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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 3056 OF 2008

V. KALA BHARATHI & ORS. … APPELLANTS

VS.

THE ORIENTAL INS. CO. LTD.,

BR. CHITOOR … RESPONDENT

J U D G M E N T

N.V.RAMANA, J.

1.The short question to be answered in this appeal

is whether the amount deposited by the judgment

debtor in a decree is to be adjusted first

towards interest or towards principal decretal

amount.

2.The facts of the case are – On account of demise

of an Engineering Graduate, Mr. V. Raja Kumar on

29.04.1993 in a road accident, his legal heirs,

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i.e., the appellants herein filed a claim

petition being M.V.O.P. 774 of 1993 before the

Motor Accident Claims Tribunal (for short, ‘the

Tribunal’) claiming -

3.compensation to the tune of Rs.2 crores. The

vehicle involved in the said accident was insured

by the respondent – Insurance Company. The

Tribunal vide its Award dated 29.04.1997 awarded

an amount of Rs.98,40,500/- as compensation with

interest @ 12% p.a. from the date of the

petition, i.e., 25.10.1993 till the date of

realization, apart from costs quantified at

Rs.99,443/-.

4.Being aggrieved, the respondent – Insurance

Company filed an appeal under Section 173 of the

Motor Vehicles Act, 1988 (for short, ‘the Act’)

and to comply with the provisions contained

therein, deposited a sum of Rs.25,000/-. On

15.12.1997, the High Court in C.M.A. No. 1726 of

1997 granted stay of execution of the

Award dated 29.04.1997 subject to the condition

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of depositing a sum of Rs.30 lakhs and

Rs.99,443/- costs, which amounts were

undisputedly deposited. The said order was made

absolute on 15.07.1998 subject to the condition

of depositing a further sum of Rs.30 lakhs, which

was also complied with. A Division Bench of the

High Court partly allowed the appeal on

19.12.2001 thereby -

5.reducing the compensation amount from

Rs.98,40,500/- to Rs.56,40,000/-, however, the

interest rate of 12% p.a. was retained. The

respondent – Insurance Company also deposited a

sum of Rs.23,27,635/- on 19.09.2002, claiming to

be full and final satisfaction of the award.

6.The appellants filed Execution Petition No. 11 of

2003 on 06.06.2003 before the Executing Court /

Tribunal claiming an amount of Rs.20,16,700/-,

which claim was denied by the respondent –

Insurance Company on the ground that its

liability to pay interest gets discharged when it

deposits the award amount in full. Thus, relying

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on the principle of accrual method, the

respondent – Insurance Company claimed that since

it satisfied the award amount in full, no more

interest was payable and as per its calculation,

only a sum of Rs.36,650/- was liable to be paid,

which was deposited on 29.07.2003.

7.While adjudicating the aforesaid Execution

Petition, the Executing Court took a view that

the amounts deposited by the respondent –

Insurance Company from time to time were liable

to be adjusted -

8.towards the component of interest first and

thereafter to the portion of the decretal amount.

After taking into consideration the amounts

deposited by the respondent – Insurance Company

on different dates, its liability was fixed vide

order dated 18.08.2004 to the extent of

Rs.17,70,657/- together with interest @ 12% p.a.

from the date of filing of the Execution Petition

till the date of realization.

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9.The respondent – Insurance Company assailed the

aforesaid calculation / order of the Executing

Court dated 18.08.2004 in Civil Revision Petition

No. 4337 of 2004. The appellants herein also

filed Civil Revision Petition No. 6108/2004

thereby challenging that the Executing Court

could not have adjusted the amount paid as costs

towards the decretal amount. The learned single

Judge of the High Court of Judicature, Andhra

Pradesh, by judgment dated 29.07.2005, allowed

both the Civil Revision Petitions while holding

that (i) the part payments deserve to be adjusted

towards the principal decretal amount and not any

component of interest accrued upto that date; and

(ii) the amount deposited towards costs, in -

10.pursuance of the directions of the court, must

be adjusted towards that, and not towards payment

of the decretal amount.

