1. The question referred to this Pull Bench for decision consists of two parts : (a) Where there has been a payment by a debtor to a creditor and no appropriation has been proved either by the debtor QJC the creditor, is it open to the creditor to appropriate the amount or any part of it towards the payment of any debt and at any time even during the pendency of the litigation concerning the payment? (b) Whether it is open to a mortgagee of a joint family property, under a mortgage deed executed by the manager of the joint family when a portion of the mortgage debt was not raised for legal necessity, to appropriate during the pendency of the suit payments made by the mortgagor towards the discharge of such portion of the debt as was not raised for legal necessity, when no appropriation was made either by the mortgagor or the mortgagee till the date of the suit?
2. In this case a mortgage deed had been executed by two brothers, Jagdish Singh and Pitam Singh, in favour of Radha Kishan, on 19th December 1926, for Rs. 15,000 repayable in three years. On 18th April 1921 a sum of Rs. 12,469-12-9 was paid to the mortgagee and an endorsement made on the back of the document under the signature of Jagadish Singh, one of the mortgagors. The details were as follows : On account of interest and compound interest on the entire amount of principal up to 19th April 1921...Rs. 7,469-12-0. On account of principal,...Rs. 5,000.
3. At the time of the payment, there was no specification that the amount or any part of it was being paid or received towards that portion of the mortgage debt which may be for or without legal necessity. The present suit was instituted on 21st June 1930 by the receiver of Radha Kishan's estate. In the plaint also the plaintiff did not suggest that the amount had been appropriated towards that part of the mortgage debt which might have been without legal necessity. Indeed, his case was that the whole of the mortgage debt had been taken for legal necessity and was therefore binding on the entire joint family of the mortgagors. The contesting defendants took up the position that no part of the mortgage debt had been borrowed for any lawful or family necessity. The trial Court held that the entire amount had been borrowed for legal necessity. But on appeal the learned Judges held that out of the principal amount the sum of Rupees 8,500 was for legal necessity, but not Rs. 6,370; on this opinion having been expressed, the learned Counsel for the plaintiff respondent requested that his client should be allowed to appropriate the whole of the amount previously paid towards that part of the debt which had not been proved to have been for legal necessity.
4. It is quite clear that where there are more distinct debts than one, the debtor may, either with express intimation or under circumstances implying that payment is of a particular debt, make the payment which must, under Section 59, Contract Act, be applied accordingly. In the absence of any such intimation or such circumstances, the creditor has the discretion under Section 60 to apply the payment to any debt, even though barred by limitation. The creditor's right to make the appropriation would certainly last until he had done something which puts an end to his option. In Cory Bros. & Co. v. Owners of Turkish Steamship, 'Mecca' (1897) A.C. 286, at p. 293, Lord Macnaghten laid down that the creditor may exercise his right until the very last moment.' It has been held in. some cases that the option may be exercised even during the pendency of the suit Seymour v. Pickett (1905) 1 K.B. 715 and Kunja Mohan Shaha v. Karunakanta Sen : AIR1934Cal40 . But no case has been cited where the option has been allowed as of right after the judgment has been pronouncedr by the first Court. It seems to us that if the creditor has not chosen to make any; appropriation until the Court pronounces its opinion, the provisions of Section 61 come into operation and it is the duty of the Court to direct the appropriation in accordance with that section. After the decree of the first Court has been passed, it would be too late for the creditor to make up his mind to appropriate the payment in a particular way. The appellate Court should as a rule pass the decree which the trial Court would have passed on the date when it decided the case.
