# MEGHRAJ & ORS v. MST. BAYABAI & ORS

- **Citation:** [1970] 1 S.C.R. 523
- **Court:** Supreme Court of India
- **Decided:** 1969-04-30
- **Bench:** J. C. Shah, G. K. Mitter
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/meghraj-ors-v-mst-bayabai-ors-4835
- **Pages:** 7

## Headnote

MortgGge-Money deposited in Court towards principal, effect of-,
Interest-Some mortgagee Firm's Partners migrated to Pakistan-Custodian
of Evacuee Property impleaded-Ef/ect of.
Madhya F1adesh Money Lenders Act (Madli. Pra. 13 of 1934), s. 9lnterest lvhether can exued principal.
A preliminary decree was obtained by the mortgagee-firm for recovery
of the principal, interest at 3 % and costs by sale of the mortgaged property. The High Court in affirming the decree, directed payment of the
decretal amount by November 10, 1946, and awarded interest at 3%
from the date of suit to Auf1St 11, 1941 and thereafter at 4% till the date
of satisfaction.
In an apphcation for clarification of the order the Hiah
Court directed that interest 'be paid at 3 % from October 5, 1936 till
A11gust 11, 1941 on the amount decreed by the trial court and at 4%
thereafter till November 10, 1946.
During the pendency of an appeal
by the mortgagor against the preliminary decree some of the partners of
the mortgagee-firm migrated to Pakistan, and were declared evacwees.
The court ordered that the Custodian of Evacuee Property be impleaded
as a party respondent in the appeal.
The appeal filed in this Court was
dismissed.
Thereafter the only partner of the mortgagee,.firm who had not migrated,
for himself and as agent of the evacuees applied for a decree absolute
for sale.
The Custodian of Evacuee Property resisted the
application.
Ultimately the High Court ordered that the Custodian of Evacuee Property
be joined as a party to the application for decree absolute for sale, ob&erving
that the respective rights of the Custodian of Evacuee Property and the
partners of the mortgagee firm were not decided in that proceeding: Tile
mortgagors contested the application, contending that (i)
on proper
accounting nothinJ WaH due against them since they had made deposits
towards the principal in the Court 0. 21 r. 1 C.P.C. as and in making
some deposits they bad informed the court that the payments were made
towards the principal due; (ii) the High Court by its order clarifying the
decree restored the rate of interest awarded
by the trial court after
November IO, 1946; (iii) the mortgagee could not be awarded as interest
an amount exceeding the principal, because of s. 9 of the Madhya Pradesh
Money Lenders Act, 1934; and (iv) the Custodian of the Evacuee Property was not entitled to the decree absolute for sale, and drat the only
partner. who had not migrated, could get a decree absolute in respect
only of bis share. Rejecting these contentions, this Court :-
HELD : (i) Unless the mortgagees were informed that the mortgagors
had deposited the amount only towards the principal and not towards
interest, and the mortgagees agreed to withdraw the· money from the court
accepting tho condltiollal deposit, th,. normal rule that the amounts de·
posited in court should first be applied towards satisfaction of the interost
aT1d
co~ts and thereafter towards the principal applied.
There was no
524
SUPREME COURT REPORTS
[ 1' 70] 1 S.C.R.
c:vidr.nce in this C'.risc, tha-. the mortgagees were informed that the money
wa1 dcpoaited towards principal or that the mortgaiccs accepted the pa}-
meot made tov,ranb the principal. f52b C-DJ
Venkatadri A.ppa RoH- and Ors. v. I'arthasarathi Appa Row, L.R. 47
I."<. 150, referred to.
(ii) By directing that interest at 4% from Auaust 12, 1941 to November 10, 1946, it was not, and could not be, inttnded by the High Court
that interest after November 10, 1946 was to be awarded only at 1he
rate of 3 % . No such application was made by the debtors.
The High
Ceurt did not reduce the rate of interest after November 10,
19~6.
(iii) Section 9 of the Madhy" Pradesh Money Lenders Act prohibited
tile courts from awarding interest exceeding the principal of the Joan. But
tke prohibition of the statute was against the making of a decree t'or
arrears of intcr~t exceeding the amount of loan.
