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United Bank of India Ltd. Vs. A.T. Ali HussaIn and Co., a Firm and ors. - Court Judgment

LegalCrystal Citation
SubjectBanking
CourtKolkata High Court
Decided On
Case NumberA.F.O.D. No. 399 of 1964
Judge
Reported inAIR1978Cal169,(1978)1CompLJ70(Cal),82CWN234
ActsContract Act, 1872 - Section 72
AppellantUnited Bank of India Ltd.
RespondentA.T. Ali HussaIn and Co., a Firm and ors.
Appellant AdvocatePrasanta Kumar Ghosh, Adv.
Respondent AdvocateSudhir Kumar Bose, ;Hari Narayan Mukherjee and ;R. Surya Kumar, Advs.
DispositionAppeal dismissed
Cases ReferredR. E. Jones Ltd. v. Waring and Gillow Ltd.
Excerpt:
- .....ac 670, applied the said rule en a case where the respondents, acting under a mistake of fact, paid money to the appellants as a result of a fraud committed on both of them by a third person. it was held by lord shaw of dum-ferinline, lord sumner, and lord carson ((viscount cave l. c. and lord atkinson, dissenting), that the respondents were entitled to recover on the principle of kelly v. solari. in his dissentient judgment viscount cave l. c. with whom lord atkinson concurred, referred to the general principles of law laid down in kelly v. solari and to some other decisions which followed such principles, but he relied on the doctrine of estoppel and held that the respondents having by their conduct induced the appellants to believe that the respondents were indebted to them in the.....
Judgment:

M.M. Dutt, J.

1. This appeal is at the instance of the plaintiff United Bank of India Limited and it arises out of 6 suit for recovery of money.

2. The case of the plaintiff was that on Jan. 14, 1957, the defendant No. 2, the Union Bank of India Limited presented to the plaintiff bank, a cheque for Rupees 5,200 bearing date Jan. 11, 1957 purported to have been drawn by the Metal Alloy Co. Private Ltd., a constituent ofthe plaintiff bank, in favour of the defendant No. 1, A. T. Alihussain & Co., and crossed 'not negotiable and account payee only'. The plaintiff bank, acting under the mistaken belief that the said cheque had in fact been duly signed by the said Metal Alloy Co., paid the said sum of Rs. 5,200 to the defendant Union Bank by debiting the C/D Account of the said constituent The signature on the said cheque and all other writings appearing thereon had, since transpired, been forged and no one on behalf of the company had signed or drawn the same. The forgery of the said cheque along with two other cheques were the subject-matter of a criminal proceeding and in that proceeding one Prodyot Kumar Ghosh and another were convicted. On Feb. 22, 1957, the plaintiff, after making necessary enquiry, came to know that the said cheques were forged and the amounts covered by them were obtained by fraud on the plaintiff who paid the same by mistake. Thereafter, on March 4, 1957, the plaintiff made a payment of Rs. 14,800 being the total amount covered by the aforesaid three cheques including the cheque in question to its said constituent, the Metal Alloy Co. on demand being made therefor. It was claimed by the plaintiff that the defendants Nos. 1 and 2 were liable for the amount covered by the cheque in question, that is, Rs. 5,200 paid by the plaintiff as aforesaid. Accordingly, the plaintiff prayed for the recovery of the said sum of Rupees 5,200 from the defendants.

3. The suit was contested by both the defendants. The case of the defendant No. 1 was that certain persons alleging themselves to be the representatives of the Metal Alloy Co. Pvt. Ltd., of Asansol came to the defendant's show room on Jan. 13, 1957 in order to ascertain the price of certain tube-well materials and after such talks and ascertainment of the price, they came on the next day with a cheque for Rs. 5,200 and the defendant, in the ordinary course of business, entered the order placed by them in the order book The defendant, acting in good faith, sent the cheque to its banker, namely, the Union Bank of India Limited for collection, and after the cheque had been encashed delivered the goods to those persons on Jan. 15, 1957. It was asserted by the defendant that it had acted in good faith having no reason to suspect that the cheque was forged, and on receipt of an intimation from thedefendant bank, it parted with valuable properties and were not, therefore, in any way liable for the alleged loss suffered toy the plaintiff. It was contended by the defendant that the plaintiff and Its constituent had acted negligently and carelessly, and that accordingly, the plaintiff was precluded from recovering the money from the defendant

4. The case of the defendant No. 2, the Union Bank of India Limited was that in the ordinary course of business it received the cheque in question on or about Jan. 14, 1957 and in good faith presented the same for encashment which the plaintiff bank duly honoured. It was contended that the plaintiff bank was under a duty to ascertain the genuineness or otherwise of any cheque drawn by its constituent and if it had allowed any forged cheque to be encashed it would have to suffer the loss arising from its conduct.

