Walchandnagar Industries Limited vs Cement Corporation Of India Limited on 18 September, 2012

[Cites 12, Cited by 14]

Delhi High Court

Walchandnagar Industries Limited vs Cement Corporation Of India Limited on 18 September, 2012

1. This order will dispose of the remaining controversy between the parties with regard to the execution of an Award which was passed more than 17 years ago, on 26th April 1995, by the sole Arbitrator in terms of which the Judgment Debtor ('JD'), Cement Corporation of India Ltd. ('CCI') was to pay the Decree Holder ('DH') Walchandnagar Industries Ltd. ('WIL') a sum of Rs.6,50,74,341 together with simple interest at 12% per annum with effect from 31st January 1989, the date on which the learned Arbitrator entered upon reference, till the date of payment.

2. Subsequently, while disposing of the objections filed by CCI, by an order EX.P. 200 of 2002 Page 1 of 23 dated 16th May 2002, a learned Single Judge of this Court modified the said Award whereby the amount payable by the JD to the DH stood reduced to Rs.5,53,32,728 without any change as regards payment of simple interest on the said amount @ 12% per annum with effect from 3rd January 1989 till the date of payment. On 12th July 2002, the Court clarified the order dated 16th May 2002 and stated that simple interest at 12% would be payable on the awarded amount with effect from 3rd January 1989 till the date of payment.

Proceedings in the execution petition\

3. The present execution petition was filed on 5th September 2002. On 13th September 2004 warrants of attachment in respect of immovable properties of the JD were ordered to be issued. On 26th May 2005, the JD filed E.A. No. 194 of 2005 under Order XXI Rule 1 of the Code of Civil Procedure, 1908 ('CPC') for deposit of the 'principal decretal amount' in Court and keeping the same in a fixed deposit ('FD'). Paras 3 and 4 of the said application, which are relevant for the purposes of the present dispute, read as under:

"3. Without prejudice to the objections and contentions raised by the Judgement Debtors in the above applications, the Judgement Debtor wishes to deposit the principal decretal amount of Rs.5,53,32,728 in this Hon'ble Court which has been arranged by the Judgement Debtor with the assistance of Ministry of Heavy Industry.

4. That on the deposit of the above principal decretal amount in the court, interest on the said amount shall cease to accrue any further. In view of the objections raised by the Judgement Debtor in the applications referred to in para 2 above, the aforesaid amount deposited by the Judgement Debtor may not be released till the disposal of EA No. 152/2005, whereas the EX.P. 200 of 2002 Page 2 of 23 Judgement Debtor has no objection if the said principal decretal amount on being deposited in court is kept in Fixed Deposit till the disposal of EA No. 152/2005 i.e. application under Order XXI Rules 19 and 26 CPC."

4. In reply to the above two paras, the DH stated:

"3-4. That in reply to the averments made in the corresponding paras it is submitted that vide order dated 26th April 2004 the Hon'ble Court directed the Judgment Debtor to deposit the principal decretal amount of Rs.5,53,32,728/- in this Hon'ble Court and the Judgment Debtor defaulted in making such deposits. It is most respectfully prayed that the decretal amount of Rs.5.53 crores deposited by the Judgment Debtor in pursuance to the order-dated 14.7.2005 be released in the favour of Decree Holder. That even after release of 5.53 crores to the Decree Holder an amount of Rs.15 crores is payable to the Decree Holder by the Judgment Debtor. It is pertinent to mention here that the Decree Holder moved an application i.e E.A. No. 304/2005 for release of money deposited by the Judgment Debtor and the Hon'ble Court was pleased to issue notice on the application and directed that the amount be kept in a fixed deposit for a term of 45 days with a nationalized bank. It is respectfully submitted that as the term of 45 days has already been expired, therefore the amount be released to the Decree Holder immediately."

