Holding

In the absence of a notice specifying the manner of appropriation, a deposit made under Order XXI‑Rule 1 is not deemed to be towards the principal and may be applied by the decree‑holder to interest and other dues.

Summary

The case concerned a land‑acquisition award where the High Court enhanced the market value, solatium and interest under the Land Acquisition (Amendment) Act, 1984. The Supreme Court stayed the collection of the enhanced portion, after which the respondent deposited the amount that was not stayed on 9 January 1988. After the appeal was dismissed, the appellant sought execution of the decree, claiming the deposited sum should be set off against the principal only, while the respondent argued that only the amount stayed (the enhancement) was payable. The High Court held that the deposit, made pursuant to the Supreme Court’s order, satisfied both principal and interest, but the Supreme Court reversed this, holding that under Order XXI‑Rule 1 of the CPC (as amended in 1976) a deposit is not automatically deemed to be towards the principal; in the absence of a notice specifying the manner of appropriation, the decree‑holder may apply it to interest and other charges. Consequently, the Supreme Court set aside the High Court’s order and restored the execution court’s decision, allowing the appeal.

Issues considered

Whether a decretal amount deposited by the judgment‑debtor in compliance with a court order must be applied first to the principal debt or may be appropriated towards interest and other charges under Order XXI‑Rule 1 of the CPC.
Whether the amendment to Order XXI‑Rule 1 in 1976 alters the principle laid down in Meghraj & Ors. v. Mst. Bayabal & Ors. regarding the appropriation of deposited sums.

Legislation cited

Code of Civil Procedure, 1908s. Order XXI Rule 1, s. sub‑rule 2
Indian Contract Acts. Section 60
Land Acquisition Act, 1894
Land Acquisition (Amendment) Act, 1984s. Section 23(1‑A), s. Section 28 (amended)

Subjects

Land acquisitionDecree executionDeposit of decretal amountOrder XXI Rule 1Interest cessationSolatiumCivil Procedure Code amendment 1976Notice requirementAppropriation of payment

Judgment

i
MATHUNNI MATHAI A
v.
M/S. HINDUSTAN ORGANIC CHEMICALS LTD. AND ANR.

APRIL 25, 1995

(R.M. SAHA! AND N.P. SINGH, JJ.] B

Code of Civil Procedure, 1908:

Order XXI-Rule I-Execution of decrer-Judgment debtoi-Decretal
amount-Deposit pursuant to Cowt's order-No infonnation given to creditor C
as to manner of appropriation-Appropriation towards interest held
valid-Effect of 1976 amendment considered.

An award passed under the Land Acquisition Act, 1894 comprised of
enhanced market value, solatium at 15% and interest at 4% on the add!·
\ional amount. In cross appeal filed by the appellant, the State, and the D
.__, company, the enhancement of market value was affirmed but the appellant
was further granted solatium at 30% of the entire market value, additional
compensation under Section 23 (1 ·A) of the Land Acquisition (Amendment)
Act, 1984 and interest under the amended Section 28. The company chal·
lenged the order of the High Court by way of Special Leave Petition before E
Supreme Court which passed an order staying the collections of the en-
hanced compensation, solatium and interest payable by the Company. Con-
sequently the respondent did not deposit any amount and filed an
application for clarification of the order which was disposed of by observing .
that what has been actually stayed is disbursement of the compensation to
the extent it has been escalated by referring to the Amending Act, 1984 by F
the High Court. The entire compensation not <:overed by the clarification
shall be paid. Thereafter, the respondent ,deposited the amount on 9th
January, 1988. After the dismissal of appeal on 12th September, 1989 the
appellant put the decree in executio_n and claimed that after deducting the
amount deposited by the respondent towards amount due, they were liable
to be paid the balance with interest as directed by the court. It was objected G
on the ground that the respondent having deposited the decretal amount it
was liable to pay only the amount which was stayed by this Court, namely
the escalations by the Amending Act of 1984 and the interest thereon. The
executing court allowed the application. On revision the High Court held
that inspite of amendment of Order XXI Rule 1 the principle laid down by H
765
766 SUPREME COURT REPORTS [1995) 3 S.C.R.

