Case at a Glance
An award-debtor deposited 50% of the principal of an arbitral award in the High Court to obtain a stay, then resisted its release for almost three years. The Supreme Court held that such a conditional deposit is not a deposit under Order XXI Rule 1 CPC and does not stop interest. It upheld the executing court’s order making the award-debtor pay 12% interest until the money was actually released. Noting that High Courts and tribunals deal with court deposits unevenly, the Court asked the Law Commission of India to examine the issue and consider legislation.
An arbitral award dated 13 June 2019 directed the appellant to pay Rs 1,46,40,005.02 with 12% interest from 26 August 2017, about Rs 1.78 crore in all. While the Section 34 challenge was pending, the High Court on 16 October 2019 stayed enforcement on condition of a 50% deposit of the principal. The appellant deposited Rs 73,20,003 by demand draft on 25 November 2019, without any notice under Order XXI Rule 1(2) CPC.
The Section 34 petition was dismissed on 5 January 2022. The appellant resisted release of the deposit through its Section 37 appeal (dismissed 31 May 2022) and a Special Leave Petition (dismissed 26 August 2022). It deposited the balance of Rs 1,53,17,792 on 26 April 2022, and full release was ordered on 8 September 2022. By order dated 5 August 2024, the executing court held the appellant liable for 12% interest from 13 June 2019 to 8 September 2022, and the appellant came to the Supreme Court.
The Key Question Before the Court
Does interest on an arbitral award stop running once the award-debtor deposits money in court, even if the deposit was made only to obtain a stay and its release was resisted?
Deposit Versus Payment: The Court’s Reasoning
The Court began with a simple proposition: “A deposit is not synonymous with payment.” Section 36 of the Arbitration and Conciliation Act treats an award as a decree for enforcement, and so brings in the CPC principles on deposit. Relying on the Constitution Bench in Gurpreet Singh v. Union of India and the three-Judge Bench in P.S.L. Ramanathan Chettiar v. O.R.M.P.R.M. Ramanathan Chettiar, (1968) 03 SC CK 0004, the Court explained that only a proper Order XXI Rule 1 deposit stops interest. Such a deposit “has to be made unconditionally”, and its real effect is “to put the money beyond the reach of the parties”. Once a compliant deposit is made, “the liability to pay interest on such deposit ceases.” Inaction by the decree-holder after a proper tender is “treated as deemed refusal of the tender of the amount.”
Here the deposit was made only to secure a stay. The appellant opposed withdrawal at every stage, and the award-holder could not freely take the money. It was therefore not an Order XXI Rule 1 deposit, and interest continued to run. The Court distinguished Himachal Pradesh Housing and Urban Development Authority v. Ranjit Singh Rana, (2012) 03 SC CK 0039, Union of India v. Concrete Products and Construction Company and Union of India v. M.P. Trading and Investment RAC Corporation Ltd., (2015) 09 SC CK 0157 on their facts. It then looked at the uneven treatment of court deposits across High Courts and tribunals, referring to K.L. Suneja v. Dr. (Mrs.) Manjeet Kaur Monga, the Dr. T.K. Viswanathan Committee report and foreign rules. It concluded that “it is necessary to evolve and formulate a suitable legislation on the subject.”
What the Court Actually Held
- A deposit in court is not payment; only an unconditional deposit under Order XXI Rule 1 CPC, available to the decree-holder, stops interest.
- A deposit made as a condition for a stay, whose release the award-debtor resists, does not stop interest on the award.
- The executing court’s order of 5 August 2024, fixing 12% interest from 13 June 2019 to 8 September 2022, was affirmed.
- The Law Commission of India was requested to examine the issues, in consultation with the RBI, the Finance Ministry and the Law Ministry, and consider legislation.
Why This Judgment Matters
- It closes a common gap: award-debtors cannot deposit money to get a stay, fight its release, and still claim that interest stopped.
- It applies the CPC rules on deposits to arbitral award execution through Section 36 of the Arbitration Act.
- It starts a possible law reform on how court deposits are invested and how interest on them is handled across the country.
What Should Advocates Take Away From the Judgment?
For Award-Holders and Decree-Holders
- Interest on your award keeps running if the debtor’s deposit is conditional or its release is opposed.
- Claim interest up to the date of actual release, not merely the date of deposit.
- If the debtor makes a proper unconditional tender, act on it; inaction can be treated as deemed refusal.
For Counsel
- Advise award-debtors that stopping interest needs an unconditional Order XXI Rule 1 deposit with notice under Rule 1(2).
- Rely on Gurpreet Singh v. Union of India and P.S.L. Ramanathan Chettiar for the deposit-versus-payment distinction.
- Distinguish Ranjit Singh Rana, Concrete Products and M.P. Trading on their facts.
Key Takeaways
- A deposit is not payment.
- A conditional deposit for a stay does not stop interest on an arbitral award.
- 12% interest until actual release was upheld against the award-debtor.
- The Law Commission was asked to examine laws on court deposits and interest.
Frequently Asked Questions
Does depositing the award amount in court stop interest?
Only if it is an unconditional deposit under Order XXI Rule 1 CPC that the award-holder can withdraw. A deposit made to get a stay, whose release is opposed, does not stop interest.
What did the award-debtor have to pay here?
Interest at 12% from 13 June 2019 to 8 September 2022 on the award, as fixed by the executing court on 5 August 2024. The Supreme Court affirmed that order.
Why was the Law Commission involved?
The Court found uneven practice across High Courts and tribunals on deposits and the interest earned on them. It asked the Law Commission to examine the issue and consider a suitable law.
Conclusion
National Seeds Corporation v. National Agro Seed Corporation settles that money parked in court to buy time is not money paid. Award-debtors who deposit to obtain a stay and then fight release will bear interest until the award-holder actually receives the money.
Practical takeaway: If you act for an award-debtor and want interest to stop, make an unconditional Order XXI Rule 1 deposit with notice and do not oppose withdrawal. If you act for the award-holder, claim interest up to the date of actual release.
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