Deposit is not payment: Supreme court clarifies when interest on an arbitral award ceases to run

Supreme Court Ruling: Clarification on When Interest on Arbitral Awards Stops, Highlighting the Difference Between Deposits and Payments.

National Seeds Corporation Ltd. v. National Agro Seed Corporation (India), 2026 INSC 1017

The Supreme Court in National Seeds Corporation Ltd. v. National Agro Seed Corporation (India) examined an important question concerning the liability of an award debtor to pay interest after depositing the awarded amount before a court. The Court clarified that a mere deposit of money in court does not, by itself, amount to payment or satisfaction of an arbitral award. For the liability to pay interest to cease under Order XXI Rule 1 of the Code of Civil Procedure, 1908, the deposit must satisfy the requirements of the provision and must be unconditionally available to the award holder for withdrawal.

The dispute arose from an arbitral award dated 13 June 2019 passed against National Seeds Corporation Ltd. The award directed payment of Rs. 1,46,40,005.02 along with interest at 12% per annum from 26 August 2017 until the date of the award. The amount, including the interest awarded up to the date of the award, aggregated to Rs. 1,77,97,434. The appellant challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996. While considering the challenge, the Delhi High Court stayed enforcement of the award subject to the appellant depositing 50% of the principal amount. Accordingly, the appellant deposited Rs. 73,20,003 with the Registry of the High Court on 25 November 2019.

The Section 34 challenge was subsequently dismissed by the High Court on 5 January 2022. The respondent thereafter initiated execution proceedings and sought withdrawal of the amount that had been deposited. The appellant opposed the withdrawal. Following further proceedings, the executing court directed the appellant to deposit the balance amount, and the appellant deposited a further sum of Rs. 1,53,17,792 on 26 April 2022. The appellant's challenge under Section 37 of the Arbitration and Conciliation Act was dismissed by the Division Bench of the High Court on 31 May 2022, and the Supreme Court dismissed the appellant's Special Leave Petition on 26 August 2022.

After the dismissal of the proceedings before the Supreme Court, the respondent again sought release of the deposited amount. On 7 July 2022, the executing court permitted withdrawal of Rs. 1. Crore subject to the respondent's furnishing security in the form of title deeds of immovable property. The respondent initially tendered title deeds but later sought their return because it was facing serious financial difficulties and needed to raise funds to prevent its properties from being auctioned. The executing court eventually directed release of the amount on 8 September 2022. The appellant did not object to the release at that stage, and compliance with the order was recorded on 14 September 2022. The remaining dispute was therefore whether the appellant was liable to pay interest for the period between 13 June 2019 and 8 September 2022.

The High Court held that the awarded amount had not been available to the respondent for its use and enjoyment until 8 September 2022. It therefore directed the appellant to pay interest at 12% per annum from 13 June 2019 until 8 September 2022. The appellant challenged this conclusion before the Supreme Court, contending that the deposit of the award amount constituted satisfaction of the award and that interest should cease at least on the amount deposited. The appellant also argued that the Arbitration and Conciliation Act was a self-contained code and that reliance upon Order XXI of the CPC was misplaced.

The Supreme Court considered the relationship between the Arbitration and Conciliation Act and the CPC. Although the 1996 Act is a self-contained code, Section 36(1) expressly provides that an arbitral award shall be enforced in accordance with the CPC in the same manner as if it were a decree of the court. The Court explained that this legal fiction operates for the limited purpose of enforcement. Thus, an arbitral award does not actually become a decree but is enforced as if it were one. Section 36(3) further requires the court, while considering an application for stay of an arbitral award involving payment of money, to have due regard to the provisions governing the stay of a money decree under the CPC.

The Court then examined Order XXI Rule 1 CPC, which provides the recognized modes of payment of money under a decree. The provision permits payment by deposit into court, payment outside court through specified modes, or in such other manner as the court directs. Under Rule 1(4), where payment is made by deposit into court, interest ceases from the date of service of the requisite notice. The Supreme Court relied upon the Constitution Bench judgment in Gurpreet Singh v. Union of India, which had explained that the statutory scheme contemplates cessation of interest when the decree holder is duly notified of the deposit.

The Supreme Court also considered decisions concerning whether a deposit constitutes payment in satisfaction of a decree. In P.S.L. Ramanathan Chettiar v. O.R.M.P.R.M. Ramanathan Chettiar, the Court had held that a deposit must be unconditional and the decree holder must be free to withdraw it. Where withdrawal is permitted only upon furnishing security, the deposit cannot be treated as payment in satisfaction of the decree, and interest continues to run. The Court also considered subsequent decisions dealing with deposits, interest, and the circumstances in which a decree holder can be regarded as having access to the deposited amount.

After examining the authorities, the Supreme Court distilled several principles governing the issue. A deposit made in court must be unconditional and available to the decree holder for withdrawal to qualify under Order XXI Rule 1. Where withdrawal is permitted only upon furnishing security, the deposit does not constitute payment in satisfaction of the decree. In such circumstances, interest continues to run. At the same time, the Court clarified that a decree holder cannot claim interest indefinitely where a deposited amount has been made available for withdrawal but the decree holder fails to take steps to withdraw it. Such inaction may amount to deemed refusal of the tender. Where only part of the outstanding amount is deposited and is unconditionally available for withdrawal, interest ceases only on that deposited portion, while the remaining amount continues to attract interest.