In the present CJse
tbe decree awarded interest much leo;s tba11 the princip

## Text

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523
MEGHRAJ & ORS.
v.
MST. BAYABAI & ORS.
April 30, 1969
[J. C. SHAH AND G. K. MITTER, JJ.J
MortgGge-Money deposited in Court towards principal, effect of-,
Interest-Some mortgagee Firm's Partners migrated to Pakistan-Custodian
of Evacuee Property impleaded-Ef/ect of.
Madhya F1adesh Money Lenders Act (Madli. Pra. 13 of 1934), s. 9lnterest lvhether can exued principal.
A preliminary decree was obtained by the mortgagee-firm for recovery
of the principal, interest at 3 % and costs by sale of the mortgaged property. The High Court in affirming the decree, directed payment of the
decretal amount by November 10, 1946, and awarded interest at 3%
from the date of suit to Auf1St 11, 1941 and thereafter at 4% till the date
of satisfaction.
In an apphcation for clarification of the order the Hiah
Court directed that interest 'be paid at 3 % from October 5, 1936 till
A11gust 11, 1941 on the amount decreed by the trial court and at 4%
thereafter till November 10, 1946.
During the pendency of an appeal
by the mortgagor against the preliminary decree some of the partners of
the mortgagee-firm migrated to Pakistan, and were declared evacwees.
The court ordered that the Custodian of Evacuee Property be impleaded
as a party respondent in the appeal.
The appeal filed in this Court was
dismissed.
Thereafter the only partner of the mortgagee,.firm who had not migrated,
for himself and as agent of the evacuees applied for a decree absolute
for sale.
The Custodian of Evacuee Property resisted the
application.
Ultimately the High Court ordered that the Custodian of Evacuee Property
be joined as a party to the application for decree absolute for sale, ob&erving
that the respective rights of the Custodian of Evacuee Property and the
partners of the mortgagee firm were not decided in that proceeding: Tile
mortgagors contested the application, contending that (i)
on proper
accounting nothinJ WaH due against them since they had made deposits
towards the principal in the Court 0. 21 r. 1 C.P.C. as and in making
some deposits they bad informed the court that the payments were made
towards the principal due; (ii) the High Court by its order clarifying the
decree restored the rate of interest awarded
by the trial court after
November IO, 1946; (iii) the mortgagee could not be awarded as interest
an amount exceeding the principal, because of s. 9 of the Madhya Pradesh
Money Lenders Act, 1934; and (iv) the Custodian of the Evacuee Property was not entitled to the decree absolute for sale, and drat the only
partner. who had not migrated, could get a decree absolute in respect
only of bis share. Rejecting these contentions, this Court :-
HELD : (i) Unless the mortgagees were informed that the mortgagors
had deposited the amount only towards the principal and not towards
interest, and the mortgagees agreed to withdraw the· money from the court
accepting tho condltiollal deposit, th,. normal rule that the amounts de·
posited in court should first be applied towards satisfaction of the interost
aT1d
co~ts and thereafter towards the principal applied.
There was no
524
SUPREME COURT REPORTS
[ 1' 70] 1 S.C.R.
c:vidr.nce in this C'.risc, tha-. the mortgagees were informed that the money
wa1 dcpoaited towards principal or that the mortgaiccs accepted the pa}-
meot made tov,ranb the principal. f52b C-DJ
Venkatadri A.ppa RoH- and Ors. v. I'arthasarathi Appa Row, L.R. 47
I."<. 150, referred to.
(ii) By directing that interest at 4% from Auaust 12, 1941 to November 10, 1946, it was not, and could not be, inttnded by the High Court
that interest after November 10, 1946 was to be awarded only at 1he
rate of 3 % . No such application was made by the debtors.
The High
Ceurt did not reduce the rate of interest after November 10,
19~6.
(iii) Section 9 of the Madhy" Pradesh Money Lenders Act prohibited
tile courts from awarding interest exceeding the principal of the Joan. But
tke prohibition of the statute was against the making of a decree t'or
arrears of intcr~t exceeding the amount of loan.
In the present CJse
tbe decree awarded interest much leo;s tba11 the principal. [529 BJ
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(iv) The court was concerned in the
pres~nt proccc<ling to pass a
4ccree absolute tor !lale ir. a mortgage suit.