5. On 14th July 2005, the Court passed the following order in the said application:

"Issue notice to the decree holder through counsel and the DDA, returnable for 18th October, 2005. Ms. Maneesha Dhir accepts notice. Notice may now go to DDA for the date fixed. Reply be filed within four weeks.

EX.P. 200 of 2002 Page 3 of 23

Counsel for the parties, under instructions of the parties, state that in view of the large difference in the value of the attached property of the judgment debtor e.g. Grinding Unit Property Delhi Grinding Unit, Cement Corporation of India Limited, Okhla Industrial Area, Phase-I, New Delhi as estimated by the decree holder and by the judgment debtor, an independent valuer may be appointed to assess the value of the attached property.

Accordingly, Mr. Sanjiv Jain, Architect, of M/s National Architects and Engineers, 195, Ram Vihar, Delhi-110 092, (M) 9811112620, a government approved valuer, is appointed as an Architect/Valuer to assess the valuation of the aforesaid property and file his report within six weeks after taking into account all the relevant factors viz. lease hold nature of the property from the DDA; policy of the DDA for conversion of the lease hold property into free hold; and the factors in regard to the property being the subject matter of certain encumbrance/charges. The fee of the Architect/Valuer is fixed at Rs.1.00 lac, which shall be borne by both sides in equal shares. The Architect/Valuer will give notice to the parties/counsel in order to enable them to file relevant material before him. A copy of the order shall be forwarded to the named valuer forthwith.

Without prejudice to the rights and contentions of the parties, the judgment debtor is allowed to deposit a sum of Rs.5.53 crores i.e. the principal decretal amount in Court within four weeks.

List on 18th October, 2005."

6. Following the above order, on 12th August 2005, the JD deposited in the Court a sum of Rs.5,53,32,728. When the matter was again listed on 30th August 2005 a statement was made by the JD that it had deposited the amount. The Court then directed that the said amount should be kept in a FD.

EX.P. 200 of 2002 Page 4 of 23

On 18th October 2005, on an application, being E.A. No. 304 of 2005, made by the DH for release of the said amount in its favour, the Court directed that the sum of Rs.4 crores be released to the DH.

7. At this stage, it may be noted that there was an issue concerning materials still lying at the site which were to be taken over by the JD. According to the JD, the worth of those materials was over Rs.1.66 crores. In an application, being E.A. No.152 of 2005, it had contended that either the DH should hand over the said materials to the JD without delay or the said sum be adjusted against the amount payable by the JD to the DH in terms of the Award. By the said order dated 18th October 2005, while directing the release of the sum of Rs.4 crores to the DH, the Court also directed that the balance sum of Rs.1,53,32,728 should be released to the DH after it handed over the materials to the JD.

8. On 6th November 2005, the DH withdrew the sum of Rs.4 crores from the Court. Subsequently, on 24th November 2005, after the materials were handed over to the JD, the Court directed the balance sum of Rs.1,53,32,728 to be released to the DH. In para 2 of the order the Court inter alia observed:

"This leaves the balance amount of about Rs.14.5 crores out of the decretal amount of about Rs.20 crores which still needs to be satisfied." Pursuant to the said directions, on 17th February 2006 the balance principal sum of Rs.1,53,32,728 stood withdrawn by the DH.

9. The issue as to what were the principal and interest amounts payable by the JD to the DH in terms of the Award remained to be resolved. When the EX.P. 200 of 2002 Page 5 of 23 matter was listed before the Court on 9th April 2008, the following submissions were noted by the Court in its order:

"Counsel for the judgment debtor states that as against a sum of Rs.14,77,12,898.15/- as on 31.1.2002, as per the contention of the decree holder, the judgment debtor admits that it is liable to pay the decree holder a sum of Rs.11,02,94,044.54/-. Counsel for the decree holder states on instructions that without prejudice to the rights of either parties, the judgment debtor may be directed to pay the aforesaid amount to the decree holder thus leaving the issue of remaining amount payable."

