REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.9763   OF 2011

(Arising out of SLP(C) No.18509 of 2009)

Leela Hotels Ltd. … Appellant   

Vs.

Housing & Urban Development Corporation Ltd. … Respondent

J U D G M E N T

ALTAMAS KABIR, J.

1. Leave granted.

2. This Appeal has been filed by Leela Hotels Ltd.  

against  the  judgment  and  order  dated  20th July,

2009, passed by the Division Bench of the Delhi  

High Court in EFA(OS) No.4 of 2009, heard along  

with  several  Miscellaneous  Applications  setting  

aside the order dated 19th November, 2008, passed by  

the learned Single Judge, who had directed payment  

to the Appellant herein as per its calculations.  

It is the common case of the parties that on 17th  

October, 1996, the Housing and Urban Development  

Corporation Ltd. (HUDCO) invited offers for grant  

of sub-lease of land measuring 11,480 sq. meters in  

HUDCO Place situated in Andrews Ganj, New Delhi,  

for construction of a Five-Star Hotel thereupon.  

The Appellant herein being the highest bidder, a  

letter of allotment of the said land was issued to  

it on 31st March, 1997, which was followed by a  

perpetual sub-lease dated 4th July, 1997.  Out of  

the  total  consideration,  the  first  instalment  

comprising 40% of the consideration amount was paid  

by the Appellant herein on 10th April, 1997. The  

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second  and  third  instalments,  each  amounting  to  

Rs.65,38,29,000/-, were payable by 31st March, 1998,  

and  31st March,  1999,  respectively.  It  was  

stipulated in the sub-lease that in case of default  

in payment of the second and third instalments, the  

same could be paid along with interest at the rate  

of 20% per annum within three months of the due  

date. It was further stipulated that in default of  

payment even in terms of the said relaxation, the  

allotment would automatically stand cancelled and  

in such event 50% of the amount paid upto that date  

would stand forfeited and the balance 50% would be  

refunded without interest.  Admittedly, the second  

instalment was paid by the Appellant herein along  

with interest for the delayed payment and ground  

rent was also paid till 31st March, 1998.   Since,  

however, the Appellant defaulted in payment of the  

third instalment, the lease agreement was cancelled  

and as per the terms of the agreement 50% of the  

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total  amount  paid  by  the  Appellant  amounting  to  

Rs.76,28,00,500/- was refunded by the Corporation  

to the Appellant, while forfeiting the balance 50%.  

3. Being  aggrieved  by  the  steps  taken  by  the  

Respondent  Corporation,  the  Appellant  filed  a  

Petition before the Chief Justice of the Delhi High  

Court  to  appoint  an  Arbitrator  in  terms  of  the  

arbitration  clause,  which  was  registered  as  

Arbitration  Application  No.193  of  1999.   On  23rd  

June,  1999,  an  Arbitrator  was  appointed  by  the  

Delhi High Court before whom the Appellant herein  

claimed  a  sum  of  Rs.142,16,08,896/-  from  the  

Respondent Corporation along with interest at the  

rate of 20% per annum along with a further sum of  

Rs.19,24,45,800/- comprising the ground rent paid  

along with interest thereon at the rate of 25% per  

annum along with a sum of Rs.5,98,22,058/- towards  

refund of property tax.  A sum of Rs.5,62,27,715/-  

was also claimed by way of damages.

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4. The learned Arbitrator allowed the claims of  

Leela Hotels and rejected the counter-claim made by  

HUDCO. In his Award, the learned Arbitrator held  

that Leela Hotels was entitled to recover and HUDCO  

was obliged to pay damages computed with regard to  

the  amounts  paid  as  the  first  and  second  

instalments of the premium, together with interest  

paid with the second instalment, less the amount  

refunded  by  HUDCO  to  Leela  Hotels  under  letter  

dated 8th July, 1999, and as further reduced by the  

amount of property tax paid by HUDCO on behalf of  

Leela Hotels to the Municipal Corporation of Delhi.  

It was also directed that the interest at the rate  

of 20% per annum would be paid by HUDCO to Leela  

Hotels on the amount representing property tax for  

the period during which the amount remained with  

HUDCO until payment to MCD and also on the amount  

refunded by HUDCO under its letter dated 8th July,  

1999, for the period for which that amount remained  

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with HUDCO until repayment to Leela Hotels.  Leela  

Hotels  was  also  held  to  be  entitled  to  such  

interest on the balance of the amount from the date  

of the respective payments made initially by Leela  

Hotels to HUDCO till the date of the Award.   

