Interest Liability : The Legal Principles of Liability
It has been held in MCD v. Bindra Associates [2012] GCtR 6291 (Delhi) that "the settled position in law with regard to appropriation of payments towards principal and interest is that if a debtor, in discharge of his debt towards the principal amount and interest thereon, makes an indefinite payment or a payment on account, without indicating or specifying as to whether the payment was to be appropriated against the principal or the interest, the creditor is entitled to apply the payment first towards the interest due and the left over amount, if any, against the principal. On the other hand, if, while making a payment, the debtor specifies that it be applied only to the principal, there are two options available to the creditor – (1) he need not accept the payment on the terms specified by the debtor or (2) he may accept the payment on the terms stipulated by the debtor. If he adopts the former route, the creditor would have to return the money to the debtor. However, if he chooses the second option, he would be bound by the manner of appropriation suggested by the debtor."
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