Full Judgment Text
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PETITIONER:
MEGHRAJ & ORS.
Vs.
RESPONDENT:
MST. BAYABAI & ORS.
DATE OF JUDGMENT:
30/04/1969
BENCH:
SHAH, J.C.
BENCH:
SHAH, J.C.
MITTER, G.K.
CITATION:
1970 AIR 161 1970 SCR (1) 523
1969 SCC (2) 274
ACT:
Mortgage-Money deposited in Court towards principal, effect
of--Interest-Some mortgagee Firm’s Partners migrated to
Pakistan-Custodian of Evacuee Property impleaded-Effect of.
Madhya Pradesh Money Lenders Act (Madh. Pra. 13 of 1934),
s. 9--lnterest whether can exceed principal.
HEADNOTE:
A preliminary decree was obtained by the mortgagee-firm for
recovery of the principal, interest at 3% and costs by gale
of the mortgaged property. The High Court in affirming the
decree, directed payment of the decretal amount by November
10, 1946, and awarded interest at 3 % from the date of suit
to August 11, 1941 and thereafter at 4% till the date of
satisfaction. In an application for clarification of the
order the High Court directed that interest be paid at 3%
from October 5, 1936 till August 11, 1941 on the amount
decreed by the trial court and at 4 % thereafter till
November 10, 1946. During the pendency of an appeal by the
mortgagor against the preliminary decree some of the
partners of the mortgagee-firm migrated to Pakistan, and
were declared evacuees. The court ordered that the
Custodian of Evacuee Property be impleaded as a party
respondent in the appeal. The appeal filed in this Court
was dismissed.
Thereafter the only partner of the mortgagee-firm who had
not migrated, for himself and as agent of the evacuees
applied for a decree absolute for sale. The Custodian of
Evacuee Property resisted the application. Ultimately the
High Court ordered that the Custodian of Evacuee Property be
joined as a party to the application for decree absolute for
sale, observing that the respective rights of the Custodian
of Evacuee Property and the partners of the mortgagee firm
were not decided in that proceeding. The, mortgagors
contested the application, contending that (i) on, proper
accounting nothing was due against them since they had made
deposits towards the principal in the Court 0. 21 r. 1
C.P.C. as and in making some deposits they had informed the
court that the payments were made, towards the principal
due; (ii) the High Court by its order clarifying the decree
restored the rate of interest awarded by the trial court
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after November 10, 1946; (iii) the mortgagee could not be
awarded as interest an amount exceeding the principal,
because of s. 9 of the Madhya Pradesh Money Lenders Act,
1934; and (iv) the Custodian of the Evacuee Property was not
entitled to the decree absolute for sale, and that the only
partner, who had not migrated, could get a decree absolute
in respect only of his share. Rejecting these contentions,
this Court :-
HELD : (i) Unless the mortgagees were informed that the
mortgagors had deposited the amount only towards the
principal -and not towards interest, and the mortgagees
agreed to withdraw the money from the court accepting the
conditional deposit, the normal rule that the amounts de-
posited in court should first be applied towards
satisfaction of the interest and costs and thereafter
towards the principal applied. There was no
524
evidence in this case, that the mortgagees were informed
that the money was deposited towards principal or that the
mortgagees accepted the pay.meat made towards the principal.
[526 C-D]
Venkatadri Appa Row and Ors. v. Parthasarathi Appa Row, L.R.
47 I.A. 150, referred to.
(ii) By directing that interest at 4% from August 12, 1941
to November 10, 1946, it was not, and could not be, intended
by the High Court that interest after November 10, 1946 was
to be awarded only at the rate of 3%. No such application
was made by the debtors. The High Court did riot reduce the
rate of interest after November 10, 1946.
