Khan (hereinafter
referred to as Sultan Mohd.), Ilaqadar of Kathai was the predecessor-ininterest
of the respondents. He had borrowed a sum of Rs. 40,000/from the apperant-bank
on the basis of a promissory-note on November 5, 1941. Before the bank advanced
the loan, the Government of the then State of Jammu and Kashmir was approached
and it was arranged that the debt would be liquidated through Government. For
that purpose, an order was issued by the Government that land-revenue of
certain villages from the jagir of Sultan Mohd. amounting to Rs. 5076/9/6 would
be collected by Government and the amount credited in the treasury to the
credit of the bank tin the sum of Rs. 40,000/along with interest due thereon
was liquidated. It was in consequence of this arrangement that the bank
advanced the sum of Rs. 40,000/to Sultan Mohd.
After the loan had been taken and the
pro-note executed the bank opened an account in the name of Sultan Mohd. which
started with a debit of Rs. 40,000 on November 5, 1941.
Thereafter whatever sum became due to the
bank as interest and incidental charges was debited to the account of Sultan
Mohd. and the amount received from Government was credited to the account. This
went on till 1953 when the jagir of Sultan Mohd. was resumed. The account of
Sultan Mohd. with the bank showed a debit of Rs. 2,995/12/on June 3, 1953.
On June 4, 1953, the bank filed the suit out
of which this appeal has arisen against the respondents as legal
representatives of Sultan Mohd. for a sum of Rs. 31,025/1 1/-. To "plain
the large discrepancy between the amount shown due in the account and the
amount for which the suit was filed, the bank stated that a sum of Rs.
28,029/15/had been erroneously credited to the account of Sultan Mohd.
Consequently the erroneous entries with
respect to this credit were corrected and after such correction the amount due
came to be Rs. 31,025/1 I/-, for which the suit was filed.
The suit was resisted by the respondents on
various grounds, but in the present appeals we are concerned only with one
ground, namely, that it was not open to the bank to reverse the credit entries
in the account of Sultan Mohd. after they had been made in the manner in which
it was done at the instance of the Accountant General of the State of Jammu and
Kashmir. Therefore, the bank would be only entitled to recover Rs. 2,995/12/-,
which was the amount shown as due from Sultan Mohd. in the account on June 3,
Sup C.I./66-6 794 The main question that
arose in the trial court therefore was whether the bank was entitled to reverse
the entries with respect to Rs. 28,029/15/in the manner in which that was done.
The facts with respect to what happened in connection with this sum are not now
in dispute and may be briefly narrated. The procedure which was followed, after
money was realised by Government from the villages mentioned in the Council
Order of October 28, 1941, was that after deducting the collection charges, the
amount used to be credited in the State's accounts and thereafter transferred
by Government to the bank for credit to the account of Sultan Mohd. The
transfer used to be made by hundis or treasury bills and on receipt of
necessary hundis or treasury bills the bank used to credit the amount shown in
them to the account of Sultan Mohd. It appears however that for about five
years what happened was that hundis or treasury bills used to be sent to the
bank both by the treasury and by the Accountant General with the result that
for this period double the amount realised by Government was credited to the
account of Sultan Mohd. on the basis of the hundis or treasury bills sent to
the bank. In consequence, there was an over-payment by Government to the bank
to the tune of Rs. 28,029/15/and this over-payment was credited to the account
of Sultan Mohd. in the bank. This mistake was realised by the Accountant
General after about five years and thereupon the Accountant General asked the
bank to reverse the entry and debit this amount to the account of Sultan Mohd.
Apparently, the bank was unwilling to do so and it appears that the bank was
then threatened that if the bank did not do so the amount would be realised
from the subsidy given to the bank by Government. The bank thereupon reversed
the entries and debited this amount to the account of Sultan Mohd., with the
result that the figure of Rs. 2,995/12/shown as debit balance against Sultan
Mohd. was increased by this sum.
The trial court held that the amount was paid
twice over by mistake and therefore the bank was entitled to reverse the
entries at the instance of the Accountant General without reference to Sultan
Mohd. It therefore decreed the suit in full. The respondents then went in
appeal to the High Court and contended that the entries could not be reversed
in this manner by the bank without the consent of Sultan Mohd. The High Court
accepted this contention and rejected the argument on behalf of the appellant
that the bank was justified under s. 72 of the Indian Contract Act, No. 9 of
1872, to reverse the entries. The High Court therefore allowed the appeal and
disallowed the claim of the bank for Rs. 28,029/15/and decreed the suit for the
balance (namely, Rs. 2,995/12/ ). Thereupon the appellant obtained certificates
from the High Court in both cases, and that is how the matter has come before
796 of the third person, who is a constituent
of the bank, the money becomes the money of the constituent, and it is not open
to the bank in such circumstances to reverse the entry of credit made in the
account of the constituent and in effect pay back the money to the person who
had deposited it even though might if have been deposited by mistake.
