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Section 61: Application of payment where neither party appropriates

Indian Contract Act • Official Statutory Text & Practice Guide

Statutory Regulation
Legal Standard
Competent Court / Tribunal
Act 1872
Section 60 All 266 Sections of Indian Contract Act Section 62

Legal Commentary & Landmark Judgments: Section 61

Section 61 of the Indian Contract Act, 1872 codifies the statutory default rule for appropriation of payments based on the rule in Clayton's Case, providing that where neither debtor nor creditor has made any appropriation, the payment shall be applied in discharge of the debts in order of time, whether barred by limitation or not, and rateably if of equal standing.

  • Dual Inaction Threshold: Operates strictly as a residual statutory default mechanism when neither the debtor has indicated an intended debt under Section 59 nor the creditor has exercised appropriation under Section 60.
  • First-In, First-Out (FIFO) Rule of Chronological Order: Payments are applied automatically to discharge debts in the strict chronological order of time in which they were incurred (the oldest debt is extinguished first).
  • Limitation Status and Rateable Apportionment: Applies to extinguish older debts even if they are barred by the law of limitation; where multiple debts were incurred on the identical day, the payment is apportioned rateably among them.
Key Landmark Precedents:
  • Devaynes v. Noble (Clayton's Case) (1816) 1 Mer 572: The seminal common law authority codified in Section 61: in a running banking account, the earliest credit item is set against the earliest debit item in strict chronological sequence.
  • Industrial Credit and Development Syndicate v. Smitha Prabhakar Kamath (2001) 8 SCC 480: The Supreme Court reaffirmed the statutory hierarchy of Sections 59, 60, and 61, holding that where both parties remain silent, the chronological FIFO rule of Section 61 governs commercial ledger accounts.
  • State of Rajasthan v. Associated Stone Industries (Kotah) Ltd. (1985) 1 SCC 575: The Supreme Court applied Section 61 to running commercial accounts, ruling that unappropriated payments automatically satisfy the oldest accrued lease royalty liabilities.
Courtroom Practice & Strategic Litigation Guidance:

In running account disputes and summary commercial suits under Order XXXVII CPC, construct the plaintiff's ledger strictly on the FIFO basis of Section 61. Demonstrating that unallocated remittances automatically extinguished the oldest debts neutralizes the defendant's plea that earlier invoices are barred by limitation.

Section 60 All 266 Sections of Indian Contract Act Section 62