Deposit of Arbitral Award Amount Does Not Stop Interest Unless Award-Holder Can Withdraw Unconditionally: SC

New Delhi, Sep 21 (KNN) The Supreme Court has held that depositing an arbitral award amount in court does not by itself extinguish the award-debtor’s liability to pay interest. 

Interest stops accruing only when the deposit complies with Order XXI Rule 1 of the Code of Civil Procedure (CPC) and is unconditionally available for withdrawal by the award-holder.

The Court said that where an award-debtor deposits the amount as a condition for challenging the award and the award-holder can withdraw it only after meeting certain conditions, the deposit cannot be treated as payment under Order XXI Rule 1 CPC.

Deposit Must Be Unconditional

The Court observed that a deposit in court effectively places the money beyond the parties’ reach. Therefore, to qualify as payment, the amount must be deposited unconditionally and must be freely available to the decree-holder for withdrawal.

It held that if the decree-holder is permitted to withdraw the amount only upon furnishing security, such payment cannot be treated as having been made in satisfaction of the decree or in accordance with Order XXI Rule 1.

The Court added that if the deposit does not meet these requirements, interest continues to accrue on the amount after the deposit. However, a decree-holder cannot claim further interest where they fail to seek withdrawal of an amount that was unconditionally available.

National Seeds Corporation Case

The ruling arose from an appeal by National Seeds Corporation Ltd. against National Agro Seed Corporation (India). An arbitral award dated June 13, 2019 directed National Seeds Corporation to pay Rs 1.46 crore with 12 per cent annual interest. The Delhi High Court stayed enforcement subject to a 50 per cent deposit, leading to a Rs 73.20 lakh deposit.

After the challenge was dismissed, the appellant deposited another Rs 1.53 crore in April 2022. The executing court initially allowed Rs 1 crore to be released against security, but the award-holder withdrew the request after failing to furnish it. The Supreme Court dismissed the challenge on August 26, 2022, making the award final, and the executing court ordered release of the deposited amount on September 8, 2022.

The dispute before the Supreme Court was whether interest remained payable for the period from June 13, 2019, to September 8, 2022.

Interest Liability Continued

The executing court held that the deposits did not constitute payment as the award-holder could not freely withdraw or use the money, and directed 12 per cent interest for the entire period. The High Court upheld the finding.

The Supreme Court agreed, holding that the deposits did not comply with Order XXI Rule 1 CPC because the award-holder was not allowed unconditional withdrawal. It relied on the three-judge Bench ruling in P.S.L. Ramanathan Chettiar v. O.R.M.P.R.M. Ramanathan Chettiar, followed in Delhi Development Authority v. Bhai Sardar Singh & Sons and Nepa Ltd. v. Manoj Kumar Agrawal.

The Court, comprising Justices Pamidighantam Sri Narasimha and Alok Aradhe, observed that a deposit is not synonymous with payment and that an award-debtor’s interest liability ceases only when the deposited amount is unconditionally available to the award-holder.

(KNN Bureau)