In view of above and more particularly keeping
in view the ratio of the Constitution Bench judgment
in Gurpreet Singh (supra), where considering an
identical question in respect of Order XXI Rule 1 of
the CPC, it was held that if the amount deposited by
the judgment debtor falls short of the decretal
amount, the decree-holder is entitled to apply the
rule of appropriation by appropriating the amount
first towards interest, then towards costs and
subsequently towards principal amount due under the
decree; we are of the opinion that the appellants
herein are entitled to the amount awarded by the
Executing Court, as the amounts deposited by the
judgment debtor fell short of the decretal amount.
After such appropriation, the decree-holder is
entitled to interest only to the extent of unpaid -
principal amount. Hence, interest be calculated on
the unpaid principal amount.
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 3056 OF 2008
V. KALA BHARATHI & ORS. … APPELLANTS
VS.
THE ORIENTAL INS. CO. LTD.,
BR. CHITOOR … RESPONDENT
Citation;2014 ALLSCR2075, (2014) 5 SCC 577
N.V.RAMANA, J.
Read original judgment here;click here
1.The short question to be answered in this appeal
is whether the amount deposited by the judgment
debtor in a decree is to be adjusted first
towards interest or towards principal decretal
amount.
2.The facts of the case are – On account of demise
of an Engineering Graduate, Mr. V. Raja Kumar on
29.04.1993 in a road accident, his legal heirs,
Civil Appeal No. 3056 of 2008 Page 1 of 26
Page 2
2
i.e., the appellants herein filed a claim
petition being M.V.O.P. 774 of 1993 before the
Motor Accident Claims Tribunal (for short, ‘the
Tribunal’) claiming -
3.compensation to the tune of Rs.2 crores. The
vehicle involved in the said accident was insured
by the respondent – Insurance Company. The
Tribunal vide its Award dated 29.04.1997 awarded
an amount of Rs.98,40,500/- as compensation with
interest @ 12% p.a. from the date of the
petition, i.e., 25.10.1993 till the date of
realization, apart from costs quantified at
Rs.99,443/-.
4.Being aggrieved, the respondent – Insurance
Company filed an appeal under Section 173 of the
Motor Vehicles Act, 1988 (for short, ‘the Act’)
and to comply with the provisions contained
therein, deposited a sum of Rs.25,000/-. On
15.12.1997, the High Court in C.M.A. No. 1726 of
1997 granted stay of execution of the
Award dated 29.04.1997 subject to the condition
Civil Appeal No. 3056 of 2008 Page 2 of 26
Page 3
3
of depositing a sum of Rs.30 lakhs and
Rs.99,443/- costs, which amounts were
undisputedly deposited. The said order was made
absolute on 15.07.1998 subject to the condition
of depositing a further sum of Rs.30 lakhs, which
was also complied with. A Division Bench of the
High Court partly allowed the appeal on
19.12.2001 thereby -
5.reducing the compensation amount from
Rs.98,40,500/- to Rs.56,40,000/-, however, the
interest rate of 12% p.a. was retained. The
respondent – Insurance Company also deposited a
sum of Rs.23,27,635/- on 19.09.2002, claiming to
be full and final satisfaction of the award.
6.The appellants filed Execution Petition No. 11 of
2003 on 06.06.2003 before the Executing Court /
Tribunal claiming an amount of Rs.20,16,700/-,
which claim was denied by the respondent –
Insurance Company on the ground that its
liability to pay interest gets discharged when it
deposits the award amount in full. Thus, relying
Civil Appeal No. 3056 of 2008 Page 3 of 26
Page 4
4
on the principle of accrual method, the
respondent – Insurance Company claimed that since
it satisfied the award amount in full, no more
interest was payable and as per its calculation,
only a sum of Rs.36,650/- was liable to be paid,
which was deposited on 29.07.2003.
7.While adjudicating the aforesaid Execution
Petition, the Executing Court took a view that
the amounts deposited by the respondent –
Insurance Company from time to time were liable
to be adjusted -
8.towards the component of interest first and
thereafter to the portion of the decretal amount.
After taking into consideration the amounts
deposited by the respondent – Insurance Company
on different dates, its liability was fixed vide
order dated 18.08.2004 to the extent of
Rs.17,70,657/- together with interest @ 12% p.a.
from the date of filing of the Execution Petition
till the date of realization.
Civil Appeal No. 3056 of 2008 Page 4 of 26
Page 5
5
9.The respondent – Insurance Company assailed the
aforesaid calculation / order of the Executing
Court dated 18.08.2004 in Civil Revision Petition
No. 4337 of 2004. The appellants herein also
filed Civil Revision Petition No. 6108/2004
thereby challenging that the Executing Court
could not have adjusted the amount paid as costs
towards the decretal amount. The learned single
Judge of the High Court of Judicature, Andhra
Pradesh, by judgment dated 29.07.2005, allowed
both the Civil Revision Petitions while holding
that (i) the part payments deserve to be adjusted
towards the principal decretal amount and not any
component of interest accrued upto that date; and
(ii) the amount deposited towards costs, in -
10. pursuance of the directions of the court, must
be adjusted towards that, and not towards payment
of the decretal amount.
11. Learned counsel for the appellants vehemently
contended that the impugned order cannot be
sustained being contrary to law of the land
Civil Appeal No. 3056 of 2008 Page 5 of 26
Page 6
6
declared under Article 141 of the Constitution of
India (for short, ‘the Constitution’). He also
contended that judicial discipline to abide by
declaration of law made by this Court cannot be
forsaken under any pretext by any authority or
court, be it even the highest Court in a State.
It tantamount to judicial indiscipline. In
support of his submissions, the learned counsel
relied upon the judgment of this Court Industrial
Credit and Development Syndicate (ICDS) Ltd. Vs.
Smithaben H. Patel & Ors. 1999 (3) SCC 80,
Venkatadri Appa Rao Vs. Parthan Sarathy Appa Rao
AIR 1922 PC 233, Meghraj Vs. Bayabai 1969 (2) SCC
274 and Gurpreet Singh Vs. Union of India 2006
(8) SCC 457.
