A deposit in court does not necessarily mean that the liability stands discharged. The Supreme Court has clarified that for interest to stop running, the deposited amount must be unconditionally available to the award-holder for withdrawal. A conditional deposit or one made merely to secure a stay may not amount to payment.
Title of Case: National Seeds Corporation Ltd. v. National Agro Seed Corporation (India)
Appellant: National Seeds Corporation Ltd.
Facts of the Case
An arbitral award dated 13 June 2019 was passed against National Seeds Corporation Ltd. for a principal sum of ₹1,46,40,005.02, together with interest at the rate of 12% per annum from 26 August 2017 until the date of the award. The aggregate amount under the award was ₹1,77,97,434.
National Seeds Corporation Ltd., being the award-debtor, challenged the award before the Delhi High Court by filing a petition under Section 34 of the Arbitration and Conciliation Act, 1996.
On 16 October 2019, the High Court stayed enforcement of the award subject to the appellant depositing 50% of the principal amount awarded by the Arbitrator within six weeks. Pursuant to this order, the appellant deposited ₹73,20,003 with the Registry of the High Court through a demand draft dated 25 November 2019.
The Section 34 petition was dismissed by the High Court on 5 January 2022.
The award-holder thereafter instituted execution proceedings on 24 January 2022 and, on 14 February 2022, sought release of the amount already deposited by the appellant. The appellant opposed withdrawal of the money on the ground that its appeal under Section 37 of the Arbitration Act was pending.
On 23 March 2022, the executing court directed the appellant to deposit the balance amount. The appellant subsequently deposited another ₹1,53,17,792 through two demand drafts dated 26 April 2022.
The appellant’s appeal under Section 37(1)(c) was dismissed by a Division Bench of the High Court on 31 May 2022.
On 7 July 2022, the executing court permitted the respondent to withdraw ₹1 crore from the deposited amount, subject to furnishing security in the form of title deeds of immovable property. Although the respondent initially tendered five title deeds, it subsequently stated that it was facing serious financial difficulties and required the documents to raise funds to prevent its properties from being auctioned. It therefore did not press for release of ₹1 crore on those conditions.
The appellant approached the Supreme Court against dismissal of its Section 37 appeal. The Special Leave Petition was dismissed on 26 August 2022.
Thereafter, on 8 September 2022, the executing court recorded that the arbitral award had attained finality and directed release of the deposited amount. At this stage, the appellant did not object to its release. The dispute thereafter remained confined to whether interest was payable for the period between 13 June 2019 and 8 September 2022.
Impugned Order
By an order dated 5 August 2024, the executing court held that although the appellant had deposited the awarded amount in two tranches, the money was not actually available to the award-holder for its use because the appellant had consistently resisted its release.
The amount effectively became available to the respondent only on 8 September 2022. The High Court held that a conditional deposit could not be regarded as payment in satisfaction of the award under Order XXI Rule 1 CPC. It consequently directed the appellant to pay interest at 12% per annum from 13 June 2019 to 8 September 2022.
The award-debtor challenged this order before the Supreme Court.
Issues Before the Supreme Court
The Supreme Court considered the following two issues:
1. Whether an award-debtor is liable to pay interest on an amount deposited by it before the court in accordance with Order XXI Rule 1 CPC?
2. Whether the deposits made by the appellant were in accordance with Order XXI Rule 1 CPC so as to result in cessation of its liability to pay interest?
Contentions of the Appellant
The appellant argued that deposit of the awarded amount amounted to satisfaction of the award. Therefore, once the money had been deposited before the court, interest could not continue to accrue on the amount deposited.
It was further contended that even in the case of a partial deposit, interest must cease to run on the amount actually deposited.
The appellant submitted that the award-holder could at best claim the interest actually earned on the deposited amount while it remained in fixed deposit.
It also argued that reliance upon Order XXI Rule 1 CPC was misplaced because the Arbitration and Conciliation Act, 1996 is a self-contained code.
The appellant specifically pointed out that although ₹73,20,003 had been deposited on 25 November 2019, the respondent did not seek its withdrawal until 14 February 2022. Accordingly, the appellant contended that it should at least not be made liable for interest on that amount for the intervening period.
Contentions of the Respondent
The respondent argued that the initial deposit of ₹73,20,003 was made only to comply with the High Court’s order granting stay of enforcement of the award. It was neither deposited towards satisfaction of the award nor made freely available to the respondent.
The respondent further argued that the appellant had actively opposed release of the money. Therefore, it could not claim the benefit of cessation of interest under Order XXI Rule 1 CPC.
The permission granted on 7 July 2022 to withdraw ₹1 crore was also conditional upon furnishing title deeds as security. According to the respondent, such conditional availability could not be regarded as satisfaction of the award.
Alternatively, it was submitted that interest must continue at least until 8 September 2022, when unconditional withdrawal of the deposited amount was finally permitted.
Supreme Court’s Analysis
Applicability of CPC to Enforcement of Arbitral Awards
The Supreme Court acknowledged that the Arbitration and Conciliation Act, 1996 is a self-contained code. However, Section 36 expressly incorporates the CPC for enforcement of arbitral awards.
Section 36(1) creates a legal fiction under which an arbitral award is enforced in accordance with the CPC as if it were a decree of the court.
The Court clarified that this legal fiction is limited to enforcement. An arbitral award does not itself become a decree, but it is treated as one for purposes of enforcement.