5. The question as to how appropriation has been made is a question of fact, and1 the appellate Court cannot take this fresh matter into consideration without admitting additional evidence in appeal. If the case has to be decided on the record as it stands, the appellate Court must assume that no appropriation had been made by the creditor at all. The fact that the creditor's counsel offers to make the appropriation in the appeal should not carry any weight. We would, therefore, answer the general question referred to us by saying that the creditor can appropriate the payment to any debt until the judgment is pronounced by the trial Court but not thereafter. The second question is not so simple. In terms Sections 59 to 61, Contract Act, cannot apply to a single loan taken by the manager of a joint Hindu family, part of which may be for legal necessity and part not for such necessity. To start with, the debt is one debt and strictly speaking not distinct debts. But the principle underlying these-sections has been applied to the case of interest accruing on principal, although the two really form part of one single debt and not distinct debts see Luchmeswar Singh v. Syed Latiff khan (1871) 8 Beng. L.R. 110 at p. 112 and also Maharaja of Benares v. Har narain Singh (1905) 28 All 25. Their Lordships of the Privy Council have also in a recent case [Cf. A.I.R. 1922 P.C. 233 and 26 - Ed.] as in Luchmeswar Singh v. Syed Latiff khan (1871) 8 Beng. L.R. 110, applied the principle of appropriation to interest as distinct from the principal.
6. Where at the time of the mortgage, or at least at the time of the payment, it is definitely known that one portion of it was for legal necessity or in payment of an antecedent debt of the father and therefore binding on the whole joint family and another portion not such a debt and therefore due from the father personally, it may be possible to treat the two portions of the debt as distinct debts. There is no reason why at the time of the payment the debtor cannot specify that the amount should go towards the discharge of one or the other portion. If such a specification is made, the creditor would be bound to appropriate it accordingly. If the principle underlying these sections were not applicable to such a debt, the result would be that even if the sons make the payment in order to discharge that part of the debt which was for legal necessity, the creditor would have the right to appropriate it towards the other part. This, in our opinion, cannot be the legal position. Similarly, when it is definitely known that the debt consists of two such portions, the creditor in the absence of any specification by the debtor can appropriate the payment towards one or the other portion. In particular, if the payment is made by the executant himself, the creditor may well appropriate it towards that portion of the debt which was due from the payer himself.
7. But where it is not clearly known that the debt consists of two definite and specified portions, one for legal necessity and the other not so, the debt must be regarded as a single debt and not as two distinct debts. This would be particularly so where the creditor is maintaining that the whole amount was for family necessity. In such a case it is difficult to see how the creditor can make an appropriation towards an unknown portion of the debt. In cases where both the creditor and the debtor treat the debt as one, debt, the former regarding the whole as a joint family debt due from the whole family and the latter as a debt due personally from the manager, it would be difficult for either party to make appropriation without specifically splitting up the debt. In such cases if the amount is paid and received towards the whole debt it must of a necessity go towards the discharge of the whole debt treating it as one single debt. In such an event no question of appropriation in its strict sense arises. It would be just and equitable to distribute the payment rate-ably between the two portions as found by the Court. This would be all the more so, if the creditor maintains till the time of the passing of the decree that the whole debt was one debt binding on the entire family and leaves it to the Court to decide the matter.
8. The question in this form did not arise in Ram Nath v. Chiranji Lal : AIR1935All221 , nor was it decided. In that case the creditor was willing to allow a rateable distribution, and it was the debtor who was saying that the whole of the amount should be appropriated towards that part of the debt which was for legal necessity. As the debtor's option must be exercised at the time of the payment, the debtor had in that case already lost his option and could not compel the creditor to appropriate the amount in a particular way. In the absence of any express specification by the creditor, the Court upheld rateable distribution of the amount. The word 'appropriation' as used in that judgment did not mean the exclusive appropriation to one part of the debt, but its rateable distribution between the two portions of the debt. Our answer to the other part of the question is that when two portions of the debt have not been definitely ascertained, and the mortgagee regards the whole debt as one debt, it is not open to the creditor to appropriate the payment towards an unknown and unspecified portion of the debt but he may make the appropriation, if the two portions are definitely ascertained, in such a way as to make them constitute two distinct debts although parts of the same loan. This is our answer to the (question referred to us.