12. On the other hand, learned counsel appearing
for the respondent – Insurance Company contended
that, in the facts and circumstances of the case,
there is no -
13. reason to interfere with the impugned order
passed by the High Court.
Civil Appeal No. 3056 of 2008 Page 6 of 26
Page 7
7
14. We have heard learned counsel for the parties
and gone through the entire material available on
record.
15. Before adverting to the various issues involved
in the case and the contentions advanced by the
counsel on either side, we have given our anxious
consideration to the judgment impugned of the
learned single Judge of the Andhra Pradesh High
Court. The learned Judge, while adjudicating the
issue, has considered the judgments of this Court
in Meghraj (supra), Industrial Credit and
Development Syndicate (supra) and Rajasthan State
Road Transport Corporation, Jaipur Vs. Poonam
Pahwa, AIR 1997 SC 2951 and has passed the
judgment by giving reasons which are basis for
his conclusion.
11. We feel that it is appropriate to extract the
relevant paragraphs from the impugned judgment.
“It is true that in a plethora of
judgments, the Supreme Court as well as
the High Courts took the view that any
amount deposited under Rule 1 of Order 21
CPC must be first adjusted towards
Civil Appeal No. 3056 of 2008 Page 7 of 26
Page 8
8
interest. Discussion on those judgments
vis-à-vis sub-rules (4) and (5) of Rule 1
-
of Order 21 C.P.C. is prone to be taken
or mistaken as an attempt to explain the
judgments of the Supreme Court or High
Courts. However, since some of the
judgments of the Supreme Court were
delivered at a time, when sub rules (4)
and (5) were not on the statue book, and
in the judgments rendered thereafter, the
attention of the Hon’ble Supreme Court
and the High Courts was not pointedly
invited to these provisions in certain
cases or they did not fall for
consideration, it is felt necessary to
address the issue…”
“Viewed from this context, it is evident
that Parliament added sub rules (4) and
(5) with a definite and avowed object of
assessing the running of interest on the
deposits made by the decree holder into
a Court. The background in which those
provisions came to be incorporated has
already been indicated in the preceding
paragraphs. Sub Rules (4) and (5) by
themselves do not disclose as to whether
the amount should be adjusted towards
principal or interest. However, the
expression “interest if any” occurring
in both the provisions is significant.
A decree may comprise of principle
amount claimed in the suit, as well as a
component of interest up to the date of
decree. Once a decree is passed for
certain amount, it becomes a principle
by itself and the liability to pay
interest thereon, and if so, the rate at
which it is to be paid, would depend
upon the terms of decree. The amount
that carries the interest till the date
of realization would be the one
Civil Appeal No. 3056 of 2008 Page 8 of 26
Page 9
9
stipulated in the decree. It is not
permissible for a Court to award
interest on interest.
Sub section (3) of Section 3 of the -
Interest Act clearly prohibits grant of
interest on interest. Therefore, the
only component of the decree that can be
related to the expression “interest if
any” occurring in sub sections (4) and
(5) of Rule (1) is the decretal amount,
which, in other words, is the
principal.”
“It is true that the cases decided so
far, do not strictly support this view,
and in a way, may suggest the other
point of view. However, an effort is
made by this Court, to explain the
purport of sub-rules (4) and (5) of Rule
1. This Court is conscious of the
requirement to follow the precedents, as
well as its obligation, to give effect
to the legislative mandate. An endeavor
is made to honour both the obligations.
Having regard to the importance of the
issue and the implications involved in
it, further discussion may ensue at
appropriate levels.”
12. From the above findings of the learned Judge,
it appears that he passed the order basing on three
considerations:
Civil Appeal No. 3056 of 2008 Page 9 of 26
Page 10
10
Firstly, the judgments relied upon by
the claimants are based on the pre-amended
provisions of Order 21 Rule 1 C.P.C.
Secondly, in the cases which were
decided subsequent to amendment, the issue
-
of appropriation of amounts has not
fallen for consideration.
Thirdly, a decree comprises of
principal claimed in the suit as well as
component of interest. Hence, once a
decree is passed for certain amount, it
becomes principal by itself and Section
3(3) of Interest Act clearly prohibits
grant of interest on interest.
13. Now, before we proceed to decide the legality
or otherwise of the order passed by the learned
Judge, it is worthwhile to examine Rule 1 of Order
XXI of the Code of Civil Procedure, 1908 (for short,
‘the CPC’), which reads as under:
Civil Appeal No. 3056 of 2008 Page 10 of 26
Page 11
11
“ORDER XXI
EXECUTION OF DECREES AND ORDERS
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 money order
or through a bank; or
(b) out of Court, to the decree-holder
by postal money order or through a
bank or -
(c) by any other mode wherein payment is
evidenced in writing; or
(d) otherwise, as the Court which made
the decree, directs.
(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.
(3) Where money is paid by postal money
order or through a bank under clause (a) or
clause (b) of sub-rule (1), the money order
or payment through bank, as the case may be,
shall accurately state the following
particulars, namely:-
(a) the number of the original suit;
Civil Appeal No. 3056 of 2008 Page 11 of 26
Page 12
12
(b) the names of the parties or where
there are more than two plaintiffs
or more than two defendants, as the
case may be, the names of the first
two plaintiffs and the first two
defendants;
(c) how the money remitted is to be
adjusted, that is to say, whether it
is towards the principal, interest
or costs;
(d) the number of the execution case of
the Court, where such case is
pending; and
(e) the name and address of the payer.
(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).
(5) On any amount paid under clause (b)
of sub-rule (1), interest, if any, shall
cease to run from the date of such payment.
Provided that, where the decree-holder
refuses to accept the postal money order or
-
payment through a bank, interest shall cease
to run from the date on which the money was
tendered to him, or where he avoids
acceptance of the postal money order or
payment through bank, interest shall cease to
run from the date on which the money would
have been tendered to him in the ordinary
course of business of the postal authorities
or the bank, as the case may be.”
