1. This is a creditor's appeal and the main point that arises is under Madras Act IV of 1938.
2. Most of the material facts are not in dispute. In 1930 the first defendant executed in favour of the plaintiff (appellant) three deeds of mortgage, Exhibits A, B and C for Rs. 1,500, Rs. 1,500 and Rs. 900 respectively. Admittedly, no payments were made towards any of the mortgages till August, 1935, when an arrangement was arrived at between the plaintiff and several persons who had purchased portions of the hypotheca from the first defendant. This arrangement was embodied in Exhibit E, dated 19th August, 1935. After reciting the mortgages it is stated in Exhibit E that the balance in respect of those debts on 19th August, 1935, stood at the figure of Rs. 6,130. It is then provided that
a sum of Rs. 5,344 should be credited therefor in the mortgage deeds .... and towards that the properties mentioned hereunder in accordance with the particulars mentioned in paragraph a..., should be sold.
It was expected that seven sale deeds would be altogether executed for the purpose of raising the amount of Rs. 5,344 mentioned in Exhibit E but only five out of these were executed and the other two transactions were not put through.
3. In the suit out of which this second appeal arises the appellant claimed Rs. 2,828-12-0 as the amount due under the three mortgages, Exhibits A, B and C The suit was decreed substantially as prayed by the learned District Munsif but on appeal the learned Subordinate Judge held that Exhibits B and C were completely discharged and that there remains still due under Exhibit A a sum of Rs. 483, as on 1st October, 1937.
4. Two questions arise in this second appeal : (1) whether Exhibit C was completely discharged by the execution of the sale deed, Exhibit F-2; and (2) whether the amounts mentioned as consideration for the other four sale deeds, namely Exhibits F, F-1, F-3 and F-4 were open payments towards Exhibits A and B or whether there was an appropriation in respect of those amounts.
5. The first question can be shortly dealt with. It is common ground that on the 29th August, 1935, when Exhibit F-2 was executed the amount' due under Exhibit G exceeded Rs. 1,300. Exhibit F-2 purports to be for a sum of Rs. 1,000 only. In the document as originally written it was stated that the consideration was to go towards the discharge of the mortgage evidenced by Exhibit C. This was, however, corrected into a statement that the amount was to go in discharge of the mortgage. It was suggested that the amount of the purchase money was really Rs. 1,300 and odd but that for the purpose of reducing the stamp duty payable on the document the parties stated the reduced figure of Rs. 1,000. In dealing with this part of the case the learned Subordinate Judge bases his final conclusion that Exhibit G was fully discharged on several alternative bases and this has come in for some criticism by Mr. Gopalaswami Aiyangar, the learned advocate for the appellant. It is however quite clear from the judgment of the learned Subordinate Judge that he found in effect that the agreement between the parties was that the plaintiff should take items 4 and 7 which were conveyed under Exhibit F-2 in full satisfaction of the mortgage, Exhibit C, and that the correction in Exhibit F-2 was necessary for giving effect to and did give effect to the initial agreement between the parties. This finding of fact, for which there is considerable support in the evidence, seems to me to conclude the case against the appellant in this respect. It has been argued that this finding overlooks the fact that Exhibit G is still with the plaintiff. This is claimed as a circumstance to show that Exhibit G could not be taken to have been completely discharged but as Mr. Venkatarama Aiyar, the learned advocate for the respondent, has rightly pointed out, this circumstance was never adverted to in either of the Courts below and can perhaps be met by the statement of the 16th defendant in the course of his evidence that Exhibit C was not available at the time when the sale deeds were executed. It must therefore be taken that Exhibit C was fully discharged by the execution of Exhibit F-2.
6. It now remains to deal with the contention relating to the manner in which the amounts representing the consideration for Exhibits F, F-1, F-3 and F-4 should be dealt with. Exhibit F states that Rs. 442 out of its consideration should be credited towards the mortgage deed, Exhibit A and Rs. 1,123 should be similarly credited towards the mortgage, Exhibit B. The provision in Exhibit F-1 is that Rs. 575 out of the consideration should be endorsed as paid on the mortgage deed, Exhibit A. It is provided in Exhibits F-3 and F-4 that the amounts of Rs. 345 and Rs. 200 forming the consideration respectively for those two sales were to be regarded as paid towards Exhibit B. I have not set out the exact wording in the several documents but this is the effect and purport of the relevant clauses in the sale deeds.
