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How to adjust payment made in the absence of specific mention about the appropriation – if the amount deposited by the judgment debtor falls short of the decretal amount, the decree-holder is entitled to apply the rule of appropriation by appropriating the amount first towards interest, then towards costs and subsequently towards principal amount due under the decree; = V. KALA BHARATHI & ORS. … APPELLANTS VS. THE ORIENTAL INS. CO. LTD., BR. CHITOOR … RESPONDENT= 2014 (Apr.Part) http://judis.nic.in/supremecourt/filename=41372

 How to adjust payment made in the absence of specific mention about the appropriation – if the amount deposited by the judgment  debtor  falls short of the decretal amount, the decree-holder is  entitled  to  apply  the rule of appropriation by appropriating the amount  first  towards  interest, then towards costs and subsequently towards principal amount due  under  the

decree; =

 

whether the amount deposited by the judgment debtor in a decree is to be  adjusted  first towards interest or towards principal decretal amount. =

 

In view of above and more particularly keeping in  view  the  ratio

of  the  Constitution  Bench  judgment  in  Gurpreet  Singh  (supra),  

where

considering an identical question in respect of Order  XXI  Rule  1  of  the

CPC, 

it was held that 

if the amount deposited by the judgment  debtor  falls

short of the decretal amount, the decree-holder is  entitled  to  apply  the

rule of appropriation by appropriating the amount  first  towards  interest,

then towards costs and subsequently towards principal amount due  under  the

decree; 

we are of the opinion that the appellants  herein  are  entitled  to

the amount awarded by the Executing Court, as the amounts deposited  by  the

judgment  debtor  fell  short  of   the   decretal   amount.   

 After   such

appropriation, the decree-holder is entitled to interest only to the  extent

of unpaid – principal amount.  Hence, interest be calculated  on  the  unpaid  principal

amount.

27.      We, therefore, allow the appeal, set aside  the  impugned  judgment

dated 29.07.2005 passed by the High Court and restore that of the  Executing

Court dated 18.08.2004.

   28. No orders as to costs.

 

  2014 (Apr.Part) http://judis.nic.in/supremecourt/filename=41372

P SATHASIVAM, RANJAN GOGOI, N.V. RAMANA

REPORTABLE

IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION

 

 

CIVIL APPEAL NO. 3056 OF 2008

 

 

V. KALA BHARATHI & ORS. … APPELLANTS

VS.

THE ORIENTAL INS. CO. LTD.,
BR. CHITOOR … RESPONDENT
J U D G M E N T
N.V.RAMANA, J.

 

1. The short question to be answered in this appeal is whether the amount
deposited by the judgment debtor in a decree is to be adjusted first
towards interest or towards principal decretal amount.

2. The facts of the case are – On account of demise of an Engineering
Graduate, Mr. V. Raja Kumar on 29.04.1993 in a road accident, his
legal heirs, i.e., the appellants herein filed a claim petition being
M.V.O.P. 774 of 1993 before the Motor Accident Claims Tribunal (for
short, ‘the Tribunal’) claiming –

3. compensation to the tune of Rs.2 crores. The vehicle involved in the
said accident was insured by the respondent – Insurance Company. The
Tribunal vide its Award dated 29.04.1997 awarded an amount of
Rs.98,40,500/- as compensation with interest @ 12% p.a. from the date
of the petition, i.e., 25.10.1993 till the date of realization, apart
from costs quantified at Rs.99,443/-.

4. Being aggrieved, the respondent – Insurance Company filed an appeal
under Section 173 of the Motor Vehicles Act, 1988 (for short, ‘the
Act’) and to comply with the provisions contained therein, deposited a
sum of Rs.25,000/-. On 15.12.1997, the High Court in C.M.A. No. 1726
of 1997 granted stay of execution of the Award dated
29.04.1997 subject to the condition of depositing a sum of Rs.30 lakhs
and Rs.99,443/- costs, which amounts were undisputedly deposited. The
said order was made absolute on 15.07.1998 subject to the condition of
depositing a further sum of Rs.30 lakhs, which was also complied with.
A Division Bench of the High Court partly allowed the appeal on
19.12.2001 thereby –

5. reducing the compensation amount from Rs.98,40,500/- to Rs.56,40,000/-
, however, the interest rate of 12% p.a. was retained. The respondent
– Insurance Company also deposited a sum of Rs.23,27,635/- on
19.09.2002, claiming to be full and final satisfaction of the award.