14. A bare perusal of the aforesaid provisions
makes it amply clear that the scope of Order XXI Rule
Civil Appeal No. 3056 of 2008 Page 12 of 26
Page 13
13
1 of the CPC is that the judgment debtor is required
to pay the decretal amount in one of the modes
specified in sub-rule (1) thereof. Sub-rule (2) of
Rule 1 provides that once payment is made under subrule
(1), it is the duty of the judgment debtor to
give notice to the decree-holder through the Court or
directly to him by registered post acknowledgement
due. Sub-rule (3) of Rule 1 merely indicates that in
case money is paid by postal money order or through a
bank under clause (a) or clause (b) of sub-rule (1)
thereof, certain particulars are required to be
accurately incorporated while making such payment.
Sub-rules (4) and (5) of Rule 1 states from which
date, interest shall cease to run – in case amount is
paid under clause (a) or (c) of sub-rule (1), -
interest shall cease to run from the date of service
of notice as indicated under sub-rule (2); while in
case of out of court payment to the decree-holder by
way of any of the modes mentioned under clause (b) of
sub-rule (1), interest shall cease to run from the
date of such payment.
Civil Appeal No. 3056 of 2008 Page 13 of 26
Page 14
14
15. The language contained in the aforesaid subrules
clearly indicates the appropriation of amount
to be made in case the decree contains a specific
clause, specifying the manner in which the money
deposited to be appropriated. Sub-rule (1)(c) of
Rule 1 indicates the money deposited to be
appropriated as per the direction of the Court, if
there is a provision in that behalf. In the absence
of specific direction with regard to appropriation,
then only the manner of appropriation would arise for
consideration. Sub-rules (2) to (5) of Rule 1
indicate the procedure to be followed when the
deposit is made either under clause (a) or (b) of
sub-rule (1) thereof, but it does not leave any scope
for interpretation with regard to appropriation of
deposited amount by the decree-holder.
-
16. In this regard, it is also pertinent to extract
Rule 472 of the Andhra Pradesh Motor Vehicles Rules,
1989 (for short, ‘the A.P.M.V. Rules’), which is as
under:
Civil Appeal No. 3056 of 2008 Page 14 of 26
Page 15
15
“472. Enforcement of an award of the Claims
Tribunal:- Subject to the provisions of
Section 174, the Claims Tribunal shall, for
the purpose of enforcement of its award, have
all the powers of a Civil Court in the
execution of a decree under the Code of Civil
Procedure, 1908, as if the award were a
decree for the payment of money passed by
such Court in a Civil Suit.”
The above-said Rule indicates that the award passed
by the Claims Tribunal is to be treated as if the
decree for the payment of money passed by the Civil
Court in a civil suit. Hence, in view of the
specific provision contained in the A.P.M.V. Rules,
the award passed by the Claims Tribunal is to be
treated as a money decree. In Rajasthan State Road
Transport Corporation, Jaipur (supra), this Court
held that in executing the award of the Claims
Tribunal, Executing Court is competent to invoke the
beneficial provision under Order 21 Rule 1 of C.P.C.
-
17. The Privy Council in Venkatadri Appa Rao Vs.
Parthasarathi Appa Rao AIR 1922 PC 233, held as
follows:
“The question then remains as to how,
apart from any specific appropriation, these
Civil Appeal No. 3056 of 2008 Page 15 of 26
Page 16
16
sums ought to be dealt with. 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.”
(Emphasis supplied)
The above principle was reiterated by the Privy
Council in Rai Bahadur Sethnemichand Vs. Seth Rada
Kishen AIR 1922 PC 26.
18. We may notice that the principle laid down in the
above case has been not only approved by the Supreme
Court, but also followed in several other subsequent
cases. In Meghraj (supra), it was held as under:
“4. … 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.”
19. In Mathunni Mathai (supra), it was held that the
right of the decree-holder to appropriate the amount
Civil Appeal No. 3056 of 2008 Page 16 of 26
Page 17
17
deposited by the judgment debtor, either in the Court
or paid outside, towards interest and other expenses
is founded both on fairness and necessity. It was
observed that 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 cannot be permitted 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 part, to be adjusted towards the interest due,
etc.
20. In Industrial Credit and Development Syndicate
(supra), it has been held that in cases where the
trial court has not prescribed any mode for payment
of decretal amount, except fixing the instalments, in
the absence of agreement between the parties,
regarding the mode of payment of decretal amount, the
-
general rule of appropriation of payments towards
decretal amount is that the said amount is to be
adjusted firstly strictly in accordance with the
directions contained in the decree and in the absence
Civil Appeal No. 3056 of 2008 Page 17 of 26
Page 18
18
of such direction, it is to be adjusted firstly
towards interest and costs and thereafter towards
principal amount. This is, of course, subject to the
exception that the parties can agree to the
adjustment of payment in any other manner despite the
decree. In that case, the Supreme Court had an
occasion to consider the method of appropriation and
after noticing various decisions of the English
Courts and the Privy Council, followed the judgment
in Meghraj’s case (supra).
21. We may also notice that in Prem Nath Kapur & Anr.
Vs. National Fertilizers Corporation, 1996 SCC (2)
71, while differing with the view taken in Mathunni
Mathai (supra), it was held that the normal rule of
appropriation contained in Order XXI Rule 1 of the
CPC relating to execution of decrees for recovery of
money stands excluded by Sections 28 and 34 of the -
Land Acquisition Act, 1894 and the principles
contained therein could not be extended to execution
of award decrees under the said Act. The relevant
Civil Appeal No. 3056 of 2008 Page 18 of 26
Page 19
19
para of the said judgment, being portion of para 14,
reads as under:
··
“14. Equally, the right to make
appropriation is indicated by necessary
implication, by the award itself as the
award or decree clearly mentions each of
the items. When the deposit is made
towards the specified amounts, the
claimant/owner is not entitled to deduct
from the amount of compensation towards
costs, interest, additional amount under
Section 23 (1-A) with interest and then to
claim the total balance amount with further
interest. … … … … …
… … … … … …”
22. In Gurpreet Singh (supra), the Constitution
Bench of this Court had an occasion to consider the
issue regarding execution of money decree, the
principle of appropriation and its applicability,
which was recently followed by this Court in Bharath
Heavy Electricals Ltd. Vs. RS Avthar Sing & Co., 2013
(1) SCC 243, and culled down the principles laid down
in Gurpreet Singh’s case as follows:
a) The general rule of
appropriation towards a
decretal amount was that
-
Civil Appeal No. 3056 of 2008 Page 19 of 26
Page 20
20
b) such an amount was to be
adjusted strictly in
accordance with the
directions contained in
the decree and in the
absence of such
directions, adjustment be
made firstly towards
payment of interest and
costs and thereafter
towards payment of the
principle amount subject,
of course, to any
agreement between the
parties.
