How to Deposit an Arbitral Award Amount So That Interest Stops Running
Depositing an arbitral award amount in court is the standard price of a stay, and it is routinely assumed to stop interest as well. It does not. The Supreme Court held in National Seeds Corporation Limited v. National Agro Seed Corporation (India), 2026 INSC 1017, that a deposit is not payment, and that interest continues to run until the award holder can actually withdraw the money without conditions. Where an award carries interest at twelve per cent, the difference between a deposit that stops the clock and one that does not is measured in lakhs a year. This guide sets out how to structure the deposit so that it counts.
Step 1: Decide Which Objective You Are Buying
Two different things are commonly wanted at the same moment, and they are achieved by different acts.
Security: A stay of enforcement, granted on an application under Section 36(3) of the Arbitration and Conciliation Act, 1996 once the award has been challenged under Section 34, which the court may allow subject to such conditions as it thinks fit. A deposit ordered as a condition of stay is security for the award.
Satisfaction: Payment under Order XXI Rule 1 of the Code of Civil Procedure, 1908, which stops interest. This requires the money to reach, or be freely available to, the person entitled to it.
A deposit of a percentage of the principal, which is the usual stay condition, can only ever be the first. Decide at the outset which you are paying for, because the pleading and the amount follow from that choice.
Step 2: Deposit the Whole Sum, Not the Ordered Percentage
Interest runs on what remains outstanding. A deposit of half the principal leaves the other half, and the interest already accrued, still running. In the National Seeds case the deposits were staggered across more than two years and the Court treated the interest as running throughout.
In practice, compute the full liability as at the date of deposit, being the principal, the pre-award interest and the post-award interest to that date, and deposit that figure. Depositing the stay condition alone and describing it as payment will not survive scrutiny.
Step 3: Make the Deposit Unconditional on Its Face
The deposit application is the document that will be read years later. State in it that the sum is deposited unconditionally towards satisfaction of the award, that it is available to the award holder for withdrawal without security, and that it is not merely compliance with a condition of stay.
Where the same sum is also intended to satisfy a stay condition, say so expressly and in the alternative. What defeats the argument is silence, because a deposit described only as compliance with a stay order is read as security and nothing more.
Step 4: Serve the Notice Under Order XXI Rule 1(2)
This is the step most often skipped and it is the one the rule keys everything to. Sub-rule (2) requires the judgment debtor who deposits money into court to give notice of the deposit to the decree holder, either through the court or directly by registered post. Sub-rule (4) then provides that interest, if any, shall cease to run from the date of service of that notice.
Interest therefore stops on the date of service, not on the date of deposit. Serve the notice the same day, use a mode that generates proof, and place the proof of service on the court record rather than keeping it in the file. A deposit without the notice leaves the clock running however large the sum.
Step 5: Resist Conditions That Fetter Withdrawal
A direction permitting the award holder to withdraw against a bank guarantee is convenient for the depositor and fatal to the argument on interest, because the money is not unconditionally available. If the objective is to stop interest, ask the court to permit withdrawal without security and record that the depositor does not seek any fetter on it.
The corollary for an award holder is that a security condition, although it delays access, preserves the running of interest. Whether to object is a commercial judgment about time against return, and it should be made deliberately rather than by default.
Step 6: Fix and Record the Date Interest Stops
Once the notice is served and the money is available without conditions, the interest computation closes on that date. Record it immediately in the execution file and in any statement of account filed thereafter, because the figure will be contested at the distribution stage long after the memory of the deposit has faded.
Where the deposit is partial, prepare a running computation showing the reduced principal from the date of each effective deposit. Interest on the satisfied portion stops; interest on the balance does not.
Step 7: Model the Cost Before Choosing to Deposit at All
Where an award carries a high contractual or awarded rate, a deposit that secures a stay without stopping interest can be the most expensive option available. The money is out of the depositor's hands, earning whatever the court's deposit account pays, while the award interest continues to accrue against it.
Set that against unconditional payment with a reservation of the right to restitution if the challenge succeeds. The Supreme Court has asked the Law Commission of India to examine a uniform framework for deposits during appeals, which suggests the asymmetry is recognised, but until that work is done the arithmetic falls on the depositor.
Common Pitfalls to Avoid
Treating the stay condition as payment: The percentage a court orders as a condition of stay is calibrated to security, not to satisfaction. It will almost never equal the full liability.
Omitting the notice: Sub-rule (4) measures the cessation of interest from service of the notice under sub-rule (2). Without service there is no date from which interest can stop.
Accepting a withdrawal condition for convenience: A security requirement on release is the clearest indicator that the deposit was not unconditionally available.
Depositing in instalments: Staggered deposits stop interest only on the portion satisfied, from the date each becomes effective. They do not close the computation.
Leaving the purpose unstated: A deposit application silent on its purpose is construed against the depositor, because the surrounding order is a stay order.
Key Statutory Provisions
Section 36(2) of the Arbitration and Conciliation Act, 1996: The filing of an application under Section 34 does not by itself render the award unenforceable unless the court grants a stay.
Section 36(3) of the Arbitration and Conciliation Act, 1996: The court may grant a stay of the operation of the award subject to such conditions as it may deem fit, for reasons to be recorded in writing.
Order XXI Rule 1(2) of the Code of Civil Procedure, 1908: Notice of a deposit into court to be given to the decree holder, through the court or directly by registered post.
Order XXI Rule 1(4) of the Code of Civil Procedure, 1908: Interest, if any, ceases to run from the date of service of that notice.
Sources and References
National Seeds Corporation v. National Agro Seed Corporation, 2026 INSC 1017: case analysis
Order XXI Rule 1 of the Code of Civil Procedure, 1908: Modes of paying money under decree
Section 36 of the Arbitration and Conciliation Act, 1996: Enforcement
Arbitration and Conciliation Act, 1996, Sections 34 and 36; Code of Civil Procedure, 1908, Order XXI Rule 1
Disclaimer: This article is for informational purposes only and does not constitute legal advice. Readers should consult a qualified legal professional for advice specific to their circumstances.
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