# GURPREET SINGH v. U.0.1

- **Citation:** [2006] Supp. 7 S.C.R. 422
- **Court:** Supreme Court of India
- **Decided:** 2006
- **Case number:** Civil Appeal No. 4570 of2006
- **Bench:** Y.K. Sabhar Wal, K.G. Ba La Krishnan, S.H. Kapadia, C.K. Thakker, P.K; Balasubramany An
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/gurpreet-singh-v-u-0-1-21756
- **Pages:** 32

## Headnote

..
· Land Acquisition Act, 1894-Sections 23(/), 23(/A), 28 and 34 (is ·
C amended byAct 68 of 198~): · .
• '
·
" .
.
Compensation-Rule of appropriation-Applicability of-To the cases
of award under the Act-In Prem Nath Kapur's case held that liability to pay·.
interest was only on the excess amount of compensation and rule of
appropriation under Order XX/ Rule I CPC stood excluded by Section 28
D and 34 of the Act-Validity of the judgment on the question of appropriation
referred to Constitution Bench-Held: The ratio in Prem Nath Kapur on the
aspect of appropriation is appraved-Decree holder not entitled to reopen ·
the entire transaction to claim a reappropriation . of the amounts already
received and appropriated at that particular stage merely because appellate
court has enhanced the compensation-Appropriation would be at different
E stages-Award. of interest is confined only _to the excess compensation
awarded-But if there is any shortfall at any stage, rule of appropriation can
be applied in respect of that excess amount-Doctrine of merger not applicable
in such case-Code of Civil Procedure, 1908-0rder XX/ Rule I. . ..
F
Interest on solarium-Whether payable-By Execution CourtConstitution Bench of Supreme Court holding that. compensation includes
solatiu~Held: 'if claim for interest on solarium is negated by the court i~ :.
reference or in ·appeal, 'execiition COZfrl 'cannot grant the same as it cannot
go behind the decre~But if such claim is not negated.. the same can be
granted by execution court by applying ratio of Constitution Bench judgmentG Such interest on solarium can be granted only in pending execution permitting
its recovery from the date of judgment of Constitution Bench-Constitution
of India, 1950-Articles 141 and 142 . . ..
Doctrines:
H
422
GURPREET SINGH v. U.0.1.
423
Rule of appropriation-Explained
A
Doctrine of merger-Applicability of
Words and Phrases-'Appropriation'-Meaning of
The questions for consideration in the present appeals are whether the B
rule of appropriation in execution of money decrees is the same in the case of
an award decree under Land Acquisition Act, 1894 as in the case of money
decree, or the provisions of Land Acquisition Act as amended by Land
Acquisition (Amendment) Act (Act 68of1984) make that rule inapplicable
or not wholly applicable; and that whether interest can be claimed on solatium
in execution, though not specifically granted by the decree.
C
In Prem Nath Kapur and Anr. v. National Fertilizers Corporation of
India Ltd. and Ors., (1995) Suppl. 5 SCR 790, a three Judge Bench of the
Supreme Court had held that the expression 'compensation' under Section
23(1) of the Act as amended by Act 68of1984 read in the context of Section D
28 or 34 thereof, by necessary implication excludes solatium or on the
additional amount under Section 23 (IA) and liability to pay interest was only
on the excess amount of compensation determined under Section 23 (l ); and
that normal rule of appropriation contained in Order XXI Rule l CPC
relating to execution of decrees for recovery of money, stands excluded by
Sections 28 and 34 of the Act in execution of award of decrees of the Act. The E
Constitution Bench of Supreme Court in Sunder v. Union of India, [20011
Suppl 3 SCR 176 overruled the view as regards the content of the expression
'compensation' occurring in Section 23 (1) and Section 28 of the Act, but the
aspect of mode of appropriation of the amount due under an award decree was
not dealt with.
When the question as regards the rule of appropriation was raised in
this case before 3 Judges Bench, the same was referred to Constitution Bench
to consider whether the judgment in Prem Nath Kapur would survive the
reasoning in Sunder's case.
Answering the questions, the Court
HELD: l.l. A claimant or decree holder who has received the entire
F
G
a mount awarded by the reference court or who had notice of the deposit of the
entire amount so awarded, cannot claim interest on the amount he has alrea

## Text

_Characters 0–39,943 of 82,910. This is a partial read: ask again with offset=39943 for what follows._

A
, GURPREET SINGH
v. .
UNION OF INDIA ·
OCTOBER 19,2006
[Y.K. SABHAR WAL, CJI, K.G. BA LA KRISHNAN, S.H. KAPADIA, C.K.
THAKKER AND P.K; BALASUBRAMANY AN, JJ.]
..
· Land Acquisition Act, 1894-Sections 23(/), 23(/A), 28 and 34 (is ·
C amended byAct 68 of 198~): · .
• '
·
" .
.
