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TMI Blog2006 (10) TMI 493X X X X Extracts X X X X X X X X Extracts X X X X ..... compensation is determined u/s 23(1), its quantification, though made at different levels, the liability to pay interest thereon arises from the date on which the quantification was so made but, as stated earlier, it relates back to the date of taking possession of the land till the date of deposit of interest on such excess compensation into the court. The liability to pay interest is only on the excess amount of compensation determined u/s 23(1) and not on the amount already determined by the Land Acquisition Officer under Section 11 and paid to the party or deposited into the Court or determined u/s 26 or Section 54 and deposited into the court or on solatium u/s 23(2) and additional amount u/s 23(1-A). Though, a decree holder may have the right to appropriate the payments made by the judgment-debtor, it could only be as provided in the decree - if there is provision in that behalf in the decree or, as contemplated by Order XXI Rule 1 of the Code as explained by us. The Code or the general rules do not contemplate payment of further interest by a judgment debtor on the portion of the principal he has already paid. His obligation is only to pay interest on he balance principal r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aking the deposit intimating the decree-holder of his intention. We, thus, approve the ratio of Prem Nath Kapur (supra) on the aspect of appropriation. It is well settled that an execution court cannot go behind the decree. If, therefore, the claim for interest on solatium had been made and the same has been negatived either expressly or by necessary implication by the judgment or decree of the reference court or of the appellate court, the execution court will have necessarily to reject the claim for interest on solatium based on Sunder [ 2001 (9) TMI 1121 - SUPREME COURT] on the ground that the execution court cannot go behind the decree. But if the award of the reference court or that of the appellate court does not specifically refer to the question of interest on solatium or in cases where claim had not been made and rejected either expressly or impliedly by the reference court or the appellate court, and merely interest on compensation is awarded, then it would be open to the execution court to apply the ratio of Sunder (supra) and say that the compensation awarded includes solatium and in such an event interest on the amount could be directed to be deposited in execution. Ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 54 of the Act over and above the amount awarded under Section 11 of the Act. It was also held that the normal rule of appropriation contained in Order XXI Rule 1 of the Code of Civil Procedure relating to execution of decrees for recovery of money, stands excluded by Sections 28 and 34 of the Act and the principles of Order XXI Rule 1 of the Code could not be extended to execution of award decrees under the Act. The view as regards the content of the expression 'compensation' occurring in Section 23(1) and Section 28 of the Act was overruled by a Constitution Bench in Sunder v. Union of India (2001) Suppl. 3 SCR 176, wherein it was held that the expression 'compensation' awarded would include not only the total sum arrived at as per Section 23(1) but also the sums under the remaining sub-sections of Section 23. Thus, one part of the decision in Prem Nath Kapur (supra) stood overruled, though the Constitution Bench did not say anything about the other aspect dealt with therein, namely, the mode of appropriation of the amount due under an award decree. When these cases came up before a bench of three Judges, this aspect was noticed. The learned Judges felt th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iii) If a debtor makes a payment to a creditor and does not specify which debt the payment is in settlement of, the creditor may appropriate it to any of the debts outstanding on the debtor's account. This is often known as appropriation of payments. (See P. Ramanatha Aiyar Advanced Law Lexicon, 3rd Edition, 2005 page 315) 5. We are concerned with the last of the specialized meanings assigned to the term. 6. The question in the sense in which we are concerned with it, arises when a debtor makes a payment which does not satisfy the full debt or, in other words, remains a part-payment. The general rule of appropriation is set out in Halsbury's Laws of England, Fourth Edition, thus, "Where several distinct debts are owing by a debtor to his creditor, the debtor has the right when he makes a payment to appropriate the money to any of the debts that he pleases, and the creditor is bound if he takes the money, to apply it in the manner directed by the debtor. If the debtor does not make any appropriation at the time when he makes the payment, the right of appropriation devolves on the creditor. An appropriation by the debtor need not be made in express terms, but must ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... takes the money, to apply it in the manner directed by the debtor. If the debtor does not make any appropriation at the time when he makes the payment, the right of appropriation devolves on the creditor." 