The key legal principle established in the judgment is that the debtor must demonstrate that payments have not been adjusted in reduction of interest to prove that interest is outstanding on a specific date.

Wadsworth, J.

1. This appeal raises a question of appropriation with reference to an application under Section 19, Madras Act, 4 of 1938. The appellant, who is the applicant in the Court below, was defendant 1 in this suit. The debt, so far as we need trace it back, starts with a principal of Rs. 7250 as on 27th April 1925 when a security bond was executed. Before the suit there were certain payments, the exact figure of which seems to be doubtful. The suit was filed in 1.928 for a sum of Rs. 11,500. It ended in a decree which, so far as defendants 3 to 5 were concerned was based on a compromise and the same decree was made applicable to defendants 1 and 2 who allowed the suit to proceed ex parte. The decree provided for a payment of Rs. 12,116 within four months or in default for payment of Rs. 14,116, with interest at six per cent. No payment was made. The hypotheca mortgaged under the security bond was sold and realized Rs. 5420 which was credited to the decree and part satisfaction was recorded. An application was preferred for a personal decree for the balance. We have not got this actual application before us, but the personal decree indicates that Rs. 5420 realized by the sale was credited and presumably it must have been credited first towards interest due on the decree amount and then towards the principal sum decreed. For the balance, a personal decree was passed. Thereafter, there were two payments aggregating to Rs. 2476 made in 1932 and 1933. In 1937 the decree was assigned to the present respondent who took out execution for a sum of Rs. 11,156-5-5 on 23rd September 1937. While this execution was pending, Madras Act, 4 of 1938 came into force and defendant 1 applied for a stay of sale and filed the present application under Section 19 on 20fch September 1938. It is not disputed that the way in which the lower Court has treated this application is incorrect. The learned Judge has treated the decree as a compromise decree (which, so far as defendant 1 is concerned, it was not) and has taken the principal of the decree as the principal of the debt, a procedure which, even on the footing of its being a compromise decree, could hardly be supported on the facts of this case.

2. It is contended for the appellant that both the payments made before the suit and the amount of Rs. 5420 realized by the sale in 1930 must be regarded as open payments and that the interest outstanding on 1st October 1937 must be wiped off without regard to these payments. The contention with reference to the payments before suit is that these were payments credited to a debt which carried compound interest, that there was no benefit to be derived by the creditor in adjusting these payments to interest rather than to principal and that on the basis of the decision in Parrs Banking Co. v. Yates (1898) 2 Q.B. 460 there is no presumption in such a case that the payments were first appropriated to interest. With reference to the sale amount credited to the decree at the time of the application for a personal decree, the contention is that though there may have been an appropriation towards the interest which had then accrued due on the amount decreed, there was no appropriation towards interest except to this extent and that at least the balance after deducting the accrued interest on the decree must be treated as an open payment.

3. We find ourselves unable to accept either of these contentions. The question is not whether the creditor can prove positively an appropriation of these amounts towards interest, but whether the debtor is in a position to show that on 1st October 1937 these amounts had not been adjusted in reduction of interest and consequently that interest was outstanding unrealised. In the case of the payments before the suit, they were certainly adjusted to the debt and a balance was struck and the suit claim proceeded on the footing of this balance with interest thereon. They cannot therefore be regarded as unadjusted payments.