INDIAN BANK Vs. M S HABIBULLAH

JUDGEMENT

(1.) A suit was filed by the plaintiff for recovery of a sum of Rs. 10, 543 with interest on the ground that the said sum of Rs. 10, 543 was debited to the plaintiff's account by the defendant without his knowledge, consent and notice and that the defendant is liable to pay the same to the plaintiff. The suit was dismissed by the 17th Assistant Judge, City Civil Court and on appeal, the 4th Additional Judge, City Civil Court , Madras , set aside the findings of the trial court and decreed the suit. Hence, this second appeal. The only point for determination is : Whether the reversal of the credit entry and debiting of rs. 10, 176. 50 to the plaintiff by the defendant-bank is valid " If so whether the plaintiff is entitled to claim the amount " The points.- The plaintiff had opened an account with the defendant-bank on March 22, 1974, in Account No. 11734. The defendant has been paying interest due on the said account and for the period ending with april 5, 1983, the defendant has credited a sum of Rs. 10, 176. 59 by way of interest in that account. This interest has been paid for the period from March 22, 1974, to April 5, 1983. But, on April 6, 1983, the defendant-bank reversed the credit entered and debited a sum of Rs. 10, 176. 59 in the account. According to the defendant, in view of the circular of the Reserve Bank of India, the plaintiff is not entitled to the interest and the said interest was credited into the plaintiff's account by mistake. Therefore, when the bank authorities came to know of the mistake committed, they reversed the credit entry and debited the said amount in the plaintiff's account. Exhibit B-1 is the circular issued in that behalf, which reads as follows : "no bank shall with effect from January 11, 1971 pay interest on savings accounts opened in the name of any trading or business concern whether such concern is a proprietary or a partnership firm, a company or an association. " The plaintiff is a proprietary concern. The savings account was opened with the defendant-bank by the plaintiff's concern and for the deposits made in the said account, interest has been credited by the bank. It is only after the circular of the Reserve Bank, the account has come into existence. The account was opened on March 22, 1974, whereas the circular has been issued in the month of January, 1971. Periodically, interest has been credited to the said account and thus as on April 5, 1983, totally a sum of Rs. 10, 176. 59 had been credited to the plaintiff's account by way of interest earned on the said account. On April 6, 1983, the entry was reversed, citing the circular of the Reserve Bank issued on January 11, 1971. Therefore, according to the defendant, the amount was credited by mistake and therefore, they are entitled to refund of the same. In this connection, section 72 of the Indian contract Act, 1872, is relied upon. While the trial court had accepted the plea of the bank, the lower appellate court found that section 72 of the Act will not apply to the facts of the case. The appellant has been not made aware of the circular of the Reserve Bank of India. In fact, the account has been opened only after issuance of the circular. The bank cannot be heard to plead ignorance. No notice was issued by the bank to the plaintiff, informing that a mistake has been committed. Therefore, any unilateral action on the part of the defendant cannot bind the plaintiff. Therefore, the defendant-bank is not entitled to reverse the entry and debit the account. The direction has been issued by the Reserve Bank of India, under section 35a of the Banking Regulation Act, 1949. The law with regard to recovery of money made by mistake is not well-settled as far as our country is concerned. For, the law in this regard is said to be governed by section 72 of the Indian Contract Act. But, the section does not indicate the application of the rule of estoppel in such cases. As to what are the circumstances that would preclude the right of recovery has not been set out in detail, except to indicate broadly the general principles. Here the plaintiff cannot be said to be a person who, when receiving payment was aware of the fact that he is not entitled to the same. Such a plea is not taken. The notification or circular as the case may be, relied upon by the bank was issued much earlier to the date of opening of the account by the plaintiff with the defendant-bank. The bank has been crediting the account of the plaintiff periodically with interest. According to them, one fine morning, they realised that the plaintiff being a proprietary concern is not entitled to claim or be paid interest in view of the circular issued by the reserve Bank of India . Therefore, what they did was to reverse the entries of credit made in the plaintiff's account, on a single date. It is to be pointed out that the account was opened in the year 1974. The reversal entry was made on April 6, 1983. The defendant-bank has not produced the certified copy of the account to show that a certain amount towards interest was credited into the account and the plaintiff had certain funds. Suppose the amount by mistake had been paid in cash and later the bank realises that the payment was made by mistake, unless the bank makes a claim within the period of limitation, they