Rule of Damdupat:
The rule of Damdupat is a rule of Hindu law according to which the interest recoverable upon a debt at any one time cannot exceed the principal.
Where a part of the debt is paid, the principal for the purpose of the rule of Damdupat is the balance of the principal remaining due at the time when the interest claimed in the suit accrued. But according to the rule of Damdupat there is no bar on the capitalisation of the interest in arrears by a subsequent fresh agreement. The rule ceases to operate on the institution of a suit to recover the loan. According to the Supreme Court “the rule of Damdupat was evolved both as an inducement to the debtor to pay the entire principal and interest thereon at one and the same time in order to save interest in excess of tine principal and as warning to the creditor to take effective steps for realising the debt from the borrower within reasonable time so that there be no such accumulation of interest as would be in excess of the principal amount due as in that case he would have to forego the excess amount.”
Places to Which the Rule Applies:
The rule of Damdupat applies in the Bombay State, Town of Calcutta, and Santhal Parganas, Gujarat, Berar, part of Mysore State, and part of Madhya Pradesh.
Persons to Whom the Rule Applies:
According to Calcutta High Court, the rule applies only where both the original contracting parties are Hindus.
But according to Bombay High Court, all that is necessary is that the original debtor should be a Hindu. Where, however, the interest has accumulated and enlarged the principal and subsequently the debt is transferred to a Mohammedan, the rule of Damdupat will cease to operate from the date of the assignment.
Transactions to Which the Rule Applies:
The following are transanctions to which the rule applies— (1) The secured as well as unsecured debts; (2) The debts on mortgage with possession. But in case of a mortgagee with possession the rule does not apply if the mortgagee is under liability to account for the rents and profits received by him from the mortgaged property.
The rule does not apply in those cases when the suit for the recovery of the debt has been filed. The rule will apply uptil the date of filing of the suit not thereafter. The court can grant any amount for the interim period. The rule also does not apply for the period during which the proceeding of the execution of a decree continues. It also does not apply to the case where the amount of debt is not determined.