7. It has been strenuously argued by Mr. Gopalaswami Aiyangar, that there was on, the 29th August, 1935, when all these sale deeds were executed, an appropriation within the meaning of Madras Act IV of 1938; and that the payments made under those documents or what is equivalent to payment, namely, the conveyance of properties cannot be regarded as being or amounting to open payments within the meaning of the law relating to the scaling down of debts due by agriculturists. There is of course no dispute that the concerned defendants are all agriculturists entitled to the benefits of Madras Act IV of 1938.
8. I find it difficult to infer an appropriation of these several amounts towards the mortgages. It is unnecessary to define what constitutes an appropriation for the purposes of the Madras Agriculturists' Relief Act. Cases which have arisen under that Act have however laid down what would and what would not amount to appropriation. It is obvious that mere payment of money towards a debt is not appropriation. The passing of a receipt acknowledging such a payment takes the matter no further.
9. In Narayana Holla v. Balarama Hande : AIR1944Mad93 , it was held that the execution of a release deed which contained reference to ' the balance after deducting the previous payments ' did not amount to an appropriation. It is of course not necessary that there should be an adjustment of the amount paid towards the principal or towards the interest or in stated proportions or amounts towards principal and interest. If there is an appropriation the burden of showing that the appropriation was, made in a manner most favourable to himself lies on the debtor. In a number of cases it has been held that the recording of part satisfaction towards a decree debt and the taking out of execution for the balance would amount to an appropriation. See Ramaswami Aiyar v. Ramayya Sastrigal : (1941)1MLJ295 and Srinivasachariar v. Bysani Krishnayya : AIR1941Mad697 . The recording of part satisfaction to the extent of the amount realised by the sale of the hypotheca under a mortgage decree accompanied by an application for the passing of a personal decree for the balance was similarly held in Venkateswara Aiyar v. Ramaswami Aiyar : (1941)1MLJ9 to amount to appropriation.
10. From this short review of the effect of the cases which have arisen under the Act it is apparent that there must be an overt act from which appropriation can be reasonably deduced or inferred.
11. It is apparent from the language of Exhibit E already set out as also from the language of Exhibits F, F-1, F-3 and F-4 that all that was said was that the amount that was to be, or that was raised, by the sales was to be credited towards, and go in discharge of the amounts due under Exhibits A and B. The relevant portions of these documents go no further. It is true that Exhibit E states that the amount of principal and interest due under Exhibits A, B and C amounted on that date to Rs. 6,130 and that the several sale deeds that were contemplated would be for the aggregate amount of Rs. 5,344. A calculation of the amount of principal and the interest due on that date and a statement that a portion out of that amount to be raised in the manner indicated should be credited towards the debt is, in my opinion, not sufficient to constitute appropriation. Mr. Gopalaswami Aiyangar relied on the further facts that the plaintiff executed a release deed, Exhibit Land took possession of the properties covered by the several sale deeds. As regards the release deed it has now been held--and that finding cannot be challenged in second appeal--that the parties intended that it should come into effect only if all the documents as per Exhibit E were executed and that since they were admittedly not executed, Exhibit 1 cannot be given effect to. But apart from this, the language of Exhibit I is insufficient to constitute any appropriation. In its material portion all that is stated is that the mortgagee gives up his mortgage right under Exhibits A and B over the properties described in the schedule attached to Exhibit I in consideration of a certain sale deed executed by the releasee, the 16th defendant, in favour of the mortgagee. The mere fact that the sales were given effect to and that the vendee took possession of the properties conveyed to him has no bearing on the question of the appropriation of the several sale amounts towards the mortgages. The facts relied on by Mr. Gopalaswami Aiyangar would only go to show that the several sales were acted upon, but that leaves altogether untouched the question as to whether there was such adjustment or payment of the amounts realised by the several sales as would amount in law to appropriation. In my opinon, none of these facts taken individually or cumulatively would amount to appropriation.
