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PETITIONER: MEGHRAJ & ORS.

       Vs.

RESPONDENT: MST.  BAYABAI & ORS.

DATE OF JUDGMENT: 30/04/1969

BENCH: SHAH, J.C. BENCH: SHAH, J.C. MITTER, G.K.

CITATION:  1970 AIR  161            1970 SCR  (1) 523  1969 SCC  (2) 274

ACT: Mortgage-Money deposited in Court towards principal,  effect of--Interest-Some  mortgagee  Firm’s  Partners  migrated  to Pakistan-Custodian of Evacuee Property impleaded-Effect of. Madhya  Pradesh Money Lenders Act (Madh.  Pra. 13 of  1934), s. 9--lnterest whether can exceed principal.

HEADNOTE: A preliminary decree was obtained by the mortgagee-firm  for recovery of the principal, interest at 3% and costs by  gale of the mortgaged property.  The High Court in affirming  the decree, directed payment of the decretal amount by  November 10, 1946, and awarded interest at 3 % from the date of  suit to  August  11, 1941 and thereafter at 4% till the  date  of satisfaction.   In an application for clarification  of  the order  the High Court directed that interest be paid  at  3% from  October  5, 1936 till August 11, 1941  on  the  amount decreed  by  the  trial court and at  4  %  thereafter  till November 10, 1946.  During the pendency of an appeal by  the mortgagor  against  the  preliminary  decree  some  of   the partners  of  the mortgagee-firm migrated to  Pakistan,  and were   declared  evacuees.   The  court  ordered  that   the Custodian  of  Evacuee  Property be  impleaded  as  a  party respondent  in the appeal.  The appeal filed in  this  Court was dismissed. Thereafter  the only partner of the mortgagee-firm  who  had not  migrated,  for  himself and as agent  of  the  evacuees applied  for a decree absolute for sale.  The  Custodian  of Evacuee  Property resisted the application.  Ultimately  the High Court ordered that the Custodian of Evacuee Property be joined as a party to the application for decree absolute for sale, observing that the respective rights of the  Custodian of  Evacuee Property and the partners of the mortgagee  firm were  not  decided  in  that  proceeding.   The,  mortgagors contested  the application, contending that (i)  on,  proper accounting nothing was due against them since they had  made deposits  towards  the  principal in the Court 0.  21  r.  1 C.P.C. as and in making some deposits they had informed  the court  that  the payments were made, towards  the  principal due; (ii) the High Court by its order clarifying the  decree restored  the  rate of interest awarded by the  trial  court

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after  November 10, 1946; (iii) the mortgagee could  not  be awarded  as  interest  an amount  exceeding  the  principal, because  of  s. 9 of the Madhya Pradesh Money  Lenders  Act, 1934; and (iv) the Custodian of the Evacuee Property was not entitled to the decree absolute for sale, and that the  only partner,  who had not migrated, could get a decree  absolute in respect only of his share.  Rejecting these  contentions, this Court :- HELD  :  (i) Unless the mortgagees were  informed  that  the mortgagors  had  deposited  the  amount  only  towards   the principal  -and  not towards interest,  and  the  mortgagees agreed  to withdraw the money from the court  accepting  the conditional  deposit, the normal rule that the  amounts  de- posited   in   court  should  first   be   applied   towards satisfaction  of  the  interest  and  costs  and  thereafter towards the principal applied.  There was no 524 evidence  in  this case, that the mortgagees  were  informed that  the money was deposited towards principal or that  the mortgagees accepted the pay.meat made towards the principal. [526 C-D] Venkatadri Appa Row and Ors. v. Parthasarathi Appa Row, L.R. 47 I.A. 150, referred to. (ii) By  directing that interest at 4% from August 12,  1941 to November 10, 1946, it was not, and could not be, intended by the High Court that interest after November 10, 1946  was to  be awarded only at the rate of 3%.  No such  application was made by the debtors.  The High Court did riot reduce the rate of interest after November 10, 1946. (iii)     Section 9 of the Madhya Pradesh Money Lenders  Act prohibited  the courts from awarding interest exceeding  the principal of the’ loan.  But the prohibition of the  statute was  against the making of a decree for arrears of  interest exceeding  the  amount  of loan.  In the  present  case  the decree  awarded interest much less than the principal.  [529 B] (iv) The  court was concerned in the present  proceeding  to pass a decree absolute for sale in a mortgage suit.  It  was not  concerned  to determine the respective  rights  of  the mortgagees  inter  se.  The mortgagees’ interest  was  fully represented before the Court.  Whether or not the  Custodian of  Evacuee Property was entitled to the money or  that  the evacuees had a subsisting interest was a matter which  could not  be decided in this appeal.  That was made clear by  the judgment  of the High Court in the application filed by  the Custodian of Evacuee Property. [529 D]