11.Learned counsel for the appellants vehemently

contended that the impugned order cannot be

sustained being contrary to law of the land

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declared under Article 141 of the Constitution of

India (for short, ‘the Constitution’). He also

contended that judicial discipline to abide by

declaration of law made by this Court cannot be

forsaken under any pretext by any authority or

court, be it even the highest Court in a State.

It tantamount to judicial indiscipline. In

support of his submissions, the learned counsel

relied upon the judgment of this Court Industrial

Credit and Development Syndicate (ICDS) Ltd. Vs.

Smithaben H. Patel & Ors. 1999 (3) SCC 80,

Venkatadri Appa Rao Vs. Parthan Sarathy Appa Rao

AIR 1922 PC 233, Meghraj Vs. Bayabai 1969 (2) SCC

274 and Gurpreet Singh Vs. Union of India 2006

(8) SCC 457.

12.On the other hand, learned counsel appearing

for the respondent – Insurance Company contended

that, in the facts and circumstances of the case,

there is no -

13.reason to interfere with the impugned order

passed by the High Court.

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14.We have heard learned counsel for the parties

and gone through the entire material available on

record.

15.Before adverting to the various issues involved

in the case and the contentions advanced by the

counsel on either side, we have given our anxious

consideration to the judgment impugned of the

learned single Judge of the Andhra Pradesh High

Court. The learned Judge, while adjudicating the

issue, has considered the judgments of this Court

in Meghraj (supra), Industrial Credit and

Development Syndicate (supra) and Rajasthan State

Road Transport Corporation, Jaipur Vs. Poonam

Pahwa, AIR 1997 SC 2951 and has passed the

judgment by giving reasons which are basis for

his conclusion.

11. We feel that it is appropriate to extract the

relevant paragraphs from the impugned judgment.

“It is true that in a plethora of

judgments, the Supreme Court as well as

the High Courts took the view that any

amount deposited under Rule 1 of Order 21

CPC must be first adjusted towards

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interest. Discussion on those judgments

vis-à-vis sub-rules (4) and (5) of Rule 1

-

of Order 21 C.P.C. is prone to be taken

or mistaken as an attempt to explain the

judgments of the Supreme Court or High

Courts. However, since some of the

judgments of the Supreme Court were

delivered at a time, when sub rules (4)

and (5) were not on the statue book, and

in the judgments rendered thereafter, the

attention of the Hon’ble Supreme Court

and the High Courts was not pointedly

invited to these provisions in certain

cases or they did not fall for

consideration, it is felt necessary to

address the issue…”

“Viewed from this context, it is evident

that Parliament added sub rules (4) and

(5) with a definite and avowed object of

assessing the running of interest on the

deposits made by the decree holder into

a Court. The background in which those

provisions came to be incorporated has

already been indicated in the preceding

paragraphs. Sub Rules (4) and (5) by

themselves do not disclose as to whether

the amount should be adjusted towards

principal or interest. However, the

expression “interest if any” occurring

in both the provisions is significant.

A decree may comprise of principle

amount claimed in the suit, as well as a

component of interest up to the date of

decree. Once a decree is passed for

certain amount, it becomes a principle

by itself and the liability to pay

interest thereon, and if so, the rate at

which it is to be paid, would depend

upon the terms of decree. The amount

that carries the interest till the date

of realization would be the one

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stipulated in the decree. It is not

permissible for a Court to award

interest on interest.

Sub section (3) of Section 3 of the -

Interest Act clearly prohibits grant of

interest on interest. Therefore, the

only component of the decree that can be

related to the expression “interest if

any” occurring in sub sections (4) and

(5) of Rule (1) is the decretal amount,

which, in other words, is the

principal.”

“It is true that the cases decided so

far, do not strictly support this view,

and in a way, may suggest the other

point of view. However, an effort is

made by this Court, to explain the

purport of sub-rules (4) and (5) of Rule

1. This Court is conscious of the

requirement to follow the precedents, as

well as its obligation, to give effect

to the legislative mandate. An endeavor

is made to honour both the obligations.