8. The Rule of Appropriation as applied in India was summed up by Mr. Justice T.L. Venkatarama Aiyar (as he then was) in the Full Bench decision of the Madras High Court in Marimella Suryanarayana v. Venkataraman Rao AIR1953Mad458 . His Lordship stated: "The principles governing appropriation of payments made by a debtor are under the general law well settled. When a debtor makes a payment, he has a right to have it appropriated in such manner as he decides and if the creditor accepts the payment, he is bound to make the appropriation in accordance with the directions of the debtor. This is what is known in England as the rule in 'Clayton's case" (1861) 1 Mar.572: 35E.R. 781 and it is embodied in Section 59, Contract Act. But when the debtor has not himself made any appropriation, the right devolves on the creditor who can exercise it at any time, vide Cory Bros. & Co. v. Owners of the Turkish Steamship Mecca (1897) A.C. 286 ; and even at the time of the trial : V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manner provided, or (c) otherwise, as the court which made the decree directs. Sub-Rule (2) provides that where a payment is made by deposit into the court or as directed in the decree, the judgment debtor shall give notice thereof to the decree holder either through the court or directly to him by registered post acknowledgement due. On any amount paid by way of deposit into the court or as directed under the decree, interest, if any, shall cease to run from the date of the service of the notice referred to in Sub-rule (2). Thus, Order XXI Rule 1 after its amendment in the year 1976 also contemplates the deposit of the decree amount into court and the giving of notice thereof to the decree holder and provides further for cessation of interest from the date of notice to the decree holder of such deposit. 12. Even before the amendment to the Code, in the year 1976, the view had been taken that the indication given by Rule 3 of Order XXIV of the Code providing for cessation of the running of interest on notice of the deposit being given pending a suit, can be extended to execution of decrees. In Mt. Amtul Habib v. Mohammad Yusuf ILR All 125, it was held that where money was paid int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt in a suit, and that in this view the decisions of the courts below were correct and should be affirmed." The same view was taken by the Patna High Court in Gopalje v. Summit Mandar. After referring with approval to the view expressed in the above Allahabad case, their Lordships held that the above decision clearly implied that even if a portion of the decretal amount was paid, it would be a valid payment. In Varki Ouseph v. Narayanan Parameswara Panicker AIR 1956 Tra C 46 a Division Bench of the Travancore -Cochin High Court after referring to the decisions of the Allahabad and Patna High Courts, referred to above, and the relevant portions of the commentaries from Mulla on the Code of Civil Procedure, held that in the case of a decree which awards interest on the principal, interest ceases to run on the amount deposited in the court under Order XXI, Rule 1(a) from the date the decree holder has notice of the deposit. In Mulla's commentary on the Code of Civil Procedure 15th Edition Vol. III dealing with Rule 3 of Order XXIV it is stated: "the principle of this rule applies to proceedings in execution; therefore, if money is paid into Court by a judgment- debtor, no inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppa Row's case (supra) 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." 14. In Industrial Credit & Development Syndicate Now Called I.C.D.S. Ltd. v. Smithaben H. Patel (Smt.) and Ors.: [1999]1SCR555, this Court considered the question whether Sections 59 to 61 of the Contract Act would apply to a debt that has merged in a decree. This Court held that Sections 59 and 60 of the Contract Act would be applicable only at pre-decrial stage and not thereafter, since post decretal payments are to be made either in terms of the decree or in terms of the agreement arrived at between the parties, though on the general principle as mentioned Sections 59 and 60 of the Contract Act. It was also held that the general ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e property had been sold in execution of a mortgage decree and the question was about the appropriation of the sale proceeds brought to court. The question was referred to the Full Bench in view of the conflict of decisions in that Court on the mode of appropriation. The Full Bench held that Sections 59 to 61 of the Contract Act embody the general rules as to appropriation of payments in cases where a debtor owes several distinct debts to one person and voluntarily makes payment to him. The Sections do not deal with cases in which principal and interest are due on a single debt, or where a decree has been passed on such a debt, carrying interest on the sum adjudged to be due under the decree. After thus finding that Sections 59 to 61 of the Contract Act had no application, the Full Bench proceeded to hold that the general rule of appropriation of payments towards a debt was that in the absence of a specific indication to the contrary by the debtor, the money is first applied in payment of the interest and then when that is satisfied, in payment of the capital. That principle applied even to the sale proceeds of the properties sold in execution of a mortgage decree. Therefore, in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll cease to run from the date on which the money was tendered to him, or where he avoids acceptance of the postal money order or payment through bank, interest shall cease to run from the date on which the money would have been tendered to him in the ordinary course of business of the postal authorities or the bank, as the case may be. 18. These sub-rules are seen to be consistent with the scheme of Order XXIV of the Code dealing with payment into court pending the suit, especially Rule 3 thereof, which provides that, no interest shall be allowed to the plaintiff on any sum deposited by the defendant from the date of notice of the deposit, whether the sum deposited was in full of the claim or falls short of it. 19. In the objects and reasons for amendment of Order XXI Rule 1, it was set out as follows: "The Committee note that there is no provision in the Code in relation to cessation of interest on the money paid under a decree, out of Court, to a decree- holder, by postal money order or through a bank or by any other mode wherein payment is evidenced in writing. The Committee are of the view that, in such a case, the interest should cease to run from the date of such payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decree holder is not satisfied with the decree of the trial court. He goes up in appeal and the appellate court enhances the decree amount to ₹ 10,000/- with interest and costs. The rule in terms