1. This is an appeal by the plaintiff firm Sita Ram Babu Ram through Babu Ram. This firm instituted a suit against another firm Sita Ram Lalman through Tulsi Ram for the recovery of a certain sum of money based on a sarkhat dated 19th October 1933. The trial Court after giving relief on the question of interest to the defendant under the Agriculturists' Relief Act decreed the plaintiff's suit for Rs. 2651-8-0. ' This decree was upset in appeal by the lower appellate Court on a finding that the plaintiff's suit was barred by time. The sarkhat contains the following entries on the debit side:
Rs. 1958-1-0 : 19th of October 1933;
Rs. 100-0-0 : 21st of October 1933;
Rs. 50-0-0 : 19th of November 1933;
and on the credit side the entries are:
Rs. 100 : 21st of November 1933;
Rs. 50 : 6th of June 1934.
2. The suit was instituted on 14th December 1936, and unless the credit entry of 6th June 1934 can be invoked in aid by the plaintiff the suit would be barred by time. The credit entries, of which mention has been made by us so far, we might make clear, are entries of payments said to have been made by the debtor to the creditor. It is clear that this entry of Rupees 50 must either be towards interest as such or towards part payment of principal, the part payment appearing in the handwriting of the debtor. It is nobody's case, and in any event it has not been proved that this entry is of interest as such. The only question that remains for consideration is whether this payment can be treated as payment of principal. Although there is some doubt in the mind of the lower appellate Court about the last entries in the sarkhat, the finding of the learned Munsif has been accepted by the Civil Judge. It is not quite clear as to what the learned Judge meant by saying that he was doubtful about the last entries, whether he doubted their genuineness or what - but the fact remains that in the end he accepts the finding of the learned Munsif who of course had accepted the genuineness of the entire sarkhat. The learned Judge observed as follows:
The creditor wants to save the limitation by arbitrarily treating the payment of Rs. 50 as part payment of principal and the amount of interest is also intact. I am therefore of opinion that the payment of Rs. 50 in this case cannot be treated as part payment of principal.
3. Learned Counsel for the plaintiff, appellant has argued that the materials on the record were sufficient to come to a definite finding on the question of this last payment as indeed the trial Court had done and the lower appellate Court has wrongly assumed that the only thing which was on the record was a statement in the plaint that the payment was appropriated towards principal. There can be no doubt that the law is that in the absence of definite instructions by the debtor the creditor can appropriate payments made by the debtor. In the case of interest, if it is attempted to save limitation, the instructions must be by the debtor and the payment must be of interest as such, but in the case of principal, if the debtor has given no instructions, the creditor can appropriate it, if he so chooses, towards principal and can save limitation provided time has not run out at the time of appropriation, and provided acknowledgment of payment appears in the handwriting of or on a writing signed by the person making the payment. Their Lordships of the Privy Council in Rama Shah v. Lal Chand say:
While not of opinion that it need be shown that the creditor's appropriation has within the time limited been communicated to the debtor they are unable to regard the language of the section as satisfied unless within the prescribed period the creditor has in exercise of his right done something which treats the payment as made on account of principal. To evidence a definite appropriation to the principal debt made by the creditor within the period prescribed the manner in which the payment has been dealt with by the creditor in his own books of account will ordinarily be sufficient.
4. The lower appellate Court relied upon the Full Bench decision of this Court in Udeypal Singh v. Lakshmi Chand : AIR1935All946 , in which case it was held by the majority that where money is paid by a debtor without specifying whether the payment is towards interest or towards principal, leaving it to the option of the creditor to appropriate as he likes, and the creditor appropriates it towards interest, there is neither a payment of interest as such nor a part payment of the principal within the meaning of Section 20, Limitation Act. This case has been approved of by their Lordships of the Privy Council in Rama Shah v. Lal Chand mentioned just now, but it has been made clear that a creditor has the right to appropriate a payment by the debtor without instructions towards principal if he so likes, but if the creditor wants to save limitation the appropriation must have been made within the period of limitation, and the fact that the appropriation has been made within the period of limitation can appear from the account books of the plaintiff. The learned Munsif has taken great pains to show that the account books of the plaintiff in connexion with debts advanced, to debtors are maintained on what is called the katauti system. In Rama Shah v. Lal Chand , their Lordships of the Privy Council explained the katauti system at p. 649. They say in the katauti system,
interest is calculated on both sides of the account at the same rate so that to any sum paid by the defendant is added interest thereon before deduction is made from the total sum shown to be due for principal and interest upon each loan.
5. From the judgment of the trial Court, we find that when the sarkhat for Rs. 1958-1-0 was executed, the prior accounts were adjusted on the katauti system. The learned Munsif has taken pains to show that year after year interest was calculated both on the credit and on the debit side and a balance struck and the balance was the out. standing due from the debtor. It is true that he has not pursued the matter further after the execution of the sarkhat, but, as we pointed out before, after an entry of Rs. 1958-1-0 on the debit side, there are two more entries on the debit side and there are just two entries on the credit side and the trial Court did not go into the account books of the plaintiff after 19th October 1933, to find out whether the katauti system was maintained or not. There is however the evidence of the plaintiff to the effect that such a system was maintained and there is a presumption in favour of continuity of the same system of accounting. Nothing has been shown by the defendant either in the Court below or before us from which we can infer that the katauti system was not maintained and the balance was not struck year after year or in any event prior to the expiry of the period of limitation.
6. We therefore hold the view that the sum of Rs. 50 was appropriated towards principal, before the period of limitation had expired, by the plaintiff and the plaintiff was entitled to invoke it in his aid in order to extend limitation. We agree with the view taken by the trial Court. No other point was argued on either side by anybody, and we therefore allow this appeal, set aside the decree of the lower appellate Court and restore that of the Court of first instance. As regards costs of the lower appellate Court and of this Court under the peculiar circumstances of this case we direct the parties to bear their own costs. The defendant will be allowed to pay the decretal amount by six monthly instalments of Rs. 300 each. The first instalment will fall due on 15th March 1941.