1. The case as it seems to me is really a simple one. It relates to an instalment decree, dated the 21st December 1908. The decree is founded on a judgment in these terms:
'Defendant admits the claim but prays for an order to pay by instalments. Plaintiff will get a decree with costs for the amount claimed to be paid in yearly instalments of Rs. 600 (six hundred) payable on July 15th each year with interest at 12 per cent. In default of any instalment the whole amount will be payable.'
2. The decree itself runs as follows:
'It is ordered that the defendant do pay to the plaintiff the sum of Bs, 2,888-8-0 with interest thereon at the rate of 12 per cent, per annum, with the costs of the suit.
3. The amount decreed with casts to be paid in yearly instalment of Rs. 600 (six hundred) payable on July 15th each year. In default of any instalment the whole amount will be payable.'
4. In the decree the words underlined (italicised) are printed and it may be that the printed form of which use was made is not as suitable for an instalment decree or for a decree of the ordinary kind. But reading the judgment and the decree together the meaning seems clear. The amount decreed excluding the costs is Rs. 2,888-8-0 with interest at 12 per cent, per annum. The decree makes it clear that the interest is payable yearly and for the present purpose the year must be taken to end on the 14th July. No doubt the payment of interest on interest is not directed, but on every 15th July the decree holder became entitled to the interest accrued due on the amount of his claim or the balance of that amount.
5. The judgment-debtor regularly paid Rs. 600 and the question is now one of accounting. The judgment debtor did not expressly 'or impliedly appropriate these payments to principal. The plaintiff, therefore, contends that he was at liberty to appropriate out of each payment as it was made sufficient to satisfy the interest due at the date of the payment, and to credit the balance only to principal. The judgment-debtor, on the other hand, contends that the plaintiff was obliged to allocate the whole of each periodical payment to principal and to take nothing for interest so long as there was any principal due. So far as I can see there is nothing in the decree which entitles the defendant to have the account taken on that footing. Interest was expressly made payable by the decree. The amount decreed comprised the principal debt and the debt annually due on account of interest. On general principles, in the absence at any rate of any appropriation by the debtor, it was open to the creditor to divide each sum of Rs. 600 between principal and interest, as he did, and to make up his account accordingly.
6. In other words the case falls within the general Rule which the Courts have long recognised. 'It is usual,' said the Sadar Diwani Adalat in 1827 Goverdhun Das v. Waris Ali 4 Select Reports 330 : 7 Ind. Dec. (o, s.) 246. 'till the whole amount of interest is paid to carry any sums received to the account of interest and not of principal.' The case was cited Before the Privy Council in Bamundoss Mookerjea v. Umeish Chunder Raee (2). Judgment was delivered by Sir William Maule who said this:---'Their Lordships during the argument in this case intimated their opinion on the main question, namely, whether the payments made should be ascribed exclusively to principal, and no part of them to interest: expressing their opinion that the course adopted was the ordinary one, and that the construction of this instrument is one which does no point out any other, namely, that the payments should be applied in the first instance to interest, and to principal only so far as those payments exceed the interest due. That is the main point in question and their Lordships entertained no doubt at all about it.' The Rule was again applied by the Privy Council in Luchmeswar Sing Bahadur v. Syad Lutf Ali Khan (3). The head-note is as follows: 'Where, payment was made upon a bond, the amount paid being less than the interest due, held the payment ought to go to reduce the amount of interest due, and the creditor in a suit upon the bond was entitled to a decree for the principal and balance of interest up to date of decree.' The report states that when the appeal was opened, their Lordships intimated that unless the learned Counsel could satisfy them that there had been an appropriation at the time of payment to the payment of the principal, the creditor had a right to consider it as a payment on account of the interest. It seems to have been argued (as it has been argued before us in the present case) that the result of adopting the Rule was virtually to allow the creditor compound instead of simple interest. Their Lordships delivered a short judgment but took occasion expressly to observe that 'there has been no calculation so as to give compound interest.' Reference may also be made to the decision of Sir William Mark by and Romesh Chunder Mitra, JJ., in Gooroo Doss Dutt v. Ooma Chum Roy (1) and to the decision of the Allahabad High Court in Maharaja of Benares v. Har Narain Singh (4). The Rule is so well established that but for the respect due to the Courts below and to my learned brother, I should hardly have thought it necessary to cite authority at all.