Compensation-Rule of appropriation-Applicability of-To the cases
of award under the Act-In Prem Nath Kapur's case held that liability to pay·.
interest was only on the excess amount of compensation and rule of
appropriation under Order XX/ Rule I CPC stood excluded by Section 28
D and 34 of the Act-Validity of the judgment on the question of appropriation
referred to Constitution Bench-Held: The ratio in Prem Nath Kapur on the
aspect of appropriation is appraved-Decree holder not entitled to reopen ·
the entire transaction to claim a reappropriation . of the amounts already
received and appropriated at that particular stage merely because appellate
court has enhanced the compensation-Appropriation would be at different
E stages-Award. of interest is confined only _to the excess compensation
awarded-But if there is any shortfall at any stage, rule of appropriation can
be applied in respect of that excess amount-Doctrine of merger not applicable
in such case-Code of Civil Procedure, 1908-0rder XX/ Rule I. . ..
F
Interest on solarium-Whether payable-By Execution CourtConstitution Bench of Supreme Court holding that. compensation includes
solatiu~Held: 'if claim for interest on solarium is negated by the court i~ :.
reference or in ·appeal, 'execiition COZfrl 'cannot grant the same as it cannot
go behind the decre~But if such claim is not negated.. the same can be
granted by execution court by applying ratio of Constitution Bench judgmentG Such interest on solarium can be granted only in pending execution permitting
its recovery from the date of judgment of Constitution Bench-Constitution
of India, 1950-Articles 141 and 142 . . ..
Doctrines:
H
422
GURPREET SINGH v. U.0.1.
423
Rule of appropriation-Explained
A
Doctrine of merger-Applicability of
Words and Phrases-'Appropriation'-Meaning of
The questions for consideration in the present appeals are whether the B
rule of appropriation in execution of money decrees is the same in the case of
an award decree under Land Acquisition Act, 1894 as in the case of money
decree, or the provisions of Land Acquisition Act as amended by Land
Acquisition (Amendment) Act (Act 68of1984) make that rule inapplicable
or not wholly applicable; and that whether interest can be claimed on solatium
in execution, though not specifically granted by the decree.
C
In Prem Nath Kapur and Anr. v. National Fertilizers Corporation of
India Ltd. and Ors., (1995) Suppl. 5 SCR 790, a three Judge Bench of the
Supreme Court had held that the expression 'compensation' under Section
23(1) of the Act as amended by Act 68of1984 read in the context of Section D
28 or 34 thereof, by necessary implication excludes solatium or on the
additional amount under Section 23 (IA) and liability to pay interest was only
on the excess amount of compensation determined under Section 23 (l ); and
that normal rule of appropriation contained in Order XXI Rule l CPC
relating to execution of decrees for recovery of money, stands excluded by
Sections 28 and 34 of the Act in execution of award of decrees of the Act. The E
Constitution Bench of Supreme Court in Sunder v. Union of India, [20011
Suppl 3 SCR 176 overruled the view as regards the content of the expression
'compensation' occurring in Section 23 (1) and Section 28 of the Act, but the
aspect of mode of appropriation of the amount due under an award decree was
not dealt with.
When the question as regards the rule of appropriation was raised in
this case before 3 Judges Bench, the same was referred to Constitution Bench
to consider whether the judgment in Prem Nath Kapur would survive the
reasoning in Sunder's case.
Answering the questions, the Court
HELD: l.l. A claimant or decree holder who has received the entire
F
G
a mount awarded by the reference court or who had notice of the deposit of the
entire amount so awarded, cannot claim interest on the amount he has already
received merely because the appellate court has enhanced the compensation H
424
SUPREME COURT REPORTS (2006] SUPP. 7 S.C.R.
A and has made payable additional compensation. Such a blanket re-opening of
the transaction is not warranted even in respect of a money decree. Section
28 of Land Acquisition Act indicates that the award of interest is confined to
the excess compensation awarded and it is to be paid from the date of
dispossession. This is in consonance with the position that a fresh reB appropriation is not contemplated or warranted by the scheme of the Act. But
if there is any shortfall at any stage, the claimant or decree holder can seek
to apply the rule of appropriation in respect of that amount, first towards
interest and costs and then towards the principal, unless the decree otherwise
directs. (444-F-H; 445-A-Bf
c
1.2. On the wording of Section 34 and Section 28 of the Act read with
and understood in the light of the stages of the award of compensation, the
question of appropriation would be at different stages and a decree holder would
not be entitled to reopen the entire transaction to claim a reappropriation of
the amounts already received by him and appropriated at that particular stage.
