Mistake of law cannot justify unilateral reversal of savings-account interest entries without notice to the customer.

A bank cannot unilaterally reverse savings-account interest entries or debit interest already credited unless it can show a recoverable mistake of fact. Although Section 72 of the Indian Contract Act, 1872 allows recovery of money paid by mistake, the Court treated the bank's reliance on an RBI circular under Section 35A of the Banking Regulation Act, 1949 as a mistake of law, not a recoverable factual error. The bank had also credited interest periodically, acted without notice to the account holder, and failed to establish a legally sustainable basis for the reversal. The debit and reversal were therefore impermissible.

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Issues: Whether the bank was entitled to reverse the credit entries in the customer's savings account and debit the amount of interest already credited on the footing that such interest had been paid by mistake under the RBI circular.

Analysis: The account was opened after the RBI circular prohibiting interest on savings accounts of trading or business concerns, and the bank had itself credited interest periodically before making a unilateral reversal. The governing principle under Section 72 of the Indian Contract Act, 1872 permits recovery of money paid by mistake, but the Court held that the facts did not disclose a recoverable mistake of fact. The bank's action was founded on ignorance or misapplication of the RBI direction issued under Section 35A of the Banking Regulation Act, 1949, which was treated as a mistake of law. The bank also acted without notice to the account holder and without showing a legally sustainable basis for unilateral debit.

Conclusion: The bank was not entitled to reverse the credit entries or recover the interest amount from the customer.

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