6. The appellants filed Execution Petition No. 11 of 2003 on 06.06.2003
before the Executing Court / Tribunal claiming an amount of
Rs.20,16,700/-, which claim was denied by the respondent – Insurance
Company on the ground that its liability to pay interest gets
discharged when it deposits the award amount in full. Thus, relying
on the principle of accrual method, the respondent – Insurance Company
claimed that since it satisfied the award amount in full, no more
interest was payable and as per its calculation, only a sum of
Rs.36,650/- was liable to be paid, which was deposited on 29.07.2003.

7. While adjudicating the aforesaid Execution Petition, the Executing
Court took a view that the amounts deposited by the respondent –
Insurance Company from time to time were liable to be adjusted –

8. towards the component of interest first and thereafter to the portion
of the decretal amount. After taking into consideration the amounts
deposited by the respondent – Insurance Company on different dates,
its liability was fixed vide order dated 18.08.2004 to the extent of
Rs.17,70,657/- together with interest @ 12% p.a. from the date of
filing of the Execution Petition till the date of realization.

9. The respondent – Insurance Company assailed the aforesaid calculation
/ order of the Executing Court dated 18.08.2004 in Civil Revision
Petition No. 4337 of 2004. The appellants herein also filed Civil
Revision Petition No. 6108/2004 thereby challenging that the Executing
Court could not have adjusted the amount paid as costs towards the
decretal amount. The learned single Judge of the High Court of
Judicature, Andhra Pradesh, by judgment dated 29.07.2005, allowed both
the Civil Revision Petitions while holding that (i) the part payments
deserve to be adjusted towards the principal decretal amount and not
any component of interest accrued upto that date; and (ii) the amount
deposited towards costs, in –

10. pursuance of the directions of the court, must be adjusted towards
that, and not towards payment of the decretal amount.

11. Learned counsel for the appellants vehemently contended that the
impugned order cannot be sustained being contrary to law of the land
declared under Article 141 of the Constitution of India (for short,
‘the Constitution’). He also contended that judicial discipline to
abide by declaration of law made by this Court cannot be forsaken
under any pretext by any authority or court, be it even the highest
Court in a State. It tantamount to judicial indiscipline. In support
of his submissions, the learned counsel relied upon the judgment of
this Court Industrial Credit and Development Syndicate (ICDS) Ltd. Vs.
Smithaben H. Patel & Ors. 1999 (3) SCC 80, Venkatadri Appa Rao Vs.
Parthan Sarathy Appa Rao AIR 1922 PC 233, Meghraj Vs. Bayabai 1969 (2)
SCC 274 and Gurpreet Singh Vs. Union of India 2006 (8) SCC 457.
12. On the other hand, learned counsel appearing for the respondent –
Insurance Company contended that, in the facts and circumstances of
the case, there is no –

13. reason to interfere with the impugned order passed by the High Court.

14. We have heard learned counsel for the parties and gone through the
entire material available on record.

15. Before adverting to the various issues involved in the case and the
contentions advanced by the counsel on either side, we have given our
anxious consideration to the judgment impugned of the learned single
Judge of the Andhra Pradesh High Court. The learned Judge, while
adjudicating the issue, has considered the judgments of this Court in
Meghraj (supra), Industrial Credit and Development Syndicate (supra)
and Rajasthan State Road Transport Corporation, Jaipur Vs. Poonam
Pahwa, AIR 1997 SC 2951 and has passed the judgment by giving reasons
which are basis for his conclusion.