10. On 2nd March 2009, the Court directed payment of interest amount of Rs.11,02,94,044.54 by the JD to the DH by 15th May 2009. The order dated 2nd March 2009 was taken up in appeal by the JD in EFA (OS) No. 17 of 2009. By order dated 11th May 2009, the said appeal was dismissed by the Division Bench as withdrawn with liberty to the JD to approach the learned Single Judge for extension of time in making payment.

11. When the matter was listed again before the learned Single Judge on 7th August 2009, the JD offered to make payment of the admitted liability of Rs.11,02,94,044.54 in three instalments. The order passed by the Court on that date reads as under:

"EA(OS) No. 304/2009

Vide order dated 2nd March, 2009, this court passed a conditional order of proclamation of sale of immovable property under attachment of the judgment debtor i.e. registered office of Cement Corporation of India Ltd., Core-V, Scope Complex, Lodhi Road, New Delhi. The said order was challenged before the Division Bench by EX.P. 200 of 2002 Page 6 of 23 the judgment debtor by way of an appeal being EFA(OS) No. 17/2009 wherein the Hon'ble Division Bench has passed the following order:-

"EFA(OS) 17/2009 and CM No. 6683/2009 (stay) After some hearing learned counsel for the appellant seeks to withdraw the appeal and the application with liberty to move the learned Single Judge in accordance with law for extension of time in making the payment in terms of the impugned order. Liberty granted.

Dismissed as withdrawn."

Thereafter, the present application has been filed by the judgment debtor. During the consideration of the present application, the matter was adjourned from time to time for reporting settlement, if any, between the parties.

When the matter is listed today for hearing of the application, learned counsel for the judgment debtor on instructions from the representative of the judgment debtor submits that the judgment debtor is agreeable to comply with the order dated 2nd March, 2009 to pay the admitted liability of Rs. 11,02,94,044.54 in three instalments.

By way of first instalment, the judgment debtor as handed over an A/c payee cheque dated 6th August, 2009 drawn on State Bank of Hyderabad for the sum of Rs.

3,67,64,681/-. The judgment debtor is agreeable to pay the second instalment on or before the 31st October, 2009 and the third one on or before the 31st of December, 2009.

Learned counsel for the decree holder is agreeable for the said arrangement on the following terms and conditions:-

1. Subject to encashment of cheque of Rs. 3,67,64,681/-

issued by the judgment debtor in favour of the decree EX.P. 200 of 2002 Page 7 of 23 holder which has been handed over to the decree holder in court.

2. The judgment debtor shall abide by the terms as referred by paying the remaining two instalments on or before the 31st October, 2009 and 31st December, 2009 respectively.

3. The judgment debtor shall file an undertaking by way of affidavit of the judgment debtor to abide by the aforesaid arrangement.

Learned counsel for the judgment debtor has no objection for the same and Mr. Sanjeev Ralli, learned counsel for the judgment debtor undertakes to file the undertaking by way of an affidavit within three days from today. Let the same be so done. Learned counsel for the judgment debtor further states that the cheque handed over to the decree holder in court today shall be encashed and the judgment debtor assures that the remaining amount by way of two instalments shall be paid by the judgment debtor in time.

In view of the agreed terms and conditions, the parties are agreeable that the order dated 2nd March, 2009 will not be acted upon any further in the matter.

List this matter on 11th August, 2009 for compliance.

Copy of this order be given dasti to the parties under the signatures of the Court Master."

12. It is not in issue that the JD has paid the aforementioned amount in three instalments of Rs.3,67,64,681 each on 6th August 2009, 31st October 2009 and 31st December 2009 respectively. It is also an admitted position that after the payment made on 31st December 2009, the JD has made no further EX.P. 200 of 2002 Page 8 of 23 payment to the DH.