c) The legislative intent in
enacting sub rules (4)
and (5) is clear to the
points that interest
should cease to run on
the deposit made by the
judgment debtor and
notice given or on the
amount being tendered
outside the Court in the
manner provided in Order
21 Rule 1 sub clause (D).
d) If the payment made by
the judgment debtors
Civil Appeal No. 3056 of 2008 Page 20 of 26
Page 21
21
falls short of the
decretal amount, the
decree holder will be
entitled to apply the
general rule of
appropriation by
appropriating the amount
deposited towards the
interest, then towards
costs and finally towards
the principal amount due
under the decree.
e) Thereafter, no further
interest would run on the
sum appropriated towards
the principal. In other
words, if a -
f) part of the principal
amount has been paid
along with interest due
thereon as on the date of
issuance of notice of
deposit of interest on
the part of the principal
sum will cease to run
thereafter.
g) In case where there is a
shortfall in deposit of
the principal amount, the
Civil Appeal No. 3056 of 2008 Page 21 of 26
Page 22
22
decree holder would be
entitled to adjust
interest and costs first
and then balance towards
the principal and beyond
that the decree holder
cannot seek to reopen the
entire transaction and
proceed to recalculate
the interest on the whole
of the principal amount
and seek for reappropriation.
23. In the judgment referred to by the High Court in
the impugned judgment, this Court and the Privy
Council consistently have taken a view that in case
of appropriation of amount unless the decree contains
a specific provision, the amounts have to be
appropriated as contemplated under Order 21 Rule 1.
If there is a shortfall in deposit, the amount has to
be adjusted towards interest and costs, then it has
to be adjusted towards principal. The High Court has
-
failed to appreciate this fact and misdirected itself
in observing that these judgments are prior to the
Civil Appeal No. 3056 of 2008 Page 22 of 26
Page 23
23
amendment to Order 21 Rule 1. In our considered view,
as far as this aspect is considered, there is no much
difference in the provisions prior to or subsequent
to the amendment, because in the objects and reasons
for amendment to Order XXI Rule 1, as observed by the
Constitution bench in Gurpreet Singh the legislative
intent in enacting sub-rules (4) and (5) is that
interest should cease on the deposit being made and
notice given or on the amount being tendered outside
the court in the manner provided. The intent of the
rule making authority is to leave no room for any
frivolous pleas of payment of money due under a money
decree.
24. We may add that the High Court proceeded on the
assumption as if sub-rules (4) and (5) of Rule 1,
which were inserted pursuant to Amendment to C.P.C.
in 1976, there is change in procedural law and the
tenor of sub-rule (1) thereof. But, sub-rules (4)
and (5) do not have any relevance with regard to
appropriation, except stating when interest ceases to
-
Civil Appeal No. 3056 of 2008 Page 23 of 26
Page 24
24
run. Thus, it is no way guide for appropriation of
amount as contemplated under Order XXI Rule 1 of the
CPC. In Industrial Credit Development Syndicate
(supra) which is subsequent to the amendment to the
provision, this Court has categorically observed the
procedure to be followed and which squarely applies
to the case, but the High Court has given its own
interpretation to the judgment and failed to consider
the law laid down by this Court in its proper
perspective.
25. The next finding of the High Court is with
regard to interest on interest.
In money suit, the amount consists of principal
and interest till the suit is filed. But, in case of
award passed under the Act, the question of inclusion
of any interest on the decretal amount does not
arise. Unfortunately, the High Court proceeded on the
assumption that it amounts to interest on interest
which is prohibited under Section 3(3)(c) of Interest
Act, 1978 (for short, ‘the Interest Act’). This is
not so, as in the facts and circumstances of the
Civil Appeal No. 3056 of 2008 Page 24 of 26
Page 25
25
present case, the decree passed by the trial Court or
-
the appellate Court does not contain the mode of
appropriation and in the absence of any such
direction, the decree-holder is entitled to
appropriate the amount deposited by the judgment
debtor first towards interest, then cost and
thereafter towards principal.
26. In view of above and more particularly keeping
in view the ratio of the Constitution Bench judgment
in Gurpreet Singh (supra), where considering an
identical question in respect of Order XXI Rule 1 of
the CPC, it was held that if the amount deposited by
the judgment debtor falls short of the decretal
amount, the decree-holder is entitled to apply the
rule of appropriation by appropriating the amount
first towards interest, then towards costs and
subsequently towards principal amount due under the
decree; we are of the opinion that the appellants
herein are entitled to the amount awarded by the
Executing Court, as the amounts deposited by the
judgment debtor fell short of the decretal amount.
After such appropriation, the decree-holder is
entitled to interest only to the extent of unpaid -
principal amount. Hence, interest be calculated on
the unpaid principal amount.
27. We, therefore, allow the appeal, set aside the
impugned judgment dated 29.07.2005 passed by the High
Court and restore that of the Executing Court dated
18.08.2004.
28. No orders as to costs.
.................C.J.I.
(P. SATHASIVAM)
.....................J.
(RANJAN GOGOI)
.....................J.
(N.V. RAMANA)
New Delhi,
April 01, 2014.
