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The Supreme Court has held that a deposit of an arbitral award amount in court does not automatically amount to payment or extinguish the award-debtor's liability to pay interest. Interest liability ceases only when the deposit is made in accordance with Order XXI Rule 1 of the Code of Civil Procedure and is unconditionally available for withdrawal by the award-holder.

 Conditional deposit of an arbitral award does not stop interest unless the award-holder can withdraw it unconditionally, ruled the Supreme Court.

The Court clarified that the real question is whether the award-holder had access to and could freely withdraw the amount deposited.

A Bench of Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe held that if the award-debtor deposits the award amount as a condition for filing an appeal, and the award-holder can only withdraw it subject to certain conditions, then the money is not freely available to the award-holder. This means the deposit does not comply with Order XXI Rule 1 CPC. Therefore, the award-debtor must pay interest on the deposit for the period it remained deposited, since the award-holder could not withdraw it freely until the award became final.

"A deposit is not synonymous with payment. A sum put beyond the debtor's own reach neither extinguishes his liability nor places it in the creditor's hands," the Court observed.

Deposit Must Be Unconditional To Stop Interest

The Court laid down that where an award-debtor deposits money in court, the deposit must be unconditional and available to the award-holder for withdrawal for it to qualify as payment under Order XXI Rule 1 CPC

The following principles were laid down by the Court:

"(i) The 1996 Act is a self-contained code. Section 36(1) contains a legal fiction by which Award passed under the 1996 Act is made executable as if it were a decree of the court.

(ii) Section 36(3) of the 1996 Act provides that the court while dealing with an application of stay of an Arbitral Award for payment of money shall have due regard to provisions for grant of stay of money decree under the Code.

(iii) The real effect of deposit of money in the court is to put the money beyond the reach of the parties.

(iv) A deposit of the amount in the court has to be made unconditionally and the same must be available to the decree-holder for withdrawal, in order to make the deposit in consonance with Order XXI Rule 1 of the Code.

(v) If the Decree-Holder is permitted to withdraw the amount only on furnishing security, it amounts to payment not made in the satisfaction of the decree and not in accordance with Order XXI Rule 1 of the Code.

(vi) If the deposit is not made in terms of Order XXI Rule 1 of the Code, the interest continues to run on the amount after the deposit.

(vii) A decree-holder cannot claim interest on deposit if he fails to take any action seeking withdrawal of the amount. Such inaction shall be treated as deemed refusal of the tender of the amount.

(viii) Where the sum deposited by the Judgment-debtor is converted and is held as fixed deposit at Decree-holder's own request, he shall only be entitled to interest accrued on such fixed deposit.

(ix) Where only a part of outstanding sum is deposited or tendered which is available for withdrawal by the Award-holder/Decree-holder unconditionally, accrual of interest shall cease only on such deposit, and the remaining part will continue to attract interest at the applicable rate."

Background

The appellant, National Seeds Corporation Ltd., was the award-debtor, while National Agro Seed Corporation (India) was the award-holder. An arbitral award dated 13 June 2019 directed the appellant to pay ₹1,46,40,005.02, along with 12% annual interest, aggregating to ₹1,77,97,434.

The appellant challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996. The Delhi High Court stayed enforcement, subject to deposit of 50% of the principal amount. The appellant deposited ₹73,20,003.

After the Section 34 challenge was dismissed, the award holder-respondent initiated execution proceedings. The appellant subsequently deposited the balance amount of ₹1,53,17,792 in April 2022.

The executing court initially permitted release of ₹1 crore to the respondent against security. However, the respondent later withdrew its request as it was unable to furnish the required security of depositing the title deeds.

After the Supreme Court dismissed the appellant's SLP on 26 August 2022, the award attained finality and the executing court, on 8 September 2022, directed release of the deposited amount.

The surviving dispute concerned interest for the period from 13 June 2019 to 8 September 2022, i.e., the period between the passing of an award till it attained a finality.

The executing court held that mere deposit did not amount to payment, as the awarded amount was not available to the respondent for use and enjoyment. It therefore directed the appellant to pay 12% interest for the entire period.

Aggrieved by the High Court's decision refusing to interfere with the executing court's findings, the award debtor appealed to the Supreme Court.

Decision

Affirming the impugned findings, the Supreme Court observed that since the award holder was not permitted to withdraw the security amount unconditionally, the appellant's liability to pay interest does not cease.

“…from the aforesaid narration of facts, it is evident that the deposit made by the appellant was not in accordance with Order XXI Rule 1 of the Code and the respondent was not free to withdraw the same unconditionally…if payment is made by an Award-Debtor in accordance with Order XXI Rule 1 of the Code, the liability to pay interest on such deposit ceases. The appellant in the instant case did not make the deposit in consonance with Order XXI Rule 1 of the Code, and therefore, liability to pay interest did not cease.”, the Court observed.

According to the Court, the liability of the award debtor would cease if the deposit made by him was in accordance with Order XXI Rule 1 of the Code, i.e., the deposit has to be unconditional, and the decree-holder must be free to withdraw the same whenever he pleases.

Reliance was placed on its 1968 three-judge bench judgment of P.S.L. Ramanathan Chettiar & Ors. v. O.R.M.P.R.M. Ramanathan Chettiar, which was later followed in Delhi Development Authority v. Bhai Sardar Singh & Sons (2020) and Nepa Ltd. v. Manoj Kumar Agrawal (2019) to hold that :

“…to make a deposit in consonance with Order XXI Rule 1 of the Code, the same has to be unconditional and decree-holder must be free to withdraw the same whenever he pleases. It was also held that if a deposit is not made in terms of Order XXI Rule 1 of the Code, the interest continues to run on the amount after the deposit.”

In terms of the aforesaid, the appeal was disposed of.

Cause Title: NATIONAL SEEDS CORPORATION LTD. VERSUS NATIONAL AGRO SEED CORPORATION (INDIA)

Citation : 2026 LiveLaw (SC) 958

Also from the judgment -Supreme Court Recommends Law To Govern Court Deposits, Urges Law Commission To Examine

Click here to download judgment

Appearance:

For Petitioner(s) :Mr. Yashvardhan, Adv.(arguing counsel) Mr. Apoorv Shukla, AOR Ms. Prabhleen A. Shukla, Adv. Ms. Ilashri Gaur, Adv.

For Respondent(s) :Mr. Ashutosh Kumar, Adv. (arguing counsel) Mr. Arunava Mukherjee, AOR

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