5. The suit was tried by the learned Judge, Sixth Bench, City Civil Courty Calcutta. He came to the finding that the forgery of the signature in the cheque had been so accurately done that it was not possible even to a trained eye to detect the forgery. The contention of the defendants that the plaintiff bank bad acted negligently in encashing the cheque was negatived by the learned Judge. He also found that the defendant No. 1 acted bona fide and in good faith and parted with its property on the basis of the forged cheque after the same was encashed by the plaintiff bank Upon the said findings, he held that the plaintiff had no cause of action against the defendants and dismissed the suit. Hence, this appeal.

6. It may be stated at the outset that we agree with the finding of the learned Judge that the plaintiff bank was neither negligent nor careless when it allowed encashment of the cheque in question. One M. K. Sen, the Director and Manager of the Metal Alloy Co. had the authority to operate the bank account on behalf of the company. The cheque in question purported to bear his signature. It appears from the report of the police officer who investigated the matter that at the first sight of the forged cheques It was very difficult for the said M. K. Sen to deny that he signed the same. The evidence on record supports the finding of the learned Judge that the forgery was so accurate that it was not possible even to a trained eye to detectthe same. In these circumstances, it is difficult to hold that the plaintiff bank had acted carelessly or negligently. The encashment was made by the plaintiff bank on the mistaken belief that the cheque was a genuine one. The defendant Union Bank had nothing to do with the question as to whether the cheque was genuine or forged. In due course of business it presented the cheque to the plaintiff bank for collection and after the cheque was encashed intimation was given by it to its constituent, namely, the defendant No. 1, end the latter, in its turn, sold goods to the persons who came with the forged cheque as the representatives of the Metal Alloy Co. Thus it appears that the parties in the suit acted in good faith in due course of business. It was due to the mistake that was committed by the plaintiff bank that it had to suffer the loss of the said sum of Rs. 5,200. In this connection, it may be stated that the plaintiff bank had to reimburse the Metal Alloy Co., the said sum and other sums of money which it had to pay against the forged cheques including the cheque in question, bona fide acting under the mistake of fact that all those cheques were genuine. It is contended on behalf of the plaintiff bank that as the cheque bore the date Jan. 11, 1957 for Rs. 5,200 in excess of the price of the goods, the defendant No. 1 should have suspected the genuineness of the cheque and refused to enter into any transaction with the alleged representatives, it is argued that it was an act of negligence on the part of the defendant No. 1, and because the cheque was presented to the plaintiff bank at the instance of the defendant No. 1, the bank had to suffer loss. This argument, in our opinion, is without any substance. The defendant No. 1 did not part with the goods before it received an intimation from its bank, namely, the Union Bank about the encashment of the cheque. It shows that the defendant No. 1 took the precaution that would have been taken by any prudent man in the circumstances. Had it been the fact that the defendant No. 1 delivered goods against the forged cheque to those unknown persons and thereafter sent the same for encashment, it could be said that it had acted negligently or carelessly. We are, therefore, of the opinion, that no blame can be imputed to the defendant No. 1.

7. The question, however, is whether the money which was paid toy theplaintiff bank to the defendant No. 1 through the defendant No. 2 acting under a mistake of fact, should be allowed to recover the same from the defendants as the latter, though not entitled to the same, had received the same on account of the mistake committed by the plaintiff bank. In England the law as to restitution of money or property to the person who paid or delivered the same to another by mistake is based on equitable considerations. Kelly v. Solari, (1841) 9 M & W 54 Is a leading English decision on the point. In that case Parke, B observed as follows:

'I think that where money is paid to another under the influence of a mistake, that is, upon the supposition that a specific fact is true, which would entitle the other to the money, but which fact is untrue, and the money would not have been paid if it had been known to the payer that the fact was untrue, an action will lie to recover it back, and it is against conscience to retain it; though a demand may be necessary in those cases In which the party receiving may have been ignorant of the mistake. The position that a person so paying is precluded from recovering by laches, in not availing himself of the means of knowledge in his power, seems, from the cases cited, to have been founded on the dictum of Mr. Justice Bayley, in the case of Milneg v. Duncan and with all respect to that authority, I do not think it can be sustained in point of law. If, indeed, the money is intentionally paid, without reference to the truth or falsehood of the fact, the plaintiff meaning to waive all Inquiry into it, and that the person receiving shall have the money at all events, whether the fact be true or false, the latter is certainly entitled to retain It; but if it is paid under the impression of the truth of a fact which is untrue, it may, generally speaking, be recovered back, however careless the party paying may have been, in omitting to use due diligence to inquire into the fact. In such a case the receiver was not entitled to it, nor intended to have it.'