It was not concerned to
determine the respective rights of the mortgagees inttr -~t". The mortgagees·
iatcrest was fully represented
l-~fore the- _Court.
Whether or not the
Cu'1.oclian Jf Evacurc Propeny was cntitJed to tne monc~ or that the
cvacu.eea had a subsisting intereti.t wns a matter which co~1ld nvl he decided
D
ia tbis appeal. That was made clear by the judgment of t~·· Hieb Court
in the applicatjor. filed by the Custodian of Evacuee Property. 1529 D]
CIVIL APPELLATF. JL'RISDICTION:
Civil Appeal No. 60! of
1,65.
Appeal by special leave from the order dated November 30,
E
1964 of the Bombay High Court, Nagpur Bench in First Appeal
No. 80 of 1964.
G. L. Sanghi and J. B. Dadachanji, for the appellants.
W. S. Bar/ingay, R. Maha/ingier and Ganpat Rai, for respoadent No. 6.
F
B. D. Sharma and S. P. Nayar, for respondent No. 11.
The Judgment of the Court was delivered by
Sbab, J. Seth Haroun and Sons a firm had ten partners. The
Hindu undivided family of Jethamal Ramkaran mortgaged a
house belonging. to it to Seth Haroon and Sons to secure repayment of Rs. 40,000 due at the foot of an account.
Seth Haroon
and Sons filed suit· No. 12-A of 1936 for recovery of their dues
by iale of the mortgaged house.
On December 28,
1940, a
decceo was passed in the suit by the Additional District Judge.
The case was carried in appeal to the High Court of Nagpur.
But the appeal was dismissed subject to a slight modification to
be presently noticed.
An appeal was carried against the decree
to ttm Court.
During the pendency of the appeal to this ,Court.
nine out of ten members of Seth Haroon and Sons migrated to
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MEGHRAJ V. BAYA BAI (Shah, J.)
525
Pakistan and were declared evacuees.
By an oroer passed by this
Court on March 28, 1958, the Custodian of J;!vacuee Property
was impleaded 'as a party respondent in the appeal filed by the
mortgagors.
This Court dismissed the appeal on August 8,
1958.
Thereafter the 6th plaintiff Mohammad Ayyub-the only
member of the firm who had not migrated, for himself and as
agent of the evacuees under a general power of attorney applied
for -a decree absolute for sale.
The Custodian of Evacuee Property resisted the application filed by Mohammad Ayyub.
Ultimately by the order passed by the High Court of Bombay the
Custodian of Evacuee Property was joined as a party to the application.
The Court however observed that the respective rights
of the Custodian of Evacuee Property and the partners of Seth
Haroon and Sons were not decided in that proceeding.
Diverse contentions were raised by the mortgagors~ they contended, inter alia tl)at on proper account being taken nothing was
due by them on the: mortgage, that interest was wrongly calculated
at the rate of 4% per annum, that the claim f,or recovery costs
was barred by the law of limitation and that interest could not
be awarded on costs.
The learned Trial Judge substantially
rejected the conte~ons raised by the mortgagors and passed a
decree, for Rs. 34,612~81 being the aggregate of Rs. 33,866-51 as
principal and Rs. 746-30 as interest.
An appeal filed against
that order was suII!marily dismissed by the High Court.
With
special leave, this ~ppeal is preforred by the mortgagors.
Counsel for the mortgagors contended that on a proper
account of the monies paid by them in satisfaction of the dues
under the mortgage decree, this mortgage was satisfied and the
mortgagees were overpaid.
Counsel contended that from time to
time payments were made by the mortgagors with specific directions that the amounts paid were to be credited towards the principal and not towai;ds interest and if the amounts so paid were in
the first instance credited towards the principal, it would be found
that the mortgage dues had been overpaid.
Now, the learned
Trial Judge observed that Exts. 44 to 55 relied upon by the
mortgagors were silent as to any specific directions
that the
amounts paid in Court were to be appropriated only towards the
,principal.
Cbunsel for the appellant has invited our attention to
certain applications, made at the time of making .deposits in Court,
in which it was recited that the amounts were being deposited
towards the principal.
Relying upon these recitals it was urged
that the Trial Court was in error in holding that there . were no
directions for. appropriation of payments towards the principal.