(iii) Section 9 of the Madhya Pradesh Money Lenders Act
prohibited the courts from awarding interest exceeding the
principal of the’ loan. But the prohibition of the statute
was against the making of a decree for arrears of interest
exceeding the amount of loan. In the present case the
decree awarded interest much less than the principal. [529
B]
(iv) The court was concerned in the present proceeding to
pass a decree absolute for sale in a mortgage suit. It was
not concerned to determine the respective rights of the
mortgagees inter se. The mortgagees’ interest was fully
represented before the Court. Whether or not the Custodian
of Evacuee Property was entitled to the money or that the
evacuees had a subsisting interest was a matter which could
not be decided in this appeal. That was made clear by the
judgment of the High Court in the application filed by the
Custodian of Evacuee Property. [529 D]
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 608 of 1966.
Appeal by special leave from the order dated November 30,
1964 of the Bombay High Court, Nagpur Bench in First Appeal
No. 90 of 1964.
G. L. Sanghi and J. B. Dadachanji, for the appellants.
W. S. Barlingay R. Mahalingier and Ganpat Rai, for
respondent No. 6.
B. D. Sharma and S. P. Nayar, for respondent No. 11. The
Judgment of the Court was delivered by
Shah, J. Seth Haroon and Sons a firm had ten partners. The
Hindu undivided family of Jethamal Ramkaran mortgaged a
house belonging to it to Seth Haroon and Sons to secure
repayment of Rs. 40,000 due at the foot of an account. Seth
Haroon and Sons filed suit No. 12-A of 1936 for recovery of
their dues by sale of the mortgaged house. On December 28,
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1940, a decree was passed in the suit by the Additional
District Judge. The case was carried in appeal to the High
Court of Nagpur. But the appeal was dismissed subject to a
slight modification to be presently noticed. An appeal was
carried against the decree to this Court. During the
pendency of the appeal to this Court, nine out of ten
members of Seth Haroon and Sons migrated to
525
Pakistan and were declared evacuees. By an order passed by
this Court on March 28, 1958, the Custodian of Evacuee
Property was impleaded as a party respondent in the appeal
filed by the mortgagors. This Court dismissed the appeal on
August 8, 1958. Thereafter the 6th plaintiff Mohammad
Ayyub-the only member of the firm who had not migrated, for
himself and as agent of the evacuees under a general power
of attorney applied for a decree absolute for sale. The
Custodian of Evacuee Property resisted the application filed
by Mohammad Ayyub. Ultimately by the order passed by the
High Court of Bombay the Custodian of Evacuee Property was
joined as a party to the application. The Court however
observed that the respective rights of the Custodian of
Evacuee Property and the partners of Seth Haroon and Sons
were not decided in that proceeding.
Diverse contentions were raised by the mortgagors; they con-
tended, inter alia that on proper account being taken
nothing was due by them on the mortgage, that interest was
wrongly calculated at the rate of 4% per annum.. that the
claim for recovery costs was barred by the law of limitation
and that interest could not be awarded on costs. The
learned Trial Judge substantially rejected the contentions
raised by the mortgagors and passed a decree for Rs. 34,612-
8 1 being the aggregate of Rs. 3 3,8 66-51 as principal and
Rs. 746-30 as interest. An appeal filed against that order
was summarily dismissed by the High Court. With special
leave, this appeal is preferred by the mortgagors.
Counsel for the mortgagors contended that on a proper
account of the monies paid by them in satisfaction of the
dues under the mortgage decree, this mortgage was satisfied
and the mortgagees were overpaid. Counsel contended that
from time to time payments were made by the mortgagors with
specific directions that the amounts paid were to be
credited towards the principal and not towards interest and
if the amounts so paid were in the first instance credited
towards the principal, it would be found that the mortgage
dues had been overpaid. Now, the learned Trial Judge
observed that Exts. 44 to 55 relied upon by the mortgagors
were silent as to any specific directions that the amounts
paid in Court were to be appropriated only towards the
principal. Counsel for the appellant has invited our
attention to certain applications made at the; time of
making deposits in Court, in which it was recited that the
amounts were being deposited towards the principal. Relying
upon these recitals it was urged that the Trial Court was in
error in holding that there were no directions for
appropriation of payments towards the principal. We have
not thought it necessary to ascertain the total number of
applications in which recitals were made by the mortgagors
at the time of making part payments towards the principal,
because on
526
the view we take, these recitals, without more, do not
assist the claim of the mortgagors.
