2014 (4) TMI 1255 - SC - Indian Laws

Whether the amount deposited by the judgment debtor in a decree is to be adjusted first towards interest or towards principal decretal amount? HELD THAT - The scope of Order XXI Rule 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. 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. We allow the appeal, set aside the impugned judgment passed by the High Court and restore that of the Executing Court dated 18.08.2004 - appeal allowed.

Summary

Issues Involved:
1. Adjustment of deposited amount towards interest or principal.
2. Applicability of Order 21 Rule 1 CPC.
3. Interpretation of sub-rules (4) and (5) of Order 21 Rule 1 CPC.
4. Calculation of interest on the decretal amount.

Detailed Analysis:

1. Adjustment of Deposited Amount Towards Interest or Principal:
The primary issue in this appeal was whether the amount deposited by the judgment debtor should be adjusted first towards interest or towards the principal decretal amount. The Tribunal awarded compensation with interest, and the respondent-Insurance Company deposited certain amounts over time. The appellants claimed additional amounts, arguing that the deposited amounts should first cover interest.

2. Applicability of Order 21 Rule 1 CPC:
The judgment examines the applicability of Order 21 Rule 1 CPC, which outlines the modes of paying money under a decree. The relevant sub-rules (4) and (5) were scrutinized to determine their impact on the cessation of interest upon deposit. The Court noted that these sub-rules do not explicitly address the appropriation of deposited amounts towards principal or interest.

3. Interpretation of Sub-rules (4) and (5) of Order 21 Rule 1 CPC:
The High Court's interpretation that sub-rules (4) and (5) of Order 21 Rule 1 CPC implied a change in the procedural law regarding appropriation was challenged. The Supreme Court clarified that these sub-rules merely indicate when interest ceases to run and do not alter the established principle that deposited amounts should first be appropriated towards interest and costs, then towards the principal.

4. Calculation of Interest on the Decretal Amount:
The Court reaffirmed the principle that in the absence of specific directions in the decree, the deposited amounts should be appropriated first towards interest and costs, and then towards the principal. This principle was supported by precedents, including the Constitution Bench judgment in Gurpreet Singh v. Union of India, which emphasized that if the amount deposited by the judgment debtor falls short of the decretal amount, the decree-holder can appropriate the amount first towards interest, then costs, and finally towards the principal.

Conclusion:
The Supreme Court allowed the appeal, setting aside the High Court's judgment and restoring the Executing Court's order. The Court held that the appellants were entitled to the amount awarded by the Executing Court, as the amounts deposited by the judgment debtor fell short of the decretal amount. Consequently, the decree-holder was entitled to appropriate the amounts first towards interest, then costs, and finally towards the principal. Interest was to be calculated on the unpaid principal amount. No orders were made as to costs.