11. We feel that it is appropriate to extract the relevant paragraphs
from the impugned judgment.

“It is true that in a plethora of judgments, the Supreme Court as
well as the High Courts took the view that any amount deposited
under Rule 1 of Order 21 CPC must be first adjusted towards
interest. Discussion on those judgments vis-à-vis sub-rules (4) and
(5) of Rule 1 –

of Order 21 C.P.C. is prone to be taken or mistaken as an attempt to
explain the judgments of the Supreme Court or High Courts. However,
since some of the judgments of the Supreme Court were delivered at a
time, when sub rules (4) and (5) were not on the statue book, and in
the judgments rendered thereafter, the attention of the Hon’ble
Supreme Court and the High Courts was not pointedly invited to these
provisions in certain cases or they did not fall for consideration,
it is felt necessary to address the issue…”

“Viewed from this context, it is evident that Parliament added sub
rules (4) and (5) with a definite and avowed object of assessing
the running of interest on the deposits made by the decree holder
into a Court. The background in which those provisions came to be
incorporated has already been indicated in the preceding
paragraphs. Sub Rules (4) and (5) by themselves do not disclose as
to whether the amount should be adjusted towards principal or
interest. However, the expression “interest if any” occurring in
both the provisions is significant. A decree may comprise of
principle amount claimed in the suit, as well as a component of
interest up to the date of decree. Once a decree is passed for
certain amount, it becomes a principle by itself and the liability
to pay interest thereon, and if so, the rate at which it is to be
paid, would depend upon the terms of decree. The amount that
carries the interest till the date of realization would be the one
stipulated in the decree. It is not permissible for a Court to
award interest on interest.
Sub section (3) of Section 3 of the –

Interest Act clearly prohibits grant of interest on interest.
Therefore, the only component of the decree that can be related to
the expression “interest if any” occurring in sub sections (4) and
(5) of Rule (1) is the decretal amount, which, in other words, is
the principal.”

 
“It is true that the cases decided so far, do not strictly support
this view, and in a way, may suggest the other point of view.
However, an effort is made by this Court, to explain the purport
of sub-rules (4) and (5) of Rule 1. This Court is conscious of
the requirement to follow the precedents, as well as its
obligation, to give effect to the legislative mandate. An
endeavor is made to honour both the obligations. Having regard to
the importance of the issue and the implications involved in it,
further discussion may ensue at appropriate levels.”

 

12. From the above findings of the learned Judge, it appears that he
passed the order basing on three considerations:

Firstly, the judgments relied upon by the claimants are based on
the pre-amended provisions of Order 21 Rule 1 C.P.C.

Secondly, in the cases which were decided subsequent to
amendment, the issue –

of appropriation of amounts has not fallen for consideration.

Thirdly, a decree comprises of principal claimed in the suit as
well as component of interest. Hence, once a decree is passed for
certain amount, it becomes principal by itself and Section 3(3) of
Interest Act clearly prohibits grant of interest on interest.

13. Now, before we proceed to decide the legality or otherwise of the
order passed by the learned Judge, it is worthwhile to examine Rule 1 of
Order XXI of the Code of Civil Procedure, 1908 (for short, ‘the CPC’),
which reads as under:

“ORDER XXI

EXECUTION OF DECREES AND ORDERS

 
1. Modes of paying money under decree. – (1) All money, payable
under a decree, shall be paid as follows, namely:-

 
a) by deposit into the Court whose duty it is to execute the
decree, or sent to that Court by postal money order or
through a bank; or

b) out of Court, to the decree-holder by postal money order
or through a bank or –

c) by any other mode wherein payment is evidenced in writing;
or

d) otherwise, as the Court which made the decree, directs.

 
(2) Where any payment is made under clause (a) or clause (c)
of sub-rule (1), the judgment-debtor shall give notice thereof to the
decree-holder either through the Court or directly to him by
registered post, acknowledgement due.