The reliance on the doctrine of merger does not enable the decree-holder to
D get over the scheme adopted by the Act. (450-E-G(
1.3. Though, a decree holder may have the right to appropriate the
payments made by the judgment-debtor, it could only be as provided in the
decree-if there is provision in that behalf in the decree-or, as contemplated
by Order XXI Rule 1 CPC. CPC or the general rules do not contemplate
E payment of further interest by a judgment debtor on the portion of the principal
he has already paid. His obligation is only to pay interest on the balance
principal remaining unpaid as adjudged either by the court offirst instance
or in the court of appeal. On the pretext that the amount adjudged by the
appellate court is the real amount due, ~he decree-holder cannot claim interest
F on that part of the principal already paid to him. Of course, out of what is paid
he can adjust the interest and costs first and the balance towards the principal,
if there is a shortfall in deposit. But, beyond that, the decree-holder cannot
seek to re-open the entire transaction and proceed to recalculate the interest
on the whole amount and seek a re-appropriation as a whole in the light of
the appellate decree. (450-A-Df
G
1.4. In cases of execution of money decrees or award decrees, or rather,
decrees other than mortgage decrees, interest ceases to run on the amount
deposited, to the extent of the deposit. It is true that if the amount falls short,
the decree holder may be entitled to apply the rule of appropriation by
appropriating the amount first towards the interest, then towards the costs
H and then towards the principal amount due under the decree. But the scheme
GURPREET SINGH v. U.0.1.
425
does not contemplate a reopening of the satisfaction to the extent it has A
occurred by the deposit. No further interest would run on the sum appropriated
towards the principal. The principle appears to be that if a part of the principal
has been paid along with interest due thereon, as on the date of issuance of
notice of deposit, interest on that part of the principal sum will cease to run
thereafter. (439-C-E; 440-D-E(
Mt. Amtul Habib v. Mohammad Yusuf ILR 40 Allahabad 125; Gopalje v.
B
Sumrit Mandar, AIR (1933) Patna 89; Varki Ouseph v. Narayanan
Parameswara Panicker, AIR (1956) Travancore - Cochin 46; Meghraj and
Ors. v. Mst. Bayabai and Ors., (1969f 2 SCC 274; Industrial Credit and
Development Syndicate now called !.C.D.S. Ltd v. Smithaben H. Patel (Smt.) C
and Ors., (1999( I SCR 555; Jai Ram v. Sulakhan Mal, AIR 1941 LAHORE
386, referred to.
1.5 . What is to happen when a part of the amount awarded by the
reference court or by the appellate court is deposited pursuant to an interim
order of the appellate court or of the further appellate court and the awardee D
is given the liberty to withdraw that amount? In such a case, the amount would
be received by the decree holder on the strength of the interim order and the
appropriation will be subject to the decision in the appeal or the further appeal
and the direction, if any, contained therein. In such a case, if the appeal is
disposed of in his favour, the decree holder would be entitled to appropriate
the amount already received by him pursuant to the interim order first towards
interest then towards costs and the balance towards principal as on date of
E
the withdrawal of the amount and claim interest on the balance amount of
enhanced compensation by levying execution. But on that part appropriated
towards the principal, the interest would cease from the date on which the
amount is received by the awardee. Of course, if while passing the interim p
order, the court had indicated as to how the deposited amount is to be
appropriated, that direction will prevail and the appropriation could only be
done on the basis of that direction. (451-F-H; 452-A-Bf
1.6. There is no distinction made between land value and solatium on
the one hand and the interest awardable on the other, under Section 23(1A) G
of the Act. It is on this sum that the interest under Section 34 of the Act is
awarded and if it were a reference, awarded under Section 28 of the Act, in
addition to costs, if any. Thus, the award by the Collector and the deemed
decree passed on reference contain the components of compensation and
interest in the first and interest and costs in the second. (445-C-Ef
H
426
SUPREME COURT REPORTS [20061 SUPP. 7 S.C.R.
A
Sunder v. Union of India, 12001 I Suppl. (3) S.C.R. 176 and Mathunni
Mathai v. Hindustan Organic Chemicals ltd. and Ors., 119951 3 SCR 765,
referred to.
I. 7. The ratio of Prem Nath Kapur on the aspect of appropriation is
approved. Considering the scheme of compensation under the Act in the
B context of the specific nature of the items specifically referred to in Section
23 of the Act, the approach adopted in Prem Nath Kapur is justified. A
reappropriation by seeking to reopen the satisfaction already rendered might
result in interest being made payable even on that part of the principal amount
that had already been deposited and received by the decree holder and that
would be in the realm of unjust enrichment. The essential ratio in the Prem
C Nath Kapur on appropriation being at different stages is justified though if
at a particular stage there is a shortfall, the awardee decree holder would be
entitled to appropriate the same on the general principle of appropriation, first
towards interest, then towards costs and then towards the principal, unless,
of course, the deposit is indicated to be towards specified heads by the judgment
D debtor while making the deposit intimating the decree-holder of his intention.
1451-D-F; 452-B-DI
Prem Nath Kapur and Anr. v. National Fertilizers Corporation of India
Ltd. and Ors., (19951Suppl.5 SCR 790, upheld.
1.8. Appropriation is the act of setting apart or assigning a thing or
E substance to a particular use or person to the exclusion of others; application
to a special use or purpose. If a debtor makes a payment to a creditor and
does not specify which debt the payment is in settlement of, the creditor may
appropriate it to any of the debts outstanding on the debtor's account. This is
often known as appropriation of payments. (429-D-E-F-G)
F
P. Ramanatha Aiyar Advanced law lexicon, 3rd Edition, (2005) page
315; Halsbury's Laws of England, Fourth Edition; Chitty on Contracts, 29th
Edition, Volume I in paragraph 21-059 and Indian Contract Act by Pollock
& Mui/a, 12th Edition, referred to.