of Order XXI Rule 1, as it now stands, in the background of Order XXIV would clearly be, that the further obligation of the judgment debtor is only to deposit the additional amount of ₹ 5,000/- decreed by the appellate court with interest thereon from the date the interest is held due and the costs of the appeal. The decree holder would not be entitled to say that he can get further interest even on the sum of ₹ 5,000/- decreed by the trial court and deposited by the judgment debtor even before the enhancement of the amount by the appellate court or that he can re-open the transaction and make a re-appropriation of interest first on ₹ 10,000/-, costs and then the principal and claim interest on the whole of the balance sum again. Certainly, at both stages, if there is short-fall in deposit, the decree holder may be entitled to apply the deposit first towards interest, then towards costs and the balance towards the principal. But that is different from saying that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e enhanced amount, the costs, if any, awarded and the balance towards the land value, solatium and the payment under Sections 23(1A) of the Act and if, there is a shortfall, claim that part of the compensation with interest thereon as provided in Section 28 of the Act and as covered by the award decree. Once the sum enhanced by the reference court, along with the interest is deposited by the State, there will be no occasion for the claimant/awarded to seek a reopening of the amount awarded by the Collector, substituted by the amount awarded by the reference court and seek to have a re- appropriation of the amount towards what is due. Same would be the position in a case where the amount awarded by the reference court, including the interest is deposited, but the amount is further enhanced in appeal by the High Court. Again, the same principle would apply. The principle would continue to apply when the Supreme Court awards further enhancement in a further appeal to that Court. But if after the award by the reference court the amount is not deposited by the State, interest would run on the compensation in terms of Section 28 of the Act on that amount as provided in Section 28. The sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he compensation or any part thereof is not paid within a period of one year from the date on which possession is taken, interest is payable at the rate of fifteen per cent per annum from the date of expiry of the said period of one year on the amount of compensation or part thereof which has not been paid or deposited before the date of such expiry. It is relevant to notice that on payment of the amounts thus due, the award made by the Collector stands satisfied. 24. A person interested, who is not satisfied with the amount of compensation awarded by the Collector is entitled to receive the amount under protest and could apply to the Collector requiring him to refer the matter to the Court in terms of Section 18 of the Act. The Collector is then to make a statement to the Court and the Court is entitled to fix the compensation subject to Section 25 of the Act which provides that the amount of compensation awarded by the Court shall not be less than the amount awarded by the Collector under Section 11 of the Act. In fixing the compensation, the Court shall have regard to the matters referred to in Sections 23 and 24 of the Act. Under Section 26, every award shall be deemed to be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 54 of the Act on the excess, if any awarded by the High Court or in subsequent appeal by the Supreme Court. But when in an appeal under Section 54 of the Act, the appellate court further enhances the compensation, it awards the compensation that the reference court ought to have awarded and so understood, Section 28 of the Act may be applied at the appellate stage. If the expression 'Court' used in Section 28 of the Act is understood in the generic sense, (on the basis that the context otherwise requires it), the result would be the same. The other provision relevant to be noted is Section 53 of the Act which makes the Code of Civil Procedure applicable to all proceedings before the Court under the Act save in so far as the provisions of the Code are found to be inconsistent with anything contained in the Act. Section 54 also does not keep out the Code, but makes the appeal under it subject to the provisions of the Code applicable to appeals from original decrees. 26. On the scheme of the Act, it is seen that the award of compensation is at different stages. The first stage occurs when the award is passed. Obviously, the award takes in all the amounts contemplated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to point out that such a blanket re-opening of the transaction is not warranted even in respect of a money decree. Section 28 of the Act indicates that the award of interest is confined to the excess compensation awarded and it is to be paid from the date of dispossession. This is in consonance with the position that a fresh re-appropriation is not contemplated or warranted by the scheme of the Act. But if there is any shortfall at any stage, the claimant or decree holder can seek to apply the rule of appropriation in respect of that amount, first towards interest and costs and then towards the principal, unless the decree otherwise directs. 