Bengal Silk Trading Co. vs D.S. Bhalla
1996 Latest Caselaw 926 Del

JUDGMENT

R.C. Lahoti, J.

(1) This is a decree holder's revision feeling aggrieved by an order dated 15.5.87 passed by a executing court directing appropriation of payment made by the judgment debtor as against a decree for recovery of money by way of principal and interest and costs.

(2) It appears that the decree holder has in his favour a simple money decree, the principal amount wherein carries interest pendente lite payable @ 6% per annum. Decree also directs payment of costs by J.D. to the decree holder.

(3) The judgment debtor made a payment. The executing court has directed the decree holder to appropriate the payment first in payment of principal and the remaining amount to be adjusted in payment of interest and then towards the costs.

(4) Having heard the learned counsel for the parties, I am of the opinion that the impugned order is not sustainable in law. Sections 59 to 61 of the Contract Act lay down the general rules as to appropriation of payment in a case where a debtor owes several distinct debts to one person and voluntarily makes payment. The principles are what are known in English jurisprudence as Rules in Clayton's case. It is true that statutorily it is not provided that the same rules would apply to payments made during the course of execution or subsequent to the passing of the decree. The fact remains that the rules are rules of good sense, equity and reason. Their application avoids absurdity and unreasonableness. The principles emerging therefrom can well be applied to post-decretal payments bearing in mind that dues on account of principal, interest and costs under a decree are not distinct debts.

(5) The principles are well stated by the Privy Council in M.V. Appa Rao vs R.P. Appa Rao Air 1922 Pc 233 and Full Bench of Lahore High Court in Jia Ram Vs. Sulakhan Mal, Air 1941 Lahore 386.

5.1Meghraj & Ors. VS. Mst.Bayabai & Ors., is another leading authority on the point. It was a case of mortgage decree. Time to time payments were made by the mortgagors by depositing amounts in the Court under Order 21 Rule 1 of the CPC. The amount was withdrawn by the mortgagees. The mortgagees were never informed that the mortgagors had deposited the amount only towards the principle and not towards the interest. It could not be found that the mortgagees had withdrawn the money from the Court accepting the conditional deposit. Their Lordships held :- "the normal rule that the amounts deposited in Court should first be applied towards satisfaction of the interest and costs and thereafter towards principal would apply."

5.2In Jia Ram's case (supra) also Tek Chand,J. speaking for the Full Bench laid down the law as under :- "The general rule of appropriation of payments towards a debt is that in the absence of a specific indication to the contrary by the debtor, the money is first applied in payment of interest and then when that is satisfied, in payment of the capital. This principle applies even to the sale proceeds of the properties sold in execution of a mortgage decree. Therefore in the absence of a direction to the contrary in the decree, the sale proceeds of the properties sold in execution of a mortgage decree must be applied first in payment of subsequent interest and costs, and thereafter the balance to discharge the principal sum declared as a payable in the decree."

5.3Same view has been taken by other High Courts following the Supreme Court decision in Meghraj's case (supra). Suffice it to refer to Division Bench decision of the Calcutta High Court in Life Insurance Corporation of India VS. Gadadhar Dey Air 1979 Cal. 419 and Division Bench decision of Mysore High Court in Life Insurance Corporation of India VS. B.R. Honnappa & Ors. Air 1973 Mysore 86. In the later decision Venkataramiah, J.(as His Lordship then was) speaking for the Division Bench held :- "....if calculation is made by deducting the entire decretal amount by the sums paid by the judgment-debtor from time to time with counter-interest thereon from the date of each payment, it would adversely affect the decree- holder. It is to be seen that in that case when all the sums paid by the debtor would be carrying counter- interest, a certain portion of the decretal amount relating to costs and current interest would not be carrying any interest at all. Hence, in order to avoid an incorrect result which is likely to ensue the proper method that should be adopted is to appropriate the payments made by the judgment-debtor first towards costs and interest payable under the decree and if any balance remains after such appropriation towards discharge of the principal amount."

(6) From the settled trend of judicial opinion, it is clear that where a decree directs payment of principal interest and costs, in the absence of specific directions as to mode of appropriation or in the absence of contract between the parties, the payment has to be applied first towards payment of costs, then interest and then towards the principal.

(7) The learned executing court was not right in distinguishing Meghraj's case (supra) though cited before it.

(8) For the foregoing reasons, the revision is allowed. The impugned order dated 15.8.87 is set aside. The executing court is directed to pass an order as to appropriation consistently with the principles laid down hereinabove.