Having regard to the importance of the

issue and the implications involved in

it, further discussion may ensue at

appropriate levels.”

12. From the above findings of the learned Judge,

it appears that he passed the order basing on three

considerations:

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Firstly, the judgments relied upon by

the claimants are based on the pre-amended

provisions of Order 21 Rule 1 C.P.C.

Secondly, in the cases which were

decided subsequent to amendment, the issue

-

of appropriation of amounts has not

fallen for consideration.

Thirdly, a decree comprises of

principal claimed in the suit as well as

component of interest. Hence, once a

decree is passed for certain amount, it

becomes principal by itself and Section

3(3) of Interest Act clearly prohibits

grant of interest on interest.

13. Now, before we proceed to decide the legality

or otherwise of the order passed by the learned

Judge, it is worthwhile to examine Rule 1 of Order

XXI of the Code of Civil Procedure, 1908 (for short,

‘the CPC’), which reads as under:

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“ORDER XXI

EXECUTION OF DECREES AND ORDERS

1.Modes of paying money under decree. –

(1) All money, payable under a decree,

shall be paid as follows, namely:-

(a)by deposit into the Court whose duty

it is to execute the decree, or sent

to that Court by postal money order

or through a bank; or

(b)out of Court, to the decree-holder

by postal money order or through a

bank or -

(c)by any other mode wherein payment is

evidenced in writing; or

(d)otherwise, as the Court which made

the decree, directs.

(2) Where any payment is made under

clause (a) or clause (c) of sub-rule (1), the

judgment-debtor shall give notice thereof to

the decree-holder either through the Court or

directly to him by registered post,

acknowledgement due.

(3) Where money is paid by postal money

order or through a bank under clause (a) or

clause (b) of sub-rule (1), the money order

or payment through bank, as the case may be,

shall accurately state the following

particulars, namely:-

(a)the number of the original suit;

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(b)the names of the parties or where

there are more than two plaintiffs

or more than two defendants, as the

case may be, the names of the first

two plaintiffs and the first two

defendants;

(c)how the money remitted is to be

adjusted, that is to say, whether it

is towards the principal, interest

or costs;

(d)the number of the execution case of

the Court, where such case is

pending; and

(e)the name and address of the payer.

(4) On any amount paid under clause (a)

or clause (c) of sub-rule (1), interest, if

any, shall cease to run from the date of

service of the notice referred to in sub-rule

(2).

(5) On any amount paid under clause (b)

of sub-rule (1), interest, if any, shall

cease to run from the date of such payment.

Provided that, where the decree-holder

refuses to accept the postal money order or

-

payment through a bank, interest shall 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.”

14. A bare perusal of the aforesaid provisions

makes it amply clear that the scope of Order XXI Rule

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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 sub-

rule (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.

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15. The language contained in the aforesaid sub-

rules clearly indicates the appropriation of amount

to be made in case the decree contains a specific

clause, specifying the manner in which the money

deposited to be appropriated. Sub-rule (1)(c) of

Rule 1 indicates the money deposited to be

appropriated as per the direction of the Court, if

there is a provision in that behalf. In the absence

of specific direction with regard to appropriation,

then only the manner of appropriation would arise for

consideration. Sub-rules (2) to (5) of Rule 1

indicate the procedure to be followed when the

deposit is made either under clause (a) or (b) of

sub-rule (1) thereof, but it does not leave any scope

for interpretation with regard to appropriation of

deposited amount by the decree-holder.

-

16. In this regard, it is also pertinent to extract

Rule 472 of the Andhra Pradesh Motor Vehicles Rules,

1989 (for short, ‘the A.P.M.V. Rules’), which is as

under:

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“472. Enforcement of an award of the Claims

Tribunal:- Subject to the provisions of

Section 174, the Claims Tribunal shall, for

the purpose of enforcement of its award, have

all the powers of a Civil Court in the

execution of a decree under the Code of Civil

Procedure, 1908, as if the award were a

decree for the payment of money passed by

such Court in a Civil Suit.”

