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1980 DIGILAW 182 (KER)

GEORGEKUTTY v. THOMAS

1980-08-07

P.JANAKI AMMA

body1980
Judgment :- 1. The petitioners obtained a decree against the respondent for recovery of money on the basis of a Chitty-hypothecation bond. While the decree was being executed the judgment-debtors filed E. A. No. 1492 of 1977 for relief under the Kerala Debt Relief Act 17 of 1977 (for short the 'Act') alleging that his annual income and the decree-debt did not exceed Rs. 3,000/-. The Additional Munsiff, Shertallay allowed the petition and held that the decree-debt must be deemed to have been discharged. This order is challenged by the petitioners. 2. The decree is based on a compromise. The principal amount under the decree is Rs. 2,390/-. The decree allowed costs amounting to Rs. 402.20 and interest on the principal amount at b% per annum. The decree amount is permitted to be paid in instalments of Rs. 200/- The total amount on the date of the decree was Rs. 3,382 20. In the execution petition filed on 23 51977 credit was given to payments made subsequent to the decree and the balance amount was Rs. 2,879.43. Under the provisions of the Act a person is entitled to relief if on the relevant date his yearly income and the debt excluding interest did not exceed Rs 3,000/-. The petitioners produced before the executing court Ext. B-1, a hypothecation bond for Rs. 990/- executed by the respondent and contended that the liabilities of the respondent exceeded Rs. 3,000/-. He also contended that the annual income of the petitioner was more than Rs. 3,000/-. The respondents' case was that for purposes of the Act interest should be excluded and if the payments made by him were to be credited towards principal, the balance debt for the purpose of the Act on the relevant date was. only Rs. 1,390/-. He also pleaded discharge of the liability under Ext. B-1. The Munsiff accepted the case that the payments should be credited towards the principal but not the discharge pleaded in respect of Ext. B-1 debt. The Court also held that the petitioner failed to make out that the income of the respondent did not exceed Rs. 3,000/-. Holding that the total liability of the respondent for purposes of the Act was only Rs. 2,380/-, the Court allowed the claim and declared that the decree stood discharged. The revision petition is against the order... 3. The Court also held that the petitioner failed to make out that the income of the respondent did not exceed Rs. 3,000/-. Holding that the total liability of the respondent for purposes of the Act was only Rs. 2,380/-, the Court allowed the claim and declared that the decree stood discharged. The revision petition is against the order... 3. The dispute between the parties really rests on the mode of appropriation to be adopted in respect of the payments made towards the degree debt. The executing Court has not given reasons for crediting the payment towards the principal. It appears that the Court proceeded on the footing that since the Act excludes interest in the definition of 'debt', whatever payments have been made should be appropriated towards the principal. The Court ignored the appropriations already made by the decree holder and held that if payments are credited towards the principal, the 'debt' would be less than Rs. 3,000/-, the limit fixed under the Act. 4. The mode of appropriation adopted by the Court is not in consonance with well recognised principles regarding appropriation of payments. There is no case for the judgment-debtors that when he paid the amount there was a specific direction that it should be appropriated towards the principal. Under S.60 of the Contract Act, where the debtor has omitted to intimate and there are no other circumstances indicating to which debt the payment is to be applied, the creditor may apply it at his discretion to any lawful debt actually due and payable to him from the debtor, whether its recovery is or is not barred by the law in force for the time being as to the limitation of suits., The principle underlying the provision is applicable in the case of appropriation of interest in respect of a debt. The English law on the subject is dealt with in Chitty on Contracts in Para.1179 (Twenty-third Edition) as follows: Appropriation as between principal and interest. Where there is no appropriation by either debtor or creditor in the case of a debt bearing interest, the law will apply the payment to discharge any interest due before applying it to the earliest items of principal unless a contrary intention appears." 5. The Privy Council had occasion to consider this question on a number of occasions, the earliest being Venkatadri v. Parthasarathi (44 Madras 570). The Privy Council had occasion to consider this question on a number of occasions, the earliest being Venkatadri v. Parthasarathi (44 Madras 570). Lord Buckmaster in the judgment in the above case referred to the following passage, Parr's Banking Company v. Yates, (1898) 2 Q. B. 460 at 466: "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." The above principle was followed by the Privy Council in the case mentioned and in later decisions and also by the Federal Court: (See Rai Bahadur v. Radha (26 CWN 153); Akbar v. Attar (AIR 1945 PC 170); Bennison v. Shiber (AIR 1946 PC 145); Shanmugam v. Anna (AIR 1950 FC 38) ). It is thus well established that in a case where the debt carries interest, ordinarily any sum paid towards the transaction should first be applied in discharge of interest and after interest is satisfied in payment of capital. The underlying reason is that if payments are first appropriated towards the principal, the principal would get itself dwindled and though the liability under the transaction would subsist even after the principal is wiped out the creditor would be losing the interest for the subsequent period which he is otherwise entitled to. 6. The above principle of appropriation has been recognised not only in the case of money decrees but also in cases of mortgages. S.69 of the Transfer of Property Act deals with application of sale proceeds in execution of a decree for mortgage. 6. The above principle of appropriation has been recognised not only in the case of money decrees but also in cases of mortgages. S.69 of the Transfer of Property Act deals with application of sale proceeds in execution of a decree for mortgage. how the above provision is to be worked out is given in O.34 R.13, Civil Procedure Code, which reads: "Such proceeds shall be brought into Court and applied as follows: 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 in connection 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; ............................................................................ It admits of no doubt that the principle underlying the above rule would apply in respect of amounts paid even prior to the sale. 7. The exclusion of interest in the definition of 'debt' under the Act. does not affect the appropriation effected prior to the Act 'in the absence of a specific provision in the Act for reopening payments already made. The procedure followed by the executing Court is not warranted by the provisions of the Act. What the Court is expected to do is to find out the balance amount due under the concerned transaction on the date of commencement of the Act and deduct from it the excluded category, viz, interest outstanding and find out whether the balance together with other liabilities of the claimant exceeded Rs. 3,000/-. If it did the claimant is not entitled to relief under the Act. 8. In the instant case, the payments made by the respondent were insufficient even to discharge the interest due till the date of the commencement of the Act. The whole of the principal amount of Rs. 2,390/- and costs decreed, viz., Rs. 404 05 stood undischarged on the date of the commencement of the Act. The liability of the respondent on the date of the commencement of the Act consisted of the above amounts and the amount under Ext. B-1. Since the total liabilities were for more than Rs. 2,390/- and costs decreed, viz., Rs. 404 05 stood undischarged on the date of the commencement of the Act. The liability of the respondent on the date of the commencement of the Act consisted of the above amounts and the amount under Ext. B-1. Since the total liabilities were for more than Rs. 3,000/- the respondent is not entitled to relief under the Act. The revision petition is, accordingly, allowed, the order passed by the executing court will stand vacated, and E. A. No. 1492 of 1977 will stand dismissed. The parties will bear their respective costs. Allowed.