# [1967] 1 S.C.R. 792

- **Citation:** [1967] 1 S.C.R. 792
- **Court:** Supreme Court of India
- **Decided:** 1966-10-07
- **Case number:** Civil Appeals Nos. 702 and 768 of 1964
- **Bench:** K. N. WANCllOO, J.M. Shelat, G. K. ~rl1cR
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/1967-1-s-c-r-792-3916
- **Pages:** 6

## Headnote

B.
Indian Contract Act (Act 9 of 1872). s. 72- Stale Government making
excess payml!nts into bank account of a constituent of bank-Bank wh~the.r
can change entries to cancel such overp<.ynient without consent of consti·
tuent.
S tol1k a loan from the appellilllt bank on the strength of an arran8"·
mcnt whereby the Stale 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 an.cl 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 be asked the bank to reverse the relevan! 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 ~ suit for the recovery
of its debt.
It was objected by the respondents (successors-in-interest to
S) that it w.s 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 enlitled to reversie the cn'rics at the instance of the Ac~
counlant 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
ii 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
11 should be deposited in the account of a third person who is a. constituen1
of the bank. [795 G]
In the present case, for the purpose of payment, Government ""·a~ rhc
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, withotit bis consent.
(796 C]
Imperial Bank of Canada v. Bank of Hamilton, L.R. (1903] A.C. 49,
distinguished.
Crvn. 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. 1 of 1957 and 15 of 1961 respectively.
Naunit Lal, for the appcllanl (in both appeals).
/(. R. Chaudhuri, for the respondcnl (in C. A. No. 768/64).
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.J & K BANK v. ATTAR-UL-NISSA (Wanchoo, J.)
793

## Text

JAM.'\1U & KASHMIR BANK LTD.
A TI AR-UL-NISSA & OTHERS
October 7, 1966
A
[K. N. WANCllOO, J.M. SHELAT AND G. K. ~rl1cR, JJ.]
B.
Indian Contract Act (Act 9 of 1872). s. 72- Stale Government making
excess payml!nts into bank account of a constituent of bank-Bank wh~the.r
can change entries to cancel such overp<.ynient without consent of consti·
tuent.
S tol1k a loan from the appellilllt bank on the strength of an arran8"·
mcnt whereby the Stale 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 an.cl 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 be asked the bank to reverse the relevan! 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 ~ suit for the recovery
of its debt.
It was objected by the respondents (successors-in-interest to
S) that it w.s 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 enlitled to reversie the cn'rics at the instance of the Ac~
counlant 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
ii 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
11 should be deposited in the account of a third person who is a. constituen1
of the bank. [795 G]
In the present case, for the purpose of payment, Government ""·a~ rhc
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, withotit bis consent.
(796 C]
Imperial Bank of Canada v. Bank of Hamilton, L.R. (1903] A.C. 49,
distinguished.
Crvn. 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. 1 of 1957 and 15 of 1961 respectively.
Naunit Lal, for the appcllanl (in both appeals).
/(. R. Chaudhuri, for the respondcnl (in C. A. No. 768/64).
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.J & K BANK v. ATTAR-UL-NISSA (Wanchoo, J.)
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 tho
respondents. He had borrowed a sum of Rs. 40,000/- from the
. appellant-bank on the basis of a promissory-note on November S,
-1941. Before the bank advanood 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 a~d
the amount credited in the treasury to the credit of the bank Ull
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. 31,025/11/-. To explain 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. 31,025/11/-, 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 entri~
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
H ·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, 1953.
Ml 7Sup C.I./66-6
794
SUPltl!MB OOUllT ltl!POllTS
(1967] 1 ~·~
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 coUection 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 hundls 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. 9of1872, to reverse the entries. The High Court
therefore aUowed 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.
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J a: K BANK v. ATTAR-UL-NISSA (Wanchoo, I.)
795
The only question in these circumstances is whether the bank
was justified in reversing tho 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 na!!1:e
on November 5, 1941 with a debit entry of Rs. 40,000/-. Into this
account tho 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 O~der, in order to liquidate
the loan taken by Sultan Mohd. from the bank. The bank when
it reversed the entries m\lde no reference to Sultan Mohd. and did
not take his consent thereto. In these circumstances the contention of the respondents is tl\at 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 Government.
We are of opinion that this contention of the respondents is
correct, and the High Conrt 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 1m
doubt that s. 72 of the Contract Act provides that a person to whom
money !)as 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 retwn 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
796
SUPREME COURT RJ!POllTS
(1967) I S.C.R.
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 tho
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 certainly have been availed of by Government against Sultan Mohd.
and the Government could have sued Sultan Mohd. for return of
the money which bad 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 th~ 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 t!ie 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.
That 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 A's 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. Herc 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
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J & K BANK v. ATTAR-UL-NISSA (Wanchoo, J.)
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 rever;e 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 t0 the facts of this case. Learned counsel for tho
appellant has referred us to Imperial Bank of Canada v. Bank of
Hamilton (I) in this connection. We are of opinion that that case
has no application to the present cases, for the facts therein wero
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
appellant.
G.C.
Appeals dismissed
(I) L.R. (1903) .l.C. 49.