M. Raghava Reddiar vs Odur Devarajulu Reddiar

Wadsworth, J.—Defendant in 1931 executed a promissory note for Rs. 1,400 in favour of the plaintiff. This was renewed in June, 1934, for

a sum of Rs. 1,806-14-6. Plaintiff sued on this second promissory note. Two payments were made and endorsed upon it, one of Rs. 100 on 1st

June, 1935 and one of Rs. 940 on 2nd October, 1936. The endorsements do not show any specific appropriation of these payments towards

interest or principal, and the question at issue is how these payments are to be treated in the scaling down of the debt under the provisions of Act

IV of 1938. The two lower Courts have held that the plaintiff appropriated these payments before 1st October, 1937, partly to the complete

discharge of the interest due when the payments were made, and partly to the principal of the suit promissory note. The second appeal was heard

by Wadsworth and Patanjali Sastri, JJ., who have both held that this view is wrong. The learned Judges, however, have differed in another

respect, and in consequence of their difference of opinion the appeal has been heard by me.

The conflicting views are these:

Wadsworth, J., has held that there was no appropriation before 1st October, 1937. The payments must therefore go in reduction of the principal

of Rs. 1,400 which was the amount of the original debt. It is not disputed that if no appropriation was made before that crucial date, the conclusion

is correct.

Patanjali Sastri, J., has held that when the sum of Rs. 940 was paid in 1936, it amounted to considerably more than the interest then due on the

promissory note sued upon. To the extent that the payment exceeded the amount of the interest due it was appropriated by the debtor towards the

principal of that note. The principal of that note consisted of the original principal of Rs. 1,400 and interest on that Rs. 1,400. According to a

decision of Wadsworth, J., in Narasareddi v. Rangareddi (1941) l M.L.J. 216, the appropriation by the debtor to the principal of the renewed

note must be hold to be an appropriation towards the interest on the original principal of Rs. 1,400 so far as that is arithmetically possible. The

amount therefore available to be applied in the scaling'' down to the reduction of the principal of Rs. 1,400 is considerably reduced.

The real question at issue is thus seen to be one essentially of fact. Did the debtor make any appropriation towards the principal of the suit

promissory note, or did he not, at the time he made the payment of Rs. 940? Now what is an appropriation? It is the indication of an intention that

money should be applied in a particular way. How can that intention be proved? The most ordinary way of proving it is by proof of a statement

made either orally or in writing, and such proof is certainly lacking in this case. But that is not the only kind of proof possible. It may be proved by

circumstantial evidence as is recognised in Section 60 of the Indian Contract Act, and in a very important decision of the Privy Council Rama Shah

v. Lalchand (1940) 1 M.L.J. 895 : L.R. 67 IndAp 160 : ILR 21 Lah. 470 (P.C.), which has played a predominant part in the hearing of this

appeal. That decision is concerned primarily with the interpretation of Section 20 of the Limitation Act, but it was necessary for their Lordships to

consider the nature of an appropriation. That they endorse the view that an appropriation may be made in other ways than by explicit statement is

clearly indicated by the following passages:

On page 477: ""There is no room for the contention that the sum of Rs. 100 exceeded the amount of principal or of interest outstanding in respect

of the note at the date of the payment so that part of it at least must of necessity have been intended to go towards interest or towards principal;

On page 481 (referring to a previous case decided by the Privy Council Hetram Bodhraj v. Ayaram Tolaram (1937) 42 C.W.N. 509 (P.C.)), ""the

case also shows, however, that the intention of the debtor may be proved not only by statements made by him at the time of payment but in any

other manner and may clearly appear from the circumstances of the case;"" and

On page 482: ""Of course a payment may be shown to have been intended by the debtor to go, in part at least, towards the reduction of the

principal debt by direct proof or, e.g., by the fact that the amount of the payment exceeded the interest then due.

Now in the present case the defendant paid in 1936, a sum which was greater by several hundreds of rupees than the interest then due. There is

nothing to suggest that he did not know the extent of his indebtedness or the amount of interest due, or that he intended only to pay interest and not

principal. It seems to me in these circumstances that I can and ought to hold that defendant in 1936 did intend to pay off part of the principal of his

debt and indicate that intention by the very act of the payment.

This case would indeed seem to me to present no difficulty at all, but for the fact that in a previous decision Wadsworth and Patanjali Sastri, JJ.,

applied this same judgment of the Privy Council to reach a contrary conclusion and I have now been asked to hold that that previous decision is

binding upon me. The decision in question is Rayam Duraiswamy Aiyangar and Others Vs. M. Raghavachariar, . In that case also a payment was

made considerably in excess of the amount of interest then due. Their Lordships held that there was no actual appropriation by the creditor or

debtor, and therefore the creditor could not be deemed to have made an appropriation favourable to himself. There can be no doubt if I may say

so with respect that this conclusion properly follows from the judgment of the Privy Council in Rama Shah v. Lalchand (1940) 1 M.L.J. 895 : L.R.

67 IndAp 160 : ILR 21 Lah. 470 (P.C.). But the fact that the debtor had made no appropriation was never questioned and indeed was assumed

in that case. Further until the decision in Kallam Narasareddi and Another Vs. Thummuru Ranga Reddi, was given it would probably have served

no practical purpose even to raise the question. The proposition laid down in Rayam Duraiswamy Aiyangar and Others Vs. M. Raghavachariar, is

this, that a ""notional appropriation"" cannot take the place of an ""actual appropriation"". What I have now to decide is not something which conflicts

with that principle of law but whether in the present case there has been an actual appropriation or not. As I have already indicated I agree with the

view of Patanjali Sastri, J., that there has been such an actual appropriation.

In the result the decrees of the Courts below must be modified and the plaintiff be given a decree for the sum of Rs. 766-14-6 with interest at 6

1/4 per cent, from 1st October, 1937. It is agreed by the learned advocates who have appeared before me that this is the correct figure, being

based upon the calculations that on the date of payment of the Rs. 940, the interest due on the renewed promissory note was Rs. 408-2-0 and the

interest due on the original principal of Rs. 1,400 was Rs. 722. Each side will bear his own costs throughout.