TaxTMI 
TaxTMI 
2006 (10) TMI 493
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....pplicable or not wholly applicable? These are the questions that arise for consideration in these Petitions for Special Leave to Appeal. 2. Leave granted. 3. In Prem Nath Kapur and Anr. v. National Fertilizers Corporation of India Ltd. and Ors.: (1996)2SCC71, a three Judge Bench of this Court held that the expression 'compensation' under Section 23(1) of the Land Acquisition Act, 1894 as amended by Act 68 of 1984 (hereinafter referred to as, "the Act") read in the context of Section 28 or Section 34 thereof, by necessary implication excludes solatium and that no interest is payable on solatium or on the additional amount under Section 23(1)(A) of the Act. In other words, it was held that the liability to pay interest was only on the excess amount of compensation determined under Section 23(1) of the Act by the Civil Court either under Section 26 or on appeal under Section 54 of the Act over and above the amount awarded under Section 11 of the Act. It was also held that the normal rule of appropriation contained in Order XXI Rule 1 of the Code of Civil Procedure relating to execution of decrees for recovery of money, stands excluded by Sections 28 and 34 of the Act and....
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....f appropriation, set out in Prem Nath Kapur (supra) is correct or whether the rule requires to be re-stated on the scheme of the Land Acquisition Act understood in the context of the general rules relating to appropriation and the rules relating to appropriation in execution of money decrees and mortgage decrees. 4. Appropriation is the act of setting apart or assigning a thing or substance to a particular use or person to the exclusion of others; application to a special use or purpose. There are three specialised meanings of the term, i) In company accounting, it is the division of pre tax profits between corporation tax, company tax, company reserves and dividends to shareholders. The term works in the same sense in a partnership situation. ii) In the shipping of produce, the appropriation is the document by which the seller identifies to the buyer the relevant unit in shipment. iii) If a debtor makes a payment to a creditor and does not specify which debt the payment is in settlement of, the creditor may appropriate it to any of the debts outstanding on the debtor's account. This is often known as appropriation of payments. (See P. Ram....
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...." The relevant provisions governing contractual dealings are found in Sections 59 to 61 of the Indian Contract Act. According to Pollock & Mulla, Indian Contract Act, 12th Edition, the underlying principle is that when several debts are due and owing to one person, any payment made by the debtor either with an express intimation or under circumstances from which an intimation may be implied must be applied to the discharge of the debt in the manner intimated or which can be implied from the circumstances. Mulla proceeds to observe, "In England, 'it has been considered a general rule since Clayton's case that when a debtor makes a payment he may appropriate it to any debt he pleases, and the creditor must apply it accordingly'. Where several distinct debts are owing by a debtor to his creditor, the debtor has the right when he makes a payment to appropriate the money to any of the debts that he pleases, and the creditor is bound, if he takes the money, to apply it in the manner directed by the debtor. If the debtor does not make any appropriation at the time when he makes the payment, the right of appropriation devolves on the creditor." 8. The Rule of App....
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....ovides for issue of notice of deposit to the plaintiff through the court and for payment out of the amounts to the plaintiff if he applies for the same. Rule 3 specifically states that no interest shall be allowed to the plaintiff on any sum deposited by the defendant from the date of such deposit, whether the sum deposited is in full discharge of the claim or it falls short thereof. Rule 4 enables the plaintiff to accept the deposit as satisfaction in part and allows him to pursue his suit for what he claims to be the balance due, subject to the consequences provided for therein regarding costs. It also deals with the procedure when the plaintiff accepts the payment in full satisfaction of his claim. 11. Order XXI Rule 1 provides the modes of paying money under a decree. It stipulates that all monies payable under a decree shall be paid: (a) by deposit into the Court whose duty it is to execute the decree, or (b) out of court, to the decree holder in the manner provided, or (c) otherwise, as the court which made the decree directs. Sub-Rule (2) provides that where a payment is made by deposit into the court or as directed in the decree, the judgment debtor shall give notice the....
