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CS Professional · Banking and Insurance - Laws and Practice · Advances, Securities and Documentation

Hari Foods paid ₹50,000 to Bank X by mistake, in excess of the amount due on its cash credit account. The bank has not repaid it. Which statement is correct under Section 72 of the Indian Contract Act, 1872?

The bank must repay the ₹50,000. Section 72 of the Indian Contract Act provides that a person to whom money is paid by mistake or under coercion must repay it, and no proof of fraud is required.

  1. AThe bank may keep the excess as it is already in the account
  2. BThe bank must repay the amount, because money paid by mistake must be repaidCorrect
  3. CThe bank must repay only if Hari Foods proves fraud
  4. DThe bank must repay only after a written demand registered with the Registrar

Explanation

Section 72 says a person to whom money has been paid by mistake must repay or return it. No fraud or special formality is needed. Hence the bank must refund the ₹50,000 excess.

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