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L. Kirpa Ram Vs. Balak Ram - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtAllahabad
Decided On
Reported inAIR1935All47
AppellantL. Kirpa Ram
RespondentBalak Ram
Cases ReferredHem Chandra Biswas v. Purna Chandra Mukherji
Excerpt:
.....say that in circumstances like those appearing in this case, the debtor must be considered to have paid part of the principal. in our opinion this argument is based on a fallacy and proceeds on the assumption that where interest is not paid as such, that is, the debtor does not clearly mention that the payment made by him was to be appropriated towards interest, it should be considered to have been paid by him towards principal. there are moneys that are received without a definite appropriation on the one side or on the other, and the rule which is well established in ordinary cases is that in those circumstances the money is first applied in payment of interest and then when that is satisfied in payment of the capital. they therefore think that the money received must be applied in the..........to that extent became an accomplished fact. it is possible that interest as such may not be paid by a debtor but payment by him may operate as payment of interest as would be the case where the creditor has got the right to appropriate a payment towards interest and does exercise that right. after the exercise of that right no question can arise as to whether the payment was made towards principal or interest. in the present instance it is the plaintiff's own case that he had appropriated it as part of the interest due.9. the argument put forward before me and which seems to have been somewhat countenanced in hem chandra biswas v. purna chandra mukherji 1918 cal 891 is based, on the assumption that in a case like this there are only two alternative hypotheses, namely, that the.....
Judgment:
ORDER

Niamatullah, J.

1. This is an application for revision by the plaintiff whose suit for recovery of Rupees 339-8-0 on foot of a bond dated 13th April 1929 was dismissed by the lower Court (Small Cause Court at Pilibhit) on the ground that it was barred by limitation.

2. The suit was instituted on 14th August 1933, i.e., more than three years from the date of the bond. The principal sum advanced was Rs. 475 which carried interest at the rate of 1 per cent per mensem. On 22nd March 1930 a sum of Rs. 275 was paid. This payment will not however save limitation as the suit was instituted more than three years from the date on which it was made. The plaintiff relies on the payment by the defendant of Rs. 20, on 15th December 1931, which its alleged to be noted on the back of the bond in the handwriting of the defendant. The defendant, denied the bond and payments alleged by the plaintiff. The lower Court has not recorded any finding on any other question arising in the case but dismissed the plaintiff's suit on the allegations made by him.

3. As regards the circumstances in which Rs. 20 was paid by the defendant the plaintiff's evidence shows that he (the defendant) did not say that the sum was being paid towards interest, but the plaintiff and another witness of his depose that on the defendant making the payment the plaintiff remarked that it should be appropriated towards principal. The defendant kept silent. Thereupon the plaintiff credited it as part payment of interest, the amount of which was in excess of Rs. 20 on that date. Apparently, the lower Court has not accepted the graphic account which the plaintiff and his witness give of the manner in which the payment was made and appropriated nor am I inclined to accept all that the plaintiff and his witness have stated. In all probability, the defendant paid Rs. 20 and the plaintiff accepted it, neither side mentioning how the sum was to be appropriated. As interest exceeding the amount paid was due, the plaintiff naturally appropriated the same towards it, which he had every right to do. In these circumstances, it cannot be said that the defendant paid Rupees 20 towards interest as such.

4. The learned advocate for the applicant has referred to Mitra Vol. 2, p. 923 wherein the author expresses the opinion that where interest in excess of the amount paid is due and the debtor does not specifically state that the payment is to be appropriated towards interest or principal, the proper inference is that he paid interest as such. But the view which has been accepted by at least two Division Benches of this Court is different. In M.B. Singh & Co. v. Sircar & Co. 1930 All 392 a Division Bench of this Court held that a payment cannot be considered to be of interest as such unless it was 'avowedly' made towards interest. The same view was taken in Ram Prasad v. Binaek Shukul 1933 All 453. I must therefore hold that on the view of the evidence taken by the lower Court and by myself, the sum of Rs. 20 was not paid towards interest as such.

5. The learned Counsel for the applicant has strenuously contended that if the payment in question is not considered to be one made towards interest, it must be taken to have been made towards principal and as it appears in the hand-writing of the debtor, it saves limitation. It is conceded that this contention is opposed to the decision of a Division Bench in Ram Prasad v. Binaek Shukul 1933 All 453 to which I was a party. An appeal has been made to me to refer this question to a Division Bench. I heard counsel at length in order to satisfy myself that reasonable doubt can be entertained as regards the soundness of the view taken in that case. If I had entertained such doubt I would have acceded to the counsel's request.