Marimella Swyanarayana v. Venkataraman Rao, AIR (1953) Madras
G 458, referred to.
2. It is well settled that an execution court cannot go behind the decree.
If, therefore, the claim for interest on solatium had been made and the same
has been negatived either expressly or by necessary implication by the
judgment or decree of the reference court or of the appellate court, the
H execution court will have necessarily to reject the claim for interest on
GURPREET SINGH v. U.0.1. [ BALASUBRAMANYAN, J.]
427
.
.
.
i
\
solatium b~sed on Sunder_'s case on the ground that the execution court ca,nnot A
go behind the decree. But if the award of the reference court or that of the
appellate court does not specifically refer to the question of interest. on
solatium or in cases where claim had not been made and rejected either .
1
expressly or impliedly by the reference court or the appellate court, and
merely interest on compensation is awarded, then it would be open to the B
execution court to apply the ratio of Sunder and say that the compensation
awarded includ.S solatium and in such an event interest on the amount could
be directed to be deposited in execution. Otherwise, not. Such interest on.
solatium can be claimed only in pending executions and not in closed
executions and the execution court will be entitled to permit its recovery from
"\
the date of the judgment in Sunder(September 19, 2001) and not for any prior C
period. It is clarified in exercise of power under Articles 141and142 of the
Constitution oflndia, with a view to avoid multiplicity of litigation on this
question, that this will n_ot entail any re-appropriation or fresh appropriation
by the decree-holder. (452-E-H; 453-A-B]
Sunder v. Union of India, (20011 Suppl 3 S.C.R. 176, approved.
D
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4570 of2006.
. ... ··
From the final Judgement and Order dated 10.4.2003 of the High Court
of Punjab and Haryana at Chandigarh in Civil Rev. No. 77312003 (0 & M).
WITH
C.A. Nos. 4549, 4548 and 4547 of2006.
. .
Mukul Rohatgi, P.S. Narasimha, Sridhar Potaraju, Avijeet K. Lala (for Ml
E
s. P.S.N. & Co.), S.M. Sarin, P.N. Puri, Rohit Rao and John Mathew for the F
Appellant.
(
A. Shara~, A.S.G., T.M. Mohd. Yuseff, S.W.A: Qadri, Anil Katiyar,
Shishir Pinaki, Shalinee Ranjan, Amit Anand Tiwari and Sushma Suri for the
Respondent._
· · ·
·
·
'
The Judgment of the Court was delivered by
PJ(. BALASUBRAMANY AN, l. I. What is the rule of appropriation in
execution of money decrees? ls the rule the same in the case of an award
decree under the Land Acquisition Act or, is there anything in the Land
G
H
428
SUPREME COURT REPORTS (2006) SUPP. 7 S.C.R.
.
.
A Acquisition Act, I 894 as amended by the Land Acquisition (Amendme~t)
Act, Act 68 of 1984 making thatrule inapplicable or riot wholly applicable?
These are the questions that arise for consideration in these Petitions for
Special Leave to _Appeal.
2. Leave granted.
B
3. In Prem Nath Kapur & Anr. v. National Fertilizers Corporation of
India Ltd. & Ors., (1995) Suppl. 5 SCR 790, a three Judge Bench of this Court
held that the expression 'compensation' under Section 23(1) of the Land·
Acquisition Act, 1894 as amended by Act 68 of 1984 (hereinafter referred to
as, "the Act") read in the context of Section 28 or Section 34 thereof, by
C necessary implication excludes solatium and that no interest is payable on
solatium or on. the additional amount under Section 23(l)(A) of the Act. In
other words, it was held that the liability to pay interest was only on the
excess amount of compensation determined under Section 23(1) of the Act by
the Civil Court either under Section 26 or on appeal under Section 54 of the
· D . Act over and above the amount awarded under Section 11 o.f the Act It was
also held that the normal rule of appropriation contained in Order XXI Rule
I of the Code of Civil Procedure relating to execution of decrees for recovery
of money, stands excluded by Sections 28 and 34 of the Act and the principles
of Order XX\ Rule I of the Code could not be extended to execution of award
decrees under the Act. The view as regards the content of the expression
E 'compensation' occurring in Section 23(1) and Section 28 of the Act was
overruled by a Constitution Bench in Sunder v. Union of India, (2001) Suppl.
