P.A. Rajan v. K.S. Chandran and K.C. Madhu

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR. JUSTICE C.PRATHEEP KUMAR** **THURSDAY, THE 11[TH] DAY OF APRIL 2024 / 22ND CHAITHRA, 1946** **RSA NO. 257 OF 2018** **AS NO.198 OF 2008 OF I ADDITIONAL DISTRICT COURT, THRISSUR** **OS NO.461 OF 2004 OF THE PRINCIPAL SUB COURT, THRISSUR APPELLANT/APPELLANT/PLAINTIFF** **P.A.RAJAN, AGED 73 YEARS, S/O. PADUR AYYAPPAN, 'RAVI VIHAR', AYYANTHOLE VILLAGE,THRISSUR TALUK.** **BY ADV SRI.P.V.CHANDRA MOHAN** ## **RESPONDENTS/RESPONDENTS/DEFENDANTS** - **1 K.S. CHANDRAN, S/O. KUNNATH SANKU, AGED 73 YEARS, KUNNATH HOUSE, UDAYA NAGAR ROAD,KAIPPILLY, ARIMPUR, THRISSUR TALUK.** - **2 K.C MADHU, S/O. CHANDRAN, AGED 46 YEARS, KUNNATH HOUSE, UDAYA NAGAR ROAD, KAIPPILLY, ARIMPUR, THRISSUR TALUK.** **BY ADV SRI.T.A.RAJAGOPALAN** **THIS REGULAR SECOND APPEAL HAVING COME UP FOR ADMISSION ON 3.4.2024, THE COURT ON 11.4.2024 DELIVERED THE FOLLOWING:** _RSA 257/2018_ 2 ## **C.PRATHEEP KUMAR, J.** -------------------------------------R.S.A.257 of 2018 ----------------------------Dated : 11[th] April, 2024 ## **JUDGMENT** 1. This Second Appeal has been preferred under Section 100 r/w Order XLII rule 1 of CPC by the appellant in A.S.198/2008 on the file of the 1[st] Additional District Judge, Thrissur, who is the plaintiff in O.S.461/2004 on the file of the Principal Sub Court, Thrissur, against the judgment dated 13.11.2017 dismissing the appeal. For the purpose of convenience, the parties are hereafter referred to as per their rank before the trial Court. 2. The brief facts necessary for the disposal of this Appeal are as follows :- The second defendant is the son of the first defendant. According to the plaintiff, the defendants jointly borrowed a sum of Rs.75,0000/- from him on 18.2.1999 after executing a demand promissory note, promising to repay the amount on demand. On 16.2.2002 the defendants paid a sum of Rs.500/towards interest. However, the principal amount and remaining interest was not repaid, in spite of repeated demands and a registered lawyer notice. According to the defendants, the 1[st] defendant borrowed a sum of Rs.50,000/from the plaintiff on 18.2.1999 and executed an agreement for sale in respect of his property as security for the repayment of the loan amount. Subsequently when the second defendant was in need of a further sum of Rs.25,000/-, the plaintiff insisted for executing a demand promissory note for Rs.75,000/-. He _RSA 257/2018_ 3 had also obtained signed blank stamp papers and signed blank papers from them. They regularly paid interest to the borrowed amount. On 24.12.2001 they repaid Rs.25,000/- and the remaining Rs.50,000/- was repaid on 6.5.2003, through the account of the plaintiff. The plaintiff informed the defendants that he had destroyed the signed blank stamp papers and blank papers given as security and that they are not liable to repay any amount to the defendants. 3. As per the judgment dated 28.2.2008, the trial court directed the defendants to pay an amount of Rs.25,000/- along with interest at the rate of 12% per annum, till the date of suit and thereafter, at the rate of 6% per annum, after crediting Rs.50,000/- paid through the plaintiff's bank account. Since the trial court has not awarded interest for the entire principal amount of Rs.75,000/from the date of the loan, the plaintiff preferred the first appeal. The defendants also filed a cross-objection. As per judgment dated 13.11.2017 the 1[st] Appellate Court dismissed the appeal as well as the cross-objection. Dissatisfied with the above judgment of the 1[st] Appellate Court, the plaintiff preferred the Second Appeal raising various contentions. 4. At the time of admission, after hearing both side, this Court formulated the following substantial question of law for consideration : - _“When a payment is made towards a debt, is not the creditor entitled to adjust that payment towards the interest liability firstly_ _and thereafter towards the principal ?_ 5. Heard both sides. _RSA 257/2018_ 4 6. The trial court as well as the 1[st] Appellate Court found that the defendants borrowed a sum of Rs.75,000/- from the plaintiff on 18.2.1999 after executing Ext.A1 promissory note. Though the defendants pleaded complete discharge, they could prove the repayment of only a sum of Rs.50,000/- on 6.5.2003, in addition another Rs.500/- paid towards interest on 16.2.2002. The plaintiff claimed interest for the loan amount at the rate of 12% per annum from the date of the loan, for Rs.75,000/-. The trial court awarded interest at the rate of 12% per annum only for a sum of Rs.25,000/-, till the date of the suit and thereafter, at the rate of 6% per annum till realization. The prayer for granting interest from the date of the loan on 18.2.1999 till 6.5.2003 ( the date of repayment of Rs.50,000/- ) was denied by the trial court, which led to the First Appeal. 7. In the impugned judgment the 1[st] Appellate Court specifically found that the plaintiff is entitled to get interest at the rate of 12% per annum for Rs.75,000/- from 18.2.1999 to 6.5.2003. It is also stated that from 7.5.2003 plaintiff is entitled to get interest at the rate of 12% per annum till the date of the suit and at the rate of 6% per annum till realization. In paragraph 12 of the impugned judgment it is stated that : _“So from 18.2.1999 to 6.5.2003, the plaintiff is entitled to get interest at the rate of 12% per annum for Rs.75,000/-. From 7.5.2003 plaintiff is entitled to get interest at the rate of 12% per annum till the date of the suit and at the rate of 6% per annum till realization from defendants 1 and 2 jointly and severally_ _RSA 257/2018_ 5 _and their assets.”