cannot succeed. Therefore, with regard to crediting of interest into the plaintiff's account, the bank must show that those entries of credit were made within three years of their coming to know about their mistake, which appears to be the date when they reversed the entry on April 6, 1983. Therefore, unless on April 6, 1983, the claim had not been barred by limitation, the bank is not entitled to unilaterally reverse the entries for making such entries on that day. They are actually making a claim for recovery of amount on that day. Therefore, unless it is shown that the entries of credit were made within three years prior to the date of that reversal entry, the bank is not entitled to do so. Here in this case, as pointed out already, the defendant has not adduced any oral evidence. The defendant did not produce the certified copy of the account. Therefore, the unilateral action of the defendant in reversing the entry cannot be accepted at all. Further, no notice has been given to the plaintiff, stating that interest has been credited to his account contrary to the circular of the Reserve Bank of India, and that the plaintiff is not entitled to any interest on the account and therefore, he is liable to repay the same and that the bank had proposed to effect the recovery by reversing the entries of credit. Such a notice has also not been given by the bank to the account holder. The bank is subject to a duty as against the account holder to inform him of the true state of accounts, which is in effect, a duty not to make a mistake of fact in that regard. Therefore, in such circumstances, the money cannot be recovered back. Further, this is not a case, where it can be stated by the bank that owing to mistake of fact, the defendant paid interest to the plaintiff, by crediting in his account. The bank either by ignoring the regulation or being unaware of the regulation, has chosen to give interest to the plaintiff. Therefore, in view of the circular issued by the Reserve Bank of india, under section 35 of the Banking Regulation Act, the plaintiff is not entitled to be paid interest on that account. Therefore here, it is not a mistake of fact that has been committed by the bank, but it is a mistake of law. For it is a payment in ignorance of the regulation of the Reserve Bank of india. In order to claim recovery, the mistake must be one of fact. Therefore if any payment is made in ignorance of law or rule, the money paid cannot be recovered. In Holt v. Markham 1923 (1) KB 504 (CA) a certain amount was overpaid into the defendant's account, owing to misapprehension regarding certain war office orders. There, it was held by the English court that the payment was not made owing to mistake of fact. According to the decision reported in Home and Colonial Insurance Co. Ltd. v. London, Guarantee and accident Co. Ltd. 1928 (45) TLR 134; 1928 (34) CC 163, where there is a mistake of fact and law as well, the money is not recoverable. But, here, the payment has been made either in ignorance of the order issued by the Reserve Bank of india or contrary to the same. The circular issued by the Reserve Bank of India under the Banking Regulation Act, has a legal consequence and thus, it is a question of law. In Chambers v. Miller 1862 BCBNS 125 it was held that if a banker, by misreading the balance at the credit of his customer's account, pays a cheque and afterwards discovers the mistake, the banker cannot recover the money from the recipient even if the mistake is discovered immediately after the money is handed over and before the recipient has left the premises. Thus, when the mistake lies between the banker and his customer, the banker cannot recover money paid by mistake to an innocent holder. Therefore, in view of the legal position and the factual situation, it is irregular on the part of the bank to have effected a reversal entry. Such an action is arbitrary. The bank cannot rely upon section 72 of the Contract Act to claim the amount. Hence, the contention of learned counsel for the appellant cannot be entertained. It is to be pointed out that the apex court has held in the decision reported in Jammu and Kashmir Bank Ltd. v. Attar-Ul-Nisa that even if a third party, by mistake, deposits the money in the account of some other person, as soon as the money is deposited in the account of such third person, who is a customer of the bank, the money becomes the money of the customer, and it is not open to the bank in such circumstances without obtaining the consent of the customer to reverse the entry of credit made in his account and in effect, pay back the money to the person who had deposited it, even though it might have been deposited by mistake. Therefore, when a deposit made by a third party by mistake in the account of a customer in a bank cannot be touched by the bank by way of reverse entry without consent of the account holder, then equally without consent of the account holder, the entries of credit made in the account of the holder by the bank for payment of interest cannot be reversed at all by the bank. Hence, I hold that the plaintiff is entitled to a decree as prayed for and the judgment and decree of the lower appellate court have to be confirmed. In the result, this appeal is dismissed, with costs, confirming the judgment and decree of the lower appellate court. .