Leela Hotels Limited v. Housing And Urban Development Corporation Ltd.

H. R. MALHOTRA, J.

(1) THIS is an execution petition arising out of the award dated 25. 6. 2002 which acquired the status of decree on 20. 1. 2003, after the petition of the judgment debtor under Section 34 of the Arbitration and Conciliation Act, 1996 was dismissed by the learned single judge of this court, thus, according to the decree holder, decree holder is entitled to recover the amount and the judgment debtor liable to pay the amount together with interest @ 20 per cent per annum till date of award and @ 15 per cent per annum from the date of award till date of payment as indicated in the award dated 25. 6. 2002.

(2) THE judgment debtor whose objections under Section 34 of the Act were dismissed, preferred an appeal being F. A. O. (OS) No. 59 of 2003 which too met dismissal by the Division Bench of this court on 9. 11. 2004 Thereafter, the judgment debtor approached the Supreme Court of India by way of Special Leave petition. The Apex Court while issuing notice on the Special Leave Petition ordered on 1. 4. 2005 as follows :-

"it is stated at the Bar that an amount of approximately Rs. 163. 30 cores has been partly paid and partly deposited by the petitioner and withdrawn by the respondent. This amount is equal to the principal amount. Although, the learned counsel for the respondent has submitted that the respondent has a right to appropriate the amount first towards the payment of interest and then the balance towards the principal but, we do not express any opinion thereof for the present."

(3) DURING the pendency of the proceedings before the Apex Court, the judgment debtor pursuant to the orders of the court had deposited a sum of rs. 596,123,607/- which was withdrawn by the decree holder.

(4) FINALLY vide order dated 12. 2. 2008, Hon"ble Supreme Court dismissed the appeal filed by the judgment debtor but reduced the rate of interest awarded by the arbitrator from 20 per cent per annum to 18 per cent per annum for pre-award period but left the question open to the executing court as to whether the amount deposited by the appellant should be treated as principal amount or towards the adjustment of interest.

(5) THEREFORE, for the purposes of deciding the present execution petition, the question needs to be determined by this court as to whether the amount deposited, later withdrawn by the decree holder, ought to be appropriated towards interest first or towards principal amount.

(6) LEARNED senior counsel appearing for the decree holder urged that the award made by the arbitrator is to be executed strictly in terms of the award which acquired the status of the decree. He contended that it is general rule of law that appropriation of payments of debts is first to be applied in the payment of interest, then costs and then finally towards principal amount. He urged so on the strength of the judgment rendered by Apex court in the matter of Industrial Credit and Development Syndicate Vs. Smithaben h. Patel and Others reported in 1999 (3) Supreme Court Cases 80 wherein it was held as under :-

"it is not disputed that in terms of the decree, the trial court had not prescribed any mode for payment of the decreetal amount excepting the fixing of installments. It is also not disputed that there is no agreement between the parties regarding the mode of payment of the decreetal amount. It is also the admitted position that the general rule of appropriation of payments towards the debt is that in the absence of a specific condition or agreement to the contrary, the money paid by the judgment debtor is first applied in the payment of interest and cost and then when that is satisfied, in payment of capital or the principal amount."

(7) THEIR Lordship while dealing with this aspect further referred to Sections 59 and 60 of the Contract Act where they observed :

"we are of the opinion that Sections 59 and 60 of the Contract Act would be applicable only in pre-decretal stage and not thereafter. Post-decretal payments have to be made either in terms of the decree or in accordance with the agreement arrived at between the parties though on the general principles as mentioned in Sections 59 and 60 of the Contract Act. As and when such an agreement either express or implied is relied upon, the burden of proving it would always be upon its propounder. Acceptance of the plea that the amount paid first should be adjusted in the principal amount would not only be against the provision of law but against public policy as well."

(8) THEIR Lordship finally laid the principle as under :-

"we hold that the general rule of appropriation of payments towards a decretal amount is that such an amount is to be adjusted firstly, strictly in accordance with the directions contained in the decree and in the absence of such direction, adjustments be made firstly in payment of interest and costs and thereafter in payment of the principal amount. Such a principle is, however, subject to one exception, i. e. , that the parties may agree to the adjustment of the payment in any other manner despite the decree. As and when such an agreement is pleaded, the onus of proving is always upon the person pleading the agreement contrary to the general rule or the terms of the decree schedule. The provisions of Sections 59 to 61 of the Contract Act are applicable in cases where a debtor owes several distinct debts to one person and do not deal with the cases in which the principal and interest are due on a single debt."