A this Court on the unamended provision was applicable where thejudgment-
debtor did not specify as to how the amount deposited was to be ap-
propriated. But that principal amount was held not available, in this case,
as this Court having directed the respondent to deposit the amount as
awarded by the reference court and what was stayed was the enhancement
made by the High Court, the deposit made by the respondent on 9th
B January,1988 was in satisfaction of both the principal and interest along
with cost as granted by the reference court.

In appeals to this court on the question whether the decretal amount ...._
deposited by the judgment-debtor in pursuance of an order passed by this
C Court was to be adjusted towards the principal amount due first or. against
interest and other charges:

Allowing the appeals and setting aside the order of the High Court,
this Court

D HELD: l.The reasoning of the High Court that since the deposit was
made in pursuance of order of this Court, it would be deemed that the
deposit was towards principal does not appear to be correct. Factually,
there was no direction to deposit. The court only granted an interim order
in respect of escalation. Therefore, the judgment-debtor was bound to
E deposit the decretal amount in accordance with law. And that is provided
for by Order XXI, Rule 1 of the Civil Procedure Code. But mere deposit
in absence of any notice and intimation that it was being deposited towards
principal, it was fo;- the decree-bolder to appropriate it toward the dues.

F
[772-C, DJ
2. For the decrees passed by courts, the provision was made in
l
unamended Order XXI Rule 1 prior to 1976 and it was provided that the
amonnt be deposited in the court whose dnty it was to execute the decrees.
It was further provided by sub-rule 2 that where any payment was made
under clause (a) of sub-rule (i) notice of such payment was to be given to
the decree-holder. The amended sub-rule (2) removes the doubt if there
G was any that the judgment-debtor is not absolved of the obligation of
informing the decree-holder by written notice even in respect of deposit in
Court either directly or by registered post. The purpose of addition of the
expression, 'either through court directly or by registered post acknow-
ledgment due' is that the judgment-debtor should not only give notice of
H payment but he must ensure that the decree holder has been served with
MATHUNNI MATHAI'· HINDUSTAN ORGANIC CHEMICALS LTD. [R.M SAHA!, J.] 767

the notice. The reason for the rule both in the unamended and amended A
provision appears to be that if the judgment debtor intends that the
running of interest should cease then be must intimate in writing and
ensure that it is served on the- decree-holder. In the present case the
amount was deposited by judgment-debtor. But in absence of any intima-
tion as required by sub-rule (2) and indication of manner of appropriation, B
the payment could not be deemed to have been appropriated towards
principal unless the decree-holder admits it to be so.
[770-E, F, 771-F, G, 772-B)
Meghraj & Ors. v. Mst. Bayabal & Ors., AIR (1970) SC 161, relied on.

The Central Warehousing Corporation, Berhampur v. M/s. Govinda C
Choudhury & Sons, AIR (1989) Orissa 90 and Improvement Trust find v.
Narinder Kumar, AIR (1990) P&H 326, referred to.

Meka Venkatadri Appa Rao Bahadur Zamindar Garu & Ors. v. Raja
Parthasarathy Appa Rao Bahadur Zamindar Garu, AIR (1922) PC 233 and
Rai Bahadur Seth Nemichand v. Seth Radha Kishan & Ors., AIR (1922) PC D
67, approved.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 5117 of
1995 Etc. Etc.

From the Judgment aod Order dated 10.4.92 of the Kerala High E
Court in C.R.P. No. 2229 of 1991.

G. Vishwantha Iyer, C.N. Sree Kumar, Sudhir Gopi, Roy Abraham,
M.M. Kashyap, Smt. Baby Krishna, P.T. Mathur aod M.T. George for the
appearing parties.
F
The Judgment of the Court was delivered by

R.M. SARAI, J. The question of law that arises for consideration in
these appeals directed against the judgment· and order of the High Court
of Kerala is whether the decretal amount deposited by the judgment-debtor G
in pursuance of ao order passed by this Court is to be adjusted towards
the principal amount due first or against interest and other "Charges.

The amounts due under the Land Acquisition Award passed by the
Court in 1985 comprised of enhanced market value, solatium at 15% and
interest at 4% .on the additional amount. In cross appeal filed by the . H
768 SUPREMECOURTREPORTS (1995] 3 S.C.R.