Civil Appeal No. 3056 of 2008 Page 26 of 26
in view the ratio of the Constitution Bench judgment
in Gurpreet Singh (supra), where considering an
identical question in respect of Order XXI Rule 1 of
the CPC, it was held that if the amount deposited by
the judgment debtor falls short of the decretal
amount, the decree-holder is entitled to apply the
rule of appropriation by appropriating the amount
first towards interest, then towards costs and
subsequently towards principal amount due under the
decree; we are of the opinion that the appellants
herein are entitled to the amount awarded by the
Executing Court, as the amounts deposited by the
judgment debtor fell short of the decretal amount.
After such appropriation, the decree-holder is
entitled to interest only to the extent of unpaid -
principal amount. Hence, interest be calculated on
the unpaid principal amount.
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 3056 OF 2008
V. KALA BHARATHI & ORS. … APPELLANTS
VS.
THE ORIENTAL INS. CO. LTD.,
BR. CHITOOR … RESPONDENT
Citation;2014 ALLSCR2075, (2014) 5 SCC 577
N.V.RAMANA, J.
Read original judgment here;click here
1.The short question to be answered in this appeal
is whether the amount deposited by the judgment
debtor in a decree is to be adjusted first
towards interest or towards principal decretal
amount.
2.The facts of the case are – On account of demise
of an Engineering Graduate, Mr. V. Raja Kumar on
29.04.1993 in a road accident, his legal heirs,
Civil Appeal No. 3056 of 2008 Page 1 of 26
Page 2
2
i.e., the appellants herein filed a claim
petition being M.V.O.P. 774 of 1993 before the
Motor Accident Claims Tribunal (for short, ‘the
Tribunal’) claiming -
3.compensation to the tune of Rs.2 crores. The
vehicle involved in the said accident was insured
by the respondent – Insurance Company. The
Tribunal vide its Award dated 29.04.1997 awarded
an amount of Rs.98,40,500/- as compensation with
interest @ 12% p.a. from the date of the
petition, i.e., 25.10.1993 till the date of
realization, apart from costs quantified at
Rs.99,443/-.
4.Being aggrieved, the respondent – Insurance
Company filed an appeal under Section 173 of the
Motor Vehicles Act, 1988 (for short, ‘the Act’)
and to comply with the provisions contained
therein, deposited a sum of Rs.25,000/-. On
15.12.1997, the High Court in C.M.A. No. 1726 of
1997 granted stay of execution of the
Award dated 29.04.1997 subject to the condition
Civil Appeal No. 3056 of 2008 Page 2 of 26
Page 3
3
of depositing a sum of Rs.30 lakhs and
Rs.99,443/- costs, which amounts were
undisputedly deposited. The said order was made
absolute on 15.07.1998 subject to the condition
of depositing a further sum of Rs.30 lakhs, which
was also complied with. A Division Bench of the
High Court partly allowed the appeal on
19.12.2001 thereby -
5.reducing the compensation amount from
Rs.98,40,500/- to Rs.56,40,000/-, however, the
interest rate of 12% p.a. was retained. The
respondent – Insurance Company also deposited a
sum of Rs.23,27,635/- on 19.09.2002, claiming to
be full and final satisfaction of the award.
6.The appellants filed Execution Petition No. 11 of
2003 on 06.06.2003 before the Executing Court /
Tribunal claiming an amount of Rs.20,16,700/-,
which claim was denied by the respondent –
Insurance Company on the ground that its
liability to pay interest gets discharged when it
deposits the award amount in full. Thus, relying
Civil Appeal No. 3056 of 2008 Page 3 of 26
Page 4
4
on the principle of accrual method, the
respondent – Insurance Company claimed that since
it satisfied the award amount in full, no more
interest was payable and as per its calculation,
only a sum of Rs.36,650/- was liable to be paid,
which was deposited on 29.07.2003.
7.While adjudicating the aforesaid Execution
Petition, the Executing Court took a view that
the amounts deposited by the respondent –
Insurance Company from time to time were liable
to be adjusted -
8.towards the component of interest first and
thereafter to the portion of the decretal amount.
After taking into consideration the amounts
deposited by the respondent – Insurance Company
on different dates, its liability was fixed vide
order dated 18.08.2004 to the extent of
Rs.17,70,657/- together with interest @ 12% p.a.
from the date of filing of the Execution Petition
till the date of realization.
Civil Appeal No. 3056 of 2008 Page 4 of 26
Page 5
5
9.The respondent – Insurance Company assailed the
aforesaid calculation / order of the Executing
Court dated 18.08.2004 in Civil Revision Petition
No. 4337 of 2004. The appellants herein also
filed Civil Revision Petition No. 6108/2004
thereby challenging that the Executing Court
could not have adjusted the amount paid as costs
towards the decretal amount. The learned single
Judge of the High Court of Judicature, Andhra
Pradesh, by judgment dated 29.07.2005, allowed
both the Civil Revision Petitions while holding
that (i) the part payments deserve to be adjusted
towards the principal decretal amount and not any
component of interest accrued upto that date; and
(ii) the amount deposited towards costs, in -
10. pursuance of the directions of the court, must
be adjusted towards that, and not towards payment
of the decretal amount.
11. Learned counsel for the appellants vehemently
contended that the impugned order cannot be
sustained being contrary to law of the land
Civil Appeal No. 3056 of 2008 Page 5 of 26
Page 6
6
declared under Article 141 of the Constitution of
India (for short, ‘the Constitution’). He also
contended that judicial discipline to abide by
declaration of law made by this Court cannot be
forsaken under any pretext by any authority or
court, be it even the highest Court in a State.
It tantamount to judicial indiscipline. In
support of his submissions, the learned counsel
relied upon the judgment of this Court Industrial
Credit and Development Syndicate (ICDS) Ltd. Vs.
Smithaben H. Patel & Ors. 1999 (3) SCC 80,
Venkatadri Appa Rao Vs. Parthan Sarathy Appa Rao
AIR 1922 PC 233, Meghraj Vs. Bayabai 1969 (2) SCC
274 and Gurpreet Singh Vs. Union of India 2006
(8) SCC 457.
