Holding

Sections 59 and 60 of the Indian Contract Act apply only to pre‑decretal transactions; post‑decretal payments must be made in accordance with the decree or any proven agreement, and absent such agreement the payment is first applied to interest and costs and thereafter to principal.

Summary

The appellant, a financial institution, obtained a decree against the respondents for a sum of Rs 5,25,451.07 plus interest, costs and future interest, payable in monthly instalments. The respondents paid instalments but claimed the payments were to be applied only to the principal, not to interest or costs. The executing court held the payments were adjusted to interest and costs and allowed attachment of the respondents' property. The Karnataka High Court set aside that order, presuming implied acceptance of the payments towards principal because the appellant did not reply to the respondents' letters. The Supreme Court held that Sections 59 and 60 of the Indian Contract Act apply only to pre‑decretal payments; post‑decretal payments must follow the decree or any agreement, and in the absence of an agreement the law requires first applying payments to interest and costs and then to principal. The creditor is under no duty to inform the debtor of the manner of appropriation, and the burden of proving any contrary agreement lies on the debtor. Consequently, the Supreme Court set aside the High Court judgment and upheld the execution court’s order.

Issues considered

Whether a judgment debtor can unilaterally determine the manner of appropriation of a decretal payment between principal, interest and costs.
Whether Sections 59 and 60 of the Indian Contract Act, 1872 are applicable to post‑decretal payments.
Whether the creditor is obligated to intimate the debtor about the manner of acceptance of payment.
Whether Rule 1 and Rule 2 of Order 21 of the Code of Civil Procedure, 1908 govern the adjustment of payments made out of court.
Who bears the burden of proving any agreement on the mode of appropriation of payment.

Legislation cited

Code of Civil Procedure, 1908s. Order XXI Rule 1, s. Order XXI Rule 2
Indian Contract Act, 1872s. 59, s. 60, s. 61

Subjects

judgment debtorappropriation of paymentIndian Contract ActSection 59Section 60Code of Civil ProcedureOrder 21 Rule 1decreeinterestprincipalburden of proofexecutionattachment

Judgment

M/S. INDUSTRIAL CREDIT AND DEVELOPMENT SYNDICATE A
NOW CALLED l.C.D.S. LTD.
v.
SMT. SMITHABEN H. PATEL AND OTHERS

FEBRUARY 10, 1999
B
[V.N. KHARE AND R.P. SETHI, JJ.]

Indian Colllract Act, 1872 :· Sections 59 & 6<>-Appropriation of pay-
ment-Decree passed against respondents--Payment to be made in instal-
. ments-Failed to pay full amount-Appellant filed execution for wa"ants of C
attachment-Objection by respondent that the payment made was towards the
principal only and not interest-Objections dismissed-Challenged in
revision-order of executing court set asid~Appellant found to have failed
in replying to respondents' letter intimating him to appropriate the payment
towards the principle only-Drder of the High Court appealed D
against-Held-Sections 59 and 60 applicable only in' pre- decretal
stage-l'ost-decretal payments to be in accordance with the agreement between
the parties or general principles-Burden of proof of agreement on the
propounder-:Respo11dent failed to discharge such an onu~Appellant not
Ullder obligation to intimate respondents about manner of acceptance ofpay- E
ment-Sectio11 60 cannot be read independently excluding Section 59-Both
sections not applicable to the cases of single debHnterest due on a principal
is not a distinct debt.

Code of Civil Procedure, 1908 : Order XXI Rules 1 & 2-Payment
under decree-Decree passed against the respondents alongwith interest and F
costs--Payment made by the respondents out of court in instalments-No
agreemellt between the parties as to the mode of payment-Respondents
claimed adjustment of payment towards the principal amount only-f'ay-
ment/adjustment not recorded in accordance with Rule 1:-Held--R.espon-
dents not entitled to claim benefit of adjustment in the manner insisted upon G
by them.