As soon as the money is credited into the
account of the constituent, even though the person paying in may have paid it
by mistake, it becomes the money of the constituent, and the bank cannot pay it
back to the person who paid it to the account of the constituent on his
representation that it was paid by mistake, without obtaining the consent of
the constituent. As we have already said the legal position is that for the
purpose of payment, Government was the agent of Sultan Mohd. and whatever money
was paid to be credited to the account of Sultan Mohd even though it was paid
through Government, became his money and it could not be paid out of his
account which is in substance the effect of reversing the entries without his
consent. Section 72 could certainty have been availed of by Government against
Sultan Mohd and the Government could have sued Sultan Mohd for return of the
money which had been paid by mistake into his account. But the Government could
not ask the bank to reverse the entries and thus in effect ask it to pay out
the money from the account of Sultan Mohd into which it had been deposited and
the bank could not do so without taking the consent of Sultan Mohd. Further
though Government was the agent of Sultan Mohd for the purpose of payment of
the money for liquidating the debt, the Government had no further authority on
his behalf to ask the bank to pay back any sum once it had been credited into
his account by Government.
That could only be done on the authority of
Sultan Mohd. and there was no authority in this case for paying back the sum
paid in by mistake to Government, for the reversal of the entries in substance
amounted to this.
It has been urged that on this view the bank
would not be able to correct any mistake in the account of any constituent.
'Mat is not so. If, for example, a bank credits a cheque in favour of A by
mistake into the account of B, the bank can always correct that mistake, for it
had received the money on behalf of A. Similarly if the bank receives (say Rs.
5,000/on behalf of A from some person, but by mistake enters Rs. 50,000/in as
account, the bank can always correct that entry and mention the correct sum
received. But the present case is very different from corrections of such mistakes.
Here the bank had received certain moneys on behalf of Sultan Mohd. through
treasury bills or hundis. There is no -dispute that money was received for
credit to the account of Sultan Mohd. and was correctly credited to that
account. There was therefore nothing which the bank could correct, for the bank
had 795 The only question in these circumstances is whether the bank was
justified in reversing the entries and debiting the account of Sultan Mohd with
this sum. Now the legal position so far as this payment is concerned was this.
The bank had advanced the money to Sultan Mohd. and an account was opened in
his name on November 5, 1941 with a debit entry of Rs. 40,000/-. Into this
account the bank went on debiting interest and incidental charges due to it
from Sultan Mohd. It also credited this account with the amounts received from
Government through hundis or treasury bills.
Clearly therefore though the amounts to be
credited to the account of Sultan Mohd. used to come by treasury-bills or
hundis from Government they were amounts received by the bank on behalf of
Sultan Mohd. to be credited to his account, and the Government was agent of
Sultan Mohd. for the purpose of depositing the income from villages, management
of which was taken over by Government under the Council Order, in order to
liquidate the loan taken by Sultan Mohd. from the bank. The bank when it
reversed the entries made no reference to Sultan Mohd. and did not take his
consent thereto. In these circumstances the contention of the respondents is
that it was not open to the bank to reverse the entries and thus saddle Sultan
Mohd. with the liability for this sum after it had been credited into his
account on the basis of hundis or treasury bills received by the bank from
We are of opinion that this contention of the
respondents is correct, and the High Court was right in the view it took of the
legal position. It is true that on the facts shown there was double payment for
a certain period due to mistake on the part of Government. The question however
is whether it was open to the bank to reverse the entries in the manner it did
without reference to Sultan Mohd. It has not been and cannot be disputed that
it is not open to the bank to debit the account of a constituent like Sultan Mohd.
with any sum without the, authority of the constituent. What is however
contended on behalf of the appellant is that Government paid the sum twice over
by mistake and it was entitled to ask the bank to return the money paid by
mistake and reliance in this connection is placed on s. 72 of the Contract Act.
There is no, doubt that s. 72 of the Contract Act provides that a person to
whom money has been paid or anything delivered by mistake or under coercion
must repay or return it. That section in our opinion will only apply when we
are dealing with a case of two persons one paying the money and the other
receiving the money on behalf of the person paying it. In such a case if the
payment is made by mistake the person receiving the money must return it. But
section 72 in our opinion has no application to a case where money is paid by a
person to a bank with instructions that it should be deposited in the account
of a third person who is a constituent of the bank. 'As soon as the money is so
deposited in the account 797 made no mistake in making the entries. The bank in
our opinion in not concerned with any mistake made by the Accountant General or
the treasury in sending the amounts to the bank for the credit of the same to
the account of Sultan Mohd. If the Accountant General or the treasury had made
any such mistake it was open to them to recover the amount paid in by mistake
from Sultan Mohd. But the bank could not reverse the entries and thus pay out
money from the account of Sultan Mohd. without his authority. It is obvious
that the bank hesitated to reverse the entries and only did it on the threat
that the amount would be deducted from the subsidy paid to the bank by the
Government. We have no doubt that the High Court was right that in such circumstances
where the amount had been paid even though by mistake into the account of a
constituent of the bank it was not open to the bank to reverse the entries at
the instance of the person paying-in the money into the constituent's account
on the ground that the payer had made a mistake. We agree with the High Court
that s. 72 has no application to the facts of this case. Learned counsel 'for
the appellant has referred us to Imperial Bank of Canada v. Bank of Hamilton
(1) in this connection. We are of opinion that that case has no application to
the present cases, for the facts therein were different. The payment had been
made by one bank to another bank by mistake; there is nothing to show that the
money had been paid into a constituent's account and thereafter any entry had
been reversed in that case.
We are therefore of opinion that the appeals
They are hereby dismissed. As the respondents
in C.A. 702 did not appear, we pass no order as to costs in that appeal.
The respondent in C,A. 768 has appeared and
will get his costs from the appleant Appeals dismissed G.C.
(1) LR. (1903) A.C 49.