5. The  Appellant  filed  its  objections  under  

Section 34 of the Arbitration and Conciliation Act,  

1996, hereinafter referred to as the “1996 Act”,  

before the High Court.  The same was dismissed by  

the  High  Court  by  its  order  dated  21st January,  

2003.  Before the said petition was dismissed, the  

Respondent  herein  undertook  to  deposit  the  

principal  sum  awarded  by  the  Arbitrator  on  or  

before  21st October,  2002.   The  said  sum  of  

Rs.89,78,84,930/-,  was  allowed  to  be  deposited  

without prejudice to the rights and contentions of  

the Respondent herein.  When the cheque for the  

aforesaid  amount  was  brought  to  Court  on  21st  

October, 2002, the said Respondent got it recorded  

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that it represented the net principal amount due  

and payable to the Appellant herein under the Award  

and that the said deposit was without liability on  

its part to pay future interest thereupon.  

6. The first appeal from the said order dated 20th  

January, 2003, having been dismissed by the High  

Court on 9th November, 2004, the Respondent filed a  

Special Leave Petition before this Court, which was  

dismissed  on  12th February, 2008.  Although, the  

Special Leave Petition was dismissed, the rate of  

interest for the pre-Award period was reduced from  

20%  to  18%  per  annum.   Furthermore,  since  this  

Court had directed the Appellant to pay or deposit  

50% of the balance decretal amount, the Respondent  

paid  a  sum  of  Rs.59.61  crores  to  the  Appellant  

herein on 23rd March, 2006.  The Respondent paid a  

further  sum  of  Rs.48.09  crores  to  the  Appellant  

herein on 16th April, 2008, which, according to the  

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Respondent, satisfied the decree. This, in fact,  

was the genesis of the dispute between the parties.

  7. As far as the Appellant herein was concerned,  

in  its  calculation  sheet  the  sum  of  

Rs.89,78,84,930/- was  shown  to  be  appropriated  

towards the interest due under the Award.  A claim  

was also made for interest on the interest.  On the  

other hand, in the calculation sheet filed by the  

Respondent  herein  it  was  indicated  that  the  

aforesaid amount deposited should be appropriated  

towards the principal sum payable to the Appellant  

herein under the Award and had calculated simple  

interest at the rate awarded by the Arbitrator as  

modified by this Court.  Consequently, as was noted  

by the Division Bench of the Delhi High Court, the  

controversy  which  surfaced  on  account  of  the  

contesting claims of the parties was whether the  

aforesaid amount could be adjusted, as claimed by  

the Appellant herein, towards the interest, or was  

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the Appellant obliged to appropriate the said sum  

towards  the  principal  sum  due  to  it  under  the  

Award.   A  further  question  which  surfaced  was  

whether the Appellant herein was entitled to charge  

interest  on  interest  or  compound  interest  in  

accordance  with  the  method  indicated  in  the  

calculation sheet filed by it.   

8. In  dealing  with  the  first  question  as  to  

whether the payment made by the judgment-debtor is  

to be appropriated first towards discharge of the  

principal or towards discharge of the interest, the  

Division Bench noted the decision of this court in  

M/s I.C.D.S. Ltd. Vs.  Smithaben H. Patel & Ors.  

[(1999) 3 SCC 80], wherein, this Court had held  

that Sections 59 and 60 of the Contract Act, 1872,  

would only be applicable at the pre-decretal stage  

and not thereafter and that post-decretal payments  

would have to be made either in terms of the decree  

or  in  accordance  with  the  agreement  arrived  at  

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between  the  parties,  though,  on  the  genuine  

principles indicated in Sections 59 and 60 of the  

aforesaid Act.  After referring to various other  

decisions of this Court and the Lahore High Court,  

the Division Bench of the High Court referred to  

the decision in Meghraj Vs. Mst. Bayabai & others,  

[AIR 1970 SC 161], wherein the law in this regard  

was laid down by this Court that the general rule  

of  appropriation  of  payment  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  would  have  to  be  made  

firstly towards payment of interest and costs and,  

thereafter, in payment of the principal amount.  It  

was, however, indicated that such a principle would  

be subject to an exception when the parties might  

agree  to  the  adjustment  of  the  payment  in  any  

manner despite the decree.  It was, accordingly,  

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held that unless the Respondent herein was able to  

show  that  the  parties  had  either  impliedly  or  

expressly agreed to adjustment of the said sum of  

Rs.89,78,84,930/- towards the principal amount, the  

Appellant herein would be entitled to appropriate  

the  said  amount  fully  towards  the  payment  of  

interest.   