In a suit filed by the appellant on the basis of a mortgage deed
executed by the respondent, a decree was passed holding the respondent
liable to pay a sum of RS. 5,25,451.07 together with costs and interest. It
was undisputed that there was no agreement between the parties regarding H
555 '
)

556 SUfREME COURT REPORTS [1999] 1 S.C.R.
A the mode of payment excepting that the decretal amount was to be paid in
instalments. In case of default of two instalments the appellant was en-
titled to realise the balance due by sale of suit schedule property and in
case of sale proceeds being insufficient, the appellant was entitled to
recover the balance due personally from the respondents. On respondents'
B failing to pay the full amount, the appellant filed an execution petition
praying to recover the amount by attachment and sale of scheduled im-
movable property and also the arrest of the respondents. The executing
court, dismissing the objections filed by the respondents, held the appel-
lant entitled to recover the balance decretal amount. The assertion of the
respondents that the payments made by them were towards payment of the
C principal amount and not towards the costs and interest, was rejected on
the basis of the finding of fact that the appellant had intimated the
respondents that the amount paid by them had not been adjusted towards
the principal amount.

In revision before the High Court, the trial court order was set aside
D on the presumption of implied acceptance of the amount towards the
principal amount inferred from the fact that the appellant had not replied
the letters sent by the respondents alongwith the instalments specifically
.
· mentioning appropriation of amount towards the principal amount only•

E In appeal before this Court the issue involved was regarding a
judgment debtor's unilateral right to make payment of the decretal
amount in the manner of his choice.

The respondents, taking the principal and interest due thereon to be
separate debt, sought refuge under the protection provided by Section 60
F of the Indian Contract Act, 1872. It was contended that in the absence of
intimation by the appellant and also in view of no other circumstance
indicating as to which specific debt the payment was to be applied, they
were entitled ta apply it at discretion to any lawful debt actually due.

Allowing the appeals, this Court
G
HELD : 1.1. Sections 59 and 60 of the Indian Contract Act, 1872 would
not be applicable to the instant case as these sections are applicable to the
cases in pre-decretal stage and not thereafter. Post decretal payments have
to be made in terms of the decree or in accordance with the agreement
H arrived at between the parties though on the general principles as men-
x.

1'
j
-<
~
I.C.D.S. LTD. v. SMITIIABEN H. PATEL 557
~
tioned in Sections 59 and 60. As and when such an agreement either express A
. or implied is relied upon, the burden of proving it would always be upon its
propounder. The judgment debtors in the instant case are proved to have
failed in discharging such an onus. There does not appear to be any obliga-
tion on the decree holder to intimate the judgment debtor that the amount
paid to him had not been accepted in the manner specified by him in the
letter accompanying the payment. Insisting upon such a course would result B
in unnecessary burden upon the financial institutions and conferment of
unwanted unilateral discretion in favour of the defaulters. [564-F-G]

1.2. Accepting the agreement that Sections 60 of the Act has to be read
independently excepting the provisions of Section 59, would amount to C
doing violence to the language employed in the section and the purpose
sought to be achieved by it. Section 60 of the Act if applied independently
cannot be held to be conferring any right upon the judgment debtor as it
confers a discretion in favour of the creditor to apply the deposited amount
to any lawful debt actually due and payable by the debtor when such debtor
omits to Intimate the discharge of the debt in the. manner envisaged under D
.Section 59 of the Act. [564-D-E]

1.3. The provisions of Sections 59 to 61 of the Act are applicable in
cases where a debtor owes several distinct debts to one person and to cases
in which the "principle and interest are due on a single debt. [568-E]
E
2. Order 21 Rule 1 of the Code of Civil Procedure provides the mode
of paying money under the decree. Payments made to the decree holder out
of court are required to be certified for adjustment in terms of Rule 2 of
Order 21. No payment or adjustment can be recorded at the instance of the
judgment debtor unless it is made in the manner provided under Rule 1 or F
the payment or adjustment is proved by documentary evidence or the
payment or adjustment is admitted by, or on behalf of the decree holder in
reply to the notice given to him under sub-rule (2) of Rule 1, Order 21 of
the Code. In the absence of payment having been made in accordance with
·the mode prescribed or the satisfaction recorded under Rule 2, the judg·
ment debtor cannot claim the benefit of adjustment in the manner insisted G
::.,.
____., . upon by him. [561-D-H]

3. The general rule of appropriation of payments towards a decretal
amount is that such an amount is to be adjusted firstly strictly in accord-
ance with the directions contained in the decree and in the absence of such H
~

I
558 SUPREME COURT REPORTS [1999] 1 S.C.R.

A directions, adjustments be made firstly in payment of interest and costs 1oo-

and thereafter in payment of the principal amount. [568-D]

Venkatadri Appa Row. and Ors. v. Parthasarthi Appa Row, L.R. 47 150;
Jai Ram v. Sulakha11 Mal, (28) AIR (1941) Lahore 386, referred to.

