Substance over label in bank deposits: a share deposit under agreed terms entitled the society to interest and restitution.

The true character of a banking arrangement depends on its substance and agreed purpose, not on the label given to the account. A deposit maintained under a specific financing arrangement for share capital subscription was treated as a share deposit, not an ordinary savings bank account, so denial of interest based on RBI circulars was misconceived. The bank's appropriation was held unlawful, and restitution was available on principles reflected in sections 65 and 70 of the Contract Act. The society was entitled to recover the amount with interest, and the suit was decreed with costs and interest at 9% per annum from the date of suit until payment.

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Issues: Whether the amount kept by the society in the bank, though styled as savings bank accounts, was in substance a share deposit account governed by the agreed terms so as to entitle the society to interest and refund of the amount appropriated by the bank.

Analysis: The agreed arrangement showed that the sums advanced to the agriculturist-borrowers for subscribing to the society's share capital were to be kept in deposit until release of block capital by other financial institutions, and the account was not meant for ordinary operation. The mere description of the account as a savings bank account did not alter the true nature of the transaction. Though directions issued by the Reserve Bank of India under the Banking Regulation Act bind banks, the Court found that the present deposit was not a regular savings bank account of a trading concern, but a share deposit maintained under the parties' arrangement. On that footing, denial of interest on the ground of RBI circulars was held to be misconceived, and the bank was liable in restitution under the principles reflected in sections 65 and 70 of the Contract Act.

Conclusion: The society was entitled to recover the amount with interest, and the bank's appropriation was held unlawful.

Final Conclusion: The appeal succeeded, the dismissal of the suit was reversed, and the suit was decreed with costs and interest at 9% per annum from the date of suit until payment.

Ratio Decidendi: The true legal character of a banking transaction depends on its substance and agreed purpose, and a contractual deposit kept for a specific financing arrangement cannot be treated as an ordinary savings bank account merely because of its label.

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