Alfred Henry Lionel Leach, C.J.
1. The question in this appeal is whether Article 85 of the Indian Limitation Act applies to a case where a customer of a bank has a current account which at times is in credit and at other times is in debit, the bank having granted to the customer the right to overdraw.
2. The appeal arises out of a suit filed by the Official Liquidators of the Travancore National and Quilon Bank, Ltd., to recover from the partners of a firm of stock brokers carrying on business in Madras under the style of Wright and Co., money overdrawn by them on a current account with the bank. There were two partners, the appellant (the first defendant) and V.H. Ramaswamy (the second defendant). The defendants opened the account on the 16th April, 1936. On the 31st August, 1936, the bank agreed to allow them to overdraw the account to the extent of Rs. 10,000 on the furnishing of collateral security. On the 21st October, 1936, the accommodation was increased to Rs. 13,200. As security the partners executed promissory notes in favour of the bank and deposited shares which they held in limited liability companies, the share certificates being accompanied by transfer forms signed in blank and letters authorising the bank to sell the securities should they so desire. The bank had the right of calling in the overdraft at any moment. The account was operated on regularly until the bank went into liquidation at the end of June 1938. At that time the defendants had overdrawn the account to the extent of Rs. 6,030. The liquidators sold the shares held as security but the proceeds were not sufficient to discharge the defendants' liability in full. There remained a balance due to the bank of Rs. 3,478 and the Official Liquidators asked for a decree directing payment of this sum. The second defendant did not defend the action, but the first defendant did. He maintained that the suit was barred by reason of Article 57 of the Indian Limitation Act. On behalf of the Official Liquidators it was contended that the claim was governed by Article 85. This argument prevailed and the City Civil Judge decreed the suit. The first defendant appealed to this Court. The appeal was heard by Byers, J., who agreed with the trial Court. This appeal is from the judgment of the learned Judge under Clause 15 of the Letters Patent.
3. Article 85 states that the period of limitation for a suit for the balance due on a mutual, open and current account, where there have been reciprocal demands between the parties, shall be three years from the closing of the year in which the last item admitted or proved is entered in the account. Admittedly, if this article applies, the suit was in time and the decree was properly passed against both the defendants.
4. At all material times the account was open and current. The only question is whether it was a mutual account. The leading case in India on the question of mutuality is Hirda Basappa v. Gadigi Muddappa (1871) 6 M.H.C.R. 142 where Hollo way Acting Chief Justice said that in order that an account might be mutual there must be transactions on each side creating independent obligations on the other, and not merely transactions which create obligations on the one side, those on the other being merely complete or partial discharges of such obligations. It has been held that a shifting balance is not a conclusive test of mutuality. The importance to be attached to a shifting balance will depend on the particular facts of the case. Most of the decisions cited do not relate to banking accounts, but to accounts between ordinary traders. The cases which call for notice here will be referred to later. At the moment we propose to examine the position between the customer and the bank where the customer is permitted to overdraw a current account and the account is sometimes in credit and sometimes in debit, as was the case here.
5. When a person opens a current account with a bank and pays money into it, the money goes into the general funds of the bank which uses it for the purposes of its business. While the account is in credit the bank is a debtor to the customer.
6. The customer can demand payment in whole or in part by drawing on the account. If the bank allows the customer to overdraw the account and he does so, he becomes a debtor to the bank and the bank in its turn is entitled to demand repayment of the overdraft without closing the account. Where the balance is a shifting one the bank is under an obligation to the customer when the account is in credit and must meet his demand for payment; likewise when the account is overdrawn the customer is under an obligation to the bank and in law is bound to comply with the bank's demand for payment, when made. It seems to us that in these circumstances the account can only be regarded as a mutual account fulfilling the test laid down in Hirda Basappa v. Gadigi Muddappa (1871) 6 M.H.C.R. 142.
7. In referring to Clause 87 of the Limitation Act of 1871 to which Article 85 of the present Limitation Act corresponds Sargent, J. said in Narrandas Hemraj v. Vissandas Hemraj I.L.R.(1881)6 Bom. 134:
The latter part of Clause 87 of Act IX of 1871, which is intended to define more particularly the class of cases contemplated by the clause, is far from clear. Literally construed, it would confine the clause to those cases only in which both parties have, in the course of their dealing, made actual demands on one another. The more reasonable and more probable intention of the framers of the clause appears to have been that it should apply to cases where the course of business has been of such a nature as to give rise to reciprocal demands between the parties--in other words, where the dealings between the parties are such that sometimes the balance may be in favour of one party and sometimes of the other.
8. In the course of his judgment Sargent, J., quoted from the judgment of Norman, J., in Ghaseeram v. Manohar Doss 2 Ind. Jur. N.S. 241 where Norman, J., said:
The plaintiff remits moneys to the defendants. He thus advances money, and has a right to sue as for money lent or received for his use. On the other hand, the defendants are shown to make advances by paying hundis drawn on them apparently without waiting to see whether they are in funds or not. The defendants, therefore, in like manner, are from time to time in a position to sue for moneys lent by them in the course of their business to the plaintiff. There is thus a course of mutual lending and dealings apparently as between bankers.
The judgments of Sargent, J. and Norman, J., both support the opinion which we have expressed, and further support is to be found in the judgment of the Lahore High Court in Punjab United Bank, Ltd. (in liquidation) v. Muhammad Hussain I.L.R.(1934)Lah. 652, where it was held that Article 85 applies to a current account where the customer is granted overdrawing facilities, because there are obligations on both sides. Each party can say to the other, ' I have an account with you,' and can make a demand.
9. For the appellant reliance has been placed upon the observation of Pontifex, J., in Hajee Syud Mahomed v. Mst. Ashrufoonnissa I.L.R.(1880)Gal. 759. There the owner of an indigo factory had an account with a bank which was usually overdrawn, although at times there was a balance in favour of the customer. Pontifex, J., considered that this could not be described as a mutual, open and current account because he did not think that the customer could at any time have said : 'I have an account against you, the banker.' From what we have said it follows that we do not agree with this opinion. Of course if the account is always in credit or is opened with a debit and it remains in debit the position will be different because there will then be no imutuality. Here there was mutuality and as the account was also open and current Article 85 applies.
10. The appeal is dismissed with costs.