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeal No. 608 of 1966. Appeal  by special leave from the order dated  November  30, 1964 of the Bombay High Court, Nagpur Bench in First  Appeal No. 90 of 1964. G.   L. Sanghi and J. B. Dadachanji, for the appellants. W.   S.  Barlingay  R.  Mahalingier  and  Ganpat  Rai,   for respondent No. 6. B.  D.  Sharma and S. P. Nayar, for respondent No.  11.  The Judgment of the Court was delivered by Shah, J. Seth Haroon and Sons a firm had ten partners.   The Hindu  undivided  family of Jethamal  Ramkaran  mortgaged  a house  belonging  to it to Seth Haroon and  Sons  to  secure repayment of Rs. 40,000 due at the foot of an account.  Seth Haroon and Sons filed suit No. 12-A of 1936 for recovery  of their dues by sale of the mortgaged house.  On December  28,

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1940,  a  decree was passed in the suit  by  the  Additional District Judge.  The case was carried in appeal to the  High Court of Nagpur.  But the appeal was dismissed subject to  a slight modification to be presently noticed.  An appeal  was carried  against  the  decree to  this  Court.   During  the pendency  of  the  appeal to this Court,  nine  out  of  ten members of Seth Haroon and Sons migrated to 525 Pakistan and were declared evacuees.  By an order passed  by this  Court  on  March 28, 1958, the  Custodian  of  Evacuee Property  was impleaded as a party respondent in the  appeal filed by the mortgagors.  This Court dismissed the appeal on August  8,  1958.   Thereafter the  6th  plaintiff  Mohammad Ayyub-the only member of the firm who had not migrated,  for himself  and as agent of the evacuees under a general  power of  attorney  applied for a decree absolute for  sale.   The Custodian of Evacuee Property resisted the application filed by  Mohammad Ayyub.  Ultimately by the order passed  by  the High  Court of Bombay the Custodian of Evacuee Property  was joined as a party to the application.   The  Court   however observed that the respective rights of the   Custodian    of Evacuee Property and the partners of Seth Haroon  and   Sons were not decided in that proceeding. Diverse contentions were raised by the mortgagors; they con- tended,  inter  alia  that on  proper  account  being  taken nothing  was due by them on the mortgage, that interest  was wrongly  calculated at the rate of 4% per annum..  that  the claim for recovery costs was barred by the law of limitation and  that  interest  could not be  awarded  on  costs.   The learned  Trial Judge substantially rejected the  contentions raised by the mortgagors and passed a decree for Rs. 34,612- 8 1 being the aggregate of Rs. 3 3,8 66-51 as principal  and Rs. 746-30 as interest.  An appeal filed against that  order was  summarily  dismissed by the High Court.   With  special leave, this appeal is preferred by the mortgagors. Counsel  for  the  mortgagors contended  that  on  a  proper account  of the monies paid by them in satisfaction  of  the dues under the mortgage decree, this mortgage was  satisfied and  the mortgagees were overpaid.  Counsel  contended  that from time to time payments were made by the mortgagors  with specific  directions  that  the  amounts  paid  were  to  be credited towards the principal and not towards interest  and if  the amounts so paid were in the first instance  credited towards  the principal, it would be found that the  mortgage dues  had  been  overpaid.  Now,  the  learned  Trial  Judge observed  that Exts. 44 to 55 relied upon by the  mortgagors were  silent as to any specific directions that the  amounts paid  in  Court  were to be appropriated  only  towards  the principal.   Counsel  for  the  appellant  has  invited  our attention  to  certain  applications made at  the;  time  of making  deposits in Court, in which it was recited that  the amounts were being deposited towards the principal.  Relying upon these recitals it was urged that the Trial Court was in error   in  holding  that  there  were  no  directions   for appropriation  of payments towards the principal.   We  have not  thought it necessary to ascertain the total  number  of applications  in which recitals were made by the  mortgagors at  the time of making part payments towards the  principal, because on 526 the  view  we  take, these recitals, without  more,  do  not assist the claim of the mortgagors. Under the preliminary decree an amount of Rs. 42,430-2-6 was declared  due  upto  June 23,  1941  towards  principal  and interest.  The mortgagors made no payments under the  decree

