1. In this appeal the question is about the method of appropriation of two payments made by the defendants in respect of a mortgage dated 17th May, 1953. The suit is laid on foot of the mortgage and the only question that arises for consideration in the appeal is whether two payments one to the tune of Rs. 1,800 on 15th December, 1958 and the other relating to a sum of Rs. 4,000 made on 9th July, 1959, were rightly appropriated by the plaintiff towards interest. The defendants are agriculturists and there is no dispute that the provisions of the Madras Agriculturists Relief Act are applicable for the scaling down of the debt. It is also clear that the appropriation made by the plaintiff of the two payments towards interest was not at the contract rate, but only at the rate of interest prescribed under section 13 of the Act.

2. In a notice caused to be issued by the plaintiff on 11th December, 1962, it was stated that barring the two payments towards interest, there were no others made by the defendants. In the reply notice Exhibit A-3 dated 1st January, 1963, the defendants called in question the claim that the two payments were made towards interest. The stand taken by them was that it was not correct to say that the payments were made towards interest. In another paragraph in Exhibit A-3, they put their case in a positive form and said that all the payments were made towards principal only. The plaintiff's notice by way of rejoinder is Exhibit A-4. He affirmed that the amounts were paid towards interest and the assertions to the contrary were stated to be untrue. The position, therefore is that when the payments were actually made by the debtors, there was no indication as to how the amounts were to be appropriated.

3. In the subsequent correspondence between the parties, there was an assertion by the plaintiff that the amounts were paid towards interests and there was a denial by the defendants. It is clear that at the time of the payments, there was no direction of the debtors in respect of the methods of appropriation. Nor did they, before the exchange of notices, specify any mode of appropriation. Although the learned Counsel for the respondents endeavoured to show that the reply notice Exhibit A-3 itself is to be deemed to be a direction as to appropriation. It appears to me that this contention cannot be allowed to prevail. This was stated by the debtor only in answer to the creditor's notice. The creditor has already manifested his intention that the payments were to be treated as payments towards interest. In view of the fact that there was no method of appropriation specified by the debtors at the time of the payments, it was open to the creditor to notify the debtors of his intention as to the mode of appropriation. Exhibit B-3 in my opinion, clearly indicates the creditor's animus in respect of the option which he had of treating the payments as payments towards interest. It was not open to the debtors thereafter to prescribe a mode of appropriation which ran counter to the method of appropriation indicated by the creditor.

4. The legal position as to the creditor's right of appropriation is well settled by authority. Section 60 of the Indian Contract Act embodies the rules as to appropriation. In enacts that where the debtor has omitted to intimate and there are no other circumstances indicating to which debt the payment is to be applied, the creditor may apply it at his discretion to any lawful debt actually due to him. This rule has been held to be applicable to the appropriation by a creditor as between the principal amount and interest due under the same debt. The speech of Lord Macnaughten in Cory Brothers & Co. v. Owners of Turkish Steamship Mecca . L.R 1897 A.C 286., contains an exposition of the law on the subject. It was pointed out that a debtor making a payment, may appropriate the money as he pleases and the creditor must apply it in accordance with the directions of the debtor. But if the debtor does not make any appropriation at the time when he makes the payment, the right of application devolves on the creditor. It is well recognised that the creditor is not bound to make the option straightaway. It was regarded as a settled proposition of law that the creditor has a right of election upto the very last moment, and he is not bound to declare his election in express terms. He may declare it by bringing an action or in any other way that makes his meaning and intention plain. The election is with the creditor and it is his intention expressed or implied or presumed that governs the application of the money. The presumed intention of the creditor may be gathered from a statement of account, or anything els which indicates an intention one way or the other and is communicated to the debtor. In Income-tax Commissioner v. Maharajadhiraja of Darbhanga . L.R 1933 60 I.A 146 at 147; 64 M.L.J 612 P.C. it was observed that where interest is outstanding on a principal sum due and the creditor receives an open payment from the creditor without any appropriation of the payment as between capital and interest by either debtor or creditor, the presumption is that the payment is attributable in the first instance towards the outstanding interest. In a decision of the Privy Council in Rama Shah v. Lalchand . 1960 1 M.L.J 895; L.R 67 I.A 160; A.I.R 1940 P.C 63., the principle that the option rests with the creditor in respect of payments which are not accompanied by any direction of the debtor, has been reiterated. The rule that payments by the debtor unappropriated to either principal or interest would first be applied in discharge of interest, lad been acted upon by the Privy Council in Venkatadri Rao v. Parthasarathi Apparao . 1921 I.L.R 44 Mad. 570; 40 M.L.J 549; L.R 48 I.A 150..

