Appeals Nos 702 and 768 of 1964
Appeals by certificatespecial 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 76864
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 40000 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 507696 would be collected by Government and the amount credited in the treasury to the credit of the bank tin the sum of Rs 40000 along with interest due thereon was liquidated
It was in consequence of this arrangement that the bank advanced the sum of Rs 40000 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 40000 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 299512 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 310251 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 2802915 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 310251 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 recover Rs 299512  which was the amount shown as due from Sultan Mohd in the account on June 3 1953
Sup CI66 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 2802915 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 2802915 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 299512 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 section 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 2802915 and decreed the suit for the balance namely Rs 299512 
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 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 5000 on behalf of A from some person but by mistake enters Rs 50000 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 40000 
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 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 section 72 of the Contract Act
There is no doubt that section 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 section 72 has no application to the facts of this case
Learned counsel for the appellant has referred us to Imperial Bank of Canada vs 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 CA 702 did not appear we pass no order as to costs in that appeal


Summary:
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 section The High Court however in appeal rejected the argument on behalf of the bank that section 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 paid out of his account which was in substance the effect of reversing the entries without his consent
796 C Imperial Bank of Canada vs Bank of Hamilton  distinguished