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Judgment
Veeraswami, J.—Both the courts below have concurred in passing a decree against the defendants for recovery from them of a sum of Rs.
2463-14-2 on the basis that the first respondent, Indian Bank, which was the plaintiff, had by mistake given credit to the first defendant in is
current account at Madras by two double entries, the Courts below were of the view that the first defendant, a public company, had the means of
knowledge and, therefore, every opportunity to know the real position so that the principle of estoppel could not be applied against the plaintiff
bank. Defendants 2 and 3 did not appeal against the decree of the trial Court throughout, but the public company, which is the first defendant, has.
The first defendant was a customer of and had current account with the Indian Bank, the plaintiff, at his head office at Madras. The first
defendant had also dealings with defendants 2 and 3 at Guntur and the arrangement between them was that they should remit in the Guntur branch
of the Indian Bank monies payable to the first defendant and that branch should advise the credits in favour of the first defendant to the head office
of the Indian Bank. On 15-12-1952 there was a remittance in the Guntur branch of the Indian Bank of Rs. 2108-14-9 to the credit of the first
defendant. There was similarly another remittance in favour of the first defendant in the Guntur branch of the Indian Bank on 7-7-1952 of a sum of
Rs. 500. These credits would appear to have been advised by the Guntur branch to the head office by telegrams. On receipt of the telegrams, the
head office of the Indian Bank made corresponding credit entries in favour of the first defendant. In due course the head office of the Indian Bank
also received advise from the Guntur branch of similar amounts of credit in favour of the first attendant. These intimations were in the normal
course, it was apparently not realised by the head office of the Indian Sank that the advises of credits received in the normal course of
correspondence related to the identical credits covered by the two telegrams. The Indian Bank intimates the first defendant of four credit entries
instead of two which mistake, according to the Indian Bank, it discovered only in 1954. In the meantime, the first defendant, that was its case,
acting upon credit entries, settled its accounts with defendants 2 and 3 and closed its transactions with them on the basis of the four credit entries,
in defence to the suit by the Indian Bank to recover the amount referable to the duplicate entries, the first defendant pleaded that the bank was
estopped from contending that two of the four entries were duplicate entries since on the faith of the four entries communicated by the bank to the
first defendant, the latter had acted upon the same and settled its accounts with defendants 2 and 3. This plea did not find acceptance with the
Courts below. As I said, they considered that the first defendant had the means of knowledge and the opportunity to know the duplicate entries
and that therefore it could not invoke the principle of estoppel against the plaintiff.
The Courts below have not found that the first defendant as a matter of fact, knew about the double credit entries in its favour. But the
discussion in the Judgments of the Courts below tended to show that they were prepared to proceed on the footing that the first defendant had
actually no knowledge of the mistake committed by the Indian Bank when it acted upon the duplicate credit entries. But the courts below,
however, felt mat as the first defendant failed to produce Before them the weekly statements from its clients defendants 2 and 3 at Guntur and also
the correspondence between them, it could be fairly taken that they should have furnished the materials which would have given the means to the
first defendant of knowing about the real character of the double entries. The lower appellate court particularly pointed out that the first defendant
had accounts, that defendants 2 and 3 were business people having accounts and that in the normal course of things it was possible for the first
defendant to verify the accounts of defendants 2 and 3 and come to know about the double entries, on that basis, the lower appellate court, like
the trial court, declined to apply the doctrine of estoppel against the plaintiff and held the defendants liable. I also mention that the trial court, here
again in the lower appellate court concurred with it, directed that in the first instance the plaintiff should execute the decree against the first
defendant and if only the plaintiff failed to realise the amount decreed from the first defendant should it execute the decree against defendants 2 and
3.