Submissions of counsel

13. Ms. Maneesha Dhir, learned counsel appearing for the DH submitted on the strength of the decision in Central bank of India v. Ravindra AIR 2001 SC 3095, that the awarded amount on which interest was payable would be the principal decretal amount plus the pre-reference and pendente lite interest at the rate of 12% per annum on the said principal amount up to the date of the Award. She submitted that it was on the said 'awarded amount' that the future simple interest at the rate of 12% per annum would have to be calculated. Reliance is also placed upon the decision in Oil & Natural Gas Commission v. M.C. Clelland Engineers S.A. (1999) 4 SCC 327 in support of this contention. Secondly, she submitted that the interest which commenced accruing on the principal decretal amount from 3rd January 1989 did not cease to accrue till the date of actual payment of the entire decretal amount. She submits that the amount deposited by the JD in the Court i.e. Rs.5,53,32,728 was rightly appropriated by the DH first towards the interest outstanding and, thereafter, towards the principal. The learned counsel has handed over to the Court the calculation and the details showing the manner in which the payments made by the JD from time to time have been appropriated by the DH first towards the interest. With the receipt of the last instalment on 31st December 2009, the interest component as on that date was exhausted and some balance amount got adjusted towards the principal decretal amount which got reduced thereby to Rs.2,91,28,271.92. Further simple interest on the said sum at 12% per annum up to 31st October 2012 has been calculated as Rs.99,03,612.45 thus totaling Rs. 3,90,31,884.37. It is EX.P. 200 of 2002 Page 9 of 23 submitted that notwithstanding the deposit by the JD of the sum of Rs.5,53,32,728, pursuant to the application made under Order XXI Rule 1 CPC, the appropriation was rightly made by the DH of the said sum, first towards the interest and thereafter towards the principal amount. In support of the above submission, reliance is placed by the learned counsel on the decisions in Leela Hotels Limited v. Housing and Urban Development Corporation Limited (2012) 1 SCC 302, Industrial Credit and Development Syndicate v. Smithaben H. Patel (1999) 3 SCC 80, Mathunni Mathai v. Hindustan Organic Chemicals Ltd. (1995) 4 SCC 26, Gurpreet Singh v. Union of India (2006) 8 SCC 457 and Meghraj v. Mst. Bayabai (1970) 1 SCR 523.

14. Countering the above submissions, Mr. Sanjeev Ralli, learned counsel appearing for the JD, first submitted that the operative portion of the Award as modified by the order dated 16th May 2002 of the learned Single Judge has remained unaltered by the subsequent orders of the Court. His submission was simply that the principal amount of Rs.5,53,32,728 should be paid by the JD to the DH together with simple interest at the rate of 12% per annum from 3rd January 1989 onwards. The principal sum was deposited by the JD by giving intimation to the DH in the form of an application being E.A. No. 194 of 2005 filed under Order XXI Rule 1 CPC. His submission was that where the JD has specifically stated that the amount being deposited by the JD in Court was the principal amount, the DH should appropriate the amount as indicated by the JD. If the DH was not agreeable to do that, it had the option of returning the amount to the JD. If the DH was appropriating the amount in a manner different from that indicated by the JD, the DH ought to EX.P. 200 of 2002 Page 10 of 23 put the JD on notice by a written intimation. In support of his submission he placed reliance on the decisions in Jai Ram v. Sulakhan Mal AIR 1941 Lahore 386 (FB) and Garimella Suryanarayana v. Gada Venkataramana Rao (FB) AIR 1953 Madras 458. He also placed reliance on the decisions in Meghraj (supra), Gurpreet Singh (supra) and Prem Nath Kapur v. National Fertilizers Corpn. of India Ltd. (1996) 2 SCC 71.

15. Referring to the reply filed to E.A. No. 194 of 2005, Mr. Ralli pointed out that the DH had at no point of time denied that a sum of Rs.5.53 crores was not to be treated as the principal amount or that interest would nevertheless be payable on the said sum even after its deposit in the Court. He referred to Order XXI Rule 1(4) CPC to urge that once the sum of Rs.5,53,32,728 was deposited in Court by the JD as the principal decretal amount, interest would cease to run on the said sum from that date. With no intimation to that effect from the JD, it was not open to the DH to unilaterally appropriate the amount deposited first towards interest and, thereafter, towards principal. Mr. Ralli submits that the JD was never put to notice of such appropriation till much later. He disputes the observations of the Court in para 2 of its order dated 24th November 2005, particularly since as on that date the interest amount, if any, payable to the DH was certainly not Rs.14.5 crores as contended by the DH.

