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Section 60: Application of payment where debt to be discharged is not indicated

Indian Contract Act • Official Statutory Text & Practice Guide

Statutory Regulation
Legal Standard
Competent Court / Tribunal
Act 1872
Section 59 All 266 Sections of Indian Contract Act Section 61

Legal Commentary & Landmark Judgments: Section 60

Section 60 of the Indian Contract Act, 1872 confers on the creditor the discretionary right of appropriation of payments where the debtor has omitted to intimate and circumstances do not indicate which debt is to be discharged, permitting the creditor to apply the funds to any lawful debt actually due and payable, including debts barred by limitation, but not disputed debts.

  • Debtor's Omission to Allocate: Applies when the debtor makes a generic or unallocated remittance without giving express instructions or creating circumstances indicating the intended debt.
  • Creditor's Discretionary Prerogative: The creditor may apply the payment at his sole discretion to any lawful debt actually due and payable from that debtor, exercising the option at any time up to the institution of legal proceedings.
  • Permissibility of Time-Barred Debts and Bar on Disputed Debts: The creditor is statutorily permitted to adjust the remittance against a debt whose recovery is barred by the Limitation Act, but cannot appropriate funds towards an illegal, invalid, or disputed claim.
Key Landmark Precedents:
  • Gurpreet Singh v. Union of India (2006) 8 SCC 457: The 5-Judge Constitution Bench affirmed that in the absence of debtor appropriation under Section 59, the creditor has the statutory right under Section 60 to appropriate payments towards interest first, then principal, or towards time-barred liabilities.
  • Rama Shah v. Lal Chand AIR 1940 PC 63: The Judicial Committee of the Privy Council held that while a creditor may appropriate an unallocated payment to a time-barred debt under Section 60, such unilateral appropriation does not create a fresh period of limitation under Section 19 of the Limitation Act unless acknowledged in writing by the debtor.
  • State of Rajasthan v. Associated Stone Industries (Kotah) Ltd. (1985) 1 SCC 575: The Supreme Court recognized that the creditor's right to appropriate under Section 60 subsists until the matter is brought before the court or an appropriation is communicated to the debtor.
Courtroom Practice & Strategic Litigation Guidance:

When representing banks, financial institutions, or commercial suppliers receiving unallocated lump-sum payments, immediately issue an appropriation receipt or ledger statement applying the funds to the oldest accrued interest, unpegged service charges, or limitation-vulnerable debts under Section 60. Contemporaneously notify the debtor before filing recovery proceedings to cement the appropriation.

Section 59 All 266 Sections of Indian Contract Act Section 61