The Supreme Court of India has held that a deposit made by an award-debtor in court does not automatically amount to payment or satisfaction of an arbitral award. Where the deposited amount is not unconditionally available to the award-holder for withdrawal, interest liability on the deposited amount can continue to accrue.

The bench of Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe explained that money available today has greater economic value than the same amount received in the future because of opportunity cost, inflation and economic uncertainties. It therefore considered clarity and uniformity in the manner in which court deposits are invested and interest is credited to be important for protecting the economic value of the deposited amount.

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The dispute originated from an arbitral award dated June 13, 2019, under which National Seeds Corporation was directed to pay Rs. 1,46,40,005.02, together with interest at 12% per annum from August 26, 2017 until the date of the award. The awarded amount, including interest up to the award date, aggregated to approximately Rs. 1.78 crore. 

National Seeds Corporation challenged the arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996. The Delhi High Court stayed enforcement of the award subject to the condition that 50% of the principal amount, namely approximately Rs. 73.20 lakh, be deposited.

The appellant deposited Rs. 73,20,003 with the High Court Registry on November 25, 2019. However, the deposit was made for the purpose of obtaining a stay of enforcement and was not accompanied by a notice under Order XXI Rule 1(2) of the Code of Civil Procedure. 

The Section 34 challenge was dismissed by the High Court on January 5, 2022. National Agro Seed Corporation thereafter initiated execution proceedings and sought withdrawal of the amount already deposited.

The appellant resisted the withdrawal application. During the subsequent proceedings, the executing court directed the appellant to deposit the balance amount. The appellant eventually deposited another Rs. 1,53,17,792 through two demand drafts dated April 26, 2022. 

Even after the award had been upheld, the deposited amount was not immediately available to the award-holder without conditions. On July 7, 2022, the executing court permitted release of Rs. 1 crore subject to the award-holder furnishing security in the form of title deeds of immovable property.

The award-holder initially tendered title deeds but subsequently stated that it was unable to part with them. The court consequently returned the title deeds. The award-holder also informed the court that it was facing serious financial difficulties and needed funds to prevent its properties from being auctioned. 

Following dismissal of the appellant’s Special Leave Petition by the Supreme Court on August 26, 2022, the award attained finality. On September 8, 2022, the executing court directed release of the deposited amount, and the appellant did not oppose such release. Compliance was recorded on September 14, 2022. 

The remaining dispute therefore concerned the interest payable for the period between June 13, 2019 and September 8, 2022.

At the heart of the case was whether depositing money in the court automatically stops interest from accruing.

The Supreme Court emphasised that “a deposit is not synonymous with payment.” Merely placing money beyond the debtor’s control does not necessarily extinguish the underlying liability or put the money in the hands of the creditor. 

The Court examined Section 36 of the Arbitration and Conciliation Act, 1996, which provides that an arbitral award is enforceable in accordance with the Code of Civil Procedure in the same manner as a decree.

According to the Court, Section 36 creates a legal fiction for the limited purpose of enforcement: an arbitral award is enforced as if it were a decree. The award itself does not become a decree. 

The Supreme Court relied upon Order XXI Rule 1 of the CPC, which recognises different modes for payment of money under a decree, including deposit into the executing court.

Under Order XXI Rule 1(4), interest on an amount deposited in court ceases from the date of service of the prescribed notice. The statutory scheme therefore contemplates not merely a deposit, but a deposit accompanied by the necessary process through which the decree-holder is informed and the money is made available in accordance with the rule. 

The Court also considered the Constitution Bench decision in Gurpreet Singh v. Union of India, which had explained that interest on a decretal deposit ceases from the date when notice of the deposit is served upon the decree-holder, subject to the statutory framework. 

The Supreme Court distilled the governing principles from its earlier decisions.

It held that a court deposit must be unconditional and available to the decree-holder for withdrawal in order to constitute payment in accordance with Order XXI Rule 1 CPC. If the decree-holder is permitted to withdraw the amount only after furnishing security, the payment cannot be treated as satisfaction of the decree for the purpose of cessation of interest. 