16. Another contention of Mr. Ralli was that during the pendency of these proceedings, CCI was before the Board for Industrial and Financial Reconstruction ('BIFR') pursuant to the proceedings initiated under the Sick Industrial Companies Act, 1985 ('SICA'). A scheme for revival of CCI was EX.P. 200 of 2002 Page 11 of 23 approved by the BIFR. Referring to the documents forming part of the scheme, which showed that before the BIFR the admitted liability of CCI towards WIL was Rs.11 crores, Mr. Ralli submitted that since WIL had participated in those proceedings and the scheme had been sanctioned by the BIFR, WIL was estopped from claiming a sum beyond Rs.11 crores as interest. Since the said sum had been paid into the Court in three instalments, with the last instalment being paid on 31st December 2009, no further amount was payable.

Four Issues

17. There are four issues that are required to be considered as a result of the above submissions. The first is whether the DH can legitimately contend that the "awarded amount", as far as the present case is concerned, would include not only the principal amount, but pendente lite and pre-reference interest as on the date of the Award? The second issue is whether with the deposit in the Court of the principal decretal amount by the JD, after filing an application under Order XXI Rule 1, no further liability to pay interest thereon arose in terms of Order XXI Rule 1 (4) CPC? The third issue which concerns the rule of appropriation is whether in the absence of instructions to that effect by the JD and in light of the JD's description of the amount being deposited as the 'principal decretal amount', it was open to the DH to appropriate such amount first towards interest and thereafter towards the principal? Lastly, whether on account of the scheme of revival of CCI having been approved by the BIFR with the participation of the DH in the proceedings under SICA, there was no further liability of JD towards the DH beyond Rs.11 crores?

EX.P. 200 of 2002 Page 12 of 23

What is the 'awarded amount' for the purpose of calculation of interest?

18. The Award dated 26th April 1995 is unambiguous as far as the amount payable by the JD to the DH is concerned. The operative portion of the Award, as contained in para 38.7 reads as under:

"38.7. I direct that the aforesaid amount of Rupees Six Crores, fifty lakhs, Seventy-four thousand, three hundred and forty-one shall be paid by CCI to WIL with interest at 12% per annum with effect from 3.1.1989, until payment. I entered upon the reference in this arbitration on 3.1.1989."

19. The operative portion of the Award as regards payment of interest remained unchanged even when this Court by the judgment dated 16th May 2002 made the Award as modified by it rule of the Court. The operative portion of the said judgment reads as under:

"... The result is that award of the arbitrator is modified instead of an amount of Rs.6,50,74,341/-, WIL shall be entitled to an amount of Rs.5,53,32,728/- (Rs.6,50,74,341/- minus Rs.97,41,613/-). There is no merit in other objections of CCI. The same are dismissed.

Award of the arbitrator is made rule of the Court as modified above. A decree in terms thereof is passed. WIL shall be entitled to interest at the rate of 12% per annum from the date of decree till realisation."

20. When a doubt arose as to the correct interpretation of the above operative portion of the judgment, I.A. No. 5619 of 2002 was filed by the DH. The EX.P. 200 of 2002 Page 13 of 23 Court then clarified in its order dated 12th July 2002 as under:

"This application has been filed by the applicant/petitioner for modification of the order passed by me on 16.5.2002. Notice of this application was issued. Reply has been filed. Counsel for the parties have agreed that there is no need for this application to be taken up for consideration as the order is very clear. Interest was awarded from the date of reference till the award was made by the arbitrator himself. Thereafter the interest has been awarded from the date of the award till realisation at the rate of 12% p.a. Arbitrator has awarded the interest from the date of the reference till the payment is made. That award has been made rule of the court by me.