12. On the other hand, learned counsel appearing
for the respondent – Insurance Company contended
that, in the facts and circumstances of the case,
there is no -
13. reason to interfere with the impugned order
passed by the High Court.
Civil Appeal No. 3056 of 2008 Page 6 of 26
Page 7
7
14. We have heard learned counsel for the parties
and gone through the entire material available on
record.
15. Before adverting to the various issues involved
in the case and the contentions advanced by the
counsel on either side, we have given our anxious
consideration to the judgment impugned of the
learned single Judge of the Andhra Pradesh High
Court. The learned Judge, while adjudicating the
issue, has considered the judgments of this Court
in Meghraj (supra), Industrial Credit and
Development Syndicate (supra) and Rajasthan State
Road Transport Corporation, Jaipur Vs. Poonam
Pahwa, AIR 1997 SC 2951 and has passed the
judgment by giving reasons which are basis for
his conclusion.
11. We feel that it is appropriate to extract the
relevant paragraphs from the impugned judgment.
“It is true that in a plethora of
judgments, the Supreme Court as well as
the High Courts took the view that any
amount deposited under Rule 1 of Order 21
CPC must be first adjusted towards
Civil Appeal No. 3056 of 2008 Page 7 of 26
Page 8
8
interest. Discussion on those judgments
vis-à-vis sub-rules (4) and (5) of Rule 1
-
of Order 21 C.P.C. is prone to be taken
or mistaken as an attempt to explain the
judgments of the Supreme Court or High
Courts. However, since some of the
judgments of the Supreme Court were
delivered at a time, when sub rules (4)
and (5) were not on the statue book, and
in the judgments rendered thereafter, the
attention of the Hon’ble Supreme Court
and the High Courts was not pointedly
invited to these provisions in certain
cases or they did not fall for
consideration, it is felt necessary to
address the issue…”
“Viewed from this context, it is evident
that Parliament added sub rules (4) and
(5) with a definite and avowed object of
assessing the running of interest on the
deposits made by the decree holder into
a Court. The background in which those
provisions came to be incorporated has
already been indicated in the preceding
paragraphs. Sub Rules (4) and (5) by
themselves do not disclose as to whether
the amount should be adjusted towards
principal or interest. However, the
expression “interest if any” occurring
in both the provisions is significant.
A decree may comprise of principle
amount claimed in the suit, as well as a
component of interest up to the date of
decree. Once a decree is passed for
certain amount, it becomes a principle
by itself and the liability to pay
interest thereon, and if so, the rate at
which it is to be paid, would depend
upon the terms of decree. The amount
that carries the interest till the date
of realization would be the one
Civil Appeal No. 3056 of 2008 Page 8 of 26
Page 9
9
stipulated in the decree. It is not
permissible for a Court to award
interest on interest.
Sub section (3) of Section 3 of the -
Interest Act clearly prohibits grant of
interest on interest. Therefore, the
only component of the decree that can be
related to the expression “interest if
any” occurring in sub sections (4) and
(5) of Rule (1) is the decretal amount,
which, in other words, is the
principal.”
“It is true that the cases decided so
far, do not strictly support this view,
and in a way, may suggest the other
point of view. However, an effort is
made by this Court, to explain the
purport of sub-rules (4) and (5) of Rule
1. This Court is conscious of the
requirement to follow the precedents, as
well as its obligation, to give effect
to the legislative mandate. An endeavor
is made to honour both the obligations.
Having regard to the importance of the
issue and the implications involved in
it, further discussion may ensue at
appropriate levels.”
12. From the above findings of the learned Judge,
it appears that he passed the order basing on three
considerations:
Civil Appeal No. 3056 of 2008 Page 9 of 26
Page 10
10
Firstly, the judgments relied upon by
the claimants are based on the pre-amended
provisions of Order 21 Rule 1 C.P.C.
Secondly, in the cases which were
decided subsequent to amendment, the issue
-
of appropriation of amounts has not
fallen for consideration.
Thirdly, a decree comprises of
principal claimed in the suit as well as
component of interest. Hence, once a
decree is passed for certain amount, it
becomes principal by itself and Section
3(3) of Interest Act clearly prohibits
grant of interest on interest.
13. Now, before we proceed to decide the legality
or otherwise of the order passed by the learned
Judge, it is worthwhile to examine Rule 1 of Order
XXI of the Code of Civil Procedure, 1908 (for short,
‘the CPC’), which reads as under:
Civil Appeal No. 3056 of 2008 Page 10 of 26
Page 11
11
“ORDER XXI
EXECUTION OF DECREES AND ORDERS
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 money order
or through a bank; or
(b) out of Court, to the decree-holder
by postal money order or through a
bank or -
(c) by any other mode wherein payment is
evidenced in writing; or
(d) otherwise, as the Court which made
the decree, directs.
(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.
(3) Where money is paid by postal money
order or through a bank under clause (a) or
clause (b) of sub-rule (1), the money order
or payment through bank, as the case may be,
shall accurately state the following
particulars, namely:-
(a) the number of the original suit;
Civil Appeal No. 3056 of 2008 Page 11 of 26
Page 12
12
(b) the names of the parties or where
there are more than two plaintiffs
or more than two defendants, as the
case may be, the names of the first
two plaintiffs and the first two
defendants;
(c) how the money remitted is to be
adjusted, that is to say, whether it
is towards the principal, interest
or costs;
(d) the number of the execution case of
the Court, where such case is
pending; and
(e) the name and address of the payer.
(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).
(5) On any amount paid under clause (b)
of sub-rule (1), interest, if any, shall
cease to run from the date of such payment.
Provided that, where the decree-holder
refuses to accept the postal money order or
-
payment through a bank, interest shall cease
to run from the date on which the money was
tendered to him, or where he avoids
acceptance of the postal money order or
payment through bank, interest shall cease to
run from the date on which the money would
have been tendered to him in the ordinary
course of business of the postal authorities
or the bank, as the case may be.”