Under the preliminary decree an amount of Rs. 42,430-2-6 was
declared due upto June 23, 1941 towards principal and
interest. The mortgagors made no payments under the decree
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directly to the mortgagees. But from time to time they
claim to have made deposits in the Court under 0. 21 r. 1 of
the Code of Civil Procedure, and in depositing some of the
amounts they stated that the payments were towards the
principal due. But there is no evidence on the record that
the mortgagees were informed that the amounts were deposited
towards the principal due, nor is there evidence that the
mortgagees accepted the amounts towards the, principal. For
quite a long time the mortgagees did not withdraw the amount
lying in Court. Unless the mortgagees were informed that
the mortgagors had deposited the amount only towards the
principal and not towards the interest, and the mortgagees
agreed to withdraw the money from the Court accepting the
conditional deposit, the normal rule that the amounts
deposited in Court should first be applied towards
satisfaction of the interest and costs and thereafter
towards the principal would apply.
In Venkatadri Appa Row and Others v. Parthasarathi Appa
Row(1) the Judicial Comnittee of the Privy Council observed
that upon taking an account of principal and interest due,
the ordinary rule with regard to payments by the debtor
unappropriated either to principal or interest is that they
are first to be applied to the discharge of interest. Lord
Buchmaster delivering the judgment of the Board observed
"There is a debt due that carries interest.
There are moneys that are received without a
definite appropriation on the one, side or on
the other, and the rule which is well
established in ordinary cases is that in those
circumstances the money is first applied in
payment of interest and then when that is
satisfied in payment of the capital. That
rule is referred to by Rigby, L. J., in the,
case of Parr’s Barking Co. v. Yates-[1898 2
O.B. 460] in these words : "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."
(1) L.R. 47 I.A. 150.
527
Counsel for the appellant contended that in Venkatadri Appa
Row’s(1) case there was no specific appropriation by
the debtor, whereas in the present case there is specific
direction by the debtor. But the normal rule is that in the
case of a debt due with interest any payment made by the
debtor is in the first instance to be applied towards
satisfaction of interest and thereafter to the principal.
It was for the mortgagors to plead and prove an agreement-
that the amounts which were deposited in Court by the
mortgagors were accepted by the mortgagees subject to a
condition imposed by the mortgagors. In the present case
there is no evidence which supports the contention raised by
counsel for the appellant.
Counsel urged that, in any event, when an account was
finally submitted by the mortgagees they were aware of the
fact that certain amounts were paid in Court and they knew
that those amounts were paid conditionally and when the
mortgagees withdrew the amounts deposited in Court they must
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be deemed to have accepted the conditions subject to which
the amounts were deposited. But the account submitted by the
mortgagees shows clearly that they had given credit for the
amounts deposited towards the interest and costs in the
first instance and the balance only towards theprincipal.
The account submitted by the mortgagees clearly negatives
the plea of the mortgagors.
An argument somewhat faintly suggested before us that
it isthe privilege of the debtor to impose conditions
subject to which any payment is to be made by the mortgagor,
and the mortgagee is bound to accept the, condition needs no
serious consideration.
It was next urged that the decree was passed by the
Trial Court awarding interest at the rate of 3% per annum
and the order of the High Court in appeal modifying the
original decree by awarding interest at the rate of 4% was
erroneous. Under the decree of the Trial Court interest was
awarded at 3%. In appeal interest was awarded by the High
Court at 4%. There after by a modification in an application
for correction of thedecree interest at 4 % per annum
was awarded from August 12, 1941 to November 10, 1946. It
was urged, relying upon theorder modifying the rate of
interest, that from November 11, 1946 the mortgagees were
entitled only to interest at the rate of3%. There is no
substance in that contention also. The High Court by order
dated August 10, 1946, observed :
"A preliminary decree for sale shall be drawn
accordingly and the defendants (the
appellants) are given three months time from
today to pay off the decretal amount. The
amount shall carry interest at
(1) L.R. 47 I.A. 150.