Section 36(3) similarly requires the court, while considering stay of a money award, to have due regard to the provisions governing stay of a money decree under the CPC.
Order XXI Rule 1 CPC
Order XXI Rule 1 CPC specifies the recognised modes for payment of money payable under a decree. Where money is deposited in the executing court, notice of the deposit must be given to the decree-holder. Under Order XXI Rule 1(4), interest on the amount paid ceases to run from the date of service of such notice.
The Court relied upon the Constitution Bench decision in Gurpreet Singh v. Union of India, which recognised that interest on a decretal deposit ceases once the requirements relating to deposit and notice under Order XXI Rule 1 are fulfilled.
Deposit Must Be Available to the Award-Holder
The Supreme Court emphasised that merely depositing money in court does not necessarily constitute payment. Relying upon P.S.L. Ramanathan Chettiar v. O.R.M.P.R.M. Ramanathan Chettiar, the Court observed that the effect of depositing money in court may simply be to place it beyond the reach of the parties during the pendency of an appeal.
Where a decree-holder can withdraw the deposited amount only upon furnishing security, such a deposit cannot ordinarily be treated as payment towards satisfaction of the decree.
A deposit conforming to Order XXI Rule 1 must therefore be unconditional, and the decree-holder must be in a position to withdraw the money. If these requirements are absent, interest continues to run despite the deposit.
Principles Laid Down
After considering the statutory provisions and previous decisions, the Supreme Court summarised the governing principles:
- The Arbitration and Conciliation Act, 1996 is a self-contained code, but Section 36(1) makes an arbitral award executable as if it were a decree.
- While considering stay of a money award, the court must have due regard to CPC provisions relating to stay of money decrees.
- The mere effect of depositing money in court is to place the money beyond the reach of the parties.
- For a deposit to satisfy Order XXI Rule 1 CPC, it must be unconditional and available to the decree-holder for withdrawal.
- Where withdrawal is permitted only upon furnishing security, the deposit is not payment in satisfaction of the decree under Order XXI Rule 1.
- Where the deposit does not comply with Order XXI Rule 1, interest continues to accrue even after the deposit.
- A decree-holder who fails to take steps to withdraw an amount genuinely available for withdrawal cannot continue indefinitely to claim interest; such inaction may constitute deemed refusal of tender.
- Where the deposited amount is converted into a fixed deposit at the decree-holder’s own request, the decree-holder would be entitled to the interest accrued on that fixed deposit.
- Where only part of the outstanding amount is deposited and that amount is unconditionally available for withdrawal, interest ceases only to the extent of that deposit. The remaining outstanding amount continues to attract interest.
Application to the Present Case
The Supreme Court found that the initial amount of ₹73,20,003 deposited on 25 November 2019 was deposited solely to secure stay of enforcement during the Section 34 proceedings.
The deposit was not accompanied by notice under Order XXI Rule 1(2). More importantly, when the respondent subsequently sought withdrawal after dismissal of the Section 34 petition, the appellant resisted the release of the money. The opposition continued during the Section 37 proceedings.
Even the order dated 7 July 2022 allowing withdrawal of ₹1 crore required the respondent to furnish title deeds as security.
The respondent was therefore never free to withdraw and use the money unconditionally until the subsequent order directing its release. The deposits made by the appellant consequently did not satisfy Order XXI Rule 1 CPC.
Decision
The Supreme Court answered the first issue by holding that where an award-debtor makes payment in accordance with Order XXI Rule 1 CPC, its liability to pay interest on the amount so paid ceases.
However, on the second issue, the Court found that the appellant’s deposits did not comply with Order XXI Rule 1. Therefore, the appellant’s liability to pay interest did not cease merely because the amounts had been deposited with the High Court Registry.
The Court consequently found no reason to interfere with the High Court’s conclusion requiring payment of interest.
Observation on Court Deposits
The Supreme Court also addressed the wider problem concerning management of money deposited before courts and tribunals. It noted considerable inconsistency regarding the amount required to be deposited for obtaining stay, the institutions in which such money is invested, the applicable interest rates, the terms of withdrawal and renewal, and the manner in which accrued interest is ultimately adjusted.
The Court observed that lack of uniformity affects both sides. A decree-holder may be unable to use money despite having succeeded in litigation, while a judgment-debtor may lose control over the deposited money and simultaneously continue to incur interest liability.
The Court highlighted the time value of money, observing that money available today carries greater economic value than the same amount received at a future date because of opportunity costs, inflation and economic uncertainty. Uniform administration of court deposits was therefore necessary to protect their economic value.
Reference to the Law Commission
In view of the absence of a uniform statutory framework, the Supreme Court requested the Law Commission of India to examine the issues highlighted in the judgment.
The Law Commission was also requested to consider the laws and mechanisms prevailing in other jurisdictions and to consult relevant institutions, including the Reserve Bank of India, Ministry of Finance and Ministry of Law and Justice, while examining the issue.
Ratio Decidendi
A mere deposit of the awarded amount before a court does not by itself constitute payment or satisfaction of an arbitral award. For the award-debtor’s liability to pay interest to cease, the deposit must satisfy Order XXI Rule 1 CPC and the amount must be made available to the award-holder for withdrawal.
Where the deposit is conditional, made merely for obtaining stay, or its withdrawal is resisted or subjected to conditions such as furnishing security, interest continues to accrue until the amount becomes legally available to the award-holder.