The Arbitration and Conciliation Act, 1996 (“Act”) was enacted with the object of resolving commercial disputes in an effective, inexpensive, and expeditious manner. In furtherance of its object to resolve disputes speedily, the Act has undergone several amendments. One such amendment was the Arbitration and Conciliation (Amendment) Act, 2015 whereby the Arbitral Tribunal was granted the power to grant post-award interest for speedy implementation/acceptance of arbitral awards. However, arbitral awards are routinely challenged under Section 34 of the Act, and consequently litigants are directed by courts to deposit money with them, during the pendency of the adjudication of such challenges. This results in litigants being faced with the question: when does the interest cease to run, i.e., at what point is a judgement-debtor’s liability to pay interest on the awarded amount comes to an end?


The answer to the aforesaid question lies in Order XXI Rule 1 of the Code of Civil Procedure, 1908 (“Code”), which states that all monies payable under a decree may be paid in any of the following manners: (1) by deposit with the court whose duty it is to execute the decree; (2) out of court directly to the decree-holder; or (3) as the court, which made the decree, otherwise directs. The rule further states that once money is deposited into the court, the interest component shall cease to run from the date of service of the notice of such payment to the decree-holder. The Hon’ble Supreme Court of India in H.P. Housing & Urban Development Authority v. Ranjit Singh Rana[1], has held that depositing the award amount into the court is nothing but a payment to the credit of the decree-holder and the same amounts to satisfaction of the award. This rule has been reiterated by the Hon’ble Supreme Court in Union of India v. M.P. Trading & Investment Rac. Corpn. Ltd.[2], and recently by the Hon’ble High Court of Delhi in Cobra Instalaciones Y Servicios v. Haryana Vidyut Prasaran Nigam Ltd.[3]


In Cobra Instalaciones[4], the issue before the Hon’ble High Court of Delhi was whether the judgment debtor is liable to pay interest for the period between the date of deposit and the date of withdrawal of the deposit by the decree-holder. The Hon’ble High Court of Delhi, reiterated the rule laid down by the Hon’ble Supreme Court in H.P. Housing,[5] observed that once the judgment debtor has deposited the decree amount in court and has given the requisite notice to the decree-holder in terms of Order XXI Rule 1 of the Code, the judgment debtor is discharged of its liability to pay any further interest to the decree holder.


However, this rule does not have universal application. In cases where the decree-holder is prohibited from withdrawing the said deposit or can withdraw subject to certain conditions imposed by the court, the interest shall continue to run. In P.S.L. Ramanathan Chettiar v. O.R.M.P.R.M. Ramanathan Chettiar,[6] the trial court had passed a decree in a suit for recovery, which was subsequently affirmed by the High Court, on appeal. During the execution of the decree, the judgement-debtor deposited the decretal amount with the court, however the court conditioned the decree-holder’s withdrawal of this amount upon furnishing security. When the issue of interest was brought before the Hon’ble Supreme Court for resolution, the Hon’ble Court observed that


“[T]he judgement-debtor’s depositing a sum in court to purchase peace by way of stay of execution of the decree on the terms that the decree-holder could draw it out on furnishing security, does not pass title to the money to the decree-holder…The real effect [of such conditional withdrawal, in this case, was] to put the money beyond the reach of the parties pending the disposal of the appeal.” [7]


Thus, as the decree-holder could only withdraw the decretal amount upon furnishing security, this meant that the payment was not in satisfaction of the decree and the security be proceeded against by the judgement-debtor in case of his success in the appeal. Hence, pending the determination of the appeal, the effect and aim of such a deposit was to keep the amount beyond the reach of the judgement-debtor.


Based on the decisions of the Hon’ble Supreme Court, it can be concluded that when deciding the question of interest, the determinative element is the effect/aim of the deposit. If the amount is deposited in court is meant to satisfy the decree, the interest shall cease to run in terms Order XXI Rule 1 of the Code. However, if the deposit has the aim/effect that it be put beyond the reach of the parties, e.g. when the withdrawal of the deposit by the decree-holder is conditioned, the interest shall continue to run and the rule under Order XXI Rule 1 of the Code shall not be applicable.


[1] (2012) 4 SCC 505

[2] (2016) 16 SCC 699

[3] 2023 SCC OnLine Del 5439

[4] Ibid.

[5] Supra note 1

[6] 1968 SCC OnLine SC 28

[7] Ibid.