Important Points
1. Sections 59 and 60, Contract Act, would be applicable only in pre decretal stage and not thereafter.
2. In the absence of specific direction contained in the decree or agreement among decree holder and judgment debtor about the mode of payment of decretal amount, decree holder would be justified in adjusting receipts towards interest and costs notwithstanding specific request of judgment debtor to adjust payments first towards principal.

Headnote:(i) Code of Civil Procedure, 1908-Order 21, Rule 1 read with Section 60 of the Contract Act, 1872-Mode of paying money under decree-Decree with cost and interest-Decree enabling judgment debtor to pay amount in instalments-Court not prescribed any mode for payment-No agreement between parties regarding mode of payment-Judgment debtor paying instalments with request to appropriate same first towards principal-Decree holder not replying but appropriating instalment receipts first towards interest and costs-In absence of proof as to agreement between decree-holder and judgment debtor about mode of payment of post decretal payments decree holder justified in adjusting receipts towards interest and costs -Sections 59 and 60 of contract Act applicable only in pre decretal stage.
       (ii) Indian Contract Act, 1872-Sections 59 and 60-Application of provisions-Sections 59 and 60 would be applicable only in pre- decretal stage and not thereafter.
       Held : Order 21, Rule 1 of href=act:10444>CPC provides the mode of paying money under the decree. Payments made to the decree holder out of court are required to be certified for adjustment in terms of Rule 2 of Order 21, CPC. Where any money payable under a decree is paid out of court or is otherwise adjusted in whole or in part to the satisfaction of the decree, the decree holder is to certify such payment and adjustment towards the court whose duty is to execute the decree. The judgment debtor or any person who has become surety for the judgment debtor has also a right to inform the court of such payment or adjustment applying to the court for the issuance of a notice to the decree holder to show cause as to why such payment or adjustment be not recorded as certified and if, after service of such notice, the decree holder fails to show cause why the payment or adjustment should not be recorded as certified, the court is obliged to record the same accordingly. No payment or adjustment can be recorded at the instance of the judgment debtor unless it is made in the manner provided under Rule 1 or the payment or adjustment is proved by documentary evidence or the payment or adjustment is admitted by, or on behalf of the decree holder in a reply to the notice given to him under sub-section (2) of Rule 1, Order 21 of CPC. In the absence of payment having been made in accordance with the mode prescribed or the satisfaction recorded under Rule 2, the judgment debtor cannot claim the benefit of adjustment in the manner insisted upon by him. (Para 7)
       We do not agree with the learned counsel for the respondents that Section 60 of the Contract Act has to be read independently excluding the provisions of Section 59. Accepting such an argument would amount to doing violence to the language employed in the Section and the purpose sought to be achieved by it. Besides, it would also be contradictory in terms. Section 60, if applied independently, cannot be held to be conferring any right upon the judgment debtor as it confers a discretion in favour of the creditor to apply such deposited amount to any lawful debt actually due and payable by the debtor when such debtor omits to intimate the discharge of the debt in the manner envisaged under Section 59. We are of the opinion that Sections 59 and 60, Contract Act, would be applicable only in pre decretal stage and not thereafter. Post-decretal payments have to be made either in terms of the decree or in accordance with the agreement arrived at between the parties though on the general principles as mentioned in Sections 59 and 60 of the Contract Act. As and when such an agreement either express or implied is relied upon, the burden of proving it would always be upon its propounder. (Para 9)
       The judgment debtors, in the instant case, are proved to have failed in discharging such an ownus. There does not appear to by any obligation on the decree holder to intimate the judgment debtor that the amount paid to him had not been accepted in the manner specified by him in the letter accompanying the payment. Insisting upon such a course would result in unnecessary burden upon the financial institutions and conferment of unwanted unilateral discretion in favour of the defaulters. Acceptance of the plea that the amount paid first should be adjusted in the principal amount would not only be against the provision of law but against the public policy as well. To provide security, continuity and certainity in business transaction, the Legislature has been making specific provisions in that regard which may be found in various provisions of the Negotiable Instruments Act or Order 37, Code of Civil Procedure and other statutory provisions. (Para 9)
       The general rule of appropriation of payments towards a decretal amount is that such an amount is to be adjusted firstly strictly in accordance with the directions contained in the decree and in the absence of such direction, adjustments, be made firstly in payment of interest and costs and thereafter in payment of the principal amount. Such a principle is, however, subject to one exception, i.e. that the parties may agree to the adjustment of the payment in any other manner despite the decree. As and when such an agreement is pleaded, the onus of proving is always upon the person pleading the agreement contrary to the general rule or the terms of the decree schedule. The provisions of Sections 59 to 61 of the Contract Act are applicable in cases where a debtor owes several distinct debts to one person and do not deal with cases in which the principal and interest are due on a single debt. (Para 14)