6. In my opinion it is not correct to say that in circumstances like those appearing in this case, the debtor must be considered to have paid part of the principal. A similar argument was advanced in the case above referred to and the Bench observed:

In our opinion this argument is based on a fallacy and proceeds on the assumption that where interest is not paid as such, that is, the debtor does not clearly mention that the payment made by him was to be appropriated towards interest, it should be considered to have been paid by him towards principal. To our mind this is a wholly erroneous assumption. A debtor may pay a certain amount in part satisfaction of what is due from him without caring to specify that the sum is to be appropriated towards interest or principal. The payment will not be considered to be the payment of interest as such and will not save limitation on that footing. The creditor may, however, appropriate such payment towards interest, as he is entitled to do under Section 61, Contract Act. The position then is that though interest was not paid as such, payment made by the debtor was lawfully appropriated towards interest. It cannot be considered to be payment in part satisfaction of the principal.

7. I am unable to discover any flaw in this reasoning. I may usefully amplify it. Sections 59 to 61, Contract Act, deal with the subject of appropriation of payments. In terms they relate to cases in which 'several distinct debts are due.' It is arguable that principal and interest due under the same transaction cannot be considered to be distinct debts within the meaning of Section 59, Contract Act. In Meka Venkatadari v. Prathasarathi Appa Row 1922 P. C. 233, their Lordships expressed themselves as follows:

There is a debt due that carries interest. There are moneys that are received without a definite appropriation on the one side or on the other, and the rule which is well established in ordinary cases is that in those circumstances the money is first applied in payment of interest and then when that is satisfied in payment of the capital. They therefore think that the money received must be applied in the ordinary way, first in the reduction of the interest, and when that is satisfied in the reduction of the principal.

8. This case is an authority for one of two propositions : (1) either that principal and interest should for the purposes of Sections 59 and 61, Contract Act, be considered to be distinct debts or (2) if they form part of the same debt, the principles of Sections 59 to 61 are nevertheless applicable to them. In either case, it is open to a creditor to appropriate a sum paid by his debtor without specifying whether it was paid towards interest or principal, to appropriate it towards overdue interest. If the creditor appropriates it towards overdue interest, the same should be considered to have been satisfied to that extent there and then. Is it open to the creditor to say subsequently when the question of limitation arises in a suit between him and his debtor that the payment was made towards principal? He had a right to treat it as payment towards interest and he appropriated it towards it. The sum having been thus appropriated payment towards interest to that extent became an accomplished fact. It is possible that interest as such may not be paid by a debtor but payment by him may operate as payment of interest as would be the case where the creditor has got the right to appropriate a payment towards interest and does exercise that right. After the exercise of that right no question can arise as to whether the payment was made towards principal or interest. In the present instance it is the plaintiff's own case that he had appropriated it as part of the interest due.

9. The argument put forward before me and which seems to have been somewhat countenanced in Hem Chandra Biswas v. Purna Chandra Mukherji 1918 Cal 891 is based, on the assumption that in a case like this there are only two alternative hypotheses, namely, that the payment was towards interest or principal as such. As pointed out in Ram prasad v. Binaek Shukul 1933 All 453 there is a third hypothesis, namely that the debtor did not make the payment specifically towards interest as such or principal as such. Cases are easily conceivable in which a debtor may not apply his mind to the question whether he should make the payment towards interest or principal. In such a case, whether the payment was of interest or principal would depend upon the manner in which the creditor exercises his option. If he treats it as payment of interest, it becomes a payment of interest and cannot be subsequently converted into payment of principal only because it is for the benefit of the creditor that he should reconsider his position as regards such payment. The fallacy lurking in the appellant's contention is that it fails to recognise that the debtor may not pay interest as such but a payment may operate as one towards interest by the action of the creditor.

10. Lastly, the learned advocate relied upon the endorsement in respect of the payment of Rs. 20 said to be in the handwriting of the defendant as acknowledgment. It is in these terms : 'Received Rs. 20 in respect of this bond.' These words do not imply any subsisting liability in respect of any debt remaining due after the payment of Rs. 20. They are consistent with Rs. 20 being the only sum due under the bond which was paid in final satisfaction thereof. In my opinion the endorsement is not such acknowledgment as would save limitation. The result is that this application for revision is dismissed with costs.


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