We have not thou~t it necessary to ascertain the tot:\! number of
applications in which recitals were made by the mortgagors at the
time of making part payments towards the principal, because on
526
SUPREME COURT REPORTS
[1970] l S.C.R.
the view we take, these recitals, without more, do not assist the
claim of the mortgagors.
Under the preliminary decree ~n amount of Rs. 42,430-2-6
was declared due upto June 23, 1941
towards
principal and
interest.
The mortgagors made no payments under the decree
directly to the mortgagees.
But from time to time they claim to
have made deposits in the Court under 0. 21 r. 1 of the Code of
Civil Procedure, and in depositing some of the amounts the)
<lated that the payments were towards the principal due.
But
there is no evidence on 1be record that the mortgagees were informed that the amounts were deposited towards the principal due.
nor is there evidence that the mortgagees accepted the amounts
towards the principal.
For quite a long time the mortgagees did
not withdraw the amount lying in Court.
Unless the mortgagees
were informed that the mortgagors had deposited the amount only
towards the principal and not towards the interest, and the mortgagees agreed to withdraw the money from the Court accepting
the conditional deposit. the normal rule that the amounts deposited in Court should fiN be applied towards satisfaction
of the
interest and costs and thereafter towards
the
principal would
;:ppl\'.
In Vc11ka1adri Appct Rmv and Others v. Parthasarathi Appa
Row( 1 ) the Judicial Committee of the Privy Council observed
that upon taking an account of prinicipal and interest due, the
ordinary rule with regard to payments by the debtor unappropriated either to principal or interest is that they are first to be applied
to the discharge of interest.
Lord Auchmaster
delivering the
itidgmcnt of the Board observed :
"There is a debt due that carries interest.
There are
moneys that are rcq:ived without a definite appropriation on the one side or on the 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, L. J., in the
case of Parr's Barking Co.
v.
Yates-[ ( 1898 2 Q.B.
460] in these words : "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 debt,
and is not
paid,
would be depriving the creditor of the benefit to which
he is entitled under his contract."
(I) L.R .. 17 I.A. llO.
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MBGH!lAJ V. BAYA BAI (Shah, J.)
527
Counsel for the appellant contended that in Venkatadri Appa
Row's(') case there was no specific appropriation by the debtor,
whereas in the present case there is specific direction by the 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 agr.:ement-that the amounts which were deposited in Court by · the
mortgagors were accepted by the mortgagees subject to a condition imposed by the mortgagors.
In the present case there is no
evidence which supports the contention raised by counsel for the
appellant.
Counsel urged that, in any event, when an account was finally
submitted by the mortgagees they were aware of the fact that certain amounts were paid in Court and they knew that those amom1ts
were paid conditionally and when the mortgagees withdrew the
amounts deposited in Court they must be deemed to have accepted
the conditions subject to which the amounts were deposited.
But
the account submitted by the mortgagees shows clearly that they
had given credit for the amounts deposited towards the interest
an!f costs in the first instance and the balance only towards the
principal.
The account submitted by the mortgagees
clearly
negatives the plea of the mortgagors.
·
An argument somewhat faintly suggested before us that it is
the privilege of the debtor to impose conditions subject to which
any payment is to be made by the mortgagor, and the mortgagee
is bound to accept the condition needs no serious consideration.
It was next urged that the decree was passed by the Trial
Court awarding interest at the rate of 3 % per annum and the
order of the High Court in appeal modifying the original decree
by awarding interest at the rate of 4% was erroneous.
Under
the decree of the Trial Court interest was awarded at 3 % . In
appeal Interest was awarded by the' High Court at 4%. Thereafter by a modification in an application for correction of the
decree interest at 4% per annum was awarded from August 12,
1941 to November 10, 1946.
It was urged, relying up<in the
order modifying the rate of interest, that from November 11,
1946 the mortgagees were entitled only to interest at the rate of
3 % . There is n~ substance in that contention also.
The High
Court by order dated August 10, 1946, observed :
"A preliminary decree for sale shall be drawn
a~cordingly and the .defendants (the appellants) are
given three months Ume from today to pay off the
decretal amount.
The amount shall carry interest at
(I) L.R. 47 I.A. ISO.
