Payment by Bank under mistake – whether Recoverable :
If payment has been made by a banker in mistaken belief, can it be recovered from the payee? This question was examined by Kolkata High Court in United Bank of India vs M/s A.T. Ali Hussain & co and others (AIR 1978, Kolkata 169). The facts of the case were as under:
M/s A received a cheque for Rs. 5200/- from a customer who purchased some goods from them. They sent the cheque to their banker, Union bank, for collection. When the collecting bank advised them that the cheque had been realized, they delivered the goods to the people who gave the cheque.
The paying banker, United Bank of India, subsequently found that the drawer’s signature on the cheque had been forged and that the payment has been made by mistake. It filed a suit for recovery of the amount from the Union Bank and M/s A.
The court found that the forgery of the cheque on the cheque had been done so skillfully that it could not be detected by a trained eye. Even the authorized signatory found it difficult to deny his signature on the forged cheque. The High Court, therefore, held that the paying banker was neither negligent nor careless in paying the cheque. The payment was made under a mistaken belief that the instrument was genuine.
According to section 72 of Indian Contract Act, a person to whom money has been paid or anything delivered by mistake or under coercion must repay it. But this rule is qualified by the Doctrine of Equity. The Doctrine disfavors unjust enrichment. If a payee has not been enriched unjustly, he cannot be required to repay. In other words, if the position of the payee has not been altered to his detriment, he must repay the money to the payer. But if the position of the payee has been changed to his prejudice, and thereafter the mistake has been detected, he cannot be held liable.
On the basis of these principles, the court held that the Union bank (collecting bank) was not liable as it passed on to M/s A the money received from the paying banker and had not derived any benefit there from. M/s A delivered the goods to the person who gave the cheque. Hence this position was changed to his detriment after the payment was made by the paying banker. The latter was, therefore, not entitled to recover the amount of the cheque from the former.
The High Court dismissed the appeal and held that from the point of view of equitable principles and the doctrine of estoppel, the paying bank was disentitled to recover the money either from the collecting banker or the payee. In the course of the judgment the honorable High Court observed as under:
The evidence on record supports the findings of the learned judge that the forgery was so accurate that it was not possible even to a trained eye to detect the 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 had acted carelessly or negligently. The encasement was made by the plaintiff bank on the mistaken belief that the cheque was a genuine one. The defendant United Bank had nothing to do with a question as to whether the cheque was genuine or forged. In due course of business, it is 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, and 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 said sum of Rs. 5200/-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 money to another without any benefit to himself before the mistake is detected, he cannot be held liable. Equity disfavors 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.