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Section 157: Order of payment where portion of fund specifically bequeathed to one legatee, and legacy charged on same fund to another, and, testator having received portion of that fund, remainder insufficient to pay both legacies
Where a portion of a fund is specifically bequeathed to one legatee, and a legacy charged on the same fund is bequeathed to another legatee, then, if the testator receives a portion of that fund, and the remainder of the fund is insufficient to pay both the specific and the demonstrative legacy, the specific legacy shall be paid first, and the residue (if any) of the fund shall be applied so far as it will extend in payment of the demonstrative legacy, and the rest of the demonstrative legacy shall be paid out of the general assets of the testator. Illustration A bequeaths to B Rs. 1,000, part of the debt of Rs. 2,000 due to him from W. He also bequeaths to C Rs. 1,000 to be paid out of the debt due to him from W. A afterwards receives 500 rupees, part of that debt, and dies leaving only Rs. 1,500 due to him from W. Of these Rs. 1,500, Rs. 1,000 belong to B, and Rs. 500 are to be paid to C. C is also to receive Rs. 500 out of the general assets of the testator.
Source: official text of The Indian Succession Act, 1925 as published on India Code (PDF). All sections of the Indian Succession Act, 1925.