A appellant, the State and the company the enhancement of market value was
affirmed but the appellant was further granted solatium at 30% of the r
entire market value, additional compensation under Section 23(1-A) of the
Land Acquisition (Amendment) Act, 1984 and interest under the amended
Section 28 at 9% for the first year and 15% for the subsequent years. The
company challenged the order of the High Court by way of Special Leave
B Petition in this Court in which an order was passed to the following effect:

"Issue notice confined to the question of admissibility of enhanced
compensation with reference to the provisions of the Amended
Act, 1984. The learned Attorney General assured us that the
c compensation as made in the award has either been paid or will
be paid and to consider the tenability of adoption of uniform rate
of compensation notwithstanding the extent of land acquired."

Later on, the Court granted the stay order which read as under :-

D "The collections of the enhanced compensation, solatium and
interest payable by the Petitioner herein pursuant to the judgment
and order dated the 1st August, 1986, of the High Court of Kerala
at Ernakulam in L.A.A. Nos. referred to above be and is hereby
stayed".
E As a result of the stay order granted by this Court, the respondent did not
deposit any amount. Therefore, the appellant filed an application for
clarification of the order which was disposed of on 7th December, 1987
with following observations:

F "Heard learned counsel for the parties, Our order does not grant
any stay of claims of compensation as awarded by the Land
Acquisition Officer and as enhanced by the reference Court under
Section 20 of the Kerala Land Acquisition Act. What has been
actually stayed is disbursement of the compensation to the extent
it has been escalated by referring to the Amending Act, 1984 by
G the High Court. The entire compensation not covered by our
present clarification shall be paid within six weeks without
demanding any security. C.M.P. is disposed of'. ·I

After the Order was clarified on 7th December, 1987, the respondent
H deposited the amount on 9th January, 1988. The appeal was dismissed on
MATI!UNNI MATI!AI '· HINDUSTAN ORGANIC CHEMICALS LTD. (RM SAHAI, 1.) 769

12th September 1989. After the dismissal of appeal, the appellant put the A
decree in execution in October, 1989 and claimed that after deducting the
amount deposited by the respondent towards amount due, they were liable
to be paid the balance with interest as directed by the court:It was objected
as the respondent having deposited the decretal amount it was liable to pay
only the amount which was stayed by tbis Court, namely, the escalation by B
the Amending Act of 1984 and the interest thereon. Both the appellant and
respondent filed statement showing calculations of the figure arrived at by
them. Tlie executing court allowed the application on the ratio laid down
by this Court in Meghraj & Ors. v. Mit. Bayahal & Ors.1 AIR (1970) SC 161.
In revision filed by the respondent the order was set aside. The High Court C
• held that even though Order XXI Rule 1 of the Civil Procedure Code was
amended in 1976, yet the principle laid down by tbis Court on the
unamended provisions still applied where the judgment-debtor did not
specify as to how the amount deposited was to be appropriated But that
principle was held not to be available, in tbis case, .as this Court having
directed the respondent to deposit the amount as awarded by the reference D
court and what was stayed was the enhancement made by the High Court,
the deposit made by the respondent on 9th January, 1988 was in satisfaction
of both the principal and interest along with cost as granted by the
reference court. The court held that where deposit is made in pursuance
of an order passed by the court, it was not necessary for the judgment- E
debtor to specify the manner in which the amount should be appropriated.
Reliance was placed on The Central Warehousing Corporation, Berhampur
v: M/s. Govinda Choudhury and Sons, AIR (1989) Orissa 90 and Improve-
ment Trust, !ind v. Narinder Kumar, AIR (1990) P&H 326.
F
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 and necessity. The courts
and the law have not looked upon favourably where the judgment-debtor
does not pay or deposit the decretal amount within the time granted as one G
cannot be permitted to take advantage of" bis own default. Therefore, the
normal rule that is followed is to allow the depo~it or payment if it is in
part to be adjusted towards the interest due etc. In Meka Venkatadri Appa
Rao Bahadur Zamindar Garu & Ors. v. Raja Parthsarathy Appa Rao
Bahadur Zamindar Garu, AIR (1922) PC 233 the rationale was explained
~~ H
770 SUPREME COURT REPORTS [1995) 3 S.C.R.

A "There are moneys that are received without a definite appropria~
lion on the one side or on the other, and the rule which is f
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".