Judgment

Sethi, J.-Whether a judgment debtor has any option or right to make the payment of the decretal amount in the manner he likes unilaterally?;

Whether the mere acceptance of such amount by the creditor can be held to be agreeing to the conditions put by the judgment debtor while satisfying the decree?;

Whether a debtor can unilaterally insist upon the payment of the decretal amount in liquidation of the principal amount in the first instance notwithstanding his liability to pay the interest and costs?, are the questions required to be adjudicated in this appeal.

2. The facts giving rise to the filing of the present appeal are that in a suit filed by the appellant herein a decree was passed on the basis of the mortgage deed executed by the respondents holding them liable to pay to the appellant-plaintiff a sum of Rs. 5,25,451.07 together with court costs and current and future interest at the rate of 18 per cent per annum on Rs. 1,80,000/- and Rs. 2,31,138.52 from the date of the suit till the date of the payment. The decretal amount was, however, to be paid in monthly installments of Rs. 20,000/- commencing from 1.9.1983 after making the deduction of Rs. 20,000/- stated to have been paid in the court. In case of default in the payment of two installments, the plaintiff-appellant was held entitled to bring the suit schedule property for sale and to realise the entire balance due. In the event of the sale proceeds realised from the sale of the mortgaged property being insufficient to satisfy the decree, the appellant was further held entitled to recover the balance amount personally from defendant Nos. 1 to 6 jointly and severally. Finding that the defendants-judgment debtors had not paid the full amount, the appellant filed an execution petition praying to recover the amount by attachment and sale of the scheduled immovable property as also for the arrest of the judgment debtors. The executing court vide order dated 27.2.1993 over ruled various objections of the judgment debtors and held the decree holder entitled to take steps for the recovery of the balance decretal amount. The plea of the judgment debtors that the full payments towards the decretal amount had been made was not accepted by the executing court. The assertion of the judgment debtors that the payments made by them were in liquidation of the principal amount and not towards costs and interest were negatived. It was found on facts that the decree holder had intimated the judgment debtor that the amount paid by them had not been appropriated towards the principal amount. Not satisfied with the order of the executing court, the judgment debtors filed revision petition in the High Court which was accepted and the order of the trial Court was set aside vide the judgment impugned in this appeal.

3. After referring to various judgments of different High Courts and of this Court, the Single Judge of the High Court of Karnataka came to the conclusion that as the appellant herein did not reply to the letters accompanying the installments which was sent by the judgment debtors specifically mentioning that the amount be appropriated against the head of principal, it was to be presumed that there was implied acceptance of the amount towards the principal amount, on the part of the appellant-decree holder. In this context the court held:-

“Under these circumstances, if the respondents desired to disregard that instruction, then they ought to have communicated their refusal to the petitioners. It may be that the respondents decided to appropriate the amount in a manner contrary to the instructions from the petitioners which obviously they did.”

4. It may not be out of place to notice at this stage that the learned single Judge of the High Court had not accepted the other contention of the judgment debtors that the decree holder was obliged to have returned the installment payment if they were not agreeable to the manner of appropriation specified by the judgment debtors and

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1999 Supreme(SC) 166

Cases Referred (3)