9. It may be indicated that on 11th October, 2002,  

the  Respondent  herein  undertook  to  deposit  the  

principal amount awarded by the Arbitrator on or  

before 21st October, 2002.  Such deposit was allowed  

to  be  made  without  prejudice  to  the  rights  and  

contentions of HUDCO in the proceedings before the  

High  Court.   Subsequently,  by  order  dated  21st  

October, 2002, the said position was reiterated and  

it  was  recorded  that  the  deposit  made  by  the  

Respondent would be without prejudice to the rights  

and  contentions  of  the  parties  in  the  pending  

proceedings and without any liability on the part  

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of  the  Respondent  to  make  payment  of  further  

interest  on  the  above-mentioned  amount.   The  

Division Bench took the view that having regard to  

the submissions made on behalf of the Respondent  

herein that the said amount of Rs.89,78,84,930/-  

was on account of the principal sum due and payable  

to the Appellant herein under the Award, and since  

no  objection  had  been  raised  by  the  Appellant  

herein to such contention, it would have to be held  

that  the  said  sum  had,  in  fact,  been  adjusted  

towards  the  principal  sum.  After  observing  that  

before withdrawing the amount, the Appellant herein  

had  neither  sought  permission  of  the  Court  to  

appropriate the sum towards interest nor given any  

intimation regarding withdrawal of the said amount,  

the  Division  Bench  made  it  clear  that  the  said  

amount would be appropriated towards the principal  

amount due and not towards interest.  The Division  

Bench  noted  that  the  amount  being  withdrawn  was  

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without prejudice to the Appellant’s rights towards  

payment of interest.  The Division Bench took the  

view that since the Respondent herein was keen to  

avoid the possibility of paying further interest on  

the principal sum, in the event of its objections  

being  dismissed,  it  offered  to  deposit  the  

principal  sum  payable  under  the  Award.   The  

Division Bench observed that it made good business  

sense on the part of the Appellant, at that time,  

to  accept  the  aforesaid  amount  towards  the  

principal sum payable to it under the Award and to  

utilize the said sum for its business, instead of  

waiting  for  the  final  outcome  of  the  litigation  

between the parties.  The Division Bench came to  

the conclusion that it was in such circumstances  

that the Respondent had agreed to deposit the said  

sum of Rs.89,78,84,930/- specifically, towards the  

principal amount under the Award.      

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10. The Division Bench further observed that both  

the  parties  were  duly  represented  by  their  

respective  counsel,  when  the  Respondent  herein  

offered  and  undertook  to  deposit  the  principal  

amount awarded by the Arbitrator and also insisted  

that it be recorded as part of the proceedings that  

the said payment was to be appropriated towards the  

principal amount awarded by the learned Arbitrator  

and was without any further liability on the part  

of  the  Respondent  to  make  payment  of  further  

interest on the said amount.  The Division Bench  

based  its  judgment,  to  a  large  extent,  on  the  

assumption that since the Appellant had remained  

silent to the said stipulation made on behalf of  

the Respondent, it would have to be presumed that  

the  Appellant  herein  had  consented  to  the  said  

proposal.

11. On such reasoning, the Division Bench set aside  

the order passed by the learned Single Judge on 19th  

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November,  2008,  and  after  noting  that  a  sum  of  

Rs.50.54  crores  had  been  deposited  by  the  

Respondent No.1 herein during the pendency of the  

Appeal, directed him to decide in the light of the  

judgment  rendered  by  the  Division  Bench  as  to  

whether  any  further  amount  was  payable  by  the  

Respondent No.1 herein to the Appellant in terms of  

the judgment.  Consequential directions were also  

given on the outcome of such findings.  

12.   As  mentioned  hereinbefore,  this  Appeal  is  

directed against the said judgment of the Division  

Bench dated 20th July, 2009.

