Bank cannot recover the money from the account holder wrongly credited to the account #indianlaws

The Court while making reference to Section 72 of the Indian Contract Act mentioned that the Bank does have a right to recover the money paid under a mistake. In the instant case, however, under the facts and circumstances thereof, the conduct of Bank was held to be incorrect.

The Apex Court in the present appeal decided against the bank for wrongly debiting the account of an account holder (Appellant-Exporter) on the ground that the amount was wrongly credited into his account and that too for almost after 2.5 years.

Appellant, in the course of its business activities, exported steel coils to another party (the importer) and raised an invoice on the importer. Appellant received part payment against the said invoice on the basis of the credit advice raised by the SBI Overseas Branch, Mumbai from time to time. The Appellant was later also informed of the export collection payment advice by the State Bank of India for US$ 199,959.74.

Thereafter, as stated by the Appellant, after two and a half years State Bank of India, Mumbai, sent a letter to the Appellant with reference to the aforesaid credit entry to Appellant ECFC account and advised that credit was erroneously passed on to the SBI’s Nostro account by Bank of America and that the SBI had marked a lien on the Appellant’s EEFC account (pending rectification). After exchange of correspondences, the bank lifted the lien and debited Appellant’s EEFC account by some amount.

Appellant contended that bank has no legal right to reverse a legal entry after having credited the same in the bank account and also when no consent of the account holder has been obtained. Bank, on the other hand, submitted that the amount in question was wrongly credited in the Appellant’s account and it does not belong to account holder and infact the amount exclusively belonged to the Bank. The deposit was stated to be by mistake and hence the same could be recovered by debiting the account of account holder which is a normal banking practice done in good faith.
The Court while making reference to Section 72 of the Indian Contract Act mentioned that the Bank does have a right to recover the money paid under a mistake. In the instant case, however, under the facts and circumstances thereof, the conduct of Bank was held to be incorrect.

The importer in the instead case had already made the payment and the concerned SBI, Foreign Department had received the amount in the Nostro account with remittance advice to Bank of India, instead of SBI, Overseas Branch, Mumbai. Appellant was also informed of the export collection advice by the SBI and the Appellant had received the amount. Bank, as held, might have committed a mistake, but would then have become impossible for the Appellant to recover the amount from the importer since the importer has already paid the amount. If the SBI, Overseas Branch had not given credit of the amount, then, Appellant could have proceeded against the importer at the earliest opportunity, but for this mistake committed by the Bank the Appellant should not be made to suffer.

[Metro Exporters Pvt. Ltd. & Anr. vs. State Bank of India & Ors.]
(SC, 23.04.2014)