8. The Privy Council, in Imperial Bank of Canada v. Bank of Hamilton, 1903 AC 49, followed the rule laid down in Kelly v. Solari, (1841) 0 M & W 54. In that case, a cheque for a certain emount certified by the respondent bank's stamp was fraudulently altered to a bigger amount and paid by the respondent to the appellant, a holder forvalue, under a mistake of fact, which was not discovered till the next day It was held by the Privy Council that the respondent was entitled to recover from the appellant bank.

9. It follows from the above English decisions that when a case comes within the purview of the rule laid down in Kelly v. Solari, (1.841) 9 M & W 54, the plaintiff should succeed, notwithstanding that the recipient of the money also acted in good faith and parted with the same to another person without any chance of recovery of the same. Under the rule, if anybody acting under a mistake pays money or delivers any property to another, the latter must repay or redeliver the same to the former. The House of Lords by a majority in R. E. Jones & Co. Ltd v. Waring and Gillow Ltd., 1926 AC 670, applied the said rule En a case where the respondents, acting under a mistake of fact, paid money to the appellants as a result of a fraud committed on both of them by a third person. It was held by Lord Shaw of Dum-ferinline, Lord Sumner, and Lord Carson ((Viscount Cave L. C. and Lord Atkinson, dissenting), that the respondents were entitled to recover on the principle of Kelly v. Solari. In his dissentient judgment Viscount Cave L. C. with whom Lord Atkinson concurred, referred to the general principles of law laid down in Kelly v. Solari and to some other decisions which followed such principles, but he relied On the doctrine of estoppel and held that the respondents having by their conduct induced the appellants to believe that the respondents were indebted to them in the amount of the cheque, and the appellants having acted to their detriment on the faith of that belief, the respondents were estopped from recovering the money. Further, it was observed by the Lord Chancellor that it was true that where the payee had done nothing more than to expend the money on his own purposes, that would afford no defence, for the payee had suffered no real detriment. The Lord Chancellor referred to and relied on, amongst others, the case of Kleinwort v. Dunlop Rubber Co., (1908) 97 LT 263, where Lord Loreburn said, 'It is indisputable that if money is paid under a mistake of fact and is re-demanded from the person who received it before his position has been altered to his disadvantage, the money must be repaid in whatever character it was received.'

10. Thus it appears that under the English law there is no scope for the application of the doctrine of estoppel to the rule laid down in Kelly v. Solari, (1841) 9 M & W 54 which, though applied in some cases and by Viscount Cave, L. C., the House of Lords, in R. E. Jones Ltd. v. Waring and Gillow Ltd., 1926 AC 670 (supra) disapprove such application. In India, the law in this regard is to be found in Section 72 of the Indian Contract Act, Section 72 is as follows:

'A person to whom money has been paid, or anything delivered, by mistake or under coercion, must repay or return It.'

Section 72 is simple in its term and there is no indication in it as to the application of the doctrine of estoppel, Prima facie the section comprises within it the principles of English law without any reservation or limitation. In Soloman Jacob v. National Bank of India Ltd., Aden, ILR 42 Bom 16: (AIR 1917 Bom 119), Scott C. J. took the view that Section 72 was to be read subject to the doctrine of estoppel and relied on the observation of Lord Loreburn in the case of Kleinwort v Dunlop Rubber Co., (1908) 97 LT 263 (supra). Beaman J. though concurred with Scott C. J. in his conclusion that the defendant bank who acted as a clearing agent (like the defendant No. 1 in the present case), was not liable to the plaintiff for the money paid to it by the plaintiff through mistake. It was observed by Beaman J. that it was only to cases between the principal and principal that the language of Section 72 of the Indian Contract Act could be applied literatim, but before it could be extended to another class of connected cases, its sweeping general language would have to be qualified. The rule that has been laid down by Beaman J. is 'Where an agent has received money for his principal, and has afterwards been informed by the payer that he has paid by mistake, the law governing the liability of the agent to refund to the person who has paid them by mistake is quite clear and well settled. If the agent has had no other interest in the payment than as agent for a principal beneficially interested, he cannot be made to refund it before notice of the mistake (a) he has actually paid the money to his principal, fb) has done any act which would prejudice his relation to his principal.'