B But the law or even the agreement entered between the parties may
provide for adjustment of payment in a particular manner. Section 60 of
the Contract Act provides that,

"where the debtor has omitted to intiroate and there are no other
C circumstances indicating to which debt the payment is to be ap-
plied, the creditor may apply it, at his discretion to any lawful debt
actually due and payable to hiro 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".
D
The words of the Section are clear. It has been construed broadly by the
courts. The right of the creditor was further explained judicially in Rai
Bahadur Seth Nemichand v. Seth Radha Kishan & Ors., AIR (1922) PC 76
and it was held that the creditor was not bound to accept a payment on
condition of the judgroent-debtor. For the decrees passed by courts, the
E provision was made in unamended Order XX! Rule 1 prior to 1976 and it
was provided that the amount be deposited in the court whose duty it was
to execute 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 was this rule which was construed
F in Meghraj's case (supra). The court held that even though the judgroent-
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 decree-holder appropriated it towards the principal, the ordinary
rule applied and the payments by the judgroent-debtor could be ap-
G propriated towards interest and cost as held in Meka Venkatadri case
(supra). It may now be seen if the principle laid down in this decision
stands diluted by amendment of Rule 1. The relevant portion of the
amended Rule reads as under:-

H "O.XXI.R.1.- Modes of paying money under decree.-
·~
\

MATilUNNI MATilAI '· HINDUSTAN ORGANIC CHEMICALS LID. [RM. SAHAI, J.) 771

(1) All money, payable under a decree shall be paid as follows, A
namely:-

(a) by deposit into the Court whose duty it is to execute the
decree, or sent to that Couri by postal money order or
through a bank; or
B
(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.
c
(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, acknowledgment due.

(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D

(4) On any amount paid under clause (a) or clause (c) of sub-rule
(1), interest, if any, shall cease to run from the date of service of
the notice referred to in sub-rule (2)."

The amended sub-rule (2) removes the doubt if there was any that the E
judgment-debtor is not absolved of the obligation of informing the decree-
holder by written notice even in respect of deposit in court either directly
or by registered post. The purpose of addition of the expression, 'either
through court directly or by registered post acknowledgment due' is that
the judgment-debtor should not only give notice of payment but he must F
ensure that the decree holder has been served with the notice. The ratio
laid down in Meghraj case (supra) applies now with !l'fater rigour. The
reason for the rule both in the unamended and amended iJr,ovision appears
to be that if the judgment debtor intends that the running of interest should
cease then he must intimate in writing and ensure that it is served on the
decree-holder. Sub-rules (4) and (5) added in 1976 to protect the judg- G
ment-debtor provide for ceasure of interest from the date of deposit or
I payment. But the cessation of interest under sub-rule ( 4) takes place not
by payment alone but from the date of service of the notice referred to in
sub-rule (2). It is not necessary for purposes of this case to decide whether
the creditor was bound to appropriate the amount towards principal once H
772 SUPREME COURT REPORTS (1995] 3 S.C.R.

A it was deposited in court and intimation of the deposit was served on the
decree-holder as it does not appear that the respondent ever served any r
notice on the appellant about the deposit. It is true that the amount was
deposited in January, 1988. But in absence of any intimation as required
by sub-rule (2) and indication of manner of appropriation, the payment
could not be deemed to have been appropriated towards principal unless
B the decree-holder admits it to be so. The reasoning of the High Court that
since the deposit was made in pursuance of order of this Court it would
be deemed ihat the deposit was towards principal does not appear to be
correct. Factually, there was no direction to deposit. The court only
granted an interim order in respect of escalation. Therefore, the judgment-
C debtor was bound to deposit the decretal amount in accordance with law.
And that is provided for by Order XXI, Rule I of the Civil Procedure
Code. But mere deposit in absence of any notice and intimation that it was
being deposited towards principal it was for the decree- holder to ap-
propriate it towards the dues. That is what was laid down in Meghraj case
D (supra).

There is yet another reason for setting aside the order of the High
Court. Once the appeal was decided and it was held that the amount
awarded under the amended Act, 1984 did not suffer from any error of law
except the amount under Section 23 (1-A), the parties were relegated to
E the same position as they were on the date when the interim order was
granted. In other words, the amount due was to be paid on the principal
amount and it cannot be urged that since the respondent had deposited
the amount the principal stood paid and, therefore, no interest or solatium
could be calculated on the principal amount.

F In the result, these appeals succeed and are allowed. The Order
passed by the High Court is set aside and that of the Executing Court is
restored. The appellant shall be entitled to his cost.

T.N.A. Appeal allowed.