The Court also noted that where a decree-holder is permitted to withdraw an amount but fails to take timely action for withdrawal, such inaction can amount to deemed refusal of the tender.

Conversely, where only part of the outstanding amount is deposited and is unconditionally available for withdrawal, interest stops only with respect to that deposited amount, while the balance continues to carry interest. 

Applying these principles to the case, the Supreme Court found that the initial deposit of Rs. 73.20 lakh was made solely to obtain a stay of enforcement of the award during the Section 34 proceedings.

Importantly, the deposit was not accompanied by the notice contemplated under Order XXI Rule 1(2). The appellant subsequently resisted the award-holder’s request for withdrawal even after dismissal of the Section 34 proceedings and during the Section 37 appeal. 

The Court further noted that although the executing court later permitted withdrawal of Rs. 1 crore, the withdrawal was conditional upon furnishing title deeds as security. The award-holder did not ultimately withdraw the amount under that condition.

Consequently, the Court concluded that the deposited money was not unconditionally available to the award-holder and that the deposit therefore did not satisfy the requirements of Order XXI Rule 1 CPC. 

Answering the central issue, the Supreme Court held that where payment is made by an award-debtor in accordance with Order XXI Rule 1 CPC, interest liability on the deposited amount ceases.

However, in the present case, the appellant’s deposits did not satisfy the requirements of the provision. Therefore, the liability to pay interest did not cease merely because the money had been deposited with the court. 

The Court accordingly found no ground to interfere with the impugned order and affirmed it.

Beyond deciding the individual dispute, the Supreme Court addressed a broader systemic issue concerning the handling of money deposited before courts and tribunals.

The Court observed that disputes concerning deposits, investment of deposited amounts and adjustment of interest arise frequently. However, there is presently no uniform statutory prescription or common rule governing these matters, resulting in different approaches being adopted by courts and tribunals. 

The Court identified differences in several areas, including:

• the amount required to be deposited as a condition for stay;
• the financial institution or bank where deposits are maintained;
• the financial instrument in which the money is invested;
• administration, transfer and supervision of deposits;
• the period for which deposits are maintained;
• terms governing withdrawal, renewal and reinvestment;
• the rate of interest earned on deposited amounts; and
• adjustment of interest earned against the decree or arbitral award. 

According to the Court, the absence of uniformity can leave award-holders unable to use money to which they are ultimately entitled, while award-debtors simultaneously lose control over the deposited funds without necessarily receiving the benefit of such deposit in terms of cessation of their interest liability. 

The judgment also examined the issue from the perspective of the time value of money.

The Supreme Court suggested that standardisation could potentially be achieved through a common platform under which amounts deposited in different courts and tribunals are pooled and invested in appropriate financial instruments. Such a mechanism, according to the Court, could bring greater certainty regarding interest rates and reduce the administrative burden on courts and tribunals. 

The judgment examined the approach followed in other jurisdictions, particularly the United States and Canada.

In the United States, the federal courts operate the Court Registry Investment System (CRIS), under which court deposits can be pooled and invested through a unified mechanism. The system also maintains information regarding the principal deposited and interest earned for the relevant litigant. 

The Court also referred to Canada, where deposits made as security for obtaining a stay are dealt with through the Consolidated Revenue Fund and interest is determined under the applicable financial administration framework. 

Law Commission asked to examine need for legislation

Taking note of the significant differences in the manner in which court deposits are handled in India, the Supreme Court concluded that there is a need to formulate a suitable legislative framework.

The Court requested the Law Commission of India to examine the issues identified in the judgment, including the approaches adopted in other countries. It further suggested that the Law Commission may consult the Reserve Bank of India, Ministry of Finance and the Ministry of Law and Justice during the exercise. 

The Registry was directed to send copies of the judgment to the Chairman of the Law Commission of India, the Governor of the Reserve Bank of India and the Secretaries of the Ministries of Finance and Law and Justice.

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