 
(3) Where money is paid by postal money order or through a
bank under clause (a) or clause (b) of sub-rule (1), the money order
or payment through bank, as the case may be, shall accurately state
the following particulars, namely:-

 
a) the number of the original suit;

b) the names of the parties or where there are more than two
plaintiffs or more than two defendants, as the case may
be, the names of the first two plaintiffs and the first
two defendants;

c) how the money remitted is to be adjusted, that is to say,
whether it is towards the principal, interest or costs;

d) the number of the execution case of the Court, where such
case is pending; and

e) the name and address of the payer.
(4) On any amount paid under clause (a) or clause (c) of sub-
rule (1), interest, if any, shall cease to run from the date of
service of the notice referred to in sub-rule (2).
(5) On any amount paid under clause (b) of sub-rule (1),
interest, if any, shall cease to run from the date of such payment.
Provided that, where the decree-holder refuses to accept the postal
money order or –
payment through a bank, interest shall cease to run from the date on
which the money was tendered to him, or where he avoids acceptance of
the postal money order or payment through bank, interest shall cease
to run from the date on which the money would have been tendered to
him in the ordinary course of business of the postal authorities or
the bank, as the case may be.”
14. A bare perusal of the aforesaid provisions makes it amply clear
that the scope of Order XXI Rule 1 of the CPC is that the judgment debtor
is required to pay the decretal amount in one of the modes specified in sub-
rule (1) thereof. Sub-rule (2) of Rule 1 provides that once payment is
made under sub-rule (1), it is the duty of the judgment debtor to give
notice to the decree-holder through the Court or directly to him by
registered post acknowledgement due. Sub-rule (3) of Rule 1 merely
indicates that in case money is paid by postal money order or through a
bank under clause (a) or clause (b) of sub-rule (1) thereof, certain
particulars are required to be accurately incorporated while making such
payment. Sub-rules (4) and (5) of Rule 1 states from which date, interest
shall cease to run – in case amount is paid under clause (a) or (c) of sub-
rule (1), –
interest shall cease to run from the date of service of notice as indicated
under sub-rule (2); while in case of out of court payment to the decree-
holder by way of any of the modes mentioned under clause (b) of sub-rule
(1), interest shall cease to run from the date of such payment.
15. The language contained in the aforesaid sub-rules clearly
indicates the appropriation of amount to be made in case the decree
contains a specific clause, specifying the manner in which the money
deposited to be appropriated. Sub-rule (1)(c) of Rule 1 indicates the
money deposited to be appropriated as per the direction of the Court, if
there is a provision in that behalf. In the absence of specific direction
with regard to appropriation, then only the manner of appropriation would
arise for consideration. Sub-rules (2) to (5) of Rule 1 indicate the
procedure to be followed when the deposit is made either under clause (a)
or (b) of sub-rule (1) thereof, but it does not leave any scope for
interpretation with regard to appropriation of deposited amount by the
decree-holder.

16. In this regard, it is also pertinent to extract Rule 472 of the
Andhra Pradesh Motor Vehicles Rules, 1989 (for short, ‘the A.P.M.V.
Rules’), which is as under:

“472. Enforcement of an award of the Claims Tribunal:- Subject to
the provisions of Section 174, the Claims Tribunal shall, for the
purpose of enforcement of its award, have all the powers of a Civil
Court in the execution of a decree under the Code of Civil Procedure,
1908, as if the award were a decree for the payment of money passed
by such Court in a Civil Suit.”

The above-said Rule indicates that the award passed by the Claims Tribunal
is to be treated as if the decree for the payment of money passed by the
Civil Court in a civil suit. Hence, in view of the specific provision
contained in the A.P.M.V. Rules, the award passed by the Claims Tribunal is
to be treated as a money decree. In Rajasthan State Road Transport
Corporation, Jaipur (supra), this Court held that in executing the award of
the Claims Tribunal, Executing Court is competent to invoke the beneficial
provision under Order 21 Rule 1 of C.P.C.

17. The Privy Council in Venkatadri Appa Rao Vs. Parthasarathi Appa
Rao AIR 1922 PC 233, held as follows:
“The question then remains as to how, apart from any specific
appropriation, these sums ought to be dealt with. 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 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.”
(Emphasis supplied)
The above principle was reiterated by the Privy Council in Rai Bahadur
Sethnemichand Vs. Seth Rada Kishen AIR 1922 PC 26.

