Implied overdraft liability and reasonable interest govern recovery where a customer knowingly overdraws an account.

A customer who knowingly overdraws a current account and whose cheques are honoured by the bank may be treated as having sought an implied overdraft or loan facility, even without an express oral agreement. On that basis, the bank's recovery claim was maintainable and the earlier finding rejecting liability for want of express agreement was set aside. On interest, the alleged contractual rate was not proved against the defendants, and the reserve bank circular cited did not govern the borrower. The court therefore awarded only reasonable interest, limiting it to 12% per annum from 1 April 1976 until judgment and 6% per annum thereafter until payment.

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Issues: (i) whether the plaintiff bank was entitled to recover the overdrawn amount on the basis of an implied overdraft or loan arrangement in the absence of an express oral agreement; (ii) what rate of interest was payable on the overdrawn amount.

Issue (i): whether the plaintiff bank was entitled to recover the overdrawn amount on the basis of an implied overdraft or loan arrangement in the absence of an express oral agreement.

Analysis: The account holder had signed the opening documents and the cheques drawn on the account were admitted. The account was substantially overdrawn and the bank's certified account extracts and cheque records were accepted in evidence. On the legal position governing banker and customer dealings, a customer who draws cheques beyond available funds requests a loan by way of overdraft, and such an arrangement may arise by implication from the course of business even without an express agreement.

Conclusion: The recovery claim was maintainable on the basis of an implied overdraft or loan facility, and the finding against the bank on absence of express agreement was set aside.

Issue (ii): what rate of interest was payable on the overdrawn amount.

Analysis: There was no satisfactory proof of any express agreement fixing interest at 17% per annum as against the defendants. The Reserve Bank circular relied upon governed the relationship between the Reserve Bank and banks, not the borrower. In the circumstances, the Court held that only reasonable interest could be awarded, while not disturbing the unchallenged account entries already reflected in the bank records.

Conclusion: Interest was confined to 12% per annum from 1 April 1976 till judgment and 6% per annum thereafter till payment or realisation.

Final Conclusion: The appeal succeeded, the dismissal of the suit was reversed, and a decree was granted for the principal amount with interest at the reduced judicial rate.

Ratio Decidendi: Where a bank customer knowingly overdraws a current account and the bank honours the cheques, an implied loan or overdraft arrangement may be inferred from the course of dealing, and in the absence of proof of an agreed rate of interest, the court may award only reasonable interest.

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