(9) ON the strength of the aforesaid judgment, learned senior counsel for the decree holder laid emphasis that there being no agreement to the contrary for the adjustment of the payment and also the award being silent in this regard, general rule of appropriation of payments towards a decretal amount should be applied viz. interest part is to be adjusted first followed by costs and then finally principal amount.

(10) LEARNED senior counsel for the decree holder also referred to another judgment titled Bengal Silk Trading Co. Vs. D. S. Bhalla, reported in 65 (1997) Delhi Law Times 219. The ratio dendie of that cases was as follows :-

"from the settled trend of judicial opinion, it is clear that where a decree directs payment of principal, interest and costs, in the absence of specific directions as to mode of appropriation or in the absence of contract between the parties, the payment has to be applied first towards payment of costs, then interest and then towards the principal."

(11) ON the other hand learned counsel appearing for the judgment debtor states that during the pendency of the objections preferred by them under section 34 of the Act, the judgment debtor had tendered an undertaking to deposit the balance principal amount on or before 21. 10. 2002 and that the decree holder had not objected to such deposit nor did they seek any clarification that the amount undertaken to be deposited by the judgment debtor would be appropriated towards interest first and not towards principal amount and, therefore, according to learned counsel for the judgment debtor, it was a deemed admission on behalf of the decree holder that the amount undertaken to be deposited would be against principal amount and not towards interest and as such according to him, there was an agreement contrary to the general principles of law and on 21. 10. 2002, the judgment debtor had brought a sum of rs. 89,78,84,930/- being the balance principal amount and had categorically stated that the same was towards principal and not towards the interest and the court while accepting the cheque for the balance principal amount recorded that the deposit made by the judgment debtor was without any liability on the part of the judgment debtor to make payment of further interest on the aforesaid amount and that the decree holder had accepted the payment of the balance principal amount with the understanding that the same was towards the principal amount and, therefore, according to the judgment debtor, the plea as raised by the decree holder that the decree holder is entitled to appropriate the said sum towards the interest first and then towards the principal is not tenable at all.

(12) THOUGH learned counsel for the judgment debtor admitted the legal position that when money is paid by the judgment debtor to the decree holder towards the decree debt without specifying whether the same is towards the interest or principal, the decree holder is liable to credit it as per his choice towards the interest first and then to the principal but in case, the judgment debtor states that the payment is towards the principal and the decree holder did not object to it then it is to be appropriated towards principal amount first and not towards interest. He supported his arguments with the aid of an authority reported in AIR 1994 Kerala 386 titled Sujatha Weaving Mills ltd. and Others Vs. Syndicate Bank.

(13) HE also referred to yet another authority reported in AIR 1979 calcutta 243 titled Life Insurance Corporation of India Vs. Samarendra Nath Roy wherein it was held that :-

"if the judgment debtor in making payment stipulates that it is to be credited towards the principal amount, the decree holder is bound to appropriate the same towards the principal and in case the decree holder has any objection then he must not accept the money, but return it to the judgment debtor."

(14) IN order to set the controversy at naught, this court has to see whether there were any stipulations between the parties that the amount due would first be appropriated towards the principal amount and then towards interest and costs. If that is so, then looking to the authorities cited by learned counsel for the judgment debtor referred to above, that stipulation has to be given precedence but if there is no such agreement between the parties about the apportionment of the amount due or there is no specific direction of the court or the decree is silent about this aspect, then in that eventuality, the amount paid by the judgment debtor is first to be appropriated towards interest followed by adjustment towards principal amount and costs. I am saying so on the strength of the authorities referred to by the respective counsel for the parties.