B Meghraj & Ors. v. Mst. Bayabai a11d Ors., [1970] 1 SCR 523; Mathunni
Mathai v. Hindusta11 Organic Chemicals Ltd. & Ors., [1995) 4 sec 26; Prem
Nath Kapoor v. National Fertilizers Corporation of India Ltd. and Ors.,
[1996] 2 sec 71; Central Warehousi11g Corporation, Berhampur v. Mis.
Govinda Choudhary and So11s, AIR (1989) Orissa 90, distinguished.

C CIVIL APPELLATE JURISDICTION : Civil Appeal No. 16902 of
1996.

From the Judgment and Order dated 30.9.96 of the Karnataka High
Court in C.R.P. No. 616 of 1993.

D R.F. Nariman (G.V. Chandrasekhar) for P.P. Singh for the Appel-
lant. ._

S.K. Kulkarni for Mrs. Sangeeta Kumar, for the Respondents.

The Judgment of the Court was delivered by
E
SETHI, J. Whether a judgment debtor has any option or right to
make the payment of the decretal amount in the manner he likes
unilaterally?

Whether the mere acceptance of such amount by the creditor can be
F held to be agreeing to the condition put by the judgment debtor while
satisfying the decree?
•-

Whether a debtor can unilaterally insist upon the payment of the
decretal amount in liquidation of the principal amount in the first instance
G notwithstanding his liability to pay the interest and costs?, are the questions
required to be adjudicated in this appeal.

The facts giving rise to the filing of the present appeal are that in a
suit filed by the appellant herein a decree was passed on the basis of the
mortgage deed executed by the respondents holding them liable to pay to
H the appellant-plaintiff a sum of Rs. 5,25,451.07 together with court costs
l.C.D.S.LTD. v. SMITHABENH. PATEL[SETHI,J.] 559

... and current and future interest at the rate of 18 per cent per annum of Rs. A.
1,80,000 and Rs. 2,31,138.52 from the date of the suit till the date of the
'\-
' payment. The decretal amount was, however, to be paid in monthly instal-
ments of Rs. 20,000 commencing from 1.9.1983 after making the deduction
of Rs. 20,000 stated to have been paid in the court. In case of default in
the payment of two instalments, the plaintiff-appellant was held entitled to
bring the suit schedule property for sale and to realise the entire balance
B
due. In the event of the sale proceeds realised from the sale of the
-,·
mortgaged property being insufficient to satisfy the decree, the appellant
was further held entitled to recover the balance amount personally from
defendant Nos. 1 to 6 jointly and severally. Finding that the defendants-
judgment debtors had not paid the full amount, the appellant filed an c
execution petition praying to recover the amount by attachment and sale
of the scheduled immovable property as also for the arrest of the judgment
debtors. The executing court vide order dated 27.2.1993 over ruled various
objections of the judgment debtors and held the decree holder entitled to
take steps for the recovery of the balance decretal amount. The plea of the
judgment debtors that the full payments towards the decretal amount had
D
been made was not accepted by the executing court. The assertion of the
judgment debtors that the payments made by. them were in liquidation of
the principal amount and not towards costs and interest were negatived. It
was found on facts that the decree holder had intimated the judgment
debtor that the amount paid by them had not been appropriated towards E
the principal amount. Not satisfied with the order of the executing court,
the judgment debtors filed revision petition in the High Court which was
accepted and the order of the trial court was set aside vide the judgment
impugned in this appeal.
F
After referring to various judgments of different High Courts and of
:. this Court, ·the single Judge of the High Court of Karnataka came to the
conclusion that as the appellant herein did not reply to the letters accom-
panying the installments which was sent by the judgment debtors specifi-
cally mentioning that the amount be appropriated against the head of
principal, it was to be presumed that there was implied acceptance of the G
amount towards the principal amount, on the part of the appellant-decree
holder. In this context the court held :

"Under these circumstances, if the respondents desired to dis-
I regard that instruction, then they ought to have communicated H
~
/'

560 SUPREME COURT REPORTS (1999] 1 S.C.R.

A their refusal to the petitioners. It may be that the respondents
decided to appropriate the amount in a manner contrary to the
..
instructions from the petitioners which obviously they did."

