Decretal payment appropriation and compound interest: court deposit treated as principal, not interest, absent contrary consent.

A decretal payment specifically deposited in court as principal was held to be incapable of later appropriation towards interest where the surrounding conduct showed implied consent to that treatment, or in any event estoppel against the creditor. The normal rule of appropriation to interest and costs before principal yields to an express or implied agreement on a different application. On that basis, the deposited sum had to be adjusted against principal, and the creditor could not recharacterise it as interest. The decision also confirms that compound interest or interest on interest cannot be claimed unless it was awarded; the contrary computation was rejected and the matter remitted for recalculation.

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Issues: (i) Whether the amount deposited by the appellant could be appropriated by the respondent towards interest or was required to be adjusted first towards the principal sum due under the award; (ii) Whether the respondent was entitled to claim compound interest or interest on interest in the calculation adopted by it.

Issue (i): Whether the amount deposited by the appellant could be appropriated by the respondent towards interest or was required to be adjusted first towards the principal sum due under the award.

Analysis: The general rule of appropriation of a decretal payment is that, in the absence of a contrary arrangement, payment is adjusted first towards interest and costs and then towards principal. That rule, however, yields where the parties have agreed, expressly or by necessary implication, that the payment will be applied in a different manner. On the facts, the appellant offered the sum specifically as the principal amount due under the award, the deposit was made in the presence of counsel for the respondent, no protest or reservation was recorded, and the respondent withdrew the amount without seeking leave to appropriate it towards interest or otherwise reserving such right. Those circumstances disclosed an implied agreement, and in any event the respondent was estopped from later asserting a contrary appropriation.

Conclusion: The amount of Rs. 89,78,84,930/- had to be treated as paid towards the principal sum, not towards interest, and the respondent could not appropriate it towards interest.

Issue (ii): Whether the respondent was entitled to claim compound interest or interest on interest in the calculation adopted by it.

Analysis: Compound interest had not been granted by the arbitrator, and the Supreme Court had already clarified that such compound interest was not allowed. The respondent's calculation proceeded on the impermissible basis of first treating the deposited amount as interest and then charging interest on interest. That basis was inconsistent with the award as modified and with the applicable legal position on post-award appropriation.

Conclusion: The respondent was not entitled to charge compound interest or interest on interest.

Final Conclusion: The impugned order was set aside, the respondent's computation was rejected, and the matter was remitted to the Single Judge to determine any further amount payable on the basis that the deposited sum stood adjusted towards principal.

Ratio Decidendi: A decretal payment made and accepted in court as a specific principal deposit, without protest or reservation, may be appropriated contrary to the normal rule only if the parties expressly or impliedly agree otherwise; absent such consent, the creditor cannot later recharacterise that deposit as interest and cannot claim compound interest unless it has been awarded.

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