GEORGEKUTTY Vs. THOMAS

JUDGEMENT

(1.) THE petitioners obtained a decree against the respondent for recovery of money on the basis of a Chitty-hypothecation bond. While the decree was being executed the judgment-debtors filed E. A. No. 1492 of 1977 for relief under the Kerala Debt Relief Act 17 of 1977 (for short the 'act')alleging that his annual income and the decree-debt did not exceed Rs. 3,000/ -. THE Additional Munsiff, Shertallay allowed the petition and held that the decree-debt must be deemed to have been discharged. This order is challenged by the petitioners.

(2.) THE decree is based on a compromise. THE principal amount under the decree is Rs. 2,390/ -. THE decree allowed costs amounting to rs. 402. 20 and interest on the principal amount at b% per annum. THE decree amount is permitted to be paid in instalments of Rs. 200/- THE total amount on the date of the decree was Rs. 3,382 20. In the execution petition filed on 23 51977 credit was given to payments made subsequent to the decree and the balance amount was Rs. 2,879. 43. Under the provisions of the Act a person is entitled to relief if on the relevant date his yearly income and the debt excluding interest did not exceed Rs 3,000/ -. THE petitioners produced before the executing court Ext. B-1, a hypothecation bond for Rs. 990/- executed by the respondent and contended that the liabilities of the respondent exceeded rs. 3,000/ -. He also contended that the annual income of the petitioner was more than Rs. 3,000/ -. THE respondents' case was that for purposes of the Act interest should be excluded and if the payments made by him were to be credited towards principal, the balance debt for the purpose of the Act on the relevant date was. only Rs. 1,390/ -. He also pleaded discharge of the liability under Ext. B-1. THE Munsiff accepted the case that the payments should be credited towards the principal but not the discharge pleaded in respect of Ext. B-1 debt. THE Court also held that the petitioner failed to make out that the income of the respondent did not exceed Rs. 3,000/ -. Holding that the total liability of the respondent for purposes of the Act was only Rs. 2,380/-, the Court allowed the claim and declared that the decree stood discharged. THE revision petition is against the order. . .

(3.) THE Privy Council had occasion to consider this question on a number of occasions, the earliest being Venkatadri v. Parthasarathi (44 Madras 570 ). Lord Buckmaster in the judgment in the above case referred to the following passage, Parr's Banking Company v. Yates, (1898)2 Q. B. 460 at 466: "the defendant's counsel relied on the old rule that does no doubt apply to many cases, namely, that where both principal and interest are due, the sums paid on account must be applied first to interest. That rule, where it is applicable, is only common justice. To apply the sums paid to principal where interest has accrued upon, the debt and is not paid, would be depriving the creditor of the benefit to which he is entitled under his contract. " THE above principle was followed by the Privy Council in the case mentioned and in later decisions and also by the Federal Court: (See rai Bahadur v. Radha (26 CWN 153); Akbar v. Attar (AIR 1945 PC 170); Bennison v. Shiber (AIR 1946 PC 145); Shanmugam v. Anna (AIR 1950 FC 38) ). It is thus well established that in a case where the debt carries interest, ordinarily any sum paid towards the transaction should first be applied in discharge of interest and after interest is satisfied in payment of capital. THE underlying reason is that if payments are first appropriated towards the principal, the principal would get itself dwindled and though the liability under the transaction would subsist even after the principal is wiped out the creditor would be losing the interest for the subsequent period which he is otherwise entitled to.