The petitioner shall also be entitled to interest at the rate of 12% p.a. till its realisation on the amount payable under the award as per modification made pursuant to the order passed by this Court on 16.5.2002.

Application stands disposed of."

21. The understanding of the DH that, the sum of Rs. 5,53,32,728 is the principal decretal amount, has remained consistent throughout in these proceedings. Even when the JD filed E.A. No. 194 of 2005 under Order XXI Rule 1 CPC seeking permission to deposit the said principal decretal amount, the DH did not contest the fact that the principal decretal amount was Rs.5.53 crores. This is evident from its reply to paras 3 and 4 of EA No. 194 of 2005, which have been extracted earlier. Consequently, this Court is not prepared to accept the submission of the DH that in the present case the interest at the rate of 12% per annum becomes payable from the date of the Award on Rs. 5,53,32,728 plus the pre-reference and pendente lite interest EX.P. 200 of 2002 Page 14 of 23 on the said sum up to the date of the Award. Although, there are observations made by the Supreme Court in Central Bank of India (supra) and M.C. Clelland Engineers S.A. (supra), the operative portion of the Award in the present case is clear and unambiguous that interest would be payable on the principal amount for the pre-reference, pendente lite and post Award periods on Rs.5,53,32,728. At the stage of execution, it is not possible for the Court to modify the said Award after it has already attained finality. Consequently, the first issue is answered in the negative, against the DH. It is held that the principal "awarded amount", as far as the present case is concerned, is Rs.5,53,32,728 and would not, after the date of the Award include the pre-reference and pendente lite interest accrued as on the date of the Award.

Effect of deposit in the Court of the principal decretal amount by the JD

22. The next issue concerns the order passed by this Court permitting the JD to deposit the principal decretal amount pursuant to the order passed in E.A. No. 194 of 2005. Order XXI Rule 1 CPC reads as under:

"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 by any other mode wherein payment is evidenced in writing; or

(c) otherwise, as the Court, which made the decree, EX.P. 200 of 2002 Page 15 of 23 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;

(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 EX.P. 200 of 2002 Page 16 of 23 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."

23. The legislative intent in enacting the above provisions clearly is that if at any point of time during the execution proceedings the JD is willing to deposit a substantial sum towards satisfaction of the decree, then it may be possible for the Court to consider permitting the JD to do so. The result would be that to the extent of the amount deposited interest will cease to run on such amount. If the words "any amount" occurring in Order XXI Rule 1(4) CPC is not interpreted as contemplating a substantial portion of the total amount payable as on the date of deposit, then it would defeat the legislative object, as every JD would want to take advantage of the provision to avoid paying interest altogether on the sum outstanding even where the interest outstanding on the date of such deposit is more than twice the principal amount. Where the amount deposited is short of the total amount due, then it would be appropriated first towards interest as only then the provision is workable.

24. In Gurpreet Singh (supra) the Division Bench of the Supreme Court considered the interpretation to be placed on the above provision in detail. After considering the earlier decisions in Meghraj (supra), Industrial Credit and Development Syndicate (supra) and Jai Ram (supra) the Court observed in para 26 as under:

"26. Thus, in cases of execution of money decrees or award decrees, or rather, decrees other than mortgage EX.P. 200 of 2002 Page 17 of 23 decrees, interest ceases to run on the amount deposited, to the extent of the deposit. It is true that if the amount falls short, the decree-holder may be entitled to apply the rule of appropriation by appropriating the amount first towards the interest, then towards the costs and then towards the principal amount due under the decree. But the fact remains that to the extent of the deposit, no further interest is payable thereon to the decree-holder and there is no question of the decree- holder claiming a reappropriation when it is found that more amounts are due to him and the same is also deposited by the judgment-debtor. In other words, the scheme does not contemplate a reopening of the satisfaction to the extent it has occurred by the deposit. No further interest would run on the sum appropriated towards the principal."