On behalf of the appellant it is pressed upon me that the courts below misdirected themselves in assuming that there was any duty on the part of
the first defendant to verify its accounts as also those of defendants 2 and 3 and discover for itself that two of the four credit entries were double
entries in accounts of the Indian Bank. it is said that there were not the slightest circumstances to arouse the suspicion of the first defendants so that
even if it had the means or materials, from which, on verification, it could discover the mistake made by the Indian Bank, no liability towards the
double entries on which it acted and settled the accounts with defendants 2 and 3 could be clamped on it. Reference is made to the definition of
notice in Section 3 of the Transfer of property Act and it is contended that in the absence of wilful abstention on the part of the first defendant from
an enquiry or search which it ought to have made or gross negligence on its part, no notice of the double entries could be imputed actually or
constructively to the first defendant.
Generally speaking, a bank owes a duty to its customer to maintain proper and - accurate accounts of credit and debits. If a bank makes wrong
entries of credit without knowing the fact at the time the entries were made, and intimates to its customer the credit entries and the customer acting
upon the intimation of credit entries after his position to his prejudice, the bank thereafter will be estopped from contending that the credit entries
were wrongly made and that the amounts covered by them should be refunded to it by the customer. such an intimation by the bank is obviously a
representation made to the customer, which the customer is at liberty, in tact, is entitled to act upon. Once it is acted upon by the customer, bona
fide of course, it will then be too late for the bank to resile from the credit entries they made mistakenly and seek to have recompense by means of
adjustment in the accounts or recovery of the amounts from the customer. That, as I think, is the law. what is contended for the appellant is that the
first defendant in good faith acted upon the intimation by the Indian Bank about the four credit entries and on that basis settled the accounts with
defendants 2 and 3. If matters stood there, doubtless, learned counsel for the appellant would be right in his contention that the bank would be
estopped from going behind the credit entries in favour of the trust defendant.
But, as I said, the view of the courts below was founded on the fact that the first defendant''s evidence was disbelieved and they proceeded on
the assumption that the first defendant had with it weekly statements from defendants 2 and 3 and the correspondence, which, on a scrutiny, would
make it manifest to the first defendant that two of the four credit entries were double entries. Learned counsel for the appellant, as already
indicated, counters this view of the courts below by stating that There was no duty cast on the first defendant, in the circumstances, to enquire into
the accuracy of each and every in his accounts with the bank and in the absence of circumstances arousing suspicion it was entitled to act upon the
intimation by the Bank of credit entries in its favour. It may be taken that the definition of notice in the Transfer of Property Act has general
application. It may also be taken for granted that the first defendant was entitled to act on the credit entries intimated to it by the Bank. But the
question is whether, in the particular circumstances it could be slated that the first defendant acted without negligence in not verifying from the
weekly statements and copies of accounts as well as correspondence received or must have been received from defendants 2 and 3. it seems to
me that a cursory scrutiny into those documents would have clearly shown to the first defendant that two of the credit entries in the accounts of the
Indian Bank were double entries. When the first defendant had those materials and settled the accounts with defendants 2 and 3, it is difficult to
imagine that it could have failed to see that these two entries were double entries. Though the first defendant was not under a duty to scrutinise
those materials, those materials were quite sufficient to arouse a suspicion of the first defendant about the true character of the two credit entries, in
my case, my view of the facts is that the first defendant, in the circumstances, was grossly negligent in not carefully scrutinising the weekly
statements, accounts and correspondence. I am inclined to think, therefore, that the first defendant must be held to have the constructive notice,
which will disentitle it to press the doctrine of estoppel against the Indian Bank.
It is next urged for the appellant that there was no justification for the direction by toe courts below that the decree should be executed in the
first instance against the first defendant. There is force in this contention. When defendants 2 and 3 settled accounts with the first defendant, they
should have clearly known that they were given credit in excess of what they were entitled to. At least it could be said in favour of the first
defendant that it might have honestly acted in settling accounts with defendants 2 and 3 on the faith of the intimation by the Bank of the two credit
entries in question. But the same thing cannot be said of defendants 2 and 3 for, they knew how much; they had remitted into the branch of the
Indian Bank at Guntur. I think, therefore, that, the particular direction given by the courts below should be set aside, and it is accordingly cancelled.
The second appeal, subject to the said modification, is dismissed with costs of the first respondent bank. No leave.