3 SCR 176, wherein it was held that the expression 'compensation'. awarded
would include not only the total sum arrived at as per Section 23(1) but also
the sums under the remaining sub-sections of Section 23. Thus, one part of
,F the decision in Prem Nath Kapur (supra) stood overruled, though the
Constitution Bench did not say anything about the other aspect dealt with
,therein, namely, the mode of appropriation of the amount due under an award
. decree. When these cases came up before a Bench of three Judges, this
~ G
H
aspect was noticed. The learned Judges felt that· the question whether this
part of the judgment in Prem Nath Kapur (supra) would survive the reasoning
in Sunder (supra) had to be reconsidered and even otherwise, the correctnes~
of the view expressed therein required reconsideration at the hands of a
.,
Constitution Bench. It is thus that these Petitions for Special Leave to Appeal
have come before us. The question for which the answer is sought from us
is indicated by the order of reference in the following words:
"Having heard the learned counsel for the parties and having perused
GURPREET SINGH v. U.0.1. [ BALASUBRAMANYAN, .I.]
429
the aforesaid decisions, we are of the view that the normal rule that A
in case of a debt due with interest, any payment made by the debtor,
in the first instance, is to be appropriated .towards the satisfaction of
interest and thereafter towards principal, subject to a contract to the
contrary, is not excluded by the provisions of the Act. The normal
principle is embedded on the basis of Section 60 of the Indian Contact B
Act, 1872. It is also indicated in Order XXI Rule 1(3)(c) of the Code.
We may note that the decision in Prem Nath Kapur & Anr. (supra)
though has been over-ruled by the Constitution Bench in Sunder v.
Union of India, [200 I] 7 SCC 211 but the Constitution Bench has not
gone into the question of appropriation. The question of appropriation,
in the decision in Prem Nath Kapur & Anr. (supra), requires to be re- C
considered."
Thus, the question that requires to be answered is whether the rule, of what
may be called the different stages of appropriation, set out in Prem Nath
Kapur (supra) is correct or whether the rule requires to be re-stated on the
scheme of the Land Acquisition Act understood in the context of the general D
rules relating to appropriation and the rules relating to appropriation in execution
of money decrees and mortgage decrees.
4. Appropriation is the act of setting apart or assigning a thing or
substance to a particular use or person to the exclusion of others; application
to a special use or purpose. There are three specialised meanings of the term, E
(i) In company accounting, it is the division of pre tax profits between
corporation tax, company tax, company reserves and dividends to shareholders.
The term works in the same sense in a partnership situation.
(ii) In the shipping of produce, the appropriation is the document by F
which the seller identifies to the buyer the relevant unit in shipment.
(iii) If a debtor makes a payment to a creditor and does not specify
which debt the payment is in settlement of, the creditor may appropriate it to
any of the debts outstanding on the debtor's ao.,ount. This is often known G
as appropriation of payments.
(See P. Ramanathrd1yar' Advanced law lexicon, 3rd Edition, 2005 page 315)
5. We are concerned with the last of the specialized meanings assigned
to the term.
H
430
SUPREME COURT REPORTS (2006] SUPP. 7 S.C.R.
A
6. The question in the sense in which we are concerned with it, arises
when a debtor makes a payment which does not satisfy the full debt or, in
other words, remains a part-payment. The general rule of appropriation is set
out in Halsbwy ·s laws of England, Fourth Edition, thus,
"Where several distinct debts are owing by a debtor to his creditor,
B
the debtor has the right when he makes a payment to appropriate the
money to any of the debts that he pleases, and the creditor is bound
if he takes the money, to apply it in the manner directed by the debtor.
If the debtor does not make any appropriation at the time when he
makes the payment, the right of appropriation devolves on the creditor.
C
An appropriation by the debtor need not be made in express
D
E
F
terms, but must be communicated to the creditor or be capable of
being inferred; it may be inferred where the nature of the transaction
or the circumstances of the case are such as to show that there was
an intention to appropriate."
7. The principle of appropriation is set out in Chitty on Contracts, 29th
Edition, Volume I in paragraph 21-059,
"Where several separate debts are due from the debtor to the
creditor, the debtor may, when making a payment, appropriate the
money paid to a particular debt or debts, and if the creditor accepts
the payment so appropriated, he must apply it in the manner directed
by the debtor; if, however, the debtor makes no appropriation when
making the payment, the creditor may do so".
Paragraph 21-061 deals with the creditor's right to appropriate. It is stated,
"where the debtor has not exercised his option, and the right to
appropriate thereof devolved upon the creditor, he may exercise it at
any time "up to the very last moment" or until something happens
which makes it inequitable for him to exercise it."
G The question of appropriation as between principal and interest is set out in
paragraph 21-067 in the following words:
"Where there is no appropriation by either debtor or creditor in
the case of a debt bearing interest, the law will (unless a contrary
intention appears) apply the payment to discharge any intei ... •t due
H
before applying it to the earliest items of principal."
I
GURPREET SINGH v. U.0.1. [ BALASUBRAMANY AN, J.]
