1. This petition raises a question regarding the working of Section 8 of Madras Act IV of 1938. The petitioners were some of the defendants in the suit on a promissory note for Rs. 1,900. This note was dated the 20th April, 1935 and it renewed an earlier note which was admittedly executed on 19th April, 1926, for a sura of Rs. 1,000, though this earlier note has not been exhibited. On 2nd August, 1937, a payment of Rs. 1,000 was endorsed 'towards this promissory note in the matter of the sale of a house.' The lower Court has held that this payment was made towards the promissory note generally, that is, towards the entire amount due including principal and interest and he has rejected the plea of actual appropriation. The petitioners are admittedly agriculturists and the lower Court has scaled down the debt by the simple process of treating the debt as one borrowed on the earlier date 19th April, 1926, doubling the original principal, subtracting the admitted payments amounting to Rs. 1,005 and giving a decree for the balance of Rs. 995 as on 1st October, 1937, with interest as from that date at 6 1/4 per cent, under Section 12 of the Act. That is to say the learned District Munsif has ignored Clause (1)' of Section 8 and has scaled down the debt on the basis that Clause (3) of that section provides a minimum rather than a maximum which the creditor may claim. It seems to us that the method adopted by the lower Court of scaling down this debt cannot be justified. It is, however, by no means easy to lay down what is the correct way of applying this difficult section.
2. It is contended for the respondent that the payment on 2nd August, 1937, must be deemed to have been appropriated in the manner most favourable to the creditor and that the scaling down process must be applied only after making such an appropriation. We do not think that this contention can be upheld. Granting that when the Court is adjusting accounts between debtor and creditor, the ordinary rule is that unappropriated payments are first to be applied towards interest; this is more a rule for the guidance of the Court than a presumption of law regarding what has in fact been done. In dealing with the subject of appropriation as affecting Section 20 of the Limitation Act, the Privy Council in a recent case Rama Shah v. Lal Chand (1940) 1 M.L.J. 895 : L.R. 67 IndAp 160 had occasion to consider whether, when there is an open payment towards a debt, a mere notional appropriation, such as is contemplated in the rule just referred to, can take the place of an actual appropriation for the purpose of saving limitation and their Lordships held that it could not. It seems to us that the same principle applies in dealing with the present facts. Here we have an open payment of Rs. 1,000 made towards the debt generally, but not appropriated by the debtor or creditor towards principal or interest. We do not consider that the creditor should be entitled, after the debtor has sought relief under Act IV of 1938, to treat this payment as having been theoretically appropriated towards interest when in fact it was not appropriated at all. We must therefore regard the debt as one in which there has been a payment, but that payment has not been appropriated either to principal or interest. Our attention has been drawn to a decision of Horwill, J., reported in Narayanaswamy Naidu v. Rajamanickam Pillai : AIR1940Mad419 : 51 L.W. 237, where the learned Judge drew a presumption that a similar payment not expressly appropriated was at once applied in the reduction of the debt for interest. We doubt whether such theoretical appropriation can properly be postulated in order to nullify the effect of Section 8(1) of the Act. Although there must have been an intention in due course to adjust the lump sum payment against the outstanding dues for interest and principal until such adjustment has in fact been made, it cannot in our opinion be said that there is no interest outstanding so as to bring into effect Section 8, Clause 1.
3. Now on this basis we have to see what is the actual result. With reference to the proviso to Section 9(1), the promissory note of 1935 must be deemed to be a debt contracted in 1926 and must be dealt with under the provisions of Section 8, that is to say, all interest outstanding on the 1st October, 1937 must be cancelled. If the interest is so cancelled, the unappropriated payment of Rs. 1,000 made on 2nd August, 1937, is sufficient to discharge the debt in full. The revision petition is therefore allowed with costs and the debt will be scaled down in the manner indicated with the result that the plaintiff's suit will be dismissed with costs.