The Maha Laxmi Handloom Production Cooperative Industrial Society Limited vs The State of Haryana and Others

T.H.B. Chalapathi, J.—This writ petition is filed to quash the award dated July 26, 1976 as confirmed by the Joint Secretary, Haryana, Chandigarh.

The petitioner-Society is a member of the Karnal Central Co-operative Bank Limited, Karnal. The petitioner had obtained a loan of Rs. 50,000/- from the Central Co-operative Bank on June 20, 1972. As a temporary default in payment of loan, a dispute was raised and it was referred to the Arbitrator, who by his award dated July 26, 1976, directed the petitioner to pay the principal amount of Rs. 71,578-42 and costs of Rs. 10,736.70 vide Annexure P-3. Against this order, the petitioner had filed an appeal which was also dismissed. Hence the petitioner society have filed the above writ petition.

The learned counsel for the petitioner-society and for the Karnal Central Co-operative Bank agreed before me that the balance outstanding as on March 31, 1973 was Rs. 51,142.49 and whatever be that award, the society is liable to pay simple interest at the rate of 11-1/2% per annum. After 1973, when the petitioner society made certain payments on 21.5.1979, 14.4.1981, 22.4.1982, 29.6.1982, 9.10.1982, 2.6.1983 and 5.7.1983 the Co-operative bank Karnal adjusted these payments firstly towards interest and the balance if any remained, was adjusted towards the principal amount. By such a calculation the principal amount remained unpaid came to Rs. 20,483.89 as on July 5, 1983. But according to the petitioner society, the payment made by the society on different dates as indicated above should be appropriated towards the principal amount and not towards any interest and if such a appropriation was made there should be no the liability of the petitioner society. The learned counsel for the Bank contended that under law the payment made by the petitioner society had to be appropriated towards the interest amount and, therefore, the method adopted by the Bank in appropriating the payment towards interest is right. The Supreme Court in Meghraj and Others Vs. Mst. Bayabai and Others, held that the normal rule in the case of a debt due with interest is that any payment made by the debtor is in the first instance to be applied towards satisfaction of interest and thereafter to the principal. The Supreme Court also approved the decision of the privy council in Venkatadri Appa Row v. Parthasarathi Appa Row AIR 1922 PC 233 wherein it was observed as follows:-

"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.....v. Yates 1898(2) QB 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 occurred upon the debt, and is not paid, would be depriving the creditor of the benefits to which he is entitled under his contract......."

Thus, it is open to the debtor while making payment to indicate that the payment should be appropriated towards either principal or interest. It is not the case of the petitioner society that any intimation was given to the Central Co-operative Bank how the payment has to be appropriated for adjusting the debt. It is not shown that any direction was given to the same that any payment made by the society should first go towards the discharge of the principal amount. Therefore, the Central Co-operative Bank is right in applying the payment towards the interest and the balance, if any remained, towards the principal amount. Therefore, the appropriation of the amounts paid on 21.5.1979, 14.4.1981, 22.4.1982, 29.6.1982, 9.10.1982, 2.6.1983 and 5.7.1983 made by the Bank are valid and legal. Thus, the statement filed by the Bank in the Court showing the balance of the amount due from the petitioner society as on July 5, 1983 as Rs. 20,483.89 towards principal and Rs. 2,000/- as costs is valid in law and that should form the basis for calculating the amount payable by the co-operative society to the Central Co-operative Bank. The learned counsel for the petitioner brought to my notice that an amount of Rs. 5,000/- was paid by way of demand draft dated 18.10.1983 and also an amount of Rs. 3,951/- was paid in cash on 15.11.1983. The learned counsel filed the receipts showing the said payments. He further contended that an amount of Rs. 3,500/- was paid on 21.12.1983 and a sum of Rs. 10,200/- was paid on 12.12.1983. If the bank received these amounts they should also be given credit too. The Central Co-operative Bank is, therefore, directed to calculate the simple interest at the rate of 11 1/2% on the Principal amount from 5.7.1983 till the date of payment made by the petitioner and deduct the said amount towards interest and the balance of the amount towards the principal amount and arrive at the amount outstanding to the bank as on 1.6.1995. The petitioner shall pay the said amount within one month, i.e. by 1.7.1995 failing which the Bank will be at liberty to recover the said amount so arrived at from the petitioner society. The Bank shall furnish the statement of the amount to the petitioner society by 1.7.1995. The petitioner society shall depute its representative to the Bank for getting calculation memos showing the outstanding amount. The bank is hereby directed to furnish the statement of the amount to the petitioner society on that day without fail. If there is any dispute in the statement of account, it is open to the petitioner - society to approach this Court on 12.6.1995. Copy of this order be given Dasti.