Conditional deposit of an arbitral award does not stop interest unless the award-holder can withdraw it unconditionally, rules Supreme Court; seeks uniform deposit rules

An arbitral award dated 13 June 2019 directed the appellant to pay ₹1,46,40,005.02, together with interest, resulting in an awarded amount of ₹1,77,97,434.

The appellant challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996.

The High Court stayed enforcement subject to deposit of 50% of the principal amount, pursuant to which the appellant deposited ₹73,20,003 by demand draft on 25 November 2019.

After dismissal of the Section 34 petition on 5 January 2022, the respondent initiated execution and sought withdrawal of the deposited amount.

The appellant resisted withdrawal and, pursuant to directions of the executing court, deposited a further ₹1,53,17,792 on 26 April 2022.

Although the executing court permitted release of ₹1 crore subject to furnishing security, the respondent did not withdraw the amount because it was unable to furnish the required title deeds.

Following dismissal of the appellant’s Section 37 appeal and Special Leave Petition, the executing court directed unconditional release of the deposited amount on 8 September 2022.

The executing court thereafter held that the deposits had not been available to the respondent for use and enjoyment and directed the appellant to pay interest at 12% per annum from 13 June 2019 until 8 September 2022.

Whether an award-debtor remains liable to pay interest on an amount deposited before the court, or whether such liability ceases under Order XXI Rule 1 of the Code of Civil Procedure, 1908?

Whether the deposits made by the appellant were unconditional and otherwise compliant with Order XXI Rule 1 CPC so as to terminate interest liability on the deposited amounts?

Section 36(1) of the Arbitration and Conciliation Act, 1996 provides that an arbitral award is enforced in accordance with the CPC as if it were a decree, while Section 36(3) requires the court to have due regard to the principles governing stay of money decrees.

Order XXI Rule 1 CPC recognises deposit into court as a mode of payment and provides that interest ceases, in respect of the deposited amount, upon service of notice of the deposit under Rule 1(2).

Under Gurpreet Singh v. Union of India, (2006) 8 SCC 457, interest ceases on a court deposit once the requisite notice is served, but only to the extent of the deposit.

Under P.S.L. Ramanathan Chettiar v. O.R.M.P.R.M. Ramanathan Chettiar, a deposit must be unconditional and freely available for withdrawal by the decree-holder; a deposit withdrawable only upon furnishing security does not constitute payment in satisfaction of the decree.

The Court distilled the rule that interest ceases only where the deposit is unconditional and available for withdrawal, whereas interest continues if the deposit is conditional or otherwise not compliant with Order XXI Rule 1.

The appellant’s first deposit was made solely as a condition for obtaining a stay of enforcement and was not accompanied by the notice contemplated under Order XXI Rule 1(2) CPC.

The appellant also resisted the respondent’s application for withdrawal even after dismissal of the Section 34 petition and during the Section 37 proceedings.

The subsequent deposit of the balance amount did not cure the defect because the respondent was not free to withdraw the deposited funds unconditionally: the executing court permitted withdrawal of ₹1 crore only upon furnishing title-deed security, and the respondent consequently did not receive the benefit or use of the money.

Applying the principles under Order XXI Rule 1 CPC and the authorities governing unconditional availability of deposited amounts, the Court held that the deposits were not payments in satisfaction of the award.

Therefore, interest continued to accrue on the awarded amount until the amount was made available for unconditional withdrawal.

Since the appellant’s deposits were conditional, resisted for withdrawal, and not unconditionally available to the respondent until 8 September 2022, interest continued to run on the awarded amount until that date.

The High Court’s order directing payment of interest at 12% per annum from 13 June 2019 to 8 September 2022 was affirmed, and the appeal was dismissed.