It may not be out of place to notice at this stage that the learned
single Judge of the High Court had not accepted the other contention of
B the judgment debtors that the decree holder was obliged to have returned
the instalment payment if they were not agreeable to the manner of
appropriation specified by the judgment debtors and the decree holders -.-
were held justified in having accepted the instalments. It was also noticed
that immediately after the first payment was made, the decree holder had
c furnished the statement of accounts to the judgment debtors wherein it was
specifically indicated that the payments had been adjusted towards the
costs and interest and not the principal amount.

It is not disputed that in the terms of the decree, the trial court had
not prescribed any mode for payment of the decretal amount excepting the
D fixing of instalments. It is also not disputed that there is no agreement
between the parties regarding the mode of payment of the decretal amount.
It is also the admitted posjtion that the general rule of appropriation of
payments towards the debt is that in the absence of a specific condition or
agreement to the contrary, the money paid by the judgment debtor is first
E applied in the payment of interest and cost and then when that is satisfied,
in payment of capital or the principal amount.

In Venkatadri Appa Row and Ors. v. Parthasarathi Appa Row, (L.R.
47 IA 150), the Judicial Committee of the Privy Council had held that upon
taking an account of principal and interest due, the ordinary rule with
F regard to payments by the debtor unappropriated either to principal or
interest is that they are first to be applied to the discharge of the interest.
This Court in Meghraj and Ors. v. Mst. Bayabai and Ors., [1970] 1 SCR 523
reiterated the position of law and held that the normal rule was that in the
case of a debt due with interest any payment made by the debtor was in
G the first instance to be applied towards satisfaction of interest and there-
after to the principal. It was for the debtor to plead and prove the
agreement if any, that the amounts paid or deposited in the court by him
were accepted by the creditor/decree holder subject to the condition '
- imposed by him. In that case the judgment debtor had urged that, when
H the amount was finally submitted by the mortgagee they were aware of the
I.C.D.S. LTD. v. SMITHABEN H. PATEL [SETHI, J.] 561
fact that certain amounts had been paid conditionally and the withdrawal A·

-
~
of the amounts deposited in the court amounted to acceptance of the
conditions subject to which the amounts were deposited. In the facts and
circumstances of that case this court observed thus :

"............ But the account submitted by the mortgagees shows
B
clearly that they had given credit for the amounts deposited
towards the interest and costs in the first instance and the balance
only towards the principal. The account submitted by the
mortgagees clearly negatives the plea of the mortgagors."

The same is the position in the instant case as earlier noticed and evident c
from the statement of accounts (annexure 'C') admittedly furnished to the
judgment debtor immediately after payment of the amounts consequent
upon the passing of decree. To the same effect is the letter (annexure 'e')
and statement of account accompanying it. ·
D
Order 21, Rule 1 of C.P.C. provides the mode of paying money under ·.
~ the decree. Payments made to the decree holder out of court are required
to be certified for adjustment in terms of Rule 2 of Order 21, C.P.C. Where
any money payable under a decree is paid out of court or is otherwise
adjusted in whole or in the part to the satisfaction of the decree, the decree
holder is to certify such payment and adjustment towards the court whose E
duty is to execute the decree. The judgment debtor or any person who has
become surety for the judgment debtor has also a right to inform the court
of such payment or adjustment applying to the court for the issuance of a
notice to the decree holder to show cause as to why such payment or
adjustment be not recorded as certified and if, after service of such notice, F
the decree holder fails to show cause why the payment or adjustment
j,
should not be recorded as certified, the court is obliged to record the same
accordingly. No payment or adjustment can be recorded at the instance of
the judgment debtor unless it is made in the manner provided under Rule
1 or the payment or adjustment is proved by documentary evidence or the
payment or adjustment is admitted by, or on behalf of the decree holder G
in a reply to the notice given to him under sub-rule (2) of Rule 1, Order
.. 21 of C.P.C. In the absence of payment having been made in accordance
with the mode prescribed..or the satisfaction recorded under Rule 2, the
judgment debtor cannot claim the.• benefit of adjustment in the manner
insisted upon by him. H
562 SUPREME COURT REPORTS (1999) 1 S.C.R.