528
the rate of 3 % per annum from the date of
suit to 11-8-1941 and at the rate of 4% per
annum from 12-8-1941 to the date of
satisfaction."
Apparently the decree drawn up by the. High Court was not
consistent with the directions given in the judgment, and an
application was made to rectify certain mistakes in the
decree. One of the grounds urged in support of the
application was that interest should have been computed only
on the principal out of the total of Rs. 35,299-1-6. The
Court rejected the application holding that the Trial Court
had decreed the claim of the mortgagees and that interest
was payable on Rs. 35,299-1-6 and the High Court had
confirmed the decree holding that the amount of Rs.
35,299-1-6 ",as principal. The High Court observed that it
was not relevant to consider whether that decision was
right, because there was no application for review of
judgment. They then directed that "the interest will
accordingly be -calculated on Rs. 35,299-1-6 at 3% from
October 5, 1936 till August 11, 1941 and at 4% from August
12, 1941 till November 10, 1946. This Comes to Rs.
50,810-4-6. The decree will be amended accordingly."
Relying upon this direction, counsel for the appellants
contended that the High Court by order dated March 31, 1947,
restored for the period after November 10, 1946, the rate of
interest as originally awarded by the Court of First
Instance. We are unable to hold that the direction is
capable of that interpretation. By directing that interest
at the rate of 4% from August 12, 1941 to November 10, 1946.
shall be calculated on Rs. 35,299-1-6, it was not, and could
not be, intended by the High Court that interest after
November 10, 1946, was to be awarded only at the rate of 3
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%. No such application was made by the debtors.
It was apparently contended that the amount of Rs. 35,299-
1-6 as claimed by the plaintiffs in the original suit
included interest, and interest could be computed on the
amount which formed the principal. The High Court, in view
of the decree passed by the Trial Court and confirmed by it
declined to enter into that controversy and indicated the
manner in which the interest was to be calculated between
October 5, 1936 and November 10, 1946. The High Court did
not reduce the rate of interest for the period after
November 10, 1946, i.e. the date fixed for redemption of
mortgage under the decree of the High Court.
Counsel then urged that in any event the mortgagees are not
entitled to interest exceeding the principal. Reliance in
this connection was placed upon the Madhya Pradesh Money
Lenders Act 13 of 1934. Section 9 of that Act provides :
"Notwithstanding anything contained in any
other enactment for the time being in force,
no court original or appellate shall decree,
in respect of any loan made
529
before this Act comes into force, on account
of arrears of interest, a sum greater than
the principal of such loan."
The section prohibits the Courts from awarding interest
exceeding the principal of the loan. Counsel for the
appellants contends that if all the amounts deposited from
time to time by the debtors be aggregated, it will appear
that an amount exceeding the loan was paid. But the
prohibition of the statute is against the making of a decree
for arrears of interest exceeding the amount of loan. In
the present case the decree awards interest amounting to Rs.
746-30, whereas the principal is Rs. 33,866-51.
Finally, it was contended that the Custodian of Evacuee Pro-
perty is not entitled to claim a decree absolute for sale,
and only Mohammad Ayyub--one of the partners in the firm of
Seth Haroon and Sons-may alone be given a decree absolute in
respect of his share. That contention is futile. The Court
is concerned at this stage to pass a decree absolute for
sale in a mortgage suit. It is not concerned to determine
the respective rights of the mortgagees inter se. The
mortgagees’ interest is fully represented before the Court.
Whether or not the Custodian of Evacuee Property is entitled
to the money or that the evacuees have a subsisting interest
is a matter which cannot be decided in this appeal. That
was made clear by the judgment of the High Court in the
application filed by the Custodian of Evacuee Property by
order dated November 12, 1962, when the High Court observed
"Time has not come yet to determine this
question and it is not necessary at this stage
to decide what are the respective rights of
the evacuees in the property which is before
the Court as between the evacueeplaintiffs and
the Custodian."
The appeal fails and is dismissed with costs.
Y. P. Appeal dismissed.
530