5. There can, therefore, be no doubt that where a payment is made and no contemporaneous direction is given by the debtor about the mode of appropriation the creditor has the option of making the appropriation in the manner desired by him. This option need not be exercised immediately on payment. It is again clear that the option need not be exercised in any specified form. It may be done expressly or may be implied from the conduct or from the acts of the creditor. What is necessary is that there must be communication of any intention of the creditor in some form or other. In the absence of any action on the part of the creditor, the ordinary rule is that the payment must be utilised in the first instance for the satisfaction of the accrued interest.

6. On the application of these principles there can be no doubt that the intention under Exhibit B-3 of the creditor's intention to treat the payments towards interest, is tantamount to an appropriation. It is however argued on behalf of the respondents that while the position under the general law is clear the provisions of the Madras Agriculturists Relief Act engraft an exception on the general rule. Mr. Gangadhararao learned Counsel for the respondents, argues that the option which the creditor has under the general law is taken away by necessary implication by reason of the provisions of the Madras Agriculturists Relief Act. In support of 3iis contention, he relies upon the decision of a single judge of the Madras High Court, in Muthiah v. Lakshmanan . 1948 2 M.L.J 500; A.I.R 1949 Mad. 497.. On an examination of that case it would appear that Govindarajachari, J. who decided it, was dealing with a case where the appropriation made by the creditor was not towards interest calculated at the rates specified in section 13 of the Act but in which it was made at the contract rate. The question which the learned Judge had to consider was whether an appropriation made by the creditor towards the contract rate should be allowed to stand impaired by the application of the rule that the creditor has the option of making the appropriation in a manner desired by him. It was in that context that the learned Judge said that section 13 was clearly intended to protect an agriculturist and it was not open to the creditor to make an appropriation contrary to the terms of section 13. It is obvious that the learned Judge's intention was not to lay down that the creditor's option could not be exercised even when it was done in conformity with the provisions of the Madras Agriculturists Relief Act. The Act merely prescribes the rate of interest that is payable by an agriculturist and so long as the creditor does not do anything inconsistent with the provisions of the Act but makes an appropriation in accordance with the terms of the Act, there is no fetter placed on the creditor's liberty of exercising the option in the manner deemed most advantageous by him.

7. My attention was also drawn to the decision in Suryanarayana v. Venkata Ramana rao, and to the observations of Venkatarama Aiyer, J., who spoke for the Full Bench. That was a case under section 8 of the Madras Agriculturists Relief Act and the question arose whether in that case interest could be deemed to be outstanding by the date of the commencement of the Act. The learned Judges, were dealing with the effect of the amending Act XXIII of 1948 and they pointed out that the object of the amendment was to take away the right of the creditor to appropriate payments towards interest unilaterally as he would be entitled to under section 60 of, the Contract Act. It may be mentioned that position under section 8 of the Act is- altogether different. The Legislature provided that all interest outstanding on 1st October, 1937, in favour of any creditor shall be deemed to be discharged. What the Full Bench pointed out was that no appropriation by the creditor after the commencement of the Act could be made so as to nullify the effect of the statutory provision. To cases arising under section 13, the dicta of the Full Bench in. Suryanarayana v. Venkataramanarao, have no application.

8. In my opinion the two decisions cited by the learned Counsel are not relevant in the present context. It must, therefore, be held that the lower Court erred in holding that there was no valid appropriation towards interest and that the two payments must be appropriated towards the principal. The appeal therefore, succeeds and it is allowed with costs. The preliminary decree will be amended in the light of the decision in this appeal. The plaintiff will be entitled to full costs in the lower Court on the amount which the preliminary decree is now to include.

9. Appeal allowed.