http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 6  

PETITIONER: JAMMU & KASHMIR BANK LTD.

       Vs.

RESPONDENT: ATTAR-UL-NISSA & OTHERS

DATE OF JUDGMENT: 07/10/1966

BENCH: WANCHOO, K.N. BENCH: WANCHOO, K.N. SHELAT, J.M. MITTER, G.K.

CITATION:  1967 AIR  540            1967 SCR  (1) 792

ACT: Indian Contract Act (Act 9 of 1872), s. 72- State Government making excess payments into bank account of a constituent of bank-Bank   whether  can  change  entries  to  cancel   such overpayment without consent of constituent.

HEADNOTE: 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 instalments  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  over- payment,  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  Ac- countant  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 Court, 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 6  

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.  [1903] A.C. 49, distinguished.

JUDGMENT: 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 appeals). K.   R. Chaudhuri, for the respondent (in C. A. No. 768/64). 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-in- interest  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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 6  

recover  Rs. 2,995/12/-, which was the amount shown  as  due from Sultan Mohd. in the account on June 3, 1953. 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 us. 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 6  

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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 6  

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 Government. 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 Govern- ment 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  must  fail. 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 6  

Appeals dismissed G.C. (1) LR. (1903) A.C 49. 798