14. A bare perusal of the aforesaid provisions
makes it amply clear that the scope of Order XXI Rule
Civil Appeal No. 3056 of 2008 Page 12 of 26
Page 13
13
1 of the CPC is that the judgment debtor is required
to pay the decretal amount in one of the modes
specified in sub-rule (1) thereof. Sub-rule (2) of
Rule 1 provides that once payment is made under subrule
(1), it is the duty of the judgment debtor to
give notice to the decree-holder through the Court or
directly to him by registered post acknowledgement
due. Sub-rule (3) of Rule 1 merely indicates that in
case money is paid by postal money order or through a
bank under clause (a) or clause (b) of sub-rule (1)
thereof, certain particulars are required to be
accurately incorporated while making such payment.
Sub-rules (4) and (5) of Rule 1 states from which
date, interest shall cease to run – in case amount is
paid under clause (a) or (c) of sub-rule (1), -
interest shall cease to run from the date of service
of notice as indicated under sub-rule (2); while in
case of out of court payment to the decree-holder by
way of any of the modes mentioned under clause (b) of
sub-rule (1), interest shall cease to run from the
date of such payment.
Civil Appeal No. 3056 of 2008 Page 13 of 26
Page 14
14
15. The language contained in the aforesaid subrules
clearly indicates the appropriation of amount
to be made in case the decree contains a specific
clause, specifying the manner in which the money
deposited to be appropriated. Sub-rule (1)(c) of
Rule 1 indicates the money deposited to be
appropriated as per the direction of the Court, if
there is a provision in that behalf. In the absence
of specific direction with regard to appropriation,
then only the manner of appropriation would arise for
consideration. Sub-rules (2) to (5) of Rule 1
indicate the procedure to be followed when the
deposit is made either under clause (a) or (b) of
sub-rule (1) thereof, but it does not leave any scope
for interpretation with regard to appropriation of
deposited amount by the decree-holder.
-
16. In this regard, it is also pertinent to extract
Rule 472 of the Andhra Pradesh Motor Vehicles Rules,
1989 (for short, ‘the A.P.M.V. Rules’), which is as
under:
Civil Appeal No. 3056 of 2008 Page 14 of 26
Page 15
15
“472. Enforcement of an award of the Claims
Tribunal:- Subject to the provisions of
Section 174, the Claims Tribunal shall, for
the purpose of enforcement of its award, have
all the powers of a Civil Court in the
execution of a decree under the Code of Civil
Procedure, 1908, as if the award were a
decree for the payment of money passed by
such Court in a Civil Suit.”
The above-said Rule indicates that the award passed
by the Claims Tribunal is to be treated as if the
decree for the payment of money passed by the Civil
Court in a civil suit. Hence, in view of the
specific provision contained in the A.P.M.V. Rules,
the award passed by the Claims Tribunal is to be
treated as a money decree. In Rajasthan State Road
Transport Corporation, Jaipur (supra), this Court
held that in executing the award of the Claims
Tribunal, Executing Court is competent to invoke the
beneficial provision under Order 21 Rule 1 of C.P.C.
-
17. The Privy Council in Venkatadri Appa Rao Vs.
Parthasarathi Appa Rao AIR 1922 PC 233, held as
follows:
“The question then remains as to how,
apart from any specific appropriation, these
Civil Appeal No. 3056 of 2008 Page 15 of 26
Page 16
16
sums ought to be dealt with. 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.”
(Emphasis supplied)
The above principle was reiterated by the Privy
Council in Rai Bahadur Sethnemichand Vs. Seth Rada
Kishen AIR 1922 PC 26.
18. We may notice that the principle laid down in the
above case has been not only approved by the Supreme
Court, but also followed in several other subsequent
cases. In Meghraj (supra), it was held as under:
“4. … 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.”
19. In Mathunni Mathai (supra), it was held that the
right of the decree-holder to appropriate the amount
Civil Appeal No. 3056 of 2008 Page 16 of 26
Page 17
17
deposited by the judgment debtor, either in the Court
or paid outside, towards interest and other expenses
is founded both on fairness and necessity. It was
observed that 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 cannot be permitted 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 part, to be adjusted towards the interest due,
etc.
20. In Industrial Credit and Development Syndicate
(supra), it has been held that in cases where the
trial court has not prescribed any mode for payment
of decretal amount, except fixing the instalments, in
the absence of agreement between the parties,
regarding the mode of payment of decretal amount, the
-
general rule of appropriation of payments towards
decretal amount is that the said amount is to be
adjusted firstly strictly in accordance with the
directions contained in the decree and in the absence
Civil Appeal No. 3056 of 2008 Page 17 of 26
Page 18
18
of such direction, it is to be adjusted firstly
towards interest and costs and thereafter towards
principal amount. This is, of course, subject to the
exception that the parties can agree to the
adjustment of payment in any other manner despite the
decree. In that case, the Supreme Court had an
occasion to consider the method of appropriation and
after noticing various decisions of the English
Courts and the Privy Council, followed the judgment
in Meghraj’s case (supra).
21. We may also notice that in Prem Nath Kapur & Anr.
Vs. National Fertilizers Corporation, 1996 SCC (2)
71, while differing with the view taken in Mathunni
Mathai (supra), it was held that the normal rule of
appropriation contained in Order XXI Rule 1 of the
CPC relating to execution of decrees for recovery of
money stands excluded by Sections 28 and 34 of the -
Land Acquisition Act, 1894 and the principles
contained therein could not be extended to execution
of award decrees under the said Act. The relevant
Civil Appeal No. 3056 of 2008 Page 18 of 26
Page 19
19
para of the said judgment, being portion of para 14,
reads as under:
··
“14. Equally, the right to make
appropriation is indicated by necessary
implication, by the award itself as the
award or decree clearly mentions each of
the items. When the deposit is made
towards the specified amounts, the
claimant/owner is not entitled to deduct
from the amount of compensation towards
costs, interest, additional amount under
Section 23 (1-A) with interest and then to
claim the total balance amount with further
interest. … … … … …
… … … … … …”
22. In Gurpreet Singh (supra), the Constitution
Bench of this Court had an occasion to consider the
issue regarding execution of money decree, the
principle of appropriation and its applicability,
which was recently followed by this Court in Bharath
Heavy Electricals Ltd. Vs. RS Avthar Sing & Co., 2013
(1) SCC 243, and culled down the principles laid down
in Gurpreet Singh’s case as follows:
a) The general rule of
appropriation towards a
decretal amount was that
-
Civil Appeal No. 3056 of 2008 Page 19 of 26
Page 20
20
b) such an amount was to be
adjusted strictly in
accordance with the
directions contained in
the decree and in the
absence of such
directions, adjustment be
made firstly towards
payment of interest and
costs and thereafter
towards payment of the
principle amount subject,
of course, to any
agreement between the
parties.