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....der XXIV, Rules (1), (2) and (3), provide that in the case of a suit the defendant may pay into court such sum of money as he considers as satisfaction in full of the claim. Notice of the deposit is given to the plaintiff, who is entitled to draw the money out, whether he takes it in full discharge or not, and no interest is allowed to the plaintiff upon the amount of the deposit. There is no corresponding provision as to payment out of court and the cessation of interest in execution matters, but there does not seem to be any reason why the same thing should not happen in execution proceedings as in the case of suits." After referring to the facts and the position that the court could have ordered the money to be paid over to the decree holder in partial discharge of the decree debt soon after the amount was deposited, the court stated, "We think that in this case we ought to apply the analogy of the rules which relate to payment into court of money by the defendant in a suit, and that in this view the decisions of the courts below were correct and should be affirmed." The same view was taken by the Patna High Court in Gopalje v. Summit Mandar. After referring with ....
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....t of the Board observed: 'There is a debt due that carries interest. There are moneys that are received without a definite appropriation on the one side or on the other, and 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. That rule is referred to by Rigby, L.J., in the case of Parr's Banking Co. v. Yates 1898 (2) QB 460 in these words: "The defendant's counsel relied on the old rule that does, no doubt, apply to many cases, namely, that where both principal and interest are due, the sums paid on account must be applied first to interest. That rule, where it is applicable, is only common justice. To apply the sums paid to principal where interest has accrued upon the debt, and is not paid, would be depriving the creditor of the benefit to which he is entitled under his contract.' Learned Counsel for the appellant contended that in Venkatadri Appa Row's case (supra) there was no specific appropriation by the debtor, whereas in the present case there is specific direction by the debtor. But the normal ru....
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....t to the sale or properly incurred in any attempted sale; secondly, in payment of whatever is due to the prior mortgagee on account of the prior mortgage, and of costs, properly incurred in connection therewith; thirdly, in payment of all interest due on account of the mortgage in consequence whereof the sale was directed, and of the costs of the suit in which the decree directing the sale was made; fourthly, in payment of the principal money due on account of that mortgage; and lastly, the residue (if any) shall be paid to the person proving himself to be interested in the property sold, or if there are more such persons than one, then to such persons according to their respective interests therein or upon their joint receipt. Under Sub-Rule (2) it is made clear that nothing in that Rule or Rule 12 shall affect the powers conferred by Section 57 of the Transfer of Property Act. 16. A Full Bench of the Lahore High Court in Jai Ram v. Sulakhan Mal AIR 1941 Lah 386 considered the position in detail. That was a case where the property had been sold in execution of a mortgage decree and the question was about the appropriation of the sale proceeds brought to court. The question was ....
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.... holder and the rule of appropriation as referred to in the decision followed. But the question is whether the same principle can be extended in view of the specific provision contained in Rule 1 of Order XXI of the Code especially after its amendment by Act 104 of 1976. That Rule provides for the modes of paying money under a decree. The modes are: (a) by deposit into the Court whose duty it is to execute the decree, or (b) out of Court, to the decree holder in the manner provided, or (c) otherwise, as the Court which made the decree, directs. Sub-rules (4) and (5) seem to be relevant for our purpose. They read: "(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 acceptance of the postal money order or p....
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.... 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 re-appropriation 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. 21. As an illustration, we can take the following situation. Suppose, a decree is passed for a sum of Rs. 5,000/- by the trial court along with interest and costs and the judgment debtor deposits the same and gives notice to the decree holder either by approaching the executing court under Order XXI Rule 2 of the Code or by making the deposit in the execution taken out by the decree-holder under Order XXI Rule 1 of the Code. The decree holder is not satisfied with the decree of the trial court. He goes up in appeal and the appellate cou....
