PYDA SUBBARAMA CHETTY DIED Vs. GAJULAPALLI AUDISESHAN SARMA

JUDGEMENT

(1.) In this appeal the question is about the method of appropriation of two payments made by the defendants in respect of a mortgage dated 17th May 1953 The suit is laid on foot of the mortgage and the only question that arises for consideration in the appeal is whether two payments one to the tune of Rs 1,800 on 15th December, 1958 and the other relating to a sum of Rs. 4 ooo made on 9th July, 1959, were rightly appropriated by the plaintiff towards interest The defendants are agriculturists and there is no dispute that the provisions of the Madras Agriculturists Relief Act are applicable for the scaling down of the debt It is also clear that the appropriation made by the plaintiff of the two payments towards mterest was not at the contract rate, but only at the rate of interes prescribed under section 13 ot me Act.

(2.) In a notice caused to be issued by the plaintiff on 11th December, 1963 it was stated that barring the two payments towards interest, there were no others' made by the defendants. In the reply notice Exhibit A-3 dated 1st January, 1963, the defendants called in question the claim that the two payments were made towards mterest. The stand taken by them was that it was not correct to say that the payments were made towards interest. In another paragraph in Exhibit A-3, they put their case in a positive form and said that all the payments were made towards principal only The plaintiff's notice by way of rejoinder is Exhibit A-4 He affirmed that the amounts were paid towards interest and the assertions to the contrary were stated to be untrue The position, therefore is that when the payments were actually made by the debtors, there was no indication as to how the amounts were to be appropriated. In the subsequent correspondence between the parties, there was an assertion by the plaintiff that the amounts were paid towards interests and there was a denial by the defendants. It is clear that at the time of the payments there was no direction of the debtors in respect of the methods of appropriation. Nor did they, before the exchange of notices, specify any mode of appropriation. Although the learned Counsel for the respondents endeavoured to show that the reply notice Exhibit A-3 itself is to be deemed to be a direction as to appropriation It appears to me that this contention cannot be allowed to prevail. This was stated by the debtor only in answer to the creditor's notice. The creditor has already manifested his intention that the payments were to be treated as payments towards interest In view of the fact that there was no method of appropriation specified by the debtors at the time of the payments, it was open to the creditor to notify the debtors of his intention as to the mode of appropriation Exhibit B-3 in my opoinion, clearly indicates the creditor's animus in respect of the option which he had of treating the payments as payments towards interest. It was not open to the debtors thereafter to prescribe a mode of appropriation which ran counter to the method of appropriation indicated by the creditor.

(3.) The legal position as to the creditor's right of appropriation is well settled by authority. Section 60 of the Indian Contract Act embodies the rules as to appropriation. In enacts that where the debtor has omitted to intimate and there are no other circumstances indicating to which debt the payment is to be applied, the creditor may apply it at his discretion to any lawful debt actually due to him. This rule has been held to be applicable to the appropriation by a creditor as between the principal amount and interest due under the same debt. The speech of Lord Macnaughten in Cory Brothers & Co. v. Owners of Turkish Steamship 'Mecca', L.R. (1897) A.C. 286. contains an exposition of the law on the subject. It was pointed out that a debtor making a payment, may appropriate the money as he pleases and the creditor must apply it in accordance with the directions of the debtor. But if the debtor does not make any appropriation at the time when he makes the payment, the right of application devolves on the creditor. It is well recognised that the creditor is not bound to make the option straightaway. It was regarded as a settled proposition of law that the creditor has a right of election upto the very last moment, and he is not bound to declare his election in express terms. He may declare it by bringing an action or in any other way that makes his meaning and intention plain. The election is with the creditor and it is his intention expressed or implied or presumed that governs the application of the money. The presumed intention of the creditor may be gathered from a statement of account, or anything els which indicates an intention one way or the other and is communicated to the debtor. In Income-tax Commissioner v. Maharajadhiraja of Darbhanga, L.R. (1933) 60 LA. 146 at 147: 64 M.L.J. L.R. 48 I.A. 150. 612(P.C.). it was observed that where interest is outstanding on a principal sum due and the creditor receives an open payment from the creditor without any appropriation of the payment as between capital and interest by either debtor or creditor, the presumption is that the payment is attributable in the first instance towards the outstanding interest. In a decision of the Privy Council in Rama Shah v. Lalchand, (1960) 1 M.L.J. 895 : L.R. 67 I.A. 160 : 497. A.I.R. 1940 P.C. 63. the principle that the option rests with the creditor in respect of payment which are not accompanied by any direction of the debtor, has been reiterated. The rule that payments by the debtor unappropriated to either principal or interest would first be applied in discharge of interest, had been acted upon by the Privy Council in Venkatadri Rao v. Parthasarathi Apparao, (1921) ILR. 44 Mad. 570: 40 MLJ 549 There can, therefore, be no doubt that where a payment is made and no contemporaneous direction is given by the debtor about the mode of appropriation the creditor has the option of making the appropriation in the manner desired by him. This option need not be exercised immediately on payment. It is again clear that the option need not be exercised in any specified form. It may be done expressly or may be implied from the conduct or from the acts of the creditor. What is necessary is that there must be communication of any intention of the creditor in some form or other. In the absence of any action on the part of the creditor, the ordinary rule is that the payment must be utilised in the first instance for the satisfaction of the accrued interest.