The Chief Justice.-

The question raised in the appeal is of considerable importance and relates to the construction of explanation (1) to section 8 of Madras Act IV of 1938 recently introduced by Act XXIII of 1948. Our attention has been drawn to an unreported decision of a Division Bench in O. S. A. No. 17 of 1948, in which the learned Judges took the view that this Explanation would not affect adjustments and settlements already made between creditor and debtor. This decision has since been followed by a learned Judge sitting single in S. A. No. 2115 of 1947 and by another Division Bench in C. M. A. No. 180 of 1950. We are inclined to think that the learned Judges who decided O.S. A. No. 17 of 1948 have not attached sufficient importance to the word “expressly” which occurs in the Explanation in arriving at their conclusion. In the appeal now before us Panchapakesa Aiyar, J., has taken a contrary view. We think it desirable that there should be an authoritative ruling as to the interpretation of this new provision. The appeal will be posted before a Full Bench of three Judges.

Pursuant to the aforesaid Order, this appeal coming on for hearing, the Judgment of the Court was delivered by

Venkatarama Aiyar, J.-This appeal has been referred for the decision of a Full Bench as it raises a question of considerable importance on the construction of Explanation (1) to section 8 of the Madras Agriculturists Relief Act, IV of 1938, on which there is a conflict of judicial opinion. The facts are that on 12th November, 1921, the respondent borrowed a sum of Rs. 2,000 from one Lakshminarayana Sastri and executed a promissory note therefor (Ex. D-1). Nine payments were made towards this promissory note and endorsed thereon. We are concerned in this appeal with five of them. The endorsements relating to them have been marked as Exs. D-1(e) to D-1(j) and they state that the payments were made “towards principal and interest.” On 14th July, 1929, there was a settlement of accounts and after giving credit for the payments made, the balance found due was Rs. 1,658 and for this amount a fresh promissory note Ex. D-2 was executed. The appellant is an endorsee of this promissory note. The respondent filed O. P. No. 23 of 1943 on the file of the Sub-Court, Rajahmundry, for declaring the amount payable under the promissory note after scaling the debt under the provisions of the Act. Several contentions were raised, but only one of them is now material and that is as to how the five payments under Exs. D-1(e) to D-1(j) should be dealt with. The respondent claimed that being open payments they were liable to be appropriated towards the principal, while the appellant contended that those payments had been appropriated towards interest at the settlement which resulted in the execution of the promissory note Ex. D-2 and that that appropriation could not be re-opened. The Courts below held that though the payments under Exs. D-1(e) to D-1(j) were open payments at the time when they were made, the debtor had appropriated them towards interest at the time of Ex. D-2, and that such appropriation could not be re-opened. Against that decision the respondent preferred C.M.S.A. No. 150 of 1947 on the file of this Court and while that was pending, Explanation (1) to section 8 of the Act came to be enacted by the Madras Act XXIII of 1948. That Explanation is as follows:

“In determining the amount repayable by a debtor under this section every payment made by him shall be credited towards the principal, unless he has expressly stated in writing that such payment shall be in reduction of interest.”

Panchapakesa Aiyar, J., who heard the appeal held that the payments in question should be appropriated towards the principal, as the settlement of accounts and the execution of the promissory note did not amount to an express statement by the debtor that they should be appropriated towards interest as required by the new Explanation. Against this judgment, the creditor has pr

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