An arbitral award granting simple interest on principal does not permit compounding accrued interest.

Reliance Jute Mills (International) Limited (“Award Holder”) held an insurance policy issued by Oriental Insurance Company Limited (“Award Debtor”) covering stocks and goods stored at its mill premises. A fire on 2 September 2014 destroyed goods valued at more than Rs. 15 crores. The Award Debtor ultimately paid approximately Rs. 11.18 crores on 7 September 2016 after obtaining discharge vouchers and consent documents, which the Award Holder alleged had been procured under coercion.

The dispute was referred to arbitration before Justice Bhaskar Bhattacharya (Retd.). By an award dated 2 March 2020, the Arbitrator declared the consent documents and discharge vouchers void, treated the earlier payment as part payment, awarded Rs. 3,67,38,847.21 towards five heads, Rs. 21,95,604 as costs, and granted interest under separate heads.

The Award Debtor challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996 and obtained a conditional stay upon depositing Rs. 7.16 crores with the Registrar, Original Side, for investment in a fixed deposit.

After the Section 34 challenge was dismissed on 20 May 2025, the deposited amount together with accrued fixed-deposit interest, totalling Rs. 8,76,59,688, was released to and received by the Award Holder on 1 July 2025.

The Award Holder thereafter claimed an additional Rs. 1,09,24,081, contending that interest at 8.75% continued to run on the consolidated amount of Rs. 7,16,77,738 from 16 March 2021 until 1 July 2025.

1. Whether a deposit made by the Award Debtor pursuant to a conditional stay order constitutes payment or satisfaction of the award so as to stop the running of interest before the amount is unconditionally released to the Award Holder?

2. Whether the Award Holder could claim further interest at 8.75% on the consolidated execution amount, which included accrued interest and costs, thereby effectively claiming interest on interest?

3. Whether the amount of Rs. 8,76,59,688 released on 1 July 2025 fully satisfied the Award Holder’s entitlement under the award, leaving any further amount payable?

The Court applied the principle in P.S.L. Ramanathan Chettiar v. O.R.M.P.R.M. Ramanathan Chettiar, 1968 SCC OnLine SC 28, that a conditional deposit made to secure a stay of execution does not amount to payment or satisfaction, and interest continues until actual and unconditional realisation.

The same principle was supported by Delhi Development Authority v. Bhai Sardar Singh & Sons, 2009 SCC OnLine Del 519, and EIC Holdings Pvt. Ltd. v. Union of India, EC No. 250 of 2015.

Conversely, Gurpreet Singh v. Union of India, (2006) 8 SCC 457, V. Kala Bharathi v. Oriental Insurance Co. Ltd., (2014) 5 SCC 577, and Bharat Heavy Electricals Ltd. v. R.S. Avtar Singh & Co., (2013) 1 SCC 243 establish that an actual payment is appropriated first towards interest and costs and thereafter towards principal, and no further interest runs on the amount so satisfied.

The Court also relied on Oriental Insurance Co. Ltd. v. Elel Hotels and Investments Ltd., SLP(C) No. 17791 of 2024, decided on 16 January 2026, for the rule that an executing court cannot supply or create an entitlement to interest not expressly granted by the award or decree.

Under the terms of the award, interest was payable as simple interest on the specified principal amounts, and Section 2(b) of the Interest Act, 1978 governed the expression “current rate of interest”.

The Court reconciled the two lines of authority by distinguishing between a conditional deposit and an actual payment. The deposit of Rs. 7.16 crores made in June 2021 was only a condition for stay and remained beyond the Award Holder’s unconditional control; therefore, interest continued to accrue until the amount was released and realised on 1 July 2025.

However, the Award did not authorise compounding or interest on accrued interest. It prescribed separate simple-interest calculations: interest on Rs. 11,17,81,171 for the closed period of 1 May 2015 to 6 September 2016; interest on the principal award of Rs. 3,67,38,847.21 from 1 May 2015 until actual payment; and interest on costs of Rs. 21,95,604 from the date of the award until actual payment.

The Award Holder’s calculation improperly consolidated principal, costs, closed-period interest, and running interest into Rs. 7,16,77,738 and then applied a further 8.75% interest to that composite figure, amounting to interest on interest.

Applying the award strictly, the Court calculated the total entitlement as Rs. 8,62,85,877.55 as of 1 July 2025, comprising Rs. 1,36,43,428 closed-period interest, Rs. 6,94,22,581.25 towards the principal award with simple interest, and Rs. 32,19,868.30 towards costs with simple interest.

Since Rs. 8,76,59,688 had already been paid, the Award Holder had received approximately Rs. 13.7 lakhs more than the amount due.

The Award Holder was not entitled to compound interest or to claim further interest on the consolidated execution amount.

The sum of Rs. 8,76,59,688 fully and finally satisfied the award, and no further principal, interest, or costs remained payable.

The claim for Rs. 1,09,24,081 and further interest was rejected, and the execution petition and all pending applications, including GA No. 1 of 2025, were disposed of.