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.”