Payments made by a debtor must be applied first to interest and then to principal.

( 1 ) THIS appeal at the instance of the decree-holder plaintiff arises out of an order passed by the learned Sub-Ordinate Judge, 4th Court, Alipore. The short fact arising out of an order is that there was an agreement between the Rajasthan Insurance Co. Ltd. , and Gadadhar De of 3, Robinson Street, Calcutta and G. Dey and Co. and Union Estates Ltd. , of 184, Dharmatola Street, Calcutta on or about 1949 and in the said agreement there was a clause for arbitration. It appears that Gadadhar and others took a loan for certain sum of money but as the arbitrator was appointed by the parties, the arbitrator gave an award to the effect that Rajasthan Insurance Co. Ltd. , shall be entitled to the sum of Rs. 15,000/- as principal and Rs. 5140/- as the balance of interest aggregating the sum of Rs. 20,140/- as against the said Gadadhar De and the said sum of Rs. 20,140/- shall carry interest at the rate of 6% per annum from the date of the award until payment. It was further awarded that all the three houses Nos. 4, 5 and 6 as mentioned above will be, subject to the claim, awarded and that if the awardee does not pay the purchase money the three houses will be sold. The money was not paid. The date of the award was 22nd Jan. 1954. The sum of the money was paid by the judgment-debtor amounting to Rs. 26096. 56. The petitioner judgment-debtor filed the objection. It is alleged that Rajasthan Insurance Co. Ltd. is claiming compound interest and not the simple interest. The claim is excessive. The learned Judge having held in favour of the judgment-debtor, the Life Insurance Corporation after the Life Insurance Corporation Act came into force in 1956 preferred the present appeal. The short point for our consideration is that whether the calculation of interest by the Life Insurance Corporation is correct or not. On behalf of the Life Insurance Corporation it is stated that the arbitrator awarded a sum of Rs. 20,140/- in favour of the decree-holder and the said sum will carry an interest at the rate of 6% per annum from the date of the award. The debtor deposited with the Court different sums and the Life Insurance Corporation has adjusted the sum first towards the payment of interest and thereafter towards the principal amount. The judgment-debtor however contended that he has paid the said amount towards the principal and the Life Insurance Corporation was wrong in adjusting the said amount towards the interest.

( 2 ) MR. Chowdhury on behalf of the appellant, therefore, contended on the allegation as hereinbefore stated that the learned Judge was wrong in holding that the calculation made by the Life Insurance Corporation was according to the compound interest. Unfortunately in this case the respondent does not contest the appeal. In our opinion the contention of Mr. Chowdhury must be accepted to be correct. The normal rule in case of a debt due with interest is that the payment made by the debtor must be applied first to the payment of interest and thereafter to the payment of principal amount. Applying the principle in this present case, it appears that Mr. Chowdhury's contention must be accepted. The case of the decree-holder Corporation is that they have adjusted all the amounts paid by the judgment-debtor towards the interest first and thereafter the balance not having been paid, the execution case has been filed.

( 3 ) MR. Chowdhury relied upon the case (Meghraj v. Bayabai ). The said case arose out of a mortgage. The Hindu undivided family of Jethmal 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. A suit was filed by Seth Haroon and Sons in 1936 for recovery of their dues by sale of the mortgaged house. A decree was passed in 1940. There was an appeal against the decree to the High Court, Nagpur. But the appeal was dismissed subject to a slight modification and the appeal was taken to the Supreme Court. During the pendency of the a