18. We may notice that the principle laid down in the above case has been
not only approved by the Supreme Court, but also followed in several other
subsequent cases. In Meghraj (supra), it was held as under:

“4. … 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 first be applied towards
satisfaction of the interest and costs and thereafter towards the
principal would apply.”
19. In Mathunni Mathai (supra), it was held that the right of the decree-
holder to appropriate the amount deposited by the judgment debtor, either
in the Court or paid outside, towards interest and other expenses is
founded both on fairness and necessity. It was observed that the courts
and the law have not looked upon favourably where the judgment debtor does
not pay or deposit the decretal amount within the time granted as one
cannot be permitted to take advantage of his own default. Therefore, the
normal rule that is followed is to allow the deposit or payment, if it is
in part, to be adjusted towards the interest due, etc.
20. In Industrial Credit and Development Syndicate (supra), it has been
held that in cases where the trial court has not prescribed any mode for
payment of decretal amount, except fixing the instalments, in the absence
of agreement between the parties, regarding the mode of payment of decretal
amount, the –
general rule of appropriation of payments towards decretal amount is that
the said amount is to be adjusted firstly strictly in accordance with the
directions contained in the decree and in the absence of such direction, it
is to be adjusted firstly towards interest and costs and thereafter towards
principal amount. This is, of course, subject to the exception that the
parties can agree to the adjustment of payment in any other manner despite
the decree. In that case, the Supreme Court had an occasion to consider
the method of appropriation and after noticing various decisions of the
English Courts and the Privy Council, followed the judgment in Meghraj’s
case (supra).

21. We may also notice that in Prem Nath Kapur & Anr. Vs. National
Fertilizers Corporation, 1996 SCC (2) 71, while differing with the view
taken in Mathunni Mathai (supra), it was held that the normal rule of
appropriation contained in Order XXI Rule 1 of the CPC relating to
execution of decrees for recovery of money stands excluded by Sections 28
and 34 of the –
Land Acquisition Act, 1894 and the principles contained therein could not
be extended to execution of award decrees under the said Act. The relevant
para of the said judgment, being portion of para 14, reads as under:

• “14. Equally, the right to make appropriation is indicated by
necessary implication, by the award itself as the award or decree
clearly mentions each of the items. When the deposit is made
towards the specified amounts, the claimant/owner is not entitled
to deduct from the amount of compensation towards costs, interest,
additional amount under Section 23 (1-A) with interest and then to
claim the total balance amount with further interest. … …
… … … … … … … …
…”

22. In Gurpreet Singh (supra), the Constitution Bench of this Court
had an occasion to consider the issue regarding execution of money decree,
the principle of appropriation and its applicability, which was recently
followed by this Court in Bharath Heavy Electricals Ltd. Vs. RS Avthar Sing
& Co., 2013 (1) SCC 243, and culled down the principles laid down in
Gurpreet Singh’s case as follows:
a) The general rule of appropriation towards a
decretal amount was that –
b) such an amount was to be adjusted strictly in
accordance with the directions contained in the
decree and in the absence of such directions,
adjustment be made firstly towards payment of
interest and costs and thereafter towards
payment of the principle amount subject, of
course, to any agreement between the parties.
c) The legislative intent in enacting sub rules
(4) and (5) is clear to the points that
interest should cease to run on the deposit
made by the judgment debtor and notice given or
on the amount being tendered outside the Court
in the manner provided in Order 21 Rule 1 sub
clause (D).
d) If the payment made by the judgment debtors
falls short of the decretal amount, the decree
holder will be entitled to apply the general
rule of appropriation by appropriating the
amount deposited towards the interest, then
towards costs and finally towards the principal
amount due under the decree.
e) Thereafter, no further interest would run on
the sum appropriated towards the principal. In
other words, if a –
f) part of the principal amount has been paid
along with interest due thereon as on the date
of issuance of notice of deposit of interest on
the part of the principal sum will cease to run
thereafter.
g) In case where there is a shortfall in deposit
of the principal amount, the decree holder
would be entitled to adjust interest and costs
first and then balance towards the principal
and beyond that the decree holder cannot seek
to reopen the entire transaction and proceed to
recalculate the interest on the whole of the
principal amount and seek for re-appropriation.