528
SUPREME COURT REPORTS
[1970) l S.C.R.
the rate or 3% per annum from the date of suit to
11-8-1941 and at the rate of 4%
per annum from
12-8-1941 to the date of satisfaction."
Apparently the decree drawn up by the High Court was not consistent with the directions given in the judgment, and an application was made to rectify certain mistakes in the decree.
One of
the grounds urged in support of the application was that interest
should have been computed only on the principal out of the tot<11
of Rs. 35.299-1-6.
The Coun rejected the application holding
that the Trial C:oun had decreed the claim of the mortgagees and
that interest was payable on Rs. 35,299-1-6 and the High Court had
confirmed the decree holding that the amount of Rs. 35,299-1-6
was principal.
The High Coun observed that it was not relevant
to consider whether that deci~ion was right, because there wa~ no
application for review of judgment.
They then directed that "the
interest will accordingly be calculated on Rs. 35,299-1-6 at 3%
from October 5, 1936 till August 11, I 941 and at 4%
from
'\ugust 12, 1941 till November
10,
1946.
This
comes
to
R.s. 50,8 I0-4-6.
The decree will
be amended accordingly."
Relying upon this direction, counsel for the appellants contended
that the High Court by order dated March 31. 1947, restored for
the period after Novemher I 0. 1946. the rate of interest as originally awarded by the Court of First Instance. We are unable to
hold that the direction is capable of that interpretation.
By directing that interest at the rate of 4% from August
12.
1941
to
November JO, 1946.
shall be calculated on Rs. 35.299-1·6, it
was not, and could not be. intended by the
High
Court that
interest after November 10, 1946, was to he awarded only at the
rate of 3%. \'o such application was made bv the debtors.
It
was apparently contended that the amount of Rs. 35,299-1-6 a'
claimed by the plaintiffs in the original suit included interest, and
interest could be computed on the amount which formed
the
principal.
The High Court, in view of the decree passed by the
Trial Court and confirmed by it declined to enter into that controversy and indicated the manner in which the inte~t was lo be
calculated between October 5, 1936 and November 10, 1946.
The High Court did not reduce the' rate of interest lor the period
~fter November 10, 1946, i.e. the date fixed for redemptton of
mortgage under the decree of the High Court.
Counsel then urged that in any event the mortgagees 3re not
entitled to interest exceeding the principal.
Reliance in this connection was placed upon the Madhya Pradesh Money Lenders
Act 13 of 1934.
Section 9 of that Act provides :
"Notwithstanding anything contained in any other
enactment for the time being in force. no court original
or appellate shall decree, in respect of any loan made
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MEGHRAJ V. BAYA BAI (Shah, J.)
before this Act comes into force, on account of arrears
of inter<:st, a swn greater than the principal of such
loan:·
529
The section prohibits the Courts from awarding interest exceeding
the principal of the loan.
Counsel for the appellants contends
that if all the amounts deposited from time to time by the debtors
be aggregated, it will l\ppear that an amount exceeding the 'Joan
was paid. But the prohibition ol the statute is agains.t the making
of a decree for arrears of interest exceeding the amount 'of 10&11.
In the present case the decree awards interest amounting to
Rs. 746-30, whereas the principal is Rs. 33,866-51.
Finally, it was contended that the Custodian of Evacuee Property is not entitled to claim a decree absolute for sale, and only
Mohammad Ayyub-one of the partners in the firm
of Seth
Haroon and Sons-may alone be given a decree absolute in respect of his share.
That contention is ·futile.
The Court is concerned at this stage to pass a decree absolute for sale in a mortgage suit. It is not concerned to determine the respective rights
of the mortgagees inter se . . The mortgagees' interest is fully represented befoi-e the Court.
Whether or not the Custodian of
Evacuee Property is· entitled to the money or tl!at the evacuees
have a subsisting interest is a matter which cannot be decided in
this appeal.
That was made clear by .the judgment of the High
Court in the application filed by the Custodian of Evacuee Property by order dated November 12, 1962, when the High
Court observed :
"Time has not come yet to determine this question
and it is not necessary at this stage to decide what are
the respective rights of the evacuees in the property
which is before the Court as between the evacueeplaintilfs and the Custodian."
The appeal fails and is dismissed with costs.
Y.!',
Appeal dismissed.