The above-said Rule indicates that the award passed

by the Claims Tribunal is to be treated as if the

decree for the payment of money passed by the Civil

Court in a civil suit. Hence, in view of the

specific provision contained in the A.P.M.V. Rules,

the award passed by the Claims Tribunal is to be

treated as a money decree. In Rajasthan State Road

Transport Corporation, Jaipur (supra), this Court

held that in executing the award of the Claims

Tribunal, Executing Court is competent to invoke the

beneficial provision under Order 21 Rule 1 of C.P.C.

-

17. The Privy Council in Venkatadri Appa Rao Vs.

Parthasarathi Appa Rao AIR 1922 PC 233 , held as

follows:

“The question then remains as to how,

apart from any specific appropriation, these

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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 .”

(Emphasis supplied)

The above principle was reiterated by the Privy

Council in Rai Bahadur Sethnemichand Vs. Seth Rada

Kishen AIR 1922 PC 26.

18. We may notice that the principle laid down in the

above case has been not only approved by the Supreme

Court, but also followed in several other subsequent

cases. In Meghraj (supra), it was held as under:

“4. … Unless the mortgagees were informed

that the mortgagors had deposited the amount

only towards the principal and not towards

the interest, and the mortgagees agreed to

withdraw the money from the Court accepting

the conditional deposit, the normal rule that

-

the amounts deposited in Court should first

be applied towards satisfaction of the

interest and costs and thereafter towards the

principal would apply.”

19. In Mathunni Mathai (supra), it was held that the

right of the decree-holder to appropriate the amount

Civil Appeal No. 3056 of 2008 Page 16 of 26

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deposited by the judgment debtor, either in the Court

or paid outside, towards interest and other expenses

is founded both on fairness and necessity. It was

observed that the courts and the law have not looked

upon favourably where the judgment debtor does not

pay or deposit the decretal amount within the time

granted as one cannot be permitted to take advantage

of his own default. Therefore, the normal rule that

is followed is to allow the deposit or payment, if it

is in part, to be adjusted towards the interest due,

etc.

20. In Industrial Credit and Development Syndicate

(supra), it has been held that in cases where the

trial court has not prescribed any mode for payment

of decretal amount, except fixing the instalments, in

the absence of agreement between the parties,

regarding the mode of payment of decretal amount, the

-

general rule of appropriation of payments towards

decretal amount is that the said amount is to be

adjusted firstly strictly in accordance with the

directions contained in the decree and in the absence

Civil Appeal No. 3056 of 2008 Page 17 of 26

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of such direction, it is to be adjusted firstly

towards interest and costs and thereafter towards

principal amount. This is, of course, subject to the

exception that the parties can agree to the

adjustment of payment in any other manner despite the

decree. In that case, the Supreme Court had an

occasion to consider the method of appropriation and

after noticing various decisions of the English

Courts and the Privy Council, followed the judgment

in Meghraj’s case (supra).

21. We may also notice that in Prem Nath Kapur & Anr.

Vs. National Fertilizers Corporation , 1996 SCC (2)

71, while differing with the view taken in Mathunni

Mathai (supra), it was held that the normal rule of

appropriation contained in Order XXI Rule 1 of the

CPC relating to execution of decrees for recovery of

money stands excluded by Sections 28 and 34 of the -

Land Acquisition Act, 1894 and the principles

contained therein could not be extended to execution

of award decrees under the said Act. The relevant

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para of the said judgment, being portion of para 14,

reads as under:

·

·“14. Equally, the right to make

appropriation is indicated by necessary

implication, by the award itself as the

award or decree clearly mentions each of

the items. When the deposit is made

towards the specified amounts, the

claimant/owner is not entitled to deduct

from the amount of compensation towards

costs, interest, additional amount under

Section 23 (1-A) with interest and then to

claim the total balance amount with further

interest. … … … … …

… … … … … …”