13. Appearing for the Appellant, Mr. Ashok Desai,  

learned Senior Advocate, submitted that the crucial  

question to be considered and decided in this case  

was whether the amounts deposited or paid by HUDCO  

from time to time were to be appropriated first  

towards  the  interest  payable  on  the  principal  

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amount, following the decision in Smithaben’s case  

(supra), or towards the principal, having regard to  

the  provision  in  the  Award  relating  to  future  

interest which states that Leela Hotels is entitled  

to interest at the rate of 15% per annum from the  

date of the Award to the date of recovery.  Mr.  

Desai submitted that the language of the Award is  

clear that the amount on which future interest has  

to be calculated includes interest awarded by the  

Arbitrator till the date of the Award.  Mr. Desai  

submitted  that  it  was  not  a  case  of  compound  

interest, but a case of calculating simple interest  

on the amount as remained unpaid each year.   Mr.  

Desai also submitted that after the Award had been  

passed, Leela Hotels had calculated interest on the  

basis of yearly rests, but subsequently gave up its  

claim on the basis of compound interest and limited  

its claim to simple interest after appropriating  

the  amount  received  from  HUDCO  first  towards  

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interest and then towards principal, in accordance  

with the decision in Smithaben’s case (supra).  Mr.  

Desai submitted that the High Court had erred in  

accepting the calculation made by HUDCO which had  

not computed the amount awarded by the Arbitrator  

and had not computed future interest in terms of  

the Award.   

14. On the second issue as to how the money paid by  

HUDCO is to be appropriated, Mr. Desai urged that  

in  Smithaben’s  case  (supra),  it  had  been  very  

clearly explained that in view of the consistent  

view taken first by the Privy Council and then by  

this Court, the general rule of appropriation of  

payment towards a decretal amount is that such an  

amount is to be adjusted firstly in accordance with  

the directions contained in the decree and in the  

absence  of  such  directions,  adjustment  should  

firstly be made in payment of interest and costs  

and  thereafter  towards  payment  of  the  principal  

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amount.  Mr. Desai urged that the Division Bench  

had  misapplied  the  ratio  in  Smithaben’s  case  

(supra)  in  assuming  that  the  unilateral  and  

voluntary deposit offered to be made by HUDCO in  

Court amounted to such deposit being made upon an  

implied  acceptance  that  the  same  would  be  

appropriated towards the principal amount.  It was  

urged that the issue of implied agreement had never  

been  raised  or  argued  before  the  learned  Single  

Judge and there is no pleading in support thereof.  

Mr.  Desai  also  urged  that  the  provisions  of  

Sections 59 and 60 of the Indian Contract Act would  

also have no application to the facts of this case  

since they only applied in regard to distinct debts  

and not for enforcing a decree or what is regarded  

as a decree by legal fiction.

15. Mr. Desai submitted that the judgments of both  

the  learned  Single  Judge  and  the  Division  Bench  

were centered around the payment of Rs.89.78 crores  

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and  the  manner  in  which  the  same  was  to  be  

appropriated.  It was urged that since the same was  

paid after the passing of the decree, Leela Hotels  

is entitled to appropriate the said amount first  

towards the interest and costs and then towards the  

principal.  Mr. Desai urged that on account of the  

wrong assumptions made by the Division Bench, its  

judgment under appeal was liable to be set aside.   

16. On the other hand, appearing for HUDCO, Mr.  

Parag  P.  Tripathi,  learned  Additional  Solicitor  

General,  firstly  urged  that  the  issue  regarding  

charging  of  compound  interest  did  not  survive,  

since  the  parties  had  agreed  that  no  compound  

interest was payable in terms of the Award.  As to  

the other question as to whether the sums deposited  

by HUDCO were to be appropriated first against the  

interest  and  then  against  the  principal,  it  was  

contended that the same was no longer  res integra  

since the Award had made it clear that the first  

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payment of Rs.76.28 crores had to be reduced from  

the principal amount which was due. The learned ASG  

submitted that it was for the first time before  

this Court that the Appellant has contended that  

the sum of Rs.76.28 crores would be appropriated  

first  towards  the  interest  and  then  towards  the  

principal amount.  The learned ASG pointed out that  

the refund had been made even prior to the making  

of a Reference to the Arbitrator or pronouncing of  

the  Award  i.e.  at  the  pre-decretal  stage  and,  

accordingly, when the refund was made, there was no  

determination  as  to  whether  any  payment  was  due  

from  HUDCO  to  the  Appellant.   Accordingly,  the  

contention of Leela Hotels that the said refund of  

Rs.76.28  crores  was  to  be  first  appropriated  

towards the interest does not even arise.  It was  

also submitted that the first payment of 50% of the  

awarded amount amounting to Rs.76.28 crores was,  

therefore,  treated  by  the  Award  to  be  payment  

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appropriated towards the principal and since the  