c) The legislative intent in
enacting sub rules (4)
and (5) is clear to the
points that interest
should cease to run on
the deposit made by the
judgment debtor and
notice given or on the
amount being tendered
outside the Court in the
manner provided in Order
21 Rule 1 sub clause (D).
d) If the payment made by
the judgment debtors
Civil Appeal No. 3056 of 2008 Page 20 of 26
Page 21
21
falls short of the
decretal amount, the
decree holder will be
entitled to apply the
general rule of
appropriation by
appropriating the amount
deposited towards the
interest, then towards
costs and finally towards
the principal amount due
under the decree.
e) Thereafter, no further
interest would run on the
sum appropriated towards
the principal. In other
words, if a -
f) part of the principal
amount has been paid
along with interest due
thereon as on the date of
issuance of notice of
deposit of interest on
the part of the principal
sum will cease to run
thereafter.
g) In case where there is a
shortfall in deposit of
the principal amount, the
Civil Appeal No. 3056 of 2008 Page 21 of 26
Page 22
22
decree holder would be
entitled to adjust
interest and costs first
and then balance towards
the principal and beyond
that the decree holder
cannot seek to reopen the
entire transaction and
proceed to recalculate
the interest on the whole
of the principal amount
and seek for reappropriation.
23. In the judgment referred to by the High Court in
the impugned judgment, this Court and the Privy
Council consistently have taken a view that in case
of appropriation of amount unless the decree contains
a specific provision, the amounts have to be
appropriated as contemplated under Order 21 Rule 1.
If there is a shortfall in deposit, the amount has to
be adjusted towards interest and costs, then it has
to be adjusted towards principal. The High Court has
-
failed to appreciate this fact and misdirected itself
in observing that these judgments are prior to the
Civil Appeal No. 3056 of 2008 Page 22 of 26
Page 23
23
amendment to Order 21 Rule 1. In our considered view,
as far as this aspect is considered, there is no much
difference in the provisions prior to or subsequent
to the amendment, because in the objects and reasons
for amendment to Order XXI Rule 1, as observed by the
Constitution bench in Gurpreet Singh the legislative
intent in enacting sub-rules (4) and (5) is that
interest should cease on the deposit being made and
notice given or on the amount being tendered outside
the court in the manner provided. The intent of the
rule making authority is to leave no room for any
frivolous pleas of payment of money due under a money
decree.
24. We may add that the High Court proceeded on the
assumption as if sub-rules (4) and (5) of Rule 1,
which were inserted pursuant to Amendment to C.P.C.
in 1976, there is change in procedural law and the
tenor of sub-rule (1) thereof. But, sub-rules (4)
and (5) do not have any relevance with regard to
appropriation, except stating when interest ceases to
-
Civil Appeal No. 3056 of 2008 Page 23 of 26
Page 24
24
run. Thus, it is no way guide for appropriation of
amount as contemplated under Order XXI Rule 1 of the
CPC. In Industrial Credit Development Syndicate
(supra) which is subsequent to the amendment to the
provision, this Court has categorically observed the
procedure to be followed and which squarely applies
to the case, but the High Court has given its own
interpretation to the judgment and failed to consider
the law laid down by this Court in its proper
perspective.
25. The next finding of the High Court is with
regard to interest on interest.
In money suit, the amount consists of principal
and interest till the suit is filed. But, in case of
award passed under the Act, the question of inclusion
of any interest on the decretal amount does not
arise. Unfortunately, the High Court proceeded on the
assumption that it amounts to interest on interest
which is prohibited under Section 3(3)(c) of Interest
Act, 1978 (for short, ‘the Interest Act’). This is
not so, as in the facts and circumstances of the
Civil Appeal No. 3056 of 2008 Page 24 of 26
Page 25
25
present case, the decree passed by the trial Court or
-
the appellate Court does not contain the mode of
appropriation and in the absence of any such
direction, the decree-holder is entitled to
appropriate the amount deposited by the judgment
debtor first towards interest, then cost and
thereafter towards principal.
26. In view of above and more particularly keeping
in view the ratio of the Constitution Bench judgment
in Gurpreet Singh (supra), where considering an
identical question in respect of Order XXI Rule 1 of
the CPC, it was held that if the amount deposited by
the judgment debtor falls short of the decretal
amount, the decree-holder is entitled to apply the
rule of appropriation by appropriating the amount
first towards interest, then towards costs and
subsequently towards principal amount due under the
decree; we are of the opinion that the appellants
herein are entitled to the amount awarded by the
Executing Court, as the amounts deposited by the
judgment debtor fell short of the decretal amount.
After such appropriation, the decree-holder is
entitled to interest only to the extent of unpaid -
principal amount. Hence, interest be calculated on
the unpaid principal amount.
27. We, therefore, allow the appeal, set aside the
impugned judgment dated 29.07.2005 passed by the High
Court and restore that of the Executing Court dated
18.08.2004.
28. No orders as to costs.
.................C.J.I.
(P. SATHASIVAM)
.....................J.
(RANJAN GOGOI)
.....................J.
(N.V. RAMANA)
New Delhi,
April 01, 2014.
Civil Appeal No. 3056 of 2008 Page 26 of 26
No comments:
Post a Comment