[The Viewpoint] Will interest stop accruing once the awarded amount is deposited in court?

An interesting, though less pondered over question is what is the effect of depositing an awarded amount by the judgment debtor in the courts? This question assumes importance in the context of monetary arbitral awards, where invariably the courts dealing with challenges to such awards direct for deposit of the awarded money in the court during pendency of the petition.

In some cases, the amount is released in favour of the decree holder subject to their furnishing a bank guarantee or like security for the equivalent amount.

What happens with respect to the interest awarded by the arbitrator in such a scenario? Will the liability to pay interest stop from the day the amount was deposited by the judgment debtor in the court? This is a crucial question which is being examined in this article.

A Division Bench of the Delhi High Court has dealt with such issues in its judgement dated March 16, 2009 in the case of Delhi Development Authority v. Sardar Singh & Sons. The case was an appeal under the 1940 Arbitration Act arising out of a challenge to an arbitral award dated August 12, 1998. The appellate court directed for deposit of the decretal/awarded amount with that court during the pendency of the appeal. Accordingly, a sum of ₹58,80,380 (with interest @18% per annum) was deposited with the appellate court between March and May 2002. The appeal was allowed and the matter was remanded to the Single Judge for deciding the challenge to the award on merits. The Single Judge finally dismissed the petition challenging the award vide judgement dated July 15, 2005 with the direction that in case the awarded amount was paid within six weeks from then, interest would be payable @ 9% pa, failing which the interest shall revert to 18% pa as awarded by the arbitrator.

It so happened that the payment was not released by the Delhi Development Authority (DDA) within the period of six weeks. Accordingly, the respondent preferred an execution petition. In the execution proceedings, the judgment debtor/DDA made a statement before the court that it had no objection if the money lying deposited with the appellate court is withdrawn by the decree holder. At that point, the decree holder submitted that the amount lying deposited with the Court fell short of the decretal amount. The executing court directed that the decree holder may withdraw the amount deposited and thereafter file execution, if necessary.

In the above circumstances, the decree holder applied to the appellate court for release of the amount lying deposited with it. On the other hand, the judgment debtor filed an application in the execution proceedings for a refund of ₹19,95,291 on the premise that the Single Judge had reduced the rate of interest to 9% pa, though the amount deposited with the appellate court was calculated based on interest awarded by the arbitrator @18% pa. On the same premise, the judgement debtor opposed the application filed by the decree holder for release of the amount deposited with the Court. The Court directed for release of the deposited amount in favour of the decree holder.

However, as both the parties were still dissatisfied on the question of amount payable in view of the previously mentioned development, another round of litigation ensued between them. Finally, the issue was decided by a Division Bench vide judgment dated March 16, 2009. An interesting question arose as to “whether the liability to pay interest would stop from the date when the amount was deposited with the appellate court.” Another related issued was, “can the decree holder avail itself to higher interest merely because the judgment debtor had failed to pay the amount within 6 weeks from 15 July 2004?”

For answering the first issue, the Division Bench examined the provisions of Order XXI of the Civil Procedure Code (CPC), which prescribes the mode of paying money under a decree. The Division Bench held that deposit of amount in the appellate court would not satisfy the requirements of Order XXI. It was further held by the Court that mere deposit of decretal amount in the court other than the executing court can never amount to “payment” and even where decretal amount is deposited in the executing court, the judgment debtor’s liability to pay interest does not cease until notice contemplated under Sub-rule (2) of Rule 1 of Order XXI is given.

It was further held that Order XXI, Rule 1 CPC does not contemplate that the decree holder has to chase the judgment debtor to realise the decretal amount by seeking attachment of an account or property of the judgment debtor. The judgment stated,

"If resort to the execution process of the Court is required to be made by the decree holder, and the decretal amount is recovered in pursuance of the order of attachment of the accounts of the judgment debtor, and/or sale of assets of the judgment debtor, such realization of the decretal amount would not amount to payment of the decretal amount under Rule 1 of Order XXI."

The case of PSL Ramanthan Chettiar & Ors v. ORMPRM Ramanthan Chettiar was cited, where the Supreme Court held that the fact of the judgment debtor depositing the sum in a court to purchase peace by way of stay of execution of the decree on terms the decree holder can draw it out on furnishing security, does not pass the title of the money to the decree holder. He can, if he likes to, take the money out in terms of the order; but so long as he does not do it, nothing prevents the judgment debtor from taking it out by furnishing other security, say, of immovable property if the court allows him to do so.

The apex court held that the real effect of deposit of money in the court is to put the money beyond the reach of parties pending disposal of the appeal. The decree holder can only take it out on furnishing security which means that the payment was not in satisfaction of the decree and security could be proceed against by the judgment debtor in the case of success of the appeal.

Taking cognizance of the law laid down by the Supreme Court in the aforesaid case, the Division Bench held that DDA cannot claim that the interest in terms of the decree had stopped running from the date of deposit. It was further held that the decree holder will have the advantage of higher interest because the judgment debtor had failed to satisfy the decree within six weeks from July 15, 2005.

A somewhat similar question arose before the Bombay High Court in the matter of Nahar Builder Ltd v. Housing Development and Infrastructure Ltd. In the said case, a Single Judge directed for release of the amount lying deposited the court in favour of Nahar Builders. In the said case, Nahar Builders had filed an application under Section 9 before the High Court for a direction to the opposite party to furnish security. Pursuant to this, the High Court directed the opposite party to furnish a bank guarantee of ₹ 8 crore. The said security having not been furnished by the opposite party, contempt proceedings came to be filed. Thereafter, the opposite party deposited the amount of ₹8 crores in the court.

In the arbitration proceedings, Nahar Builders was successful and the sum of ₹8 crore along with interest @8% pa from March 23, 2016 was awarded to the company. After the expiry of the statutory period available for challenging the award, Nahar Builders moved an application before the High Court for release of the deposited amount. The opposite party opposed the application on the ground that there was a moratorium in place due to the pendency of insolvency proceedings against it and that the amount deposited with the court being the property of the opposite party, the same cannot be released.

While considering the application, the High Court held that the amount once deposited in the court was placed beyond the reach of either party. Once the money is deposited in the court, no party can automatically claim any right to it without adjudication by a court. Rejecting the contention of the opposite party resting on the moratorium being in vogue, the Court held that the application for release of money cannot be considered as a suit, proceeding or execution within the meaning of Section 14(1)(a) of the Insolvency & Bankruptcy Code, 2016.

Conclusion

The issue decided by the Division Bench of the Delhi High Court is of great importance, though parties seldom decide to keep contesting for interest beyond the date of deposit of the amount in court. Parties normally put quietus to the matter if the amount deposited in the court is released in their favour along with the interest, if any, accruing thereon. However, the situation may not be the same where the decretal amount is substantial, and the rate of interest awarded in the award/decree is more than the nominal interests paid by bank on the FDRs.

Therefore, parties to the proceedings must be aware that with deposit of the amount against any award/decree before any court, including the executing court, if not done in the manner provided under Order XXI Rule 1, would not result in satisfaction of a decree. Hence, the liability to pay interest would not stop on the date of deposit. Accordingly, depending on the facts of the case, the judgment debtor can be called upon to pay intertest on the amount deposited in the court at the rate directed in the decree/award till the date of actual payment. Of course, if the amount deposited with the court also earns interest during the time of deposit, such amount will enure to the benefit of the judgment debtor.

Vikas Goel is a Partner and Vivek Gupta is a Senior Associate at Singhania & Partners LLP.