(15) I have perused the award made by former Chief Justice of India in entirety. This aspect do not find place in the award about the mode of appropriation of the awarded amount, thus, the award which has acquired status of the decree is silent about the mode of payment. The arguments of the learned counsel for the judgment debtor that since the award was silent about the mode of payment to be appropriated, therefore, the decree holder was required to seek clarification do not hold water as in my view no clarification was warranted, particularly, when nothing was said about the mode of payment. Award being silent in this regard, it literally meant that the general rule of appropriation of payments was to be applied in view of the judgment of the Apex Court reported in (1999) 3 Supreme Court Cases 80 where it was held that where the trial court has not prescribed any mode for payment of the decretal amount nor there was any agreement between the parties regarding the payment of decretal amount than the general rule of appropriation of payments towards the debt was to be implied by first applying the payment towards interest then costs and then principal amount. This being so, authority cited by counsel for the judgment debtor reported in AIR 1979 Calcutta 243 titled Life Insurance Corporation of India Vs. Samarendra Nath Roy has no applicability to this case nor another authority reported in (2006) 8 SCC 457 titled Gurpreet Singh Vs. Union of India has any relevancy to the present controversy as this authority rather helps the case of the decree holder than that of the judgment debtor as in that case, the Apex court laid the principle that the decree holder would be entitled to appropriate the same on the general principle of appropriation, first towards interest, then towards costs and then towards the principal, unless, of course, the deposit is indicated to be towards specified heads by the judgment debtor while making the deposit intimating the decree holder of his intention.

(16) IN the case in hand, nothing has been shown to this court where from it could be gathered that the judgment debtor had ever expressed his intention to appropriate the amount so paid first towards principal and then towards interest. Merely because it came in order dated 21. 10. 2002 that the petitioner had already deposited the principal amount awarded by the arbitrator, cannot be taken as an intention of the judgment debtor to deposit this amount as principal amount. It is pertinent to mention here that it is unilateral act of the judgment debtor in using the term as "principal amount". The decree holder had never in express terms received such amount towards principal amount. Rather the decree holder had expressly stated before the Apex Court on 1. 4. 2005 that the "respondent has a right to appropriate the amount first towards the payment of interest and then the balance towards the principal".

(17) IN order to ascertain the manner or mode of appropriation of amounts there has to be an agreement between the decree holder and the judgment debtor or in the alternative the decree or the award, must, speak expressly and specifically about the mode of appropriation of such payment. It is then and only then, such appropriation of amount would be received in a particular manner and not otherwise.

(18) IN the case in hand, the award and decree is silent about the mode of appropriate of such amount. There is no express or even implied agreement between judgment debtor and the decree holder if such amount would be adjusted towards principal amount first and then towards costs. Therefore, deposit made by the decree holder merely by terming it as "principal amount" and that too unilaterally cannot be treated as an agreement entered into between the parties against the general rules of appropriation.

(19) AS regards the applicability of Sections 59 and 60 of Indian contract Act as discussed above and also in view of the authorities cited above in 1999 (3) SCC 80, these two Sections would be applicable only in pre-decretal stage and not thereafter. Therefore, judgment debtor cannot take aid of the provisions of Sections 59 and 60 of the Contract Act saying that it being a distinct debt was to be appropriated towards principal amount first and followed by interest part. Such arguments too are without any substance.

(20) I am, therefore, unable to accept the contentions of the judgment debtor that merely because they deposited the amount saying on their own that it was being deposited towards principal amount should really be treated as principal amount. It is settled law that appropriation of payments towards decretal amount is to be adjusted firstly either in accordance with the directions as contained in the decree or their being such agreement between the parties and in such absence, the adjustment has to be made firstly towards payment of interest and costs and thereafter towards the principal amount. I may further state that even in the orders dated 21. 10. 2002 and 20. 1. 2003 in o. M. P. No. 308 of 2002, there is no mention at all or directions as to how the amounts paid or deposited by the judgment debtor were to be appropriated nor the order of the learned single judge dealt with how the amount deposited was to be appropriated. There is also not an iota of indication anywhere that if there was any stipulation between the judgment debtor and the decree holder that the amount so deposited shall be taken towards principal amount first.

(21) FOR all these reasons, I am of the view that the decree holder rightly applied the method of computation and the decretal amount is to be computed after appropriating the amount received by the decree holder first towards interest and then towards the principal amount as per general rules of appropriation.

(22) ACCORDINGLY, while allowing the execution petition, it is ordered that the judgment debtor shall pay to the decree holder the balance decretal amount as calculated by the decree holder i. e. first towards interest and then towards principal.

(23) THE petition stands disposed of in terms of the aforesaid order.