What is Restitution?

Probably the lenders to whom money was paid by mistake should have asked Citibank for their "Returns Policy"



R. Shandilya

Legal Counsel

Author Bio:

Legal Counsel


Recently Citibank settled a case in New York which arose from payment made by mistake.

...AND the amount paid in error was $900 million -- one of the biggest blunders in banking history.

# Citibank was acting as as administrative agent for a term syndicated loan to creditors of Revlon.

# Immediately after realizing it's mistake Citibank sent "recall notices".

# While some lenders returned the money. Citibank still had to get back $500million from the recipients still holding out and refusing to return the extra money.

# The trial court sided with the recipients under a "discharge-for-value" defence under New York law (recipients thought the payment was for good reason).

# The surprising decision was thankfully overturned on appeal.

# Banks are planning to add an "Erroneous Payments Clause" -- one would have thought this vital clause would already have been in the terms.

# It took 2.5 years to settle a case which under law ....and ethically should have been straightforward.


"RESTITUTION" -- under common law this would be returning any "unjust enrichment"

Notably under the Indian Contract Act, section 72:

Liability of person to whom money is paid, or thing delivered, by mistake or under coercion—A person to whom money has been paid, or anything delivered, by mistake or under coercion, must repay or return it.

India's Central Bank (The Reserve Bank of India) too has guidelines on ensuring banks do not make such mistakes...with of course some responsibility on recipients to provide correct details.

Probably the lenders to whom money was paid by mistake should have asked Citibank for their "Returns Policy".

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