B.M. Kalagate, J.
1. This is an appeal by the first defendant, the Life Insurance Corporation of India, against the decree dated 25th November 1960, passed by the Principal Civil Judge, Bangalore, in Regular Appeal No. 263 of 1959, by which he reversed the decree of the trial Court and allowed the appeal and decreed the plaintiff's suit.
2. The question involved in this appeal is whether the adjustment or appropriation made by defendant 1 is legal and valid. It arises in this way.
3. The plaintiff was working as an agent for the Asiatic Government Security Life and General Assurance Company Limited, Bangalore City. With effect from 1-9-1956 this Company was taken over by the Life Insurance Corporation under the Life Insurance Corporation Act, 1956. The plaintiff was a debtor to the Asiatic Government Security Life and General Assurance Company Limited under a compromise decree dated 8th June 1953 in O. S. 256/51-52 for a sum of Rs. 3,106-11-6.
Subsequent thereto, a sum of Rs. 600/- due to the plaintiff was set off towards the decretal debt and part satisfaction of the decree was entered for that amount under Order XXI, Rule 2 (I) of the Code of Civil Procedure. The plaintiff was informed by the Branch Manager as per Ext. P-9, dated 20th Aug. 1956, that the Central Government had decided that his services would not be required from 1st September 1956.
Thereafter defendant I informed the plaintiff by a registered letter dated 21st December 1956 (Ext. P-10) that the remuneration earned by him on the premium collected for the period 1-1-56 to 31-8-56 i.e. prior to the termination of his service was Rs. 2,029-12-0 and that the amount due by him as per the compromise decree was Rs. 2,506-11-0. He was given proportionate deduction for eight months and he was informed that the remuneration earned by him i.e., Rs. 2,029-12-0 had been adjusted or appropriated towards his dues under the compromise decree and that a sum of Rs. 59-2-0 was due by him and he was asked to remit the said amount at an early date. Though the plaintiff was informed of the appropriation or adjustment in December 1956, till 1st May 1957 he did not object to it. It is only on 1st May 1957 by Ext. P-II that the plaintiff wrote to defendant I through his lawyer complaining against the adjustment or appropriation and requesting the latter to reverse the said debit entry arid to remit the said amount to him.
4. Now there is no dispute that the plaintiff had to receive the remuneration earned by him viz., Rs. 2,029-12-0. There is also no dispute that the amount due by the plaintiff to the defendant under the compromise decree was Rs. 2,506-11-0. The question is, whether, under such circumstances, the adjustment made by defendant 1 is legal and valid. The plaintiff, contesting the legality of the appropriation or adjustment, filed a suit in the Court of the First Munsiff at Bangalore to recover the amount due to him i.e., Rs. 2,029-12-0 with interest and notice charges. The first defendant contended that the appropriation or adjustment made by the Corporation is legal and valid and that they have intimated or communicated to the plaintiff of the said adjustment or appropriation immediately it was made. Therefore it is binding on the plaintiff. Nothing is due to him and his suit should be dismissed.
5. The trial Court accepted the defence holding that the adjustment made by defendant I was legal and valid and that the plaintiff was not entitled to any decree. It, therefore, dismissed the plaintiffs' suit. When the matter was taken up in appeal, the learned Civil Judge, Bangalore, reversed the decree of the trial Court holding that the appropriation or adjustment made by defendant I was not legal and that the plaintiff was entitled to a decree for the amount which was in dispute. He, therefore, decreed the plaintiff's suit. It is against this decree that the present second appeal has been preferred by defendant 1.
6. As I stated, the short question is whether this appropriation or adjustment made by defendant 1 is legal and valid. From the facts already stated, it is clear that the plaintiff was a debtor to the first defendant and also a creditor. Defendant I also was a debtor and creditor of the plaintiff. The two debts were ascertained amounts and there is no dispute as to their correctness.
7. Sections 59 to 61 of the Indian Contract Act deal with the appropriation of payments. Section 59 deals with the application of payment where debt to be discharged is indicated by the debtor, whereas section 60 deals with the application of payment where debt to be discharged is not indicated. Section 61 deals with the application of payment where neither party appropriates.
8. Now Sections 59 and 61 have no application to the facts of the present case. Therefore the only section that can be looked into is Section 60 to determine whether the appropriation or adjustment made by defendant 1 is legal and valid. In this case, the appropriation is made by the very act of setting off the two items against each other and communicating it to the plaintiff, the debtor.
9. The word 'payment' appears in all the three sections and the learned counsel for the respondent-plaintiff contends that since no payment, in fact, has been made by the plaintiff to defendant 1, Section 60 has no application. He therefore contends that the adjustment made by defendant 1 is not legal and that the plaintiff would be entitled to recover the amount due to him by defendant 1. His argument is that unless there is an actual payment made, the creditor has no right to make an appropriation towards his dues. If the payment is made by the debtor and if he indicates that by this payment a particular debt is to be discharged, then that debt shall stand discharged. Where the debtor does not indicate as to which of the several debts the payment is to be appropriated, the creditor might under Section 60 apply the payment at his discretion to any lawful debt payable to him by the debtor. Therefore he contends that unless actual payment is made, the question of appropriation by the creditor does not come in. In my view, this argument is not sound.
10. It is true that the word 'payment' occurs in sections 59 to 61. But the mode of payment of the debt may be more than one; it may be by actual payment; it may be by adjustment or it may be by any other means as agreed to between the debtor and the creditor.
11. Chitty on 'Contracts', while dealing with the topic 'payment', seems to suggest that all questions relating to payment of a sum of money in pursuance of a contract depend on the construction of the terms of the contract. The parties may however, agree to a different mode of discharge of the obligation. He has given an illustration of such a payment by stating that a discharge is a settlement of accounts by which items of one side are agreed to be set off against items on the other side: If the two sides then balance, this is equivalent to payment on both sides. Therefore it appears to me that there can be a payment by adjustment and it is not necessary that there should always be an actual payment for appropriation or adjustment; otherwise, it would lead to unreasonable results and cause great hard- ! ship in the commercial world.
12. In this case, the first defendant has made the payment of the debt due by him to the plain-tiff by adjusting or appropriating the said payment towards his dues. Thus there is a payment made by defendant 1 to the plaintiff and the latter is not entitled to maintain a suit for the amount which, in fact, has been paid to him by adjustment or appropriation. Therefore, in my view, the adjustment or appropriation made by defendant 1 is legal and valid and must be sustained.
13. Consequently, I allow the appeal, set aside the decree passed by the lower appellate Court and restore that of the trial Court dismissing the plaintiff's suit. The plaintiff-respondent will pay the costs of the appellant-defendant 1 of this appeal.