A In order to overcome the legal obstacles in their way, the judgment
debtors have sought refuge under the cloak of alleged protection provided ,
by Section 60 of the Indian Contract Act, 1872. It is further submitted that
in view of the later judgments of this Court in Mathunni Mathai v. Hindus-
tan Organic Chemicals Ltd. & Ors., [1995) 4 SCC 26 and in Prem Nath
Kapur and Anr. v. National Fertilizers Corporation of India Ltd. and Ors.,
B (1966) 2sec 71, the law laid down in Meghraj's case (supra) has to be held
as no good law.

We are of the opinion that such a plea is far-fetched and begged only
for the purpose of putting an imaginary defence to the claim of the
C appellant-decree holder. Section 59 of the Indian Contract Act deals with
the application of payment where debt to be discharged is indicated and
Section 60 where debt to be discharged is not indicated. The aforesaid
sections 59 and 60 are reproduced below :

"Section 59. Application of payment where debt to be discharged
is indicated - Where a debtor, owing several distinct debts to one
D
person, makes a payment to him, either with express intimation,
or under circumstances implying, that the payment is to be applied
to the discharge of some particular debt, the payment, if accepted,
must be applied accordingly.

E Section 60. Application of payment where debt to be discharged
is not indicated- 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 and payable to him from the debtor,
whether its recovery is or is not barred by the law in force for the
F time being as to the limitation of suits."

A perusal of Section 59 would clearly indicate that it refers to several
distinct debts payable by a person and not to the various heads of one debt.
The principal and interest due on a single debt or decree passed on such
G debt carrying subsequent interest cannot be held to be several distinct
debts. A Full Bench of the Lahore High Court in Jia Ram v. Sulakhan Mal.
A.l.R. (1941) Lahore 386 dealt With the scope of Section 59 to Sections 61
of the Indian Contract Act and held :-

"Sections 59 to 61, Contract Act, embody the general rules as
H to appropriation of payments in cases where a debtor owes several
l.C.D.S. LTD. v. SMITHABEN H. PATEL(SETHI,J.) 563

.. distinct debts to one person and voluntarily makes payment to him.
They do not deal with cases in wh'ich principal and interest are
A

due on a single debt, or where a decree has been passed on such
a debt, carrying interest on the sum adjudged to be due on the
decree. These sections are based upon the rule of English Law,
well settled since (1816) 1 Mer 608 = 14 RR 166 Clayton's case,
B
that where a debtor,_ owing several distinct debts to one person,
makes a payment to him intimating that the payment is to be
applied in discharge uf particular debt, the creditor, if he accepts
the payment, must apply it accordingly. If, however, the debtor has
omitted to intimate and there are no circumstances indicating to
which debt the payment is to be applied the creditor may, at his
c
discretion, apply it to any debt actually due and payable to him by
the debtor at the time. In case neither party makes the -appropria-
tion, the payment is to be applied in discharge of the.debts in order
of time; and if the debts are of equal standing the payment is made
in the discharge of each of them proportionately. It will be seen D
that these rules have no application to a case in which only one
debt is due and at the time of payment, besides the principal sum
secured, interest has also accrued due. In such cases, the rule of
English Law, laid down as far back as 1702 in (1702) 2 Freeman
261 : 22 ER 1197, Chase v. Box. Is that... ... E

'if a -man is indebted to another for principal and
interest and payeth the money generally, it shall be applied
in the first place to sink the interest before any part of the
principal should be sunk.'
F

In (1898) 2 Q.B. 460=67 L.J. Q.B. 851' 79 L.T. 821=47 W.R. 42,
Parr's Banking Co. Ltd. v. Yates, Lord Rigby J. described it as "the
old and well settled rule" that where both principal and interest
are due the sums paid on account must be applied first to interest. G
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, and would be most
unreasonable as against him. H
/·

564 SUPREME COURT REPORTS [1999] 1 S.C.R.

A Fisher in his standard work on the Law of Mortgages (Edn. 7), P.
620, while dealing with the question of appropriation of payments
towards a mortgage debt, states the law as follows :

"Where the debtor claims to be discharged by reason of
payments which were not specially made in respect either of
B
the principal or the interest of the mortgage, the rule is that
a general payment shall be applied in the first place to sink
the interest, before any part of the principal is discharged."