11. In K. M. P. R. Firm v. Official Assignee of Madras, 43 Mad LJ 142 :(AIR 1923 Mad 17), Coutts Troter, J. observed ;

'I do not think that this has anything to do with estoppel or that it depends upon the conduct of a person against whom the estoppel is sought to be set up. The doctrine involved in the cases is the doctrine of equitable restitution and does not depend on the conduct whether good or ill of anybody. It depends upon whether a person whom it is sought to bring to book had his position so affected before the mistake was discovered that it would not be equitable to compel him to meet the plaintiff's claim.....I am quite prepared to say that Section 72 of the Contract Act which I think has a bearing on this has to be qualified by the doctrine of equity in order to render it intelligible.'

12. The question before us, therefore, is whether Section 72 should be read as subject to the doctrine of estoppel or as observed by Coutts Troter, J. it should be construed on the basis of the doctrine of equitable restitution notwithstanding the conduct of the parties. The English law as settled in the above House of Lords' case in R. E. Jones Ltd. v. Waring And Gillow Ltd., 1926 AC 670 (su-pra) excludes the application of the doctrine of estoppel in such oases, although previous to that case, the doctrine was applied in other cases. In our view, there is a difference between the English law and the Indian law as enacted by Section 72 of the Indian Contract Act. The difference has been indirectly pointed out by the Privy Council in Shiba Prasad Singh v. Srish Chandra, 76 Ind App 244 : (AIR 1949 PC 297). In that case, Lord Reid approved the interpretation of Section 72 as made by Sen J. in Jagdish Prosad v. Produce Exchange Corporation, AIR 1946 Cal 245 and observed :

'It may be well to add that their Lordships' judgment does not imply that every sum paid under mistake is recoverable no matter what the circumstances may be. There may in a particular case be circumstances which disentitle a plaintiff by estoppel or otherwise.'

13. In view of the above Privy Council decision, there cannot be any dispute as to the application of the doctrine of estoppel. The word 'otherwise' in the said observation of Lord Reid may also imply the doctrine of equitable restitution. It is difficult to lay down the circumstances under which a plaintiff may toe held to be debarred from recovering the money which he had paid under a mistake, but if the circumstance be construed as fall-ing, within the purview of the doctrine of estoppel or are such that it would be inequitable to allow the plaintiff to re-cover, the plaintiff must fail. In Nagorao Govindrao v. Governor-General in Council, AIR 1951 Nag 372, a learned single Judge of the Nagpur High Court has observed that the pronouncement of Lord Reid not only gives countenance to the view expressed by the Lord Chancellor in R. E. Jones Ltd. v. Waring and Gillow Ltd., 1926 AC 670 (supra), but also permits the court to hold that the circumstances in a particular case, disentitle the plaintiff to recover what was paid under mistake.

14. Upon the consideration of the [principles of law as noticed above, it seems to us that so long as the status quo is maintained and the payee has not changed his position to his detriment he must repay the money back to the payer. If, however, there has been a change in the position of the payee who, acting in good faith, parts with the money to another without any benefit to himself before the mistake is detected, he cannot be held liable. Equity disfavours unjust enrichment. When there is no question of unjust enrichment of the payee by reaping the benefit of an 'accidental windfall' he should not be made to suffer, for he would be as innocent as the payer who paid the money acting under a mistake.

15. In the instant case, the defendant bank was merely a 'conduit pipe' through which money passed to the defendant No. 1. After the money was received by the defendant bank it intimated about the same to the defendant No. 1 who, in his turn, delivered the goods to the alleged representatives of the Metal Alloy Co., acting on a bona fide belief that the cheque was a genuine one, for otherwise it would not have been encashed by the plaintiff bank. Both the defendant No. 1 and the defendant No. 2 changed their position for worse before the mistake was detected by the plaintiff and communicated to them. Neither the defendant No. 1 nor the defendant No. 2 can be said to have derived any benefit from the mistake committed by the plaintiff bank. It is true that the defendant No. 1 made a transaction of sale in lieu of the money that was credited to his account by the defendant No. 2, but it had to deliver its property to those alleged representatives. In these circumstances, in our opinion, both from the point of view of equitable principles and the doctrine of estoppel, the plaintiff is disentitled to recover the money from either of the defendants.

16. For the reasons aforesaid, we affirm the judgment and decree of the learned Judge and dismiss this appeal. But in view of the facts and circumstances of the case, there will be no order as to costs.

Sharma, J.

I agree.


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