Award  had  not  been  challenged  by  the  Appellant  

herein, the objections to the Award under Section  

34 of the Act filed by the Respondent also stood  

concluded by the decision of this Court in Civil  

Appeal No.1094 of 2006.   

17. As regards the second amount of Rs.89.78 crores  

tendered by HUDCO in the Delhi High Court on 21st  

October,  2002,  during  the  pendency  of  the  

proceedings under Section 34 of the Arbitration and  

Conciliation  Act,  1996,  it  was  submitted  by  the  

learned ASG that the same has to be appropriated  

towards  the  principal  amount  due  from  HUDCO  to  

Leela  Hotels.   It  was  submitted  that  the  said  

amount was in the nature of a pre-decretal payment  

and that the appropriation of the amount will have  

to be in the manner indicated by the Respondent to  

which there had been no demur.

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18. It was next submitted by the learned ASG that  

analogy  of  a  post-decretal  payment  cannot  be  

applied to an Arbitration Award under the 1996 Act  

for the simple reason that the Arbitration Award  

under the 1996 Act does not attain the status or  

character of a decree within the meaning of the  

Code of Civil Procedure.  It is to be executed “as  

if it were a decree”, which means that it is not a  

decree.

19. It was thirdly urged by the learned ASG that  

assuming  that  the  Award  could  be  treated  as  a  

decree and the second payment is a post-decretal  

payment, even then the said payment will have to be  

treated as appropriation towards the principal sum,  

since Leela Hotels had been duly intimated of the  

nature of the deposit and by way of an implied  

contract, Leela Hotels had appropriated the said  

sum towards the principal.   

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20. The learned ASG referred to the decision of  

this Court in NALCO Vs. Presteel & Fabrication Pvt.  

Ltd. [(2004) 1 SCC 540], wherein it had been held  

that  there  is  no  question  of  any  decree  being  

honoured pursuant to the passing of an Award and  

unlike a judgment within the meaning of the Civil  

Procedure  Code,  an  Award  remains  unenforceable  

during  the  period  available  for  challenging  the  

Award,  and,  thereafter,  till  such  time  as  the  

Petition under Section 34 is disposed of by the  

appropriate Court.  Reference was also made to the  

decision  of  this  Court  in  (1)  Paramjeet  Singh  

Patheja Vs. ICDS Ltd. [(2006) 13 SCC 322], wherein  

it was explained that the Arbitrator is not a Court  

and  accordingly  an  arbitration  is  not  an  

adjudication  and  an  Award  is  not  a  decree,  (2)  

Morgan  Securities  and  Credit  Pvt.  Ltd. Vs.  Modi  

Rubber Ltd. [(2006) 12 SCC 642] and (3) West Bengal  

Essential  Commodities  Supply  Corporation Vs.  

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Swadesh Agro Farming & Storage Pvt. Ltd. & Anr.  

[(1999) 8 SCC 315], where similar views have been  

expressed.  Reference was also made to the decision  

of the Privy Council in the case of  Rai Bahadur  

Seth Nemichand Vs.  Seth Radha Kishen [AIR 1922 PC  

26],  wherein  it  was,  inter  alia,  held  that  a  

creditor to whom principal and interest are owed is  

entitled  to  appropriate  any  indefinite  payment  

which he gets from a debtor towards the payment of  

interest.  However,  a  debtor  might  in  making  a  

payment stipulate that it was to be applied only  

towards the principal.  If such a stipulation was  

made, the creditor was at liberty to refuse the  

payment on such terms, but then he would have to  

give back the money or the cheque by which the  

money was offered.  If the amount was accepted then  

the creditor would be bound by the appropriation as  

proposed by the debtor.