Applying these principles to the present case, the Supreme Court found that the appellant's first deposit of Rs. 73,20,003 was made pursuant to the order granting a stay of enforcement and was not accompanied by a notice under Order XXI Rule 1(2). More importantly, the appellant resisted the respondent's attempts to withdraw the amount even after dismissal of the Section 34 proceedings and during the Section 37 proceedings. The subsequent deposit of the balance amount also did not make the money unconditionally available to the respondent. The order dated 7 July 2022 permitting withdrawal of Rs. 1 crore was subject to the respondent furnishing security in the form of title deeds. The respondent did not ultimately withdraw the amount under that condition.

The Supreme Court consequently answered the first issue in the affirmative by holding that where an award debtor makes payment in accordance with Order XXI Rule 1 CPC, the liability to pay interest on such deposit ceases. However, on the facts of the present case, the appellant's deposits were not made in consonance with Order XXI Rule 1. The respondent was not free to withdraw the deposited amount unconditionally. Accordingly, the appellant's liability to pay interest did not cease.

The Court also distinguished the decisions relied upon by the appellant. In one of the cases, the judgment debtor had deposited the entire amount due under the award, whereas in the present case the appellant had not initially deposited the entire amount. Another decision involved contractual terms concerning interest on withheld amounts. A further decision concerned a situation where the decree holder had requested that the deposited principal be retained in a fixed deposit. The Supreme Court held that these factual situations were different from the present case.

The judgment also addresses a broader issue concerning the administration of money deposited before courts and tribunals. The Supreme Court observed that disputes concerning the deposit, investment and adjustment of interest on such amounts arise with sufficient frequency, yet there is no uniform statutory prescription or rule governing these matters. Different courts and tribunals have adopted different approaches concerning the amount to be deposited, the institution in which money should be kept, the financial instrument to be used, the interest earned and the manner in which the deposit and interest should ultimately be adjusted.

The Court explained that this lack of uniformity affects both decree holders and judgment debtors. A decree holder may be unable to use money to which the decree holder is otherwise entitled, while a judgment debtor parts with the use and control of the deposited money. Differences between forums can also result in similarly situated parties receiving different treatment. The absence of a common framework may further generate litigation concerning investment, renewal, accounting and interest on deposits even after the underlying dispute has been resolved.

The Supreme Court referred to its earlier observations in K.L. Suneja v. Dr. Manjeet Kaur Monga, where the need for guidelines concerning money deposited with court registries had been highlighted. The Court also considered the recommendations of the Dr. T.K. Vishwanathan Committee concerning standardisation of deposits under Section 36 of the Arbitration and Conciliation Act. These recommendations were considered by the Court as part of the broader discussion concerning the absence of uniformity in the existing framework.

The Court further examined the practices followed by different Indian High Courts and referred to approaches adopted in the United States and Canada. In particular, the judgment discussed the Court Registry Investment System in the United States as an example of a mechanism through which court deposits can be centrally administered and invested. The Canadian framework governing deposits made as security for obtaining a stay was also considered. These comparative references were made in the context of examining possible approaches to standardisation.

The Court connected the need for standardisation with the principle of the time value of money. A sum deposited today has an economic value different from the same sum received at a later stage because of factors including opportunity cost, inflation and economic uncertainty. The Court therefore observed that clarity and uniformity in the handling and investment of court deposits are important for preserving the economic value of the deposited money and ensuring certainty regarding the accrual of interest. It also considered the possibility of a common platform through which deposits made before different courts and tribunals could be pooled and invested in suitable financial instruments.

However, the Supreme Court did not itself establish such a common platform or prescribe a new nationwide deposit mechanism through the judgment. Instead, in paragraphs 44 and 45, the Court stated that there was a need to evolve suitable legislation on the subject and requested the Law Commission of India to examine the issues highlighted in the judgment and consider the laws enacted in other countries. The Court also indicated that the Law Commission may consult the Reserve Bank of India, the Ministry of Finance and the Ministry of Law and Justice.

Ultimately, the Supreme Court found no ground to interfere with the impugned order. The order was affirmed and the appeal was disposed of with the observations and directions contained in the judgment. Thus, in the facts of the present case, the appellant remained liable for interest at 12% per annum up to 8 September 2022 because the deposits did not satisfy the requirements of Order XXI Rule 1 and were not unconditionally available to the award holder for withdrawal.

The decision in National Seeds Corporation Ltd. v. National Agro Seed Corporation (India) therefore draws an important distinction between a deposit and payment in the context of enforcement of arbitral awards. The judgment makes clear that the mere act of depositing money in court does not automatically extinguish the award debtor's liability to pay interest. The relevant consideration is whether the deposit complies with Order XXI Rule 1 CPC and is placed unconditionally at the disposal of the award holder. At the same time, the judgment identifies the wider need for a consistent legal framework governing court and tribunal deposits, their investment and the treatment of interest earned on such deposits.