431
The relevant provisions governing contractual dealings are found in Sections A
59 to 61 of the Indian Contract Act. According to Pollock and Mulla, Indian
Contract Act, 12th Edition, the underlying principle is that when several
debts are due and owing to one person, any payment made by the debtor
either with an express intimation or under circumstances from which an
intimation may be implied must be applied to the discharge of the debt in the B
manner intimated or which can be implied from the circumstances. Mulla
proceeds to observe,
"In England, 'it has been considered a general rule since Clayton's
case that when a debtor makes a payment he may appropriate it to any
debt he pleases, and the creditor must apply it accordingly'. Where C
several distinct debts are owing by a debtor to his creditor, the debtor
has the right when he makes a payment to appropriate the money to
any of the debts that he pleases, and the creditor is bound, if he takes
the money, to apply it in the manner directed by the debtor. If the
debtor does not make any appropriation at the time when he makes
the payment, the right of appropriation devolves on the creditor."
D
8. The Rule of Appropriation as applied in India was summed up by Mr.
Justice T.L. Venkatarama Aiyar (as he then was) in the Full Bench decision
of the Madras High Court in Marimel/a Suryanarayana v. Venkataraman
Rao, AIR (1953) Madras 458. His Lordship stated:
"The principles governing appropriation of payments made by a
debtor are under the general law well settled. When a debtor makes
a payment, he has a right to have it appropriated in such manner as
E
he decides and if the creditor accepts the payment, he is bound to
make the appropriation in accordance with the directions of the debtor.
This is what is known in England as the rule in 'Clayton's case", F
(1861) 1Mar.572:35E.R. 781 and it is embodied in Section 59, Contract
Act. But when the debtor has not himself made any ap;iropriation, the
right devolves on the creditor who can exercise it at any time, vide
'Cory Bros. & Co. v. Owners of the Turkish. Steamship 'Mecca',
(1897) A.C. 286; and even at the time of the trial : Vide 'Symore v. G
Picket', (1905) 1 K.B. 715. That is Section 60, Contract Act. It is only
when there is no appropriation either by the debtor or the creditor that
the Court appropriates the payments as provided in Section 61,
Contract Act."
H
432
SUPREME COURT REPORTS [2006] SUPP. 7 S.C.R.
A
9. It has to be noted that Sections 59 to 61 of the Contract Act get
attracted only when more than one debt is due from a debtor to the creditor.
The Sections would not get attracted when there is only one debt due. Nor
have they any direct application in a case where the debt due has merged in
a decree and the applicable rule then would be what is provided in the decree
B itself or the general rule applicable in execution of money decrees.
10. Now, we may consider the provisions in the Code of Civil Procedure,
1908 (hereinafter referred to as, "the Code") that have relevance to the issue.
The rule of appropriation in respect of amounts deposited in court or in
respect of payment into court, is contained in Order XXIV of the Code at the
C pre decreetal stage and in Order XXI Rule I at the post decreetal stage.
Though, we are not directly concerned with it, we may notice that special
provisions relating to mortgages are found in Order XXXIV of the Code.
Under Order XXIV Rule I, a defendant in a suit for recovery of a debt may
at any stage of the suit deposit in court such sum of money as he considers
a satisfaction in full of the claim in the plaint. Rule 2 thereof provides for issue
D of notice of deposit to the plaintiff through the court and for payment out
of the amounts to the plaintiff if he applies for the same. Rule 3 specifically
states that no interest shall be allowed to the plaintiff on any sum deposited
by the defendant from the date of such deposit, whether the sum deposited
is in full dischargf: of the claim or it falls short thereof. Rule 4 enables the
E plaintiff to accept the deposit as satisfaction in part and allows him to pursue
his suit for what he claims to be the balance due, subject to the consequences
provided for therein regarding costs. It also deals with the procedure when
the plaintiff accepts the payment in full satisfaction of his claim.
l ·l. Order XXI Rule 1 provides the modes of paying money under a
F decree. It stipulates that all monies payable under a decree shall be paid: (a)
by deposit into the Court whose duty it is to execute the decree, or (b) out
of court, to the decree holder in the manner provided, or ( c) otherwise, as the
court which made the decree directs. Sub-Rule (2) provides that where a
payment is made by deposit into the court or as directed in the decree, the
judgment debtor shall give notice thereof to the decree holder either through
G the court or directly to him by registered post acknowledgement due. Ori any
amount paid by way of deposit into the court or as directed under the decree,
interest, if any, shall cease to run from the date of the service of the notice
referred to in sub-rule (2). Thus, Order XXI Rule 1 after its amendment in the
year 1976 also contemplates the deposit of the decree amount into court and
H the giving of notice thereof to the decree holder and provides further for
GURPREET SINGH v. U.O.L [ BALASUBRAMANY AN. J.]
433
cessation of interest from the date of notice to the decree holder of such A
deposit.
