Appropriation of Decretal Amount - Interpretation of Order XXI Code of Civil Procedure, 1908

The Supreme Court of India in V. Kalabharathi & Ors. v. Oriental Insurance Co. Ltd (copy available here) decided on April 01, 2014 while deciding the question of appropriation of the decretal amount and discussing the Scope of Order XXI keeping in view the ratio of the constitution bench judgment in Gurpreet Singh v. UOI [2006 (8) SCC 457] have held as under:

"In money suit, the amount consists of principal and interest till the suit is filed. But, in case of award passed under the Act, the question of inclusion of any interest on the decretal amount does not arise".

"If the amount deposited by the judgment debtor falls short of the decretal amount, the decree-holder is entitled to apply the rule of appropriation by appropriating the amount first towards interest, then towards costs and subsequently towards principal amount due under the decree".

"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".

Further the SC followed the principles laid down in Bharat Heavy Electrials Limited v. R.S. Avtar Singh & Co., [2013 (1) SCC 243], which discussed Gurpreet Singh's case as follows:

"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, adjustment be made firstly towards payment of interest and costs and thereafter towards payment of the principle amount subject, of course, to any agreement between the parties".

"The legislative intent in enacting sub rules (4) and (5) is clear to the points that interest should cease to run on the deposit made by the judgment debtor and notice given or on the amount being tendered outside the Court in the manner provided in Order 21 Rule 1 sub clause (D)". 

"If the payment made by the judgment debtors falls short of the decretal amount, the decree holder will be entitled to apply the general rule of appropriation by appropriating the amount deposited towards the interest, then towards costs and finally towards the principal amount due under the decree". 

"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 of interest on the part of the principal sum will cease to run thereafter". 

"In case where there is a shortfall in deposit of the principal amount, the decree holder would be entitled to adjust interest and costs first and then 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 thereof".

Also pertinent to note here is that the Privy Council in Venkatadri Appa Rao v. Parthasarathi Appa Rao [AIR 1922 PC 233] and Rai Bahadur Sethnemichand v. Seth Rada Kishen [AIR 1922 PC 26], held as follows:

“The question then remains as to how, apart from any specific appropriation, these sums ought to be dealt with. 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.”

SARFAESI - POWERS OF LESSEE OF A MORTGAGED PROPERTY

The Supreme Court of India, in the case titled as Harshad Govardhan Sondagar v. International Asset Reconstruction Co. Ltd. & Ors. (copy available here) decided on April 03, 2014 - while dealing with the rights of the Lessee (remedies available where he is threatened to be dispossessed by any action taken by the secured creditor under Section 13 of the SARFAESI Act) have held as under:

When a lessee becomes aware of the possession being taken by the secured creditor, he may either surrender the possession or resist the attempt of the secured creditor to take the possession of the secured asset by producing before the authorized officer proof that he was inducted as a lessee prior to the creation of mortgage or that he was a lessee in accordance with the provisions of Section 65A of the Transfer of Property Act and that the lease does not stand determined in accordance with Section 111 of the Transfer of Property Act. 

Where the lessee resists the attempt of the secured creditor to take possession, the authorized officer cannot evict the lessee by force but has to file an application before the Chief Metropolitan Magistrate or the District Magistrate under Section 14 of the SARFAESI Act and state in the affidavit accompanying the application, the name and address of the person claiming to be the lessee.

When such an application is filed, the Chief Metropolitan Magistrate (CMM) or the District Magistrate (DM) will have to give notice and give an opportunity of hearing to the person claiming to be lessee as well as the secured creditor, consistent with the principles of natural justice, and then take a decision.  

If the CMM or the DM is satisfied that there is a valid lease created before the mortgage or there is a valid lease created after the mortgage in accordance with the requirements of Section 65A of Transfer of Property Act and that lease has not been determined in accordance with the provisions of Section 111 of Transfer of Property Act, he cannot pass an order delivering possession of the secured secured assets to the secured creditor. But in case he comes to a conclusion that there is no valid lease made either before the creation of mortgage or after creation of the mortgage satisfying the requirements of Section 65A of Transfer of Property Act or even if there was a valid lease, the lease stands determined in accordance with Section 111 of Transfer of Property Act, he can pass an order for delivering possession of the secured asset to the secured creditor.

Section 14(3) of the SARFAESI Act provides that no act of the CMM or DM or any officer authorized by the CM or DM done in pursuance of Section 14 shall be called in question in any court or before any authority. The SARFAESI Act, therefore, attaches finality to the decision of the CMM or the DM and this decision cannot be challenged before any court or any authority. But this Court has repeatedly held that statutory provisions attaching finality to the decision of an authority excluding the power of any other authority or Court to examine such a decision will not be a bar for the High Court or this Court to exercise jurisdiction vested by the Constitution because a statutory provision cannot take away a power vested by the Constitution.

In our view, therefore, the decision of the CMM or the DM can be challenged before the High Court under Articles 226 and 227 of the Constitution by any aggrieved party and if such a challenge is made, the High Court can examine the decision of the CMM or the DM, as the case may be, in accordance with the settled principles of law.

The High Court has failed to appreciate that the provisions of Section 13 of the SARFAESI Act thus override the provisions of Section 69 or Section 69A of Transfer of Property Act, but does not override the provisions of Transfer of Property Act relating to the rights of the lessee under a lease created before receipt of a notice under sub section (2) of Section 13 of the SARFAESI Act by a borrower.

Hence if any of the appellants claim that they are entitled to possession of a secured asset for any term exceeding one year from the date of the lease made in his favour, he has to produce proof of execution of a registered instrument in his favour by the lessor. Where he does not produce proof of execution of a registered instrument in his favour and instead relies on an unregistered instrument or oral agreement accompanied by delivery of possession, the CMM or the DM as the case may be, will have to come to the conclusion that he is not entitled to the possession of the secured asset for more than a year from the date of the instrument or from the date of delivery of possession in his favour by the landlord.

CAG - Duties and Powers conferred by Article 149 of the Constitution of India

The Supreme Court of India, in the case of Association of Unified Teleservices Providers & Ors. v. Union of India (copy available here) decided on April 17, 2014 – while dealing with the scope and ambit of the powers and duties of the Comptroller and Auditor General of India (CAG), the Telecom Regulatory Authority of India (TRAI) and the Department of Telecommunications (DoT) in relation to the proper computation and quantification of Revenue in determining the license fee and spectrum charges payable to Union of India under Unified Access Services (UAS) Licenses entered into between DoT and the private service providers have held as under:

CAG’s examination of the accounts of the Service Providers in a Revenue Sharing Contract is extremely important to ascertain whether there is an unlawful gain to the Service Provider and an unlawful loss to the Union of India, because the revenue generated out of that has to be credited to the Consolidated Fund of India.

Accordingly, unless the underlying records which are in the exclusive custody of the Service Providers are examined, it would not be possible to ascertain whether the Union of India, as per the agreement, has received its full and complete share of Revenue, by way of license fee and spectrum charges.

Further the SC also observed that CAG by adopting that process, CAG is not carrying out any statutory audit of the accounts of the service providers, but for the limited purpose of ascertaining whether the Union is getting its legitimate share by way of “Revenue Sharing”. Service providers are, therefore, bound to provide all the records and documents called for by the CAG.