The Indian Contract Act, 1872
59. Application of payment where debt to be discharged is indicated
Where a debtor, owing several distinct debts to one person, makes a 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.
(a) A owes B, among other debts, 1,000 rupees upon a promissory note, which falls due on the first June. He owes B no other debt of that amount. On the first June, A pays to B 1,000 rupees. The payment is to be applied to the discharge of the promissory note.
(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.
Scope of applicability
To several distinct debts payable by a person and not to the various heads of one debt. The principal and interest due on a single debt or decree passed on such debt carrying subsequent interest cannot be held to several distinct debts. Accepting such an argument would amount to doing violence to the language employed in the section and the purpose sought to be achieved by it. Besides it would also be contradictory in terms; Industrial Credit and Development Syndicate now called I.C.D.S. Ltd. v. Smithaben H. Patel, AIR 1999 SC 1036.
The principle applies to several distinct debts and not to a single debt payable by instalments; Munno Bibi v. Commissioner of Income-tax, AIR 1952 All 514.