Interest Ceases To Accrue On Decretal Amount Deposited In Court Registry When Award Holder Has Knowledge Of Deposit: Delhi High Court

The Delhi High Court bench of Justices Vibhu Bakhru and Tejas Karia has held that once the Judgment Debtor deposits the decretal amount with the court registry pursuant to a court order, and the Award Holder has notice of such deposit, interest on the deposited amount ceases to accrue. Consequently, interest can only be claimed on the remaining outstanding amount, not on the sum deposited with the court. Brief Facts: PCL STICCO (JV) (Award Holder) filed an appeal under Section 13(1A) of the Commercial Courts Act, 2015, challenging the judgment dated 19.12.2023 passed by the learned Single Judge in OMP (ENF)(COMM) 116/2020. The impugned judgment disposed of the Award Holder's application under Section 36 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) for enforcement of the arbitral award dated 15.12.2015. The Court accepted the Respondent's (NHAI) contention that ₹73,96,511/- remained payable and directed payment with interest within three weeks. It clarified that the Award Holder may revive the proceedings if the amount was not paid. Contentions: The Award Holder submitted that the payment proposed by the Judgment Debtor fully satisfies the Arbitral Award, arguing that it does not include interest on the amount deposited with the Registry of the Court. The interest continues to accrue on the awarded amount—including sums deposited in court—until actual release. Per contra, the Judgment Debtor submitted that depositing the amount with the Registry should be treated as tendering payment, thereby stopping the accrual of interest from the date of deposit after adjusting interest due up to that point. Observations: The court noted that although the Judgment Debtor had challenged the Arbitral Award, no court had passed any stay order or restrained enforcement under Section 36 of the Arbitration Act. The Award Holder remained entitled to enforce the Award at all times and had, in fact, filed an enforcement petition under Section 36 on 02.11.2020. In those proceedings, the learned Single Judge directed the Judgment Debtor to deposit the awarded amount with the Registry of the Court. It further said that it was not necessary for the Judgment Debtor to deposit or pay the entire decretal amount for the interest as awarded to stop running. Even if a part of the decretal amount is deposited in the court or tendered to the decree holder, the same would discharge the decree to the extent of the amount deposited or tendered. The Supreme Court in BHEL v. R.S. Avtar Singh and Ors.: (2013) held that the general rule of appropriation towards a decretal amount is that, in the absence of specific directions in the decree or an agreement between the parties, any payment made by the judgment debtor is first adjusted towards interest, then costs, and finally the principal. The Apex Court further held that under Order 21 Rule 1(4) and (5) Civil Procedure Code, 1908 (CPC), interest ceases to run on the deposited amount once notice of deposit is given or the amount is duly tendered outside court. The Apex Court further held that if the payment falls short of the total decretal amount, the decree-holder may apply the general rule of appropriation, but once the principal is satisfied in part or full, no further interest accrues on that portion. The decree-holder cannot later reopen the transaction to recalculate interest on the entire principal or seek reappropriation. Based on the above, the court held that the deposited amount of ₹1,23,67,58,284/- must first be appropriated towards the outstanding interest as per the Arbitral Award, with the remaining balance applied to the principal. Interest will continue to accrue on the portion of the principal that remains unpaid after such appropriation. The court further held that a plain reading of Order XXI Rule 1(1) of the CPC reveals three valid modes of payment by a Judgment Debtor: (a) deposit in court via postal money order or banking channel, (b) payment to the Decree Holder via an evidenced method, or (c) any other mode directed by the court. It held that accordingly, the Judgment Debtor's deposit of ₹1,23,67,58,284/- with the Registry on 13.05.2022 constitutes a partial discharge of the award. The Award Holder's claim that such deposit does not amount to discharge—merely because it was not released—runs contrary to the clear language of the provision. After referring to a catena of decisions of the Supreme Court, the court held that once the decree holder is aware of the deposit, they cannot claim prejudice due to the absence of a formal notice. It further added that when the judgment debtor deposits the amount as per the court's enforcement orders and the decree holder knows of it, interest does not continue to run simply because a formal notice under Order XXI Rule 1(2) CPC was not served. If the decree holder delays withdrawing the deposited amount ...

Interest Ceases To Accrue On Decretal Amount Deposited In Court Registry When Award Holder Has Knowledge Of Deposit: Delhi High Court

Mohd Malik Chauhan

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