12. Considerable reliance has been placed by Mr. Gopalaswami Aiyangar on the decision in Duraiswami Mudaliar v. Muhammad Amiruddin : AIR1948Mad434 , wherein it was held that a receipt acknowledging payment of
Rs. 5,400 only being the part payment in respect of the decree debt in C. S. No. 500 of 1930
would amount to an appropriation. The case was perhaps somewhat peculiar on its facts and it is unnecessary to decide whether the decision was or was not correctly given in the circumstances of that case; but if it is to be regarded as laying down that every time a receipt is passed acknowledging part payment of a debt there is an appropriation, I must, with great respect, point out that this is opposed to a long line of decisions given by Wadsworth and Patanjali Sastri, JJ., in dealing with cases arising under Madras Act IV of 1938. Narayana Holla v. Balarama Hande : AIR1944Mad93 , is referred to by the learned Judges in Duraiswami Mudaliar v. Muhammad Amiruddin : AIR1948Mad434 as being opposed to the view that they were themselves inclined to take. They however put it aside on the ground that the learned Judges in Narayana Holla v. Balarama Hande : AIR1944Mad93 , were dealing with a preliminary mortgage decree. I am unable to see how that circumstance makes any difference for the purpose of deciding the question of appropriation. It would appear that the counsel in Duraiswami Mudaliar v. Muhammad Amiruddin : AIR1948Mad434 admitted that Narayana Holla v. Balarama Hande : AIR1944Mad93 was the only case he could rely on. This admission can be said to be hardly accurate because there have been a very large number of decisions, reported and unreported, holding that the mere statement that a certain amount was received in part satisfaction of a debt is no appropriation. It is otherwise impossible to sustain the correctness of the innumerable judgments which have been given on the footing that a payment which is endorsed as towards a debt or towards the principal and interest due on a debt is an open payment. Mr. Gopalaswami Aiyangar characterised the transaction here as bilateral and said that that would alter the case but all that has happened here is that the creditor has accepted certain properties as amounting to payment of certain named amounts. I do not see how this differs in principle from a payment in cash made by a debtor and accepted by the creditor in partial satisfaction of his debt. In fact, every time that payment is made and accepted and an endorsement of that payment is made on the document of debt, the transaction can be described as bilateral because it cannot possibly happen without the consent of the creditor. I do not, therefore, regard this case as differing in any respect from the cases of payments towards a debt.
13. The result is that there was no appropriation either on the date of Exhibit E. or on 29th August, 1935, when the several sale deeds were executed It is not suggested that there was any subsequent appropriation before the 1st of October, 1937.
14. Mr. Gopalaswami Aiyangar then raised an alternative argument based on the decision in Raghava v. Devarajulu : AIR1943Mad236 . In that case it was held by King, J., agreeing with Patanjali Sastri, J., and differing from Wadsworth, J., that where a payment made is in excess of the interest due on that date, to the extent of the excess there is an appropriation towards the principal of the debt. It was pointed out that the amounts credited towards Exhibit A under Exhibits F and F-1 came to Rs. 1,017 while the interest due on Exhibit A on that date, namely 29th August, 1935, was only Rs. 942. In regard to Exhibit B it was similarly pointed out that under Exhibits F, F-3 and F-4 the total amount paid towards Exhibit B on 29th August, 1935, was Rs. 1,668 while the interest then due was only Rs. 952-8-0 Since the payments exceeded the interest due in each case there was, it was said, an appropriation of the payments themselves.
15. This point was not raised in either of the Courts below; but as it is a question of law and as the material facts are not in dispute I permitted it to be raised.
