Appropriation of Payments By Banks

The question of appropriation arises only when

debtor owes two or more different debts to the
same creditor and he pays some amount which
is not sufficient for the discharge of whole
debts. Rules as to appropriation have been
provided under Sections 59 to 61 of Indian
Contract Act, 1872.
They provide appropriation as follows:
1. Appropriation by the debtor (Section 59)
2. Appropriation by the creditor (Section 60)
3. Appropriation by the law (Section 61)
1.Appropriation by the debtor (Section 59)
Section 59 provides: “Where a debtor, owing
several distinct debts to one person, makes
payment to him, either with express intimation or
under circumstances implying that the payment is
to be applied to the discharge of some particular
debt, the payment if accepted must be applied
accordingly”
Meaning thereby debtor can indicate
appropriation
1. by express intimation, or
2. Under circumstances implying that payment
is to be applied to the discharge of some
particular debt
 In Vasudeo v. Mandeo, (1951) Nag. 155,it has been
held that where money is paid by a debtor with
express or implied intimation that money is to be
applied to a particular debt, creditor, if accepts
the payment, must appropriate the money received
accordingly to the direction of the debtor.
 Eg: (a) A owes B, among other debts, 1000 rupees
on the 1st June. He owes B no other debt of that
amount. On the first June, A pays to B 1000 rupees.
The payment is to be appropriated for this debt.
(b) A owes to B, among other debts, the sum of 567
rupees. B writes to A and demands payment' of this
sum A sends to B 567 rupees. This payment is to be
applied to the discharge of the debt of which B had
demanded payment. 60.
2.Appropriation by the creditor (Section 60)
Section 60 provides: “Where the debtor has
omitted to indicate, and there are no other
circumstances indicating to which debt the
payment is to be applied, the creditor may
apply at his discretion to any lawful debt
actually due and payable to him from the
debtor….”
This is called creditor’s right of
appropriation. But creditor can apply at his
discretion only lawful debt which is due and
payable. Right to appropriation at the
discretion of creditor cannot be used for
illegal debt.
3. Appropriation by the law (Section 61)
Section 61 provides: “Where neither party
makes any appropriation, the payment shall
be applied in discharge of the debts in order
of time, whether they are or are not barred
by the law in force for the time being as to
the limitation of suits. If the debts are of
equal standing, the payment shall be applied
in discharge of them proportionately.”
BANKER’S RIGHT TO CHARGE
INTEREST, INCIDENTAL CHARGES.
 As a creditor, a banker has implied right to charge
interest on the advances granted to the customer.
 In Konakalla Venkata Satyanarayana & Ors v. State
Bank of India, AIR 1975 AP 113,the agreement
provided that “interest @....shall be calculated on
the daily balance of such account and shall be
charged to such account on the last working day of
each month”. For several years the customer
availed the overdraft facilities and periodical
statements of accounts were being sent to the
customer showing that interest was being charged
and debited at compound rate and no objection
was raised at any time.
 The High Court, therefore, held that there
was no doubt that the customer had agreed to
the compound rate of interest being charged
and debited to their account. The customer
need not pay the amount of interest in cash.
After making a debit entry in the account of
the customer, the amount of interest is also
deemed as the debt due from the customer to
the banker and interest accrues on the same in
the next period. The same practice is followed
in allowing interest on the savings accounts.
Banks also charge incidental charges on the
current accounts to meet the incidental
expenses on such accounts.
Period of Limitation
Deposits are repayable on demand made
by the customer. Under Article 22 of Part II
of the Schedule to the Limitations Act, 1963,
the period of limitation for the refund of
bank deposits is three years with effect from
the date a customer makes a demand for his
money.
RIGHT TO ASK SUCCESSION
CERTIFICATE
 In Shanti Devi v. Bhojpur Rohtash Gramir
Bank, (2006) 3 CPR 52, National Commission
has held unfair practice of Bank to ask for
succession certificate in all cases.
 In this case National Commission has given a
very significant judgment that asking
succession certificate in all the cases by the
Bank is not just and proper. Husband of the
petitioner opened a bank account in his own
name, after sometime he got included the
name of his wife. Operation of account was
by any one of them or survivor.
 Later on it was changed by joint operation. After
the death of the husband Bank demanded
succession certificate for the operation of
account. Against this a complaint was filed in the
State Commission which granted operation of
account in favor of the complainant (wife). Bank
appealed before National Commission.
 National Commission having in view the provisions
of Section 45 of Indian Contract Act (devolution of
joint rights) found that the judgment of State
Commission was proper. On technical ground it
may be right but it should not be ignored that it is
demand of time that view of law should be
settlement oriented since it is time taking and
expensive to obtain succession certificate.
RIGHT TO PUBLISH DEFAULTING
BORROWERS
 Bank has right to prepare borrower’s list and
publish the same. This significant judgment
was given by the Madhya Pradesh High Court
in Km. Archana Chaudhary v. State Bank of
India, AIR 2007 MP 45
 In this case creditor Bank published
photographs of defaulting borrowers under
the provisions of Securitization and
Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002
which was assailed by the borrowers as
defamatory or arbitrary.
 In the opinion of the court publication of
photographs of the borrowers cannot be said
to be an impermissible mode. Action cannot
be said to be defamatory, arbitrary or illegal
in any manner, hence Court found no ground
to quash the publication.
 Principle of law laid down in this case
warrants publication with photographs of
defaulting borrowers.