12. Even before the amendment to the Code, in the year 1976, the view
had been taken that the indication given by Rule 3 of Order XXIV of the Code
providing for cessation of the running of interest on notice of the deposit
being given pending a suit, can be extended to execution of decrees. In Mt. B
Amtul Habib v. Mohammad Yusuf, (!LR 40 Allahabad 125), it was held that
where money was paid into court by the judgment debtor in satisfaction of
a decree, interest on the decree will cease from the date of payment in
proportion to the amount paid, although such amount may not in fact be the
whole amount due under the decree. In that case, towards the decree amount C
which included the principal, interest and costs, the judgment debtors
deposited three-fourth of the principal with interest and costs thereon, on a
plea that one-fourth of the principal belonged to themselves, a plea that was
overruled by the High Court compelling the judgment debtors to deposit the
balance one-fourth amount also. The question arose in execution whether the
decree holder was entitled to interest on the full amount of the decree until D
after the decision of the High Court holding that the entire amount must be
deposited or whether interest should not be charged on the whole amount
but it should be charged only on the difference between the amount which
they had deposited in court and the full amount of the decree. In other words,
the question was whether the judgment debtors should be relieved from the E
obligation of paying interest on so much of the amount as they had deposited,
from the date of that deposit. The courts below upheld the plea that interest
should not be charged on the whole amount. In an appeal by the decreeholder, the Division Bench held,
"The matter is not altogether free from difficulty. Order XXIV, rules F
(! ), (2) and (3), provide that in the case of a suit the defendant may
pay into court such sum of money as he considers as satisfaction in
full of the claim. Notice of the deposit is given to the plaintiff, who
is entitled to draw the money out, whether he takes it in full discharge
or not, and no interest is allowed to the plaintiff upon the amount of
the deposit. There is no corresponding provision as to payment out G
of court and the cessation of interest in execution matters, but there
does not seem to be any reason why the same thing should not
happen in execution proceedings as in the case of suits."
After referring to the facts and the position that the court could have ordered H
434
SUPREME COURT REPORTS [2006] SUPP. 7 S.C.R.
A the money to be paid over to the decree holder in partial discharge of the
decree debt soon after the amount was deposited, the court stated,
"We think that in this case we ought to apply the analogy of the
rules which relate to payment into court of money by the defendant
in a suit, and that in this view the decisions of the courts below were
B
correct and should be affirmed."
The same view was taken by the Patna High Court in Gopalje v. Sumrit
Mandar, AIR (1933) Patna 89. After referring with approval to the view
expressed in the above Allahabad case, their Lordships held that the above
decision clearly implied that even if a portion of the decreetal amount was
C paid, it would be a valid payment. In Varki Ouseph v. Narayanan Parameswara
Panicker, AIR (1956) Travancore-Cochin 46 a Division Bench of the
Travancore Cochin High Court after referring to the decisions of the Allahabad
and Patna High Courts, referred to above, and the relevant portions of the
commentaries from Mui/a on the Code of Civil Procedure, held that in the
D case of a decree which awards interest on the principal, interest ceases to run
on the amount deposited in the court under Order XXI Rule l(a) from the date
the decree holder has notice of the deposit. In Mu/la's commentary on the
Code of Civil Procedure 15th Edition Vol. lJl dealing with Rule 3 of Order
XXIV it is stated:
E
"the principle of this rule applies to proceedings in execution; therefore,
if money is paid into Court by a judgment-debtor, no interest should
be allowed to the decree holder on the amount so paid, although such
amount may not in fact be the whole amount due under the decree."
The decision of the Allahabad High Court in Amtul v. Muhammad (ILR
F 40 Allahabad 125) is relied on. We see no reason not to accept the principle
thus enunciated.
13. While dealing with the effect of the deposit made by a judgment
debtor (mortgagor) towards the decree debt in terms of Order XX! Rule 1 of
the Code as it stood prior to its amendment by Act 104 of 1976, this Court
G in Meghraj and Ors. v. Mst. Bayabai and Ors., [1969] 2 SCC 274 held:
H
"Unless the mortgagees were informed that the mortgagors had
deposited the amount towards the principal, and not towards the
interest, and the mortgagees agreed to withdraw money from the court
accepting the conditional deposit: the normal rule that the amounts
•
GURPREET SINGH v. U.0.1. [ BALASUBRAMANY AN. J.]
435
deposited in court should first be ·applied towards satisfaction of the A
interest and costs and thereafter towards the principal would apply.
In Venkatadri Appa Row and Ors. v. Parthasarathi Appa Row,
(LR 17 IA 150) the Judicial Committee of the Privy Council observed
that upon taking an account of principal and interest due, the ordinary
rule with regard to payments by the debtor unappropriated either to B
principal or interest is that they are first to be applied to the discharge
of interest. Lord Buckmaster delivering the judgment of the Borad
observed:
'There is a debt due that carries interest. There are moneys that
are received without a definite appropriation on the one side or on the C
other, and the rule which is well established in ordinary cases is that
in those circumstances the money is first applied in payment of
interest and then when that is satisfied in payment of the capital. That
rule is referred to by Rigby, LJ., in the case of Parr's Banking Co.
v. Yates, (1898) 2 QB 460 in these words:
D
"The defendant's counsel relied on the old rule that does, no
doubt, apply to many cases, namely, that where both principal and
interest are due, the sums paid on account must be applied first to
interest. That rule, where it is applicable, is only common justice. To
apply the sums paid to principal where interest has accrued upon the E
debt, and is not paid, would be depriving the creditor of the benefit
to which he is entitled under his contract.'