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.... on the judgment debtor to pay interest on that part of the principal which he has already paid or deposited. 22. Going by this principle and for the moment keeping out the scheme of the Land Acquisition Act, it appears to us that on payment or deposit of the amount awarded by the Collector in terms of Section 11 read with Section 31 of the Act, the claimant cannot thereafter claim any interest on that part of the compensation paid to him or deposited for the payment to him once notice of deposit is given to him. Thereafter, when the reference court enhances the compensation with consequential enhancement in solatium and interest under Section 23(1A) of the Act and further awards interest on the enhanced compensation in terms of Section 28 of the Act, the claimant/decree holder can seek an appropriation of the amounts deposited pursuant to that award decree, only towards the enhanced amount so awarded by the reference court. While making the appropriation, he can apply the amount deposited, first towards the satisfaction of his claim towards interest on the enhanced amount, the costs, if any, awarded and the balance towards the land value, solatium and the payment under Sections....
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....ons 23 and 24 dealing with matters to be considered in determining the compensation and matters to be excluded in determining the compensation as enjoined by Section 15 of the Act. Under Section 12 of the Act, the award becomes final as between the Collector and the persons interested and the Collector is to give notice of his award to persons interested. On making the award, the Collector may take possession of the land in terms of Section 16 of the Act. Under Section 31, on making an award under Section 11, the Collector shall tender payment of the compensation awarded by him to the persons interested entitled thereto according to the award, and shall pay it to them unless prevented by the contingencies referred to in Section 31 itself. Under Section 34 of the Act, when the amount of compensation awarded is not paid or deposited on or before taking possession of the land, the Collector shall pay the amount awarded with interest thereon at the rate of nine per cent per annum from the time of taking possession till it shall have been paid or deposited. But if the compensation or any part thereof is not paid within a period of one year from the date on which possession is taken, int....
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.... the reference court and the second is that interest on the enhanced amount awarded is payable from the date of taking possession at the rate of 9% per annum for the first year after taking possession and thereafter at 15% per annum till the deposit of the excess is made. This clearly indicates that there is no scope for the re-opening of the appropriation already made pursuant to the award. The other significant factor is that the award should specify the amount awarded as market value of the land separately and the other amount, if any, awarded under other heads of Section 23(1). 25... Under Section 54 of the Act, a person, still not satisfied with the decree of enhancement in his favour on the reference under Section 18 of the Act, has a right to file an appeal to the High Court and from the decision of the High Court in such an appeal, an appeal to the Supreme Court. If one were to go by the definition of 'Court' occurring in Section 3(d) of the Act, Section 28 providing for payment of interest on excess compensation may not apply to an appeal under Section 54 of the Act on the excess, if any awarded by the High Court or in subsequent appeal by the Supreme Court. But....
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....e deposit made, falls short of the enhancement decreed, there can arise the question of appropriation at that stage, in relation to the amount enhanced on the reference. 28. The third stage occurs, when in appeal, the High Court enhances the compensation as indicated already. That enhanced compensation would also bear interest on the enhanced portion of the compensation, when Section 28 is applied. The enhanced amount thus calculated will have to be deposited in addition to the amount awarded by the reference Court if it had not already been deposited. 29. The fourth stage may be when the Supreme Court enhances the compensation and at that stage too, the same rule would apply. 30. Can a claimant or decree holder who has received the entire amount awarded by the reference court or who had notice of the deposit of the entire amount so awarded, claim interest on the amount he has already received merely because the appellate court has enhanced the compensation and has made payable additional compensation? We have already referred to Order XXI and Order XXIV of the Code to point out that such a blanket re-opening of the transaction is not warranted even in respect of a money d....
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.... the Privy Council, held that interest will cease to run only on notice of the deposit being given and not from the date of the deposit. This Court further held that after the amendment of Order XXI Rule 1 of the Code by Act 104 of 1976, this position that only upon service of notice interest would cease to run, got reinforced and that the High Court was in error in rejecting the argument that in the absence of notice of deposit being given, there was no cessation of the running of interest. This Court specifically did not decide any other question. For, this Court stated, "It is not necessary for purposes of this case to decide whether the creditor was bound to appropriate the amount towards principal once it was deposited in court and intimation of the deposit was served on the decree holder as it does not appear that respondent ever served any notice on the appellant about the deposit." 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 rules of appropriation by virtue of the provisions of the Land Acquisition Act. In fact, that case was ....