25. It is clear therefore from the above observations that where the amount deposited "falls short of the principal" it would be open to the DH to appropriate the amount deposited first towards interest. In the present case on the date of the deposit of the aforementioned sum, the interest outstanding was admittedly more than Rs.11 crores, i.e nearly twice the principal sum. The total amount outstanding, therefore, was the principal decretal amount of Rs.5.5 crores and interest of over Rs.11 crores i.e. over Rs.16.5 crores. Merely because the JD labels the amount deposited as the 'principal' amount howsoever insubstantial it may be in relation to the total amount outstanding, the interest on the entire principal sum would not cease to run in terms of Order XXI Rule 1 (4) CPC. Consequently, the second issue is answered against the JD by holding that with the deposit in the Court of the amount of Rs. 5,53,32,728 by the JD, after filing an application under Order XXI Rule 1 CPC, the further liability to pay interest thereon did not cease in terms of Order XXI Rule 1 (4) CPC.

EX.P. 200 of 2002 Page 18 of 23

The rule of appropriation

26. The third issue is whether even after the JD has, with the leave of the Court, deposited the amount after labelling it as 'the principal decretal amount' it was open to the DH to appropriate it first towards interest?

27. To repeat, the mere labelling by the JD of the amount deposited by it under Order XXI Rule 1 CPC is not conclusive of the nature of such deposit, irrespective of what proportion it bears to the total amount due as on the date of deposit. If the amount deposited is short of the total amount, it would be open to the DH to appropriate it first towards interest and only to the extent of the sum so set off, will the interest cease to run. Then again it is not a matter for the unilateral decision of the JD. When the JD seeks leave of the Court by applying under Order XXI Rule 1 CPC, it is for the Court to consider whether such deposit should be permitted and on what terms and to what extent interest would cease to run on such amount in terms of Order XXI Rule 1 (4) CPC. It is inconceivable that in the case, like the present one, where the principal amount is Rs.5 crores and the outstanding interest on the date of application is more than twice the principal amount, the Court will simply allow the JD to unilaterally label the amount sought to be deposited as the 'principal amount' and order that further interest on the said amount will cease to run from the date of deposit.

28. What is significant, as far as the present case is concerned, is that in its order dated 14th July 2005, the Court clearly stated that the deposit is being made by the JD "without prejudice to the rights and contentions of the EX.P. 200 of 2002 Page 19 of 23 parties". Therefore, the mere deposit of that amount by the JD did not constitute waiver by the DH of its contention that the said amount could not exhaust the entire principal amount outstanding as on that date. Further, there was no determination by the Court of that question. In other words by its order dated 14th July 2005 the Court did not permit appropriation of the sum of Rs.5.53 crores entirely towards the principal amount outstanding as on that date.

29. The law as far as appropriation of moneys deposited in Court is fairly well settled. In Gurpreet Singh (supra), after discussing the earlier decisions in Industrial Credit Development Syndicate (supra), Meghraj (supra) and Mathunni Mathai (supra), it was held as under (SCC @ p.479 & 480):

"40. There was no contention in that case based on the scheme of the Land Acquisition Act and the Court also did not consider the question whether there was any deviation from the normal rule of appropriation by virtue of the provisions of the Land Acquisition Act. In fact, that case was concerned more with the question whether notice of deposit was necessary before interest ceased to run, rather than the mode or manner in which the amount deposited was to be appropriated even though this Court did observe that in the absence of any intimation as required by sub-rule (2) of Order 21 Rule 1 of the Code and indication of the manner of appropriation, the payment could not be deemed to have been appropriated towards principal unless the decree-holder admits it to be so."

