The main legal point established in the judgment is the interpretation and application of mutuality in the context of a bank current account under Article 85 of the Indian Limitation Act.

Alfred Henry Lionel Leach, C.J.

1. The question in this appeal is whether Article 85 of the Indian Limitation Act applies to a case where a customer of a bank has a current account which at times is in credit and at other times is in debit, the bank having granted to the customer the right to overdraw.

2. The appeal arises out of a suit filed by the Official Liquidators of the Travancore National and Quilon Bank, Ltd., to recover from the partners of a firm of stock brokers carrying on business in Madras under the style of Wright and Co., money overdrawn by them on a current account with the bank. There were two partners, the appellant (the first defendant) and V.H. Ramaswamy (the second defendant). The defendants opened the account on the 16th April, 1936. On the 31st August, 1936, the bank agreed to allow them to overdraw the account to the extent of Rs. 10,000 on the furnishing of collateral security. On the 21st October, 1936, the accommodation was increased to Rs. 13,200. As security the partners executed promissory notes in favour of the bank and deposited shares which they held in limited liability companies, the share certificates being accompanied by transfer forms signed in blank and letters authorising the bank to sell the securities should they so desire. The bank had the right of calling in the overdraft at any moment. The account was operated on regularly until the bank went into liquidation at the end of June 1938. At that time the defendants had overdrawn the account to the extent of Rs. 6,030. The liquidators sold the shares held as security but the proceeds were not sufficient to discharge the defendants liability in full. There remained a balance due to the bank of Rs. 3,478 and the Official Liquidators asked for a decree directing payment of this sum. The second defendant did not defend the action, but the first defendant did. He maintained that the suit was barred by reason of Article 57 of the Indian Limitation Act. On behalf of the Official Liquidators it was contended that the claim was governed by Article 85. This argument prevailed and the City Civil Judge decreed the suit. The first defendant appealed to this Court. The appeal was heard by Byers, J., who agreed with the trial Court. This appeal is from the judgment of the learned Judge under Clause 15 of the Letters Patent.

3. Article 85 states that the period of limitation for a suit for the balance due on a mutual, open and current account, where there have been reciprocal demands between the parties, shall be three years from the closing of the year in which the last item admitted or proved is entered in the account. Admittedly, if this article applies, the suit was in time and the decree was properly passed against both the defendants.

4. At all material times the account was open and current. The only question is whether it was a mutual account. The leading case in India on the question of mutuality is Hirda Basappa v. Gadigi Muddappa (1871) 6 M.H.C.R. 142 where Hollo way Acting Chief Justice said that in order that an account might be mutual there must be transactions on each side creating independent obligations on the other, and not merely transactions which create obligations on the one side, those on the other being merely complete or partial discharges of such obligations. It has been held that a shifting balance is not a conclusive test of mutuality. The importance to be attached to a shifting balance will depend on the particular facts of the case. Most of the decisions cited do not relate to banking accounts, but to accounts between ordinary traders. The cases which call for notice here will be referred to later. At the moment we propose to examine the position between the customer and the bank where the customer is permitted to overdraw a current account and the account is sometimes in credit and sometimes in debit, as was the case here.

5. When a person opens a current account with a bank and pays money into it, the money goes into