The judgment of the Lahore High Court is based upon sound principle and
C has kept in mind the intention of the Legislature in enacting Sections 59
to 61 of the Act. We do not agree with the learned counsel of the
respondents that Section 60 of the Contract Act has to be read inde-
pendently excluding the provisions of Section 59. Accepting such an argu-
ment would amount to doing violence to the language employed in the
D Section and the purpose sought to be achieved by it. Besides, it would also
be contradictory in terms. Section 60, if applied independently, cannot be
held to be conferring any right upon the judgment debtor as it confers a
discretion in favour of the creditor to apply such deposited amount to any
lawful debt actually due and payable by the debtor when such debtor omits
to intimate the discharge of the debt in the manner envisaged under
E Section 59. We are of the opinion that Sections 59 and 60, Contract Act,
would be applicable only in pre decretal stage and not thereafter. Post-
decretal payments have to be made either in terms of the decree or in
accordance with the agreement arrived at between the parties though on
the general principles as mentioned in Sections 59 and 60 of the Contract
F Act. As and when such an agreement either express or implied is relied
upon, the burden of proving it would always be upon its propounder. The
judgment debtors, in the instant case, are proved to have failed in discharg-
ing such an onus. There does not appear to be any obligation on the decree
holder to intimate the judgment debtor that the amount paid to him had
not been accepted in the manner specified by him in the letter accompany-
G ing the payment insisting upon such a course would result in unnecessary
burden upon the financial institutions and conferment of unwanted
unilateral discretion in favour of the defaulters. Acceptance of the plea that
the amount paid first should be adjusted in the principal amount would not
only be against the provision of law but against the public policy as well.
H To provide security, continuity and certainity in business transaction, the
LC.D.S. L1TI. v. SMITHABEN H. PATEL [SETHI, J.] 565
Legislature has been making specific provisions in that regard which may A
be found in various provisions of the Negotiable Instruments Act or Order
37, Code of Civil Procedure and other statutory provisions.

The reliance of the learned counsel for the respondents in M athwmi
Mathai's case (supra) is misplaced inasmuch as in that case this court
had followed the principles of law laid down in Meghraj case (supra) and B
held:-

"The right of the decree-holder to appropriate the amount
deposited by the judgment-debtor, either in court or paid outside,
towards interest and other expenses is founded both on fairness C
and necessity. The courts and the law have not looked ypon
favourably where the judgment debtor does not pay or deposit the
decretal amount within the time granted as one cannot be per-
mitted to take advantage of his own default. Therefore, the normal
rule that is followed is to allow the deposit or payment if it is in D
part to be adjusted towards the interest due etc. In Meka
Venkatadari Appa Rao Bahadur Zamindar Garu v. Raja Pa1thasar-
thy Appa Rao Bahadur Zamindar Garu, AIR (1922) PC 233 the
rationale was explained thus :

'There are moneys that are received without a definite E
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
Q~~. F
But the law or even the agreement entered between the parties
may provide for adjustment ofpayment in a particular manner.
Section 60 of the Contract Act provides that :

"Where the debtor has omitted to intimate and there are no G
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 and payable to him from the debtor, whether its
recovery is or is not barred by the law in force for the time being
as to the limitation of suits". H
566 SUPREME COURT REPORTS [1999] 1 S.C.R.

A The words of the section are clear. It has been construed ,.
broadly by the courts. The right of the creditor was further ex-
plained judicially in Raj Bahadur Seth Nemichand v. Seth Radha
Kishen, AIR (1922) PC 26 and it was held that the creditor was
not bound to accept a payment on condition of the judgment
debtor. For the decrees passed by courts, the provisions was made
B
in unamended Order XXI, Rule 1 prior to 1976 and it was provided
that the amount be deposited in the court whose duty it was to
exe,cute the decree. It was further provided by sub rule (2) that
where any payment was made under clause (a) of sub rule (1)
notice of such payment was to be given to the decree holder. It
c was this rule which was construed in Meghraj case. The court held
that even though the judgment-debtor while depositing decretal
amount from time to time stated that payments were being made
towards the principal due but in absence of any evidence that the
decree-holder was informed about the nature of deposit or the
D decree-holder appropriated it towards the principal, the ordinary
rule applied and the payments by the judgment debtor could be
appropriated towards interest and costs as held in Meka
Venkatadmi case. It may now be seen if the principle laid down in
this decision stands diluted by amendment of Rule 1. The relevant
E portion of the amended rule reads as under :

Order XXI, Rule 1 Modes of paying money under decree -
(1) All money, payable under a decree shall be paid as
follows namely; (a) by deposit into the Court whose duty it
is to execute the decree, or sent to that Court by postal
F
money order or through a bank; or (b) out of Court, to the
decree holder by postal money order or through a bank or
by any other mode wherein payment is evidenced in writing;
or (c) otherwise, as the Court which made the decree, directs.