 
23. In the judgment referred to by the High Court in the impugned judgment,
this Court and the Privy Council consistently have taken a view that in
case of appropriation of amount unless the decree contains a specific
provision, the amounts have to be appropriated as contemplated under Order
21 Rule 1. If there is a shortfall in deposit, the amount has to be
adjusted towards interest and costs, then it has to be adjusted towards
principal. The High Court has –
failed to appreciate this fact and misdirected itself in observing that
these judgments are prior to the amendment to Order 21 Rule 1. In our
considered view, as far as this aspect is considered, there is no much
difference in the provisions prior to or subsequent to the amendment,
because in the objects and reasons for amendment to Order XXI Rule 1, as
observed by the Constitution bench in Gurpreet Singh the legislative intent
in enacting sub-rules (4) and (5) is that interest should cease on the
deposit being made and notice given or on the amount being tendered outside
the court in the manner provided. The intent of the rule making authority
is to leave no room for any frivolous pleas of payment of money due under a
money decree.
24. We may add that the High Court proceeded on the assumption as if
sub-rules (4) and (5) of Rule 1, which were inserted pursuant to Amendment
to C.P.C. in 1976, there is change in procedural law and the tenor of sub-
rule (1) thereof. But, sub-rules (4) and (5) do not have any relevance
with regard to appropriation, except stating when interest ceases to –
run. Thus, it is no way guide for appropriation of amount as contemplated
under Order XXI Rule 1 of the CPC. In Industrial Credit Development
Syndicate (supra) which is subsequent to the amendment to the provision,
this Court has categorically observed the procedure to be followed and
which squarely applies to the case, but the High Court has given its own
interpretation to the judgment and failed to consider the law laid down by
this Court in its proper perspective.
25. The next finding of the High Court is with regard to interest on
interest.
In money suit, the amount consists of principal and interest till the
suit is filed. But, in case of award passed under the Act, the question of
inclusion of any interest on the decretal amount does not arise.
Unfortunately, the High Court proceeded on the assumption that it amounts
to interest on interest which is prohibited under Section 3(3)(c) of
Interest Act, 1978 (for short, ‘the Interest Act’). This is not so, as in
the facts and circumstances of the present case, the decree passed by the
trial Court or –
the appellate Court does not contain the mode of appropriation and in
the absence of any such direction, the decree-holder is entitled to
appropriate the amount deposited by the judgment debtor first towards
interest, then cost and thereafter towards principal.
26. In view of above and more particularly keeping in view the ratio
of the Constitution Bench judgment in Gurpreet Singh (supra), where
considering an identical question in respect of Order XXI Rule 1 of the
CPC, it was held that if the amount deposited by the judgment debtor falls
short of the decretal amount, the decree-holder is entitled to apply the
rule of appropriation by appropriating the amount first towards interest,
then towards costs and subsequently towards principal amount due under the
decree; we are of the opinion that the appellants herein are entitled to
the amount awarded by the Executing Court, as the amounts deposited by the
judgment debtor fell short of the decretal amount. After such
appropriation, the decree-holder is entitled to interest only to the extent
of unpaid –
principal amount. Hence, interest be calculated on the unpaid principal
amount.
27. We, therefore, allow the appeal, set aside the impugned judgment
dated 29.07.2005 passed by the High Court and restore that of the Executing
Court dated 18.08.2004.
28. No orders as to costs.
……………..C.J.I.
(P. SATHASIVAM)

 

 
…………………J.
(RANJAN GOGOI)

 

…………………J.
(N.V. RAMANA)
New Delhi,
April 01, 2014.

 

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