16. The argument however must fail on its merits and in my opinion it misconceives the effect of the decision in Raghava v. Devarajulu : AIR1943Mad236 . All that was held in that case was that there is an appropriation in regard to the excess of the payment over the interest then due. That decision says nothing as to the appropriation of that portion of the payment which is equal to the interest due at the time. In fact, it was held in subsequent decisions which have not however been reported that that part of the payment is an open payment which is liable to be subsequently appropriated in a manner favourable either to the creditor or the debtor; and that in the absence of such appropriation it would continue to be an open payment down to the 1st October, 1937. Patanjali Sastri, J., whose view was accepted by King, J., in Raghava v. Devarajulu : AIR1943Mad236 , himself decided several cases on that footing and it is enough to refer to one which I am myself able to re-call, namely, the decision given by him in S. A. No. 678 of 1942. It was argued that it is difficult to conceive of a payment which is partly appropriated and partly not, and again that if the excess of the payment over the interest due goes towards the principal it would only be logical to hold that to the extent of the interest due, there is an adjustment of such portion of the payment as may be necessary, against such interest. The correct description of the payment to the extent that it is in excess of the interest has also been debated; is it an actual appropriation or necessary appropriation or presumed appropriation King, J., uses the expression ' actual appropriation.' In their decision in Rama Sah v. Lal Chand (1940) 1 M.L.J. 895 : L.R. 67 IndAp 160 : I.L.R. 21 Lah. 470 (P.C.) which is the main basis and support of the judgment in Raghava v. Devarajulu : AIR1943Mad236 , their Lordships of the Judicial Committee seem to regard it as a presumed appropriation and in one place they use the expression that the appropriation must of necessity have been intended.
17. It would however be mere hypercriticism to object to any particular description of the appropriation, now that it is established that there is, in such circumstances, an appropriation. The more material question is as to the extent of such appropriation; and here it seems to me that though, on a first impression it may not look quite logical, the decisions are to the effect and rightly too that there is an appropriation only as regards the excess of the payment over the interest and no appropriation at all as to the balance. I do not think it is permissible to go behind the position thus established.
18. If the excess is to be appropriated towards the principal and if by another process the payment to the extent of the amount of interest is to be regarded as open payment to be finally adjusted towards the principal on the 1st October, 1937, it may seem as if the process of splitting the payment is a futile process because ultimately the entire amount is adjusted towards the principal. This, however, is not the correct position in law. To the extent of the excess of the payment over the interest if it is held in law that there is an appropriation towards the principal it is open to neither party thereafter to change the destination of that excess; eo instanti it reduces the amount of the principal. As regards the rest of the payment however it is an open payment which is liable to be appropriated, at the instance of the debtor or the creditor according to the well-known rules of law relating to appropriation either towards the principal or towards the interest or partly towards the principal and partly towards the interest; and it is only if there is no such appropriation between the date of payment and 1st October, 1937, that that portion of the amount finally gets adjusted towards the principal. It may be that cases of subsequent appropriation are not frequent; but that, however, does not alter the true legal position.
19. Mr. Venkatarama Aiyar, the learned advocate for the respondent, also pointed out that it would be somewhat difficult to apply the rule in Raghava v. Devarajulu : AIR1943Mad236 to Exhibit A because the amount adjusted towards Exhibit A under Exhibit F was Rs. 442 and the amount adjusted under Exhibit F-1 was Rs. 575, neither of these amounts taken separately being in excess of the interest due on Exhibit A on that day. The answer on the other side is that they were part of a single transaction and must be taken as if there was only one sale deed comprising both items of property for an aggregate consideration of Rs. 1,017. Whether this is so, or not, it is unnecessary to consider in view of what has already been stated regarding the true scope and effect of Raghava v. Devarajulu : AIR1943Mad236 .
20. The learned Subordinate Judge was, therefore, correct in holding that the payments under Exhibits A and B were open payments with the result that Exhibit B must be taken to have been completely discharged by the application of Madras Act TV of 1938, while there will be due on Exhibit A on 1st October, 1937, only a sum of Rs 483 towards the principal for which appropriate provision has been made in the decree of the lower appellate Court.
21. The second appeal fails and is dismissed with costs. No leave.