Appropriation of decretal payments first to interest and costs, then principal, limits further interest to the unpaid balance.

In execution of a money decree, where the decree is silent and the parties have not agreed otherwise, part-payments by a judgment-debtor are appropriated first towards interest and costs and only then towards principal. The Supreme Court of India treated an award under the Motor Vehicles Act, 1988 as a money decree and applied the same rule of appropriation in execution. The argument that this created interest on interest was rejected, because the adjustment follows the settled mode of appropriation rather than compound interest. Interest after appropriation runs only on the unpaid principal balance.

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Issues: Whether amounts deposited by a judgment-debtor in execution of a money decree are to be adjusted first towards interest and costs or first towards principal, and whether interest thereafter runs only on the unpaid principal balance.

Analysis: Order XXI Rule 1 of the Code of Civil Procedure, 1908 governs the modes of payment under a decree and the point from which interest ceases to run, but it does not by itself alter the normal rule of appropriation where the decree contains no specific direction for adjustment. In the absence of an express appropriation clause in the decree or an agreement between the parties, the settled rule is that part-payments are applied first towards interest and costs and only thereafter towards principal. The award under the Motor Vehicles Act, 1988 is to be treated as a money decree, and the procedural rule applies to execution of such awards. The contention that this would amount to interest on interest was rejected because the adjustment is made against the decretal amount according to the established rule of appropriation, not by granting compound interest. Accordingly, once the deposits are appropriated, interest can be computed only on the unpaid principal remaining due.

Conclusion: The amounts deposited had to be adjusted first towards interest and costs, then towards principal, and the decree-holder was entitled to interest only on the unpaid principal balance.

Ratio Decidendi: In execution of a money decree, where the decree does not prescribe a mode of appropriation and the parties have not agreed otherwise, payments made by the judgment-debtor must be adjusted first towards interest and costs and thereafter towards principal, with further interest confined to the unpaid principal.

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