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....est on the total amount and the balance amount and interest accrued thereon, and recover the balance in execution. The High Court was therefore not right in interfering with the order of the executing court. This Court did not accede to the submission that the question was concluded by the decision in Mathunni Mathai v. Hindustan Organic Chemicals Ltd. and Ors. (supra). This Court posed two questions. When does the liability of the State to pay interest cease? Whether the owner of the land is entitled to appropriate from the amount deposited, the amounts towards costs first and then towards interest and then towards the principal amount and again claim interest on the total amount? 35. This Court made a detailed survey of the relevant provisions of the Land Acquisition Act and after summing up the position held: "A reading of the above provisions would establish that the award consists of (a) the compensation determined under Section 23(1)(b) solatium on the market value determined under Section 23(2), as additional sum for compulsory nature of acquisition, and (c) payment of interest on the amount of compensation under Section 11, on excess or part thereof under Sectio....
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...., the liability to pay interest thereon arises from the date on which the quantification was so made but, as stated earlier, it relates back to the date of taking possession of the land till the date of deposit of interest on such excess compensation into the court.... The liability to pay interest is only on the excess amount of compensation determined under Section 23(1) and not on the amount already determined by the Land Acquisition Officer under Section 11 and paid to the party or deposited into the Court or determined under Section 26 or Section 54 and deposited into the court or on solatium under Section 23(2) and additional amount under Section 23(1-A)." 36. This Court ultimately held that the right to make appropriation is indicated by necessary implication, by the award itself as the award or decree clearly mentions each of the items. When the deposit is made towards the specified amounts, the decree holder is not entitled to deduct from the amount of compensation towards costs, interest, additional amount under Section 23(1-A) with interest and then to claim the total balance amount with further interest. Referring to Meghraj (supra), this Court held that the ratio of....
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....vides for a mode of appropriation not consistent with that in Order XXI Rule 1 of the Code or the general law and to that extent, the scheme of the Act would prevail. 39. Though, a decree holder may have the right to appropriate the payments made by the judgment-debtor, it could only be as provided in the decree - if there is provision in that behalf in the decree - or, as contemplated by Order XXI Rule 1 of the Code as explained by us above. The Code or the general rules do not contemplate payment of further interest by a judgment debtor on the portion of the principal he has already paid. His obligation is only to pay interest on he balance principal remaining unpaid as adjudged either by the court of first instance or in the court of appeal. On the pretext that the amount adjudged by the appellate court is the real amount due, the decree-holder cannot claim interest on that part of the principal already paid to him. Of course, as indicated, out of what is paid he can adjust the interest and costs first and the balance towards the principal, if there is a shortfall in deposit. But, beyond that, the decree- holder cannot seek to re-open the entire transaction and proceed to rec....
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....ree has to do so under Section 26 of the Act) and amounts are deposited towards those different heads, the appropriation would be on the basis of the direction under the decree which must be taken to be one for crediting the various sums paid under particular heads. On the scheme of the Act, especially the wording of Section 34 and Section 28 of the Act it is not possible to say that the said approach made in Prem Nath Kapur (supra) is erroneous or is unreasonable or is not a line of approach that is not warranted. Therefore, when the judgment debtor State makes a deposit along with the calculation appropriating distinct sums towards various heads of compensation as awarded by the reference court or by the appellate court in the appellate decree, and the amount is received by the decree holder, the decree holder must be taken to be not entitled to seek an appropriation as if the judgment debtor has not made any intimation and that he is entitled to appropriate at his volition. Considering the scheme of compensation under the Act in the context of the specific nature of the items specifically referred to in Section 23 of the Act, we are of the view that the approach adopted in Prem ....