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directly  to  the mortgagees.  But from time  to  time  they claim to have made deposits in the Court under 0. 21 r. 1 of the  Code of Civil Procedure, and in depositing some of  the amounts  they  stated  that the payments  were  towards  the principal due.  But there is no evidence on the record  that the mortgagees were informed that the amounts were deposited towards  the principal due, nor is there evidence  that  the mortgagees accepted the amounts towards the, principal.  For quite a long time the mortgagees did not withdraw the amount lying  in Court.  Unless the mortgagees were  informed  that the  mortgagors  had deposited the amount only  towards  the principal  and not towards the interest, and the  mortgagees agreed  to withdraw the money from the Court  accepting  the conditional  deposit,  the  normal  rule  that  the  amounts deposited   in  Court  should  first  be   applied   towards satisfaction  of  the  interest  and  costs  and  thereafter towards the principal would apply. In  Venkatadri  Appa Row and Others  v.  Parthasarathi  Appa Row(1) the Judicial Comnittee of the Privy Council  observed that  upon taking an account of principal and interest  due, the  ordinary  rule with regard to payments  by  the  debtor unappropriated either to principal or interest is that  they are first to be applied to the discharge of interest.   Lord Buchmaster delivering the judgment of the Board observed               "There  is a debt due that  carries  interest.               There  are moneys that are received without  a               definite appropriation on the one, side or  on               the   other,  and  the  rule  which  is   well               established in ordinary cases is that in those               circumstances  the money is first  applied  in               payment  of  interest and then  when  that  is               satisfied  in  payment of the  capital.   That               rule  is referred to by Rigby, L. J., in  the,               case  of Parr’s Barking Co. v.  Yates-[1898  2               O.B.  460] in these words :  "The  defendant’s               counsel  relied on the old rule that does,  no               doubt,  apply  to many  cases,  namely,  that,               where both principal and interest are due, the               sums paid on account must be applied first  to               interest.  That rule, where it is  applicable,               is  only  common justice.  To apply  the  sums               paid  to principal where interest has  accrued               upon  the  debt,  and is not  paid,  would  be               depriving the creditor of the benefit to which               he is entitled under his contract." (1)  L.R. 47 I.A. 150. 527  Counsel for the appellant contended that in Venkatadri Appa      Row’s(1)  case there was no specific  appropriation  by the  debtor, whereas in the present case there  is  specific direction by the debtor.  But the normal rule is that in the case  of  a debt due with interest any payment made  by  the debtor  is  in  the first instance  to  be  applied  towards satisfaction  of interest and thereafter to  the  principal. It  was for the mortgagors to plead and prove an  agreement- that  the  amounts  which were deposited  in  Court  by  the mortgagors  were  accepted by the mortgagees  subject  to  a condition  imposed by the mortgagors.  In the  present  case there is no evidence which supports the contention raised by counsel for the appellant. Counsel  urged that, in any event, when an account  was finally  submitted by the mortgagees they were aware of  the fact  that certain amounts were paid in Court and they  knew that  those  amounts were paid conditionally  and  when  the mortgagees withdrew the amounts deposited in Court they must