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21.   As  to  the  decision  of  this  Court  in  

Smithaben’s case (supra), the learned ASG submitted  

that the payment was unilaterally made out of Court  

by the debtor with a covering letter, which was  

immediately responded to by the decree-holder who  

made it clear that he had appropriated the amount  

towards  interest  alone.   This  Court,  therefore,  

held  that  the  creditor  was  not  bound  by  the  

appropriation so made by the debtor.  The learned  

ASG  submitted  that  in  the  instant  case  the  

Respondent had tendered a sum of Rs.89.78 crores in  

Court as payment towards the principal amount and  

the same had been accepted by Leela Hotels without  

objection  and  accordingly  the  decision  in  

Smithaben’s case (supra) would have no application  

to  the  facts  of  this  case.   The  learned  ASG  

submitted that there being little or no substance  

in the Appeal, the same was liable to be dismissed  

with costs.  

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22. Of the two issues involved in this matter, it  

appears  that  the  issue  relating  to  charging  of  

compound interest did not survive since the parties  

had  agreed  that  no  compound  interest  would  be  

payable in terms of the Award.  In fact, although  

such an assertion had been made by the learned ASG,  

the same was not seriously opposed by Mr. Desai who  

had taken the stand that this was not a case of  

compound interest, but a case of calculating simple  

interest  on  the  amount  as  remained  unpaid.  Mr.  

Desai  also  accepted  the  position  that  after  the  

Award had been passed by the learned Arbitrator,  

Leela  Hotels  had  calculated  the  interest  on  the  

basis of yearly rests, but had subsequently given  

up its claim of compound interest and limited its  

claim to simple interest after appropriating the  

amount received from HUDCO, first towards interest  

and then towards the principal in accordance with  

the decision in Smithaben’s case (supra).          

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23. Consequently, the only issue which remains for  

decision is whether the amounts deposited and/or  

paid by HUDCO to M/s Leela Hotels in terms of the  

Award of the learned Arbitrator, was first to be  

appropriated towards payment of the interest due on  

the principal sum or whether the same was to be  

appropriated against the principal sum itself.

24. From  the  submissions  made  on  behalf  of  the  

respective parties, the following payments appear  

to  have  been  made  by  HUDCO  to  the  Appellant  

herein:-

(i) 12.07.1999   -   Rs.76.28 crores

(ii) 21.10.2002   -   Rs.89.78 crores

(iii) March 2006   -   Rs.59.61 crores

(iv) May 2008   -     Rs.48.09  

crores and  

(v) May 2009   -     Rs.50.54  

crores.

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It has been contended by the learned ASG that  

the  amount  of  Rs.89.78  crores  having  been  paid  

towards the principal amount, the other payments  

made  subsequently  were  towards  interest  and,  

accordingly, there was no amount due and payable to  

the Appellant.  On the other hand, it has been  

claimed on behalf of the Appellant that the said  

sum  of  Rs.89.78  crores  had  been  appropriated  

against  the  interest  as  per  the  decision  in  

Smithaben’s  case  (supra),  and,  accordingly,  the  

stand taken on behalf of HUDCO was erroneous.   

25. As indicated hereinbefore, the submissions made  

by the learned ASG on behalf of HUDCO was based on  

the proposition as contained in Sections 59 and 60  

of the Indian Contract Act, 1872, on account of the  

stipulation recorded on behalf of HUDCO that the  

amount  of  Rs.89.78  crores  was  being  tendered  

towards the principal sum, to which there was no  

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objection from the Appellant and, accordingly, it  

must be held that that since the amount had been  

received without demur, such payment fell within  

the provisions of Section 59 of the aforesaid Act.  

In  fact,  the  Division  Bench  of  the  High  Court  

proceeded to consider such payment and acceptance  

to be a voluntary acceptance by the Appellant of  

the aforesaid amount as appropriation towards the  

principal as it made good business sense to accept  

the  same  and  to  utilise  the  same  in  spite  of  

waiting  for  something  indefinite  in  the  future.  

Such a submission, though legal and correct, is not  

supported by the materials on record.   

26. 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  

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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 & Ors.  