Learned counsel for the appellant contended that in Venkatadri
Appa Row's case (supra) there was no specific appropriation by the
debtor, whereas in the present case there is specific direction by the F
debtor. But the normal rule is that in the case of a debt due with
interest any payment made by the debtor is in the first instance to be
applied towards satisfaction of interest and thereafter to the principal.
It was for the mortgagors to plead and prove an agreement that the
amounts which were deposited in Court by the mortgagors were
accepted by the mortgagees subject to a condition imposed by the G
mortgagors."
14. In Industrial Credit & Development Syndicate Now Called l.C.D.S.
Ltd v. Smithaben H. Patel (Smt.) and Ors., [1999] 1 SCR 555, this Court
considered the question whether Sections 59 to 61 of the Contract Act would H
436
SUPREME COURT REPORTS [2006] SUPP. 7 S.C.R.
A apply to a debt that has merged in a decree. This Court held that Sections
59 and 60 of the Contract Act would be applicable only at pre-decreetal stage
and not thereafter, since post decreetal payments are to be made either in
terms of the decree or in tem1s of the agreement arrived at between the parties,
though on the general principle as mentioned in Sections 59 and 60 of the
B Contract Act. It was also held that the general rule of appropriation towards
a decreetal amount was that such an amount was to be adjusted strictly in
accordance with the directions contained in the decree and in the absence of
such direction, adjustments be made firstly in payment of interest and costs
and thereafter in payment of the principal amount, subject of course, to any
agreement between the parties.
c
15. We may now advert to Order XXXIV of the Code, dealing also with
the execution of mortgage decrees. Rule I 0 of Order XXXIV provides for
costs of the mortgagee subsequent to the decree and enables the court to
permit the mortgagee to add to the mortgage money such costs of the suit
and other costs, charges and expenses as have heen properly incurred by him
D since the date of the preliminary decree for foreclosure, sale or red~mption up
to the time of actual payment. Under Rule 11, where interest is legally
recoverable, the court may order payment of interest to the mortgagee as
provided in that Rule. Rule 12 deals with sale of property subject to prior
mortgage and provides for payment out of the said proceeds to the prior
E mortgagee the same interest in the proceeds of the sale as he had in the
property sold. Under Rule 13, after the proceeds are brought into court, the
rule of application of the funds is set out. The amount must be applied first
in payment of all expenses incident to the sale or properly incurred in any
attempted sale; secondly, in payment of whatever is due to the prior mortgagee
on account of the prior mortgage, and of costs, properly incurred ih connection
F therewith; thirdly, in payment of all interest due on account of the mortgage
in consequence whereof the sale was directed, and of the costs of the suit
in which the decree directing the sale was made; fourthly, in payment of the
principal money due on account of that mortgage; and lastly, the residue (if
any) shall be paid to the person proving himself to be interested in the
G property sold, or if there are more such persons than one, then to such
persons according to their respective interests therein or upon their joint
receipt. Under sub-Rule (2) it is made clear that nothing in that Rule or Rule
12 shall affect the powers conferred by Section 57 of the Transfer of Property
Act.
H
16. A Full Bench of the Lahore High Court in Jai Ram v. Sulakhan Mal,
GURPREET SINGH v. U.O.L [ BALASUBRAMANY AN, J.]
437
AIR (1941) LAHORE 386 considered the position in detail. That was a case A
where the property had been sold in execution of a mortgage decree and the
question was about the appropriation of the sale proceeds brought to court.
The question was referred to the Full Bench in view of the conflict of
decisions in that Court on the mode of appropriation. The Full Bench held
that Sections 59 to 61 of the Contract Act embody the general rules as to B
appropriation of payments in cases where a debtor owes several distinct
debts to one person and voluntarily makes payment to him. The Sections do
not deal with cases in which principal and interest are due on a single debt,
or where a decree has been passed on such a debt, carrying interest on the
sum adjudged to be due under the decree. After thus finding that Sections
59 to 6 I of the Contract Act had no application, the Full Bench proceeded C
to hold that the general rule of appropriation of payments towards a debt was
that in the absence of a specific indication to the contrary by the debtor, the
money is first applied in payment of the interest and then when that is
satisfied, in payment of the capital. That principle applied 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 D
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 payable in the decree. Referring to
Rules 12 and 13 of Order XXXIV of the Code, it was stated:
"It will be seen that in the case dealt with in this rule, after the prior
mortgagee has been paid off in full, the balance is to be applied first
E
in payment of the interest due on the mortgage, in consequence of
which the property was sold, and the costs, and the balance in
payment of the principal. This is in accord with the· general rule and
there seems no reason why a different principle should be adopted F
when the property is not subject to a prior mortgage."
I 7. Order XXXIV of the Code contains a scheme of appropriation in a
case where Rules 12 and 13 of that Order apply and there is a prior mortgage
that remains to be satisfied.