G (2) Where any payment is made under clause (a) or clause
(c) of Sub rule (1), the judgment debtor shall give notice
thereof to the decree holder either through the Court or
directly to him by registered post, acknowledgement due.

H (3) ...................................... .
1.C.D.S. LTD. v. SMIIBABEN H. PATEL [SEIBI, J.) 567
(4) On any amount paid under clause (a) .or clause (c) A
or sub rule (1), interest, if any, shall cease to run from the
date of ~ervice of the notice referred to in sub rule (2)'.

The amended sub rule (2) removes the doubt if there was any
that the judgment-debtor is not absolved of the obligation of
informing the decree-holder by written notice even in respect of B
deposit in court either directly or by registered post. The purpose
of addition of the expression either through court directly or by
registered post acknowledgement due "is that the judgment -
debtor should not only give notice of payment but he must ensure
that the decree holder has been served with the notice. The ratio C
laid down in Meghraj case applies not with greater rigour."

Similarly, in Prem Nath Kapur's case (supra) this court held the
non-applicability of Meghraj case under the peculiar facts of that case and
had rightly distinguished its applicability. In this regard the Court observed.
D
"The ratio in Mq)lraj case is equally inapplicable to the ap-
> propriation of debt under the Act. It is seen that by operation of
Section 53 of the Act order 21, Rule 1 being inconsistent with the
express provisions contained in Sections 34 and 28, stands ex-
cluded. The ratio therein, therefore, is applicable only to a debtor E
and creditor in an ordinary civil suit governed by the provisions of
the C.P.C. Order 21, Rule 1 being inconsistent with the express
provision contained in Sections 34 and 28 of the Act, it cannot
stand extended to the cases covered by the Act. It is unfortunate
that these provisions were not brought to the attention of this Court
when it decided Mathunni Mathai case, which make all the dif- F
ference. With due respect to our learned brethren who decided
that case, we are, therefore, constrained to observe that Mathunni
Mathai case cannot bt. taken to have laid down the correct law."

We have also perused the judgment of the Orissa High Court in
Central Warehousing Corporation Berhampur v. M/s. Govinda Choudhary G
and Sons, AIR (1989) Orissa 90 and are of the view that the facts of that
case are distinguishable and that the learned single Judge of the Orissa
High Court fell in error by distinguishing the applicability of Meghraj case
(supra) to the facts of that case. In view of what we have held hereinabove,
we are of the opinion that the learned Judge was not justified to hold H
568 SUPREME COURT REPORTS [1999] 1 S.C.R.
A 'where a debtor makes payment without making any indication as to how "
the payment is to be adjusted, it is the option of the creditor to make
adjustment first of the interest and then of the principal, but if the debtor
has indicated the manner in which the appropriation is to be made, then
the creditor has no choice to apply the payment in a different manner. But
B however he may not agree to the mode of the payment, in which case he
must not accept the payment and refund the amount to the debtor".

The learned Judge however referred to various circumstances which
according to him indicated that the judgment-debtor in that case had made
the payments only towards the principal amount and not towards the
C interest and costs.

In view of what has been noticed hereinabove, we hold that the
gen~ral rule of appropriation of payments towards a decretal amount is
that such an amount is to be adjusted firstly strictly in accordance with the
directions contained in the decree and in the absence of such direction, '
D adjustments, be made firstly in payment of interest and costs and thereafter
in payment of the principal amount. Such a principle is, however, subject
to one exception, i.e. that the parties may agree to the adjustment of the
payment in any other manner despite the decree. As and when such an
agreement is pleaded, the onus of proving is always upon the person
pleading the agreement contrary to the general rule or the terms of the
E decree schedule. The provisions of Sections 59 to 61 of the Contract Act
are applicable in cases where a debtor owes several distinct debts to one
person and do not deal with cases in which the principal and interest are
due on a single debt.

F Under the circumstances, this appeal is allowed by setting aside the
impugned order passed by the learned Single Judge and by upholding the
order of the executing court. The appellant is also entitled to costs
throughout.

R.C.K. Appeal allowed.