30. In its recent decision in Leela Hotels Limited (supra) it was held by the Supreme Court that in the absence of any agreement to the contrary, the amount paid will be appropriated first towards interest and only thereafter EX.P. 200 of 2002 Page 20 of 23 towards principal. It was observed in paras 40 and 43 as under (SCC p.312-

313):

"40. Admittedly, there was no agreement between the parties as to how the amounts to be paid in terms of the Award were to be appropriated by the Appellant. Accordingly, in terms of the well settled principle that in such cases it was for the creditor to appropriate such payment firstly against the interest payable, would, in our view, be squarely attracted to the facts of this case. As was laid down by the Privy Council in Meka Venkatadri Appa Rao Bahadur Zamindar Garu v. Raja Parthasarathy Appa Rao Bahadur Zamindar Garu AIR 1922 PC 233 and later reiterated in Rai Bahadur Seth Nemichand v. Seth Radha Kishen AIR 1922 PC 26 when monies are received without a definite appropriation on the one side or the other, "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."

........

43. The philosophy behind the principle set out in Venkatadri case and as reiterated in Rai Bahadur Seth Nemichand case and also in Industrial Credit & Development Syndicate Ltd. v. Smithaben H. Patel (1999) 3 SCC 80 and then consistently followed by this Court, is that a debtor cannot be allowed to take advantage of his default to deny to the creditor the amount to which he would be entitled on account of such default, by way of elimination of the principal amount due itself, unless, of course, the provisions of Section 59 of the Contract Act, 1872, were attracted or there was a separate agreement between the parties in that regard. ..."

EX.P. 200 of 2002 Page 21 of 23

31. There is no need to multiply the law on the aforementioned settled legal position. Consequently, the contention of the JD that the moneys paid by it had to be first appropriated towards principal and not towards interest is rejected. The contention of Mr. Ralli that DH had to give notice to the JD as to how it was appropriating the money deposited is without merit for two reasons. In the first place, the DH has throughout been contending that the interest on the principal amount has mounted and has time and again given the calculation sheets showing that it has appropriated the sums deposited by the JD first towards the outstanding interest. Secondly, although, the statement in para 2 of the Court's order dated 24th November 2005 is not conclusive of the factual position as to the outstanding interest as on that date, clearly the JD, even as on that date, was aware that the interest amount outstanding was far more than the principal decretal amount.

32. The third issue is answered by holding that the DH was justified in appropriating the sum of Rs.5,53,32,728 and the subsequent payments made by the JD first towards the interest outstanding.

Effect of the BIFR Scheme

33. As regards the plea concerning the applicability of SICA, the submission of the JD ignores the order passed by the Appellate Authority for Industrial and Financial Reconstruction ('AAIFR'), before which a statement was made on 27th September 2006 that the JD will not insist upon the implementation of the scheme for revival by the BIFR as far as the liability owing to the DH was concerned. The JD is obviously bound by the said statement.

EX.P. 200 of 2002 Page 22 of 23

Conclusion

34. As a result of the above discussion, the position that emerges is that after the adjustment of the payments made by the JD thus far, the principal amount owing to the DH as on 1st January 2010 is Rs. 2,91,28,271.92. Since no payment has been admittedly made by the JD to the DH after 31st December 2009, simple interest at 12% per annum on the said sum has continued to accrue and as of 31st October 2012 it works out to Rs.99,03,612.45.

35. It is directed that the JD will pay the DH on or before 31st October 2012 the sum of Rs. 2,91,28,271.92 together with simple interest thereon at 12 % per annum from 1st January 2010 till the date of payment. Additionally, the JD will also furnish to the DH, at the time of such payment, the calculation on the basis of which it is making the payment.

36. The prayer in E.A. No. 67 of 2007 does not survive in light of the above order and it is disposed of as such.

37. List Execution Petition No. 200 of 2002 on 20th November 2012 for the JD to report compliance and for further orders.

S. MURALIDHAR, J.

SEPTEMBER 18, 2012 AK EX.P. 200 of 2002 Page 23 of 23

Unlock Advanced Research with PRISMAI

Delhi High Court