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be  deemed to have accepted the conditions subject to  which the amounts were deposited. But the account submitted by the mortgagees shows clearly that they had given credit for  the amounts  deposited  towards the interest and  costs  in  the first instance and the balance only towards theprincipal. The  account submitted by the mortgagees  clearly  negatives the plea of the mortgagors. An  argument somewhat faintly suggested before us  that it isthe  privilege of the debtor to impose  conditions subject to which any payment is to be made by the mortgagor, and the mortgagee is bound to accept the, condition needs no serious consideration. It  was  next urged that the decree was passed  by  the Trial  Court awarding interest at the rate of 3%  per  annum and the order  of the High Court in appeal  modifying  the original  decree by awarding interest at the rate of 4%  was erroneous. Under the decree of the Trial Court interest  was awarded  at 3%. In appeal interest was awarded by  the  High Court at 4%. There after by a modification in an application for correction of thedecree  interest at 4 %  per  annum was  awarded from August 12, 1941 to November 10,  1946.  It was urged, relying upon theorder  modifying the  rate  of interest,  that from November 11, 1946 the  mortgagees  were entitled only to interest at the rate of3%. There is no substance  in that contention also. The High Court by  order dated August 10, 1946, observed :               "A preliminary decree for sale shall be  drawn               accordingly    and   the    defendants    (the               appellants)  are given three months time  from               today to pay off the decretal amount.      The               amount shall carry interest at               (1)   L.R. 47 I.A. 150.               528               the  rate  of 3 % per annum from the  date  of               suit to 11-8-1941    and at the rate of 4% per               annum from  12-8-1941     to   the   date   of               satisfaction." Apparently the decree  drawn up by the.  High Court was  not consistent with the directions given in the judgment, and an application  was  made to rectify certain  mistakes  in  the decree.   One  of  the  grounds  urged  in  support  of  the application was that interest should have been computed only on  the principal out of the total of Rs.  35,299-1-6.   The Court rejected the application holding that the Trial  Court had  decreed the claim of the mortgagees and  that  interest was  payable  on  Rs.  35,299-1-6 and  the  High  Court  had confirmed  the  decree  holding  that  the  amount  of   Rs. 35,299-1-6 ",as principal.  The High Court observed that  it was  not  relevant  to consider whether  that  decision  was right,  because  there  was no  application  for  review  of judgment.   They  then  directed  that  "the  interest  will accordingly  be  -calculated on Rs. 35,299-1-6  at  3%  from October  5, 1936 till August 11, 1941 and at 4% from  August 12,  1941  till  November  10,  1946.   This  Comes  to  Rs. 50,810-4-6.   The  decree  will  be  amended   accordingly." Relying  upon  this direction, counsel  for  the  appellants contended that the High Court by order dated March 31, 1947, restored for the period after November 10, 1946, the rate of interest  as  originally  awarded  by  the  Court  of  First Instance.   We  are  unable to hold that  the  direction  is capable of that interpretation.  By directing that  interest at the rate of 4% from August 12, 1941 to November 10, 1946. shall be calculated on Rs. 35,299-1-6, it was not, and could not be, intended by the High Court  that     interest after November  10, 1946, was to be awarded only at the rate of  3

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%.   No   such   application  was  made  by   the   debtors. It was apparently   contended that the amount of Rs. 35,299- 1-6  as  claimed  by the plaintiffs  in  the  original  suit included  interest,  and interest could be computed  on  the amount which formed the principal.  The High Court, in  view of the decree passed by the Trial Court and confirmed by  it declined  to enter into that controversy and  indicated  the manner  in which the interest was to be  calculated  between October  5, 1936 and November 10, 1946.  The High Court  did not  reduce  the  rate  of interest  for  the  period  after November  10,  1946, i.e. the date fixed for  redemption  of mortgage under the decree of the High Court. Counsel then urged that in any event the mortgagees are  not entitled  to interest exceeding the principal.  Reliance  in this  connection  was placed upon the Madhya  Pradesh  Money Lenders Act 13 of 1934.  Section 9 of that Act provides :               "Notwithstanding  anything  contained  in  any               other  enactment for the time being in  force,               no  court original or appellate shall  decree,               in respect of any loan made                529               before  this Act comes into force, on  account               of arrears of interest, a sum greater than               the principal of such loan." The  section  prohibits the Courts  from  awarding  interest exceeding  the  principal  of the  loan.   Counsel  for  the appellants  contends that if all the amounts deposited  from time  to time by the debtors be aggregated, it  will  appear that  an  amount  exceeding  the loan  was  paid.   But  the prohibition of the statute is against the making of a decree for  arrears of interest exceeding the amount of  loan.   In the present case the decree awards interest amounting to Rs. 746-30, whereas the principal is Rs. 33,866-51. Finally, it was contended that the Custodian of Evacuee Pro- perty  is not entitled to claim a decree absolute for  sale, and only Mohammad Ayyub--one of the partners in the firm  of Seth Haroon and Sons-may alone be given a decree absolute in respect of his share.  That contention is futile.  The Court is  concerned  at this stage to pass a decree  absolute  for sale  in a mortgage suit.  It is not concerned to  determine the  respective  rights  of the mortgagees  inter  se.   The mortgagees’ interest is fully represented before the  Court. Whether or not the Custodian of Evacuee Property is entitled to the money or that the evacuees have a subsisting interest is  a matter which cannot be decided in this  appeal.   That was  made  clear by the judgment of the High  Court  in  the application  filed by the Custodian of Evacuee  Property  by order dated November 12, 1962, when the High Court observed               "Time  has  not  come yet  to  determine  this               question and it is not necessary at this stage               to  decide what are the respective  rights  of               the  evacuees in the property which is  before               the Court as between the evacueeplaintiffs and               the Custodian."               The appeal fails and is dismissed with costs. Y. P.                               Appeal dismissed. 530