31. In Sunder v. Union of India 2001 Suppl. (3) S.C.R. 176, this Court posed the question, what is meant by "the compensation" awarded. The Court concluded, "We make it clear that the compensation awarded would include not only the total sum arrived at as per Sub-section (1) of Section 23 but the remaining sub-sections thereof as well. It is thus clear from Section 34 that the expression "awarded amount" would mean the amount of compensation worked out in accordance with the provisions contained in Section 23, including ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mal rules of appropriation by virtue of the provisions of the Land Acquisition Act. In fact, that case was concerned more with the question whether notice of deposit was necessary before interest ceased to run, rather than the mode or manner in which the amount deposited was to be appropriated even though this Court did observe that in the absence of any intimation as required by Sub-rule (2) of Order XXI Rule 1 of the Code and indication of the manner of appropriation, the payment could not be deemed to have been appropriated towards principal unless the decree holder admits it to be so. 33. The question of appropriation in the context of the Land Acquisition Act and the relevant provisions therein specifically came up before a Bench of three Judges of this Court in Prem Nath Kapur and Anr. v. National Fertilizers Corporation of India Ltd. and Ors. (supra), In that case, on the award being made, the Collector had paid the compensation including solatium and interest determined under the award. When the High Court enhanced the compensation, the enhanced compensation also was deposited. When some further amounts were awarded by the High Court on the basis of damages for severance a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest on the amount of compensation under Section 11, on excess or part thereof under Section 26 awarded by court from the date of taking possession till date of payment or deposit into the court at the rates specified under the respective provisions of Sections 34 and 28. Under Section 23(1-A), additional amount at 12 per centum per annum shall be paid or deposited from the date of notification under Section 4(1) till date of award or taking possession of land, whichever is earlier. The additional amount under Section 23(1-A) and solatium under Section 23(2) are in addition to the compensation under Section 11 and excess amount determined under Section 23(1) read with Section 26 or Section 54. Equally, under Section 26 of the Act award is deemed to be a decree under Section 2(2) of the CPC for the excess amount determined by the Court; this would be so proprio vigore, when the appellate court under Section 54 has further enhanced the compensation." Section 34 of the Act fastens liability on the Collector to pay interest on the amount of compensation determined under Section 23(1) with interest from the date of taking possession till date of payment or deposit into the court to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther interest. Referring to Meghraj (supra), this Court held that the ratio of that decision was inapplicable to a case of execution under the Land Acquisition Act since the provisions of the Act were inconsistent with Order XXI Rule 1. Referring to Mathunni Mathai (supra), this Court noticed that the provisions of the Act were not brought to the attention of the Court and a decision invited thereon and hence the observations made therein could not govern a case of execution of an award decree under the Land Acquisition Act. 37. On the scheme of the Act, the above conclusions, with respect, are justified. But, it is argued that when a reference court or the appellate court awards enhanced compensation, the operative award is that of the court and going by the doctrine of merger also, the operative decree is that of the appellate court. Thus, the award of the ultimate Court, in the given case, would be the amount payable for acquisition and it is open to the decree holder to proceed to calculate the amount due to him on that basis and seek a re-appropriation based on such a calculation and reckoning the payment or payments already made. In other words, it is contended that a recal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - holder cannot seek to re-open the entire transaction and proceed to recalculate the interest on the whole amount and seek a re-appropriation as a whole in the light of the appellate decree. 40. It is true that the understanding of the expression "compensation awarded" for the purpose of Section 28 of the Act in Prem Nath Kapur (supra) was modified. To that extent one strand of reasoning in Prem Nath Kapur (supra) also stands discredited. But as we see it, on the question of appropriation, the decision in Sunder (supra) does not have such an impact as to compel us to jettison the reasoning adopted in Prem Nath Kapur (supra). Slightly deviating from the reasoning in Prem Nath Kapur (supra) we have indicated earlier that even going by Order XXI Rule 1 of the Code, the position would be as envisaged in Prem Nath Kapur (supra). That apart, we are inclined to respectfully agree with the reasoning in Prem Nath Kapur (supra) that on the wording of Section 34 and Section 28 of the Act read with and understood in the light of the stages of the award of compensation, the question of appropriation would be at different stages and a decree holder would not be entitled to reopen the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Section 23 of the Act, we are of the view that the approach adopted in Prem Nath Kapur (supra) is justified. A reappropriation by seeking to reopen the satisfaction already rendered might result in interest being made payable even on that part of the principal amount that had already been deposited and received by the decree holder and that would be in the realm of unjust enrichment. 42. What is to happen when a part of the amount awarded by the reference court or by the appellate court is deposited pursuant to an interim order of the appellate court or of the further appellate court and the awardee is given the liberty to withdraw that amount? In such a case, the amount would be received by the decree holder on the strength of the interim order and the appropriation will be subject to the decision in the appeal or the further appeal and the direction, if any, contained therein. In such a case, if the appeal is disposed of in his favour, the decree holder would be entitled to appropriate the amount already received by him pursuant to the interim order first towards interest then towards costs and the balance towards principal as on date of the withdrawal of the amount and claim ..... X X X X Extracts X X X X X X X X Extracts X X X X
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