A deposit made in court after an arbitral award does not, by itself, bring the award-debtor’s interest liability to an end. The Supreme Court has held that interest stops running only when the deposited amount is placed unconditionally at the disposal of the award-holder.
A Bench comprising Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe explained that a court deposit cannot be treated as equivalent to payment when the person entitled to the money cannot freely withdraw it.
The ruling turns on the practical availability of the money. If an award-debtor deposits the amount as a condition for obtaining a stay of the award, but the award-holder can access that money only after satisfying additional conditions, the deposit does not meet the requirements of Order XXI Rule 1 of the Code of Civil Procedure.
In such circumstances, interest continues to accrue for the period during which the award-holder was unable to obtain the money without restrictions.
The Court summed up the principle by observing that a deposit is not the same as payment. Merely placing money beyond the debtor’s reach does not necessarily put it into the creditor’s hands or discharge the underlying liability.
When does interest stop?
The Supreme Court laid down several principles governing deposits made against arbitral awards.
An arbitral award under the Arbitration and Conciliation Act, 1996 becomes executable as though it were a decree of the court. When a court considers a request to stay enforcement of a monetary award, it must have regard to the principles applicable to stays of money decrees under the CPC.
The Court noted that depositing money in court ordinarily places it beyond the immediate reach of both sides. For the deposit to operate as payment under Order XXI Rule 1 CPC, however, it must be unconditional and available for withdrawal by the decree-holder or award-holder.
If withdrawal is permitted only after furnishing security or meeting another condition, the deposit does not constitute satisfaction of the decree for the purpose of stopping interest.
Accordingly, interest continues to run on an amount that has been deposited but remains unavailable for unconditional withdrawal.
There are, however, important qualifications. A decree-holder who takes no steps to withdraw an amount that has been made available may be treated as having refused the tender, and cannot indefinitely claim interest on that sum.
Similarly, if money is converted into a fixed deposit at the request of the decree-holder, the entitlement is limited to the interest generated by that fixed deposit.
Where only part of the outstanding amount is deposited and made unconditionally available, interest stops only on that portion. The unpaid balance continues to carry interest at the applicable rate.
Dispute involving National Seeds Corporation
The case arose from an arbitral award dated June 13, 2019 involving National Seeds Corporation Ltd. and National Agro Seed Corporation (India).
The award directed National Seeds Corporation to pay ₹1,46,40,005.02 along with interest at 12% annually. The amount, including interest at the relevant stage, stood at about ₹1.78 crore.
National Seeds Corporation challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996.
The Delhi High Court stayed enforcement subject to the deposit of 50% of the principal amount. The company consequently deposited ₹73,20,003.
After the challenge under Section 34 failed, the award-holder moved forward with execution proceedings. The company later deposited another ₹1,53,17,792 in April 2022.
The dispute before the Supreme Court concerned the legal effect of these deposits and, in particular, whether they were sufficient to stop further accrual of interest.
The Supreme Court’s ruling makes clear that the date on which money is deposited is not necessarily the date on which interest liability ends. What matters is whether the award-holder actually had an unconditional right to take the money out.
The decision therefore draws a firm distinction between money merely lying in court and money that has effectively been placed in the hands of the person entitled to receive it.