22. In Gurpreet Singh (supra), the Constitution

Bench of this Court had an occasion to consider the

issue regarding execution of money decree, the

principle of appropriation and its applicability,

which was recently followed by this Court in Bharath

Heavy Electricals Ltd. Vs. RS Avthar Sing & Co. , 2013

(1) SCC 243, and culled down the principles laid down

in Gurpreet Singh’s case as follows:

a) The general rule of

appropriation towards a

decretal amount was that

-

Civil Appeal No. 3056 of 2008 Page 19 of 26

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b) 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.

c) 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).

d) If the payment made by

the judgment debtors

Civil Appeal No. 3056 of 2008 Page 20 of 26

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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.

e) Thereafter, no further

interest would run on the

sum appropriated towards

the principal. In other

words, if a -

f) 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.

g) In case where there is a

shortfall in deposit of

the principal amount, the

Civil Appeal No. 3056 of 2008 Page 21 of 26

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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.

23. In the judgment referred to by the High Court in

the impugned judgment, this Court and the Privy

Council consistently have taken a view that in case

of appropriation of amount unless the decree contains

a specific provision, the amounts have to be

appropriated as contemplated under Order 21 Rule 1.

If there is a shortfall in deposit, the amount has to

be adjusted towards interest and costs, then it has

to be adjusted towards principal. The High Court has

-

failed to appreciate this fact and misdirected itself

in observing that these judgments are prior to the

Civil Appeal No. 3056 of 2008 Page 22 of 26

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amendment to Order 21 Rule 1. In our considered view,

as far as this aspect is considered, there is no much

difference in the provisions prior to or subsequent

to the amendment, because in the objects and reasons

for amendment to Order XXI Rule 1, as observed by the

Constitution bench in Gurpreet Singh the legislative

intent in enacting sub-rules (4) and (5) is that

interest should cease on the deposit being made and

notice given or on the amount being tendered outside

the court in the manner provided. The intent of the

rule making authority is to leave no room for any

frivolous pleas of payment of money due under a money

decree.

24. We may add that the High Court proceeded on the

assumption as if sub-rules (4) and (5) of Rule 1,

which were inserted pursuant to Amendment to C.P.C.

in 1976, there is change in procedural law and the

tenor of sub-rule (1) thereof. But, sub-rules (4)

and (5) do not have any relevance with regard to

appropriation, except stating when interest ceases to

-

Civil Appeal No. 3056 of 2008 Page 23 of 26

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run. Thus, it is no way guide for appropriation of

amount as contemplated under Order XXI Rule 1 of the

CPC. In Industrial Credit Development Syndicate

(supra) which is subsequent to the amendment to the

provision, this Court has categorically observed the

procedure to be followed and which squarely applies

to the case, but the High Court has given its own

interpretation to the judgment and failed to consider

the law laid down by this Court in its proper

perspective.

25. The next finding of the High Court is with

regard to interest on interest.

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. Unfortunately, the High Court proceeded on the

assumption that it amounts to interest on interest

which is prohibited under Section 3(3)(c) of Interest

Act, 1978 (for short, ‘the Interest Act’). This is

not so, as in the facts and circumstances of the

Civil Appeal No. 3056 of 2008 Page 24 of 26

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present case, the decree passed by the trial Court or

-

the appellate Court does not contain the mode of

appropriation and in the absence of any such

direction, the decree-holder is entitled to

appropriate the amount deposited by the judgment

debtor first towards interest, then cost and

thereafter towards principal.

26. In view of above and more particularly keeping

in view the ratio of the Constitution Bench judgment

in Gurpreet Singh (supra), where considering an

identical question in respect of Order XXI Rule 1 of

the CPC, it was held that 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; we are of the opinion that 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.

Civil Appeal No. 3056 of 2008 Page 25 of 26

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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.

27. We, therefore, allow the appeal, set aside the

impugned judgment dated 29.07.2005 passed by the High

Court and restore that of the Executing Court dated

18.08.2004.

28.No orders as to costs.

.................C.J.I.

(P. SATHASIVAM)

.....................J.

(RANJAN GOGOI)

.....................J.

(N.V. RAMANA)

New Delhi,

April 01, 2014.

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