_ However, in the decretal portion, the 1[st] Appellate Court held that, the appeal as well as the cross-objection are dismissed. The defendants have not filed any cross-objection against the judgment of the 1[st] Appellate Court. 8. Relying upon the decision of the Hon'ble Supreme Court in **Bharat Heavy** **Electricals Ltd. v. R.S.Avtar Singh and Co., AIR 2013 SC 252** , the learned counsel for the plaintiff would argue that the plaintiff has got every right to adjust the part payment effected by the defendants towards interest first and as such the above Rs.50,000/- received is to be adjusted from the interest payable and not from the principal amount. In paragraph 24 of the above decision, the Hon'ble Supreme Court laid down the principles for appropriating the amount paid by the debtor to the creditor, which is extracted below for reference : _“24. From what has been stated in the said decision, the following principles emerge:_ _a) The general rule of appropriation towards a decretal amount was that such an amount was to be adjusted strictly in accordance with the directions contained in the decree and in the absence of such directions adjustments be made firstly towards payment of interest and cost and thereafter towards payment of the principal amount subject, of course, to any agreement between the parties. b) The legislative intent in enacting sub-rules 4 and 5 is clear to the pointer that interest should cease to run on the deposit made_ _RSA 257/2018_ 6 _by the judgment debtor and notice given or on the amount being tendered outside the Court in the manner provided in Order XXI Rule 1 sub-clause (b)._ _c) If the payment made by the judgment debtor falls short of the decreed amount, the decree holder will be entitled to apply the general rule of appropriation by appropriating the amount deposited towards the interest, then towards cost and finally towards the principal amount due under the decree._ _d) Thereafter, no further interest would run on the sum appropriated towards the principal. In other words if a part of the principal amount has been paid along with interest due thereon as on the date of issuance of notice of deposit interest on that part of the principal sum will cease to run thereafter._ _e) In cases where there is a shortfall in deposit of the principal amount, the decree holder would be entitled to adjust interest and cost first and the 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 re-appropriation.”_ 9. The above decision relates to payment made by the debtor towards the amount covered by a decree. In the instant case, the part payment was effected by the defendants before the plaintiff filed the suit. Section 60 of the Contract _RSA 257/2018_ 7 Act states that : ## _**“60. Application of payment where debt to be discharged is not indicated :**_ _“Where the debtor has omitted to intimate, and there are no other circumstances indicating to which debt the payment is to be applied, the creditor may apply it at his discretion to any lawful debt actually due and payable to him from the debtor, whether its recovery is or is not barred by the law in force for the time being as to the limitations of suits.”_ 10. From the above provision it can be seen that if the debtor on payment does not give any instruction to the creditor, it is open to the creditor to apply the amount at his choice, first towards the satisfaction of interest and then towards the discharge of principal amount. In the instant case, the defendants have no case that they have intimated the plaintiff to appropriate the part payment of Rs.50,000/- in any particular manner. In the above circumstances, the plaintiff has the discretion to appropriate the same firstly towards interest due to him. 11. The plaintiff/appellant has specifically contended in ground (K) of the memorandum of appeal that the amount paid by the defendants was appropriated firstly towards interest and then towards interest. Therefore, the part payment of Rs.50,500/- (50,000 + 500) is liable to be appropriated firstly towards interest due to the plaintiff. Since the part payment of Rs.50,000/- was paid to the plaintiff only on 6.5.2003, the plaintiff is entitled to realize interest _RSA 257/2018_ 8 at the rate of 12% per annum for the principal sum of Rs.75,000/- from 18.2.1999 till 6.5.2003, which will come to Rs.37,975. The total amount due as on 6.5.2003 including interest will come to Rs.112,975/-. After adjusting the above Rs.50,500/- the balance amount due to the plaintiff as on 6.5.2003 will come to Rs.62,475/-. For the said amount also the plaintiff is entitled to get interest at the rate of 12% per annum from 7.5.2003 till the date of the suit and thereafter, at the rate of 6% per annum as ordered by the 1[st] Appellate Court. Therefore, the impugned judgment and decree of the 1[st] Appellate Court is liable to be modified accordingly. 12. In the result, this second appeal is allowed as follows : The plaintiff/appellant is allowed to realize a sum of Rs.62,475/-, along with interest at the rate of 12% per annum from 7.5.2003 till the date of the suit on 19.5.2004 and at the rate of 6% per annum thereafter till realization with costs, from defendants/respondents 1 and 2 and their assets. ## **C.Pratheep Kumar, Judge** Mrcs/4.4.2024