Vs. Raja Parthasarathy Appa Rao Bahadur Zamindar  

Garu [AIR 1922 PC 233], and later reiterated in Rai  

Bahadur Seth Nemichand’s case (supra), 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 when that is satisfied, in  

payment of the capital.  In the latter case, the  

said principal was restated and it was indicated  

that a creditor to whom principal and interest are  

owed  is  entitled  to  appropriate  any  indefinite  

payment which he gets from a debtor to the payment  

of interest.  It was also indicated that a debtor  

might in making a payment stipulate that it was to  

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be applied only towards the principal.  If he did  

so, the creditor was at liberty to refuse payment  

on such terms, but then he would have to give back  

the  money  or  the  cheque  by  which  the  money  is  

proffered and if the same is accepted, the creditor  

would  then  be  bound  by  the  appropriation  as  

proposed by the debtor.

27. In the instant case, a unilateral assertion had  

been made by HUDCO as the debtor that the sum of  

Rs.89.78  crores  was  being  tendered  as  payment  

towards the principal amount and that there was,  

therefore, no other amounts due and payable to the  

creditor Leela Hotels Ltd.  The principle as laid  

down  in  the  two  aforesaid  decisions,  and  as  

subsequently followed in  Smithaben’s case (supra)  

will not apply in the facts of the instant case,  

since the amount as deposited was accepted by the  

Appellant  without  prejudice  to  its  rights  and  

contentions in the appeal.  Since the amount had  

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been accepted on protest, the principle laid down  

in  Rai Bahadur Seth Nemichand’s case (supra) will  

have no application.   

28. The philosophy behind the principle set out in  

Meka Venkatadri’s case (supra) and as reiterated in  

Rai Bahadur Seth Nemichand’s case (supra) and also  

in  Smithaben’s case (supra) 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 Indian Contract Act, 1872, were attracted or  

there was a separate agreement between the parties  

in that regard.  That is not so in the instant case  

and, accordingly, the creditor cannot be denied its  

dues on a unilateral stipulation that the amount of  

Rs.89.78 crores was being deposited as against the  

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principal sum due in terms of the Award.  Since the  

said  amount  was  accepted  by  the  Appellant  on  

protest, it would be entitled to appropriate the  

same against the interest which was due and payable  

till that date on the principal amount, as has been  

asserted by it.   

29. In our view, the Division Bench of the Delhi  

High Court erred in presuming that the said amount  

had been accepted by the Appellant on account of  

good business sense in view of the uncertainty of  

the final outcome of the case.  In our view, the  

Division  Bench  of  the  High  Court  should  have  

proceeded on the basis of the principles of law as  

laid  down  by  this  Court  in  Smithaben’s  case  

(supra), keeping in mind the earlier decisions of  

the Privy Council in both  Meka Venkatadri’s case  

(supra)  and  Rai  Bahadur  Seth  Nemichand’s  case  

(supra)  in  interfering  with  the  judgment  of  the  

learned Single Judge.  The Division Bench seems to  

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have erroneously taken the presence of the learned  

counsel  for  the  Appellant,  when  the  aforesaid  

undertaking  of  the  Respondent  was  recorded,  in  

coming to the conclusion that since no objection  

had been raised with regard to the said deposit, it  

must be presumed that it had the consent of the  

Appellant and hence was covered by the provisions  

of Sections 59 and 60 of the Indian Contract Act,  

1872.

30. Regarding the question as to whether the Award  

of the learned Arbitrator tantamounts to a decree  

or not, the language used in Section 36 of the  

Arbitration and Conciliation Act, 1996, makes it  

very clear that such an Award has to be enforced  

under  the  Code  of  Civil  Procedure  in  the  same  

manner as it were a decree of the Court.  The said  

language leaves no room for doubt as to the manner  

in which the Award of the learned Arbitrator was to  

be accepted.   

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31. Hence, the submissions made by the learned ASG  

on  behalf  of  HUDCO  cannot  be  accepted  and  are,  

therefore,  rejected.  Consequently,  the  Appeal  

succeeds and the judgment and order of the Division  

Bench of the High Court is set aside and that of  

the learned Single Judge is restored.   

32. Having  regard  to  the  nature  of  the  issues  

involved in this case, the parties will bear their  

own costs.  

………………………………………………………J.    (ALTAMAS KABIR)

………………………………………………………J.                     (CYRIAC JOSEPH)

………………………………………………………J.                             (SURINDER SINGH NIJJAR) New Delhi Dated: 15.11.2011

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