7. Most of the cases relate to bonds containing an express stipulation for the payment of interest, but in Gooroo Dutt's case (1) the Rule was applied to payments on account of a decretal debt. Nor is there any reason why the Rule should not apply when there is an express provision for the payment of interest in a decree, whether the decree be an instalment decree or a decree of the ordinary kind, Take for instance a decree for Rs. 1,000 with interest at 5 per cent, per annum. If at the end of a year a sum of Rs. 100 is realized the judgment. debtor would be entitled to appropriate Rs. 50 for the interest due.
8. As to the argument that the Rule virtually allows compound interest, it may be that when the amounts paid on account are regularly paid and are always sufficient to satisfy the interest due, so that the interest is never in arrears, the result as regards the total amount paid is the same as allowing compound interest, or as though the instalments paid were credited to principal and the interest due were added to principal. But this would not always be so. For instance, if nothing be paid on a debt carrying simple interest for two years, the interest due for the first year would not be added to principal, so, too, if the amount paid on account be less than the interest due, the balance of the interest would not be added to principal. The point is that when the money is paid there is interest due to the creditor and unless the contract or decree provides to the contrary, or the money is otherwise specially appropriated by the debtor, the creditor has a right to pay himself his interest.
9. The principle underlying the Rule appears to be this, that when interest is payable under an express stipulation or provision, the interest becomes a debt accessory to the principal debt and Section 60 of the Contract Act is applicable (Pollock and Mulla's Indian Contract Act, 2nd Edition, page 260).
10. One point remains. On the 28th July 1909, the decree-holder filed an application praying that the decree may be amended in con-formity with the judgment.' The application does not state in what respect the decree was not in conformity with the judgment. The judgment-debtor presented a counter-petition, in paragraph 4 of which he stated that if the Court passes orders for payment of interest on the whole sum decreed along with the instalment of Rs. 600, the defendant will not be in a position to pay the same, and if the defendant in that case fails to pay the Kist, the plaintiff, no doubt, will not let him off easily.' The learned Subordinate Judge before whom the matter came contented himself with saying that he was not inclined to amend the decree as too much time had elapsed. It is suggested that what the decree-holder asked for by way of amendment was a direction that the judgment-debtor should pay on each 15th July not only the sum of Rs. 600 but also the interest due to date, and that this request showed that he meant to allocate each payment of Rs. 600 in its entirety to principal. In my opinion no such declaration of intention can be extracted from the petitions and the order of the Subordinate Judge. The fact, if it be a fact, that plaintiff wanted the instalments increased from Rs. 600 to Rs. 600 and interest due is no proof of any intention on his part, if he received instalments of Rs. 600 only, to allocate the whole to principal.
11. The Courts below decided in favour of the defendant. It may be that their sympathy was with him but for the reasons indicated their orders should, in my opinion, be discharged. The certificate of full satisfaction of the decretal debt granted by the first Court must be set aside and an order drawn up stating the amount still due on the basis above indicated.
12. As regards costs, I do not myself see any reason for departing from the usual rule, but as my learned brother thinks differently, I do not press the point. The appeal will, therefore, be allowed without costs.
13. This appeal has caused me much difficulty, and if it were necessary to state a general Rule as to the manner of calculating interest on an ordinary decree for money, I fear I could not agree with my learned brother. The case of Gooroo Doss Dutt v. Ooma Churn Roy (1) deals with the question, but with all deference to the learned Judges, I doubt whether their statement 'of the Rule usually adopted in this country' is correct at the present day. Moreover, I think that a method of calculation which has the practical effect of allowing compound interest cannot be distinguished from compound interest, and should be acknowledged as such.
14. In the present case, however, the plaint and the written statement with the judgment passed thereon, supplemented by the decree-holder's petition for amendment with the debtor's petition in reply, make it plain that the arrangement between the parties was that the amount due under the decree should continue to bear interest at the rate stipulated in the handnote in the same manner as if the debt were still due under the handnote and not under the decree, and that the only relief granted to the debtor was that he should pay off the debt in regular instalments, instead of becoming liable immediately to execution proceedings; for the entire amount due under the decree, There is no uncertainty about the manner in which, by custom and authority, interest would be calculated under the hand-note. I, therefore, agree that the appeals should be allowed, but without any order as to costs.