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 3 Replies

Sudhir Kumar, Advocate (Advocate)     26 January 2023

This forum is not an examination hall.  Please specify your problem.

Dr J C Vashista (Advocate)     27 January 2023

What did you find in relevant provisions of the Contract Act, 1872 ?

sahithi reddy   31 January 2023

Application of funds is what is meant by appropriation. Sections 59 to 61 of the Indian Contract Act, 1872 establish certain guidelines for the Appropriation of payments in cases involving creditors and debtors.


It becomes unclear to which specific debt the payment should be allocated when a debtor who owes one person multiple separate debts makes a payment that is insufficient to pay off all of the loans.


The following three principles are outlined in Sections 59 to 61:


1) Appropriation by debtor: Section 59 grants the debtor the right of appropriation, which entitles the debtor to ask the creditor to apply the payment toward the discharge of a specific debt. If the creditor accepts the payment, the appropriation is legally binding on him. The creditor must refuse the payment if he does not want to do that.


A owes B 1,000 rupees on a promissory note that is due on June 1st, among other debts. He doesn't owe B any other loan for that sum. A gives B a payment of 1 000 rupees on June 1. The money received will be used to pay off the promissory note.


A owes B 567 rupees in addition to other loans. B requests payment of this amount in a letter to A. A sends 567 rupees to B. This amount is to be used to pay off the obligation for which B had made payment demands.


Creditor appropriation: Section 60 gives creditors the ability to do so.


Any legal debt that is actually due and payable to the creditor from the debtor may be applied to it at the creditor's discretion, regardless of whether or not its recovery is prohibited by the current law on suit limitations, where the debtor has failed to indicate and there are no other circumstances indicating to which debt the payment is to be applied.


He is not allowed to cancel a debt or make appropriations to criminal acts.


Lawful appropriation When neither party makes an appropriation, Section 61 is applicable. In this case, the law has the authority to take the funds and prefers to cancel the obligations in the chronological sequence in which they were acquired.


If no party designates anything, the money will be used to pay off the obligations in chronological order, whether or not they are currently banned by the statute of limitations in effect at the time. If the obligations are equal in standing, the payment will be applied proportionately to each to discharge them

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