Supreme Court Holds a Deposit Made to Secure a Stay Does Not Stop Interest on an Arbitral Award
Background and Facts
Award debtors routinely deposit money in court to obtain a stay and then assume that interest on an arbitral award has stopped running. The Supreme Court has held that it has not, unless the deposit is unconditional and the award holder can actually take the money out. The judgment in National Seeds Corporation Limited v. National Agro Seed Corporation (India) [arising out of Special Leave Petition (Civil) No. 5710 of 2025] carries the neutral citation 2026 INSC 1017.
An arbitral award dated June 13, 2019 directed payment of Rs 1,46,40,005.02 with interest at twelve per cent from August 26, 2017. The award debtor challenged it under Section 34 of the Arbitration and Conciliation Act, 1996 and, on October 16, 2019, obtained a stay conditional on depositing fifty per cent of the principal within six weeks. It deposited Rs 73,20,003 on November 25, 2019. The balance of Rs 1,53,17,792 followed much later, on April 26, 2022. The executing court ordered release of the deposited sum on September 8, 2022.
The dispute that reached the Supreme Court was narrow and expensive: did interest stop when the money entered the court, or when the award holder could take it out? The Delhi High Court, by its judgment dated August 5, 2024, had directed payment of interest at twelve per cent from June 13, 2019 until September 8, 2022. The award debtor challenged that direction.
Key Legal Issue
The question was whether a deposit made in court to secure a stay under Section 36(3) of the Arbitration and Conciliation Act, 1996 amounts to payment for the purposes of Order XXI Rule 1 of the Code of Civil Procedure, 1908, so as to stop interest from running.
The Supreme Court's Ruling
A Bench of Justice P.S. Narasimha and Justice Alok Aradhe upheld the High Court's direction. Interest ran for the whole period from the date of the award to the date the executing court ordered release.
A Deposit Is Not Payment
The organising proposition is that a deposit is not synonymous with payment. Money placed in the custody of a court is not money received by the person entitled to it. The award holder remains out of funds, and the compensation for being kept out of funds is interest.
The Court held that a deposit satisfies Order XXI Rule 1 only where it is made
"unconditionally and the same must be available to the decree-holder for withdrawal". Those are two requirements, not one, and a deposit can satisfy the first while failing the second.
What Order XXI Rule 1 Actually Requires
The rule is more demanding than it is usually treated as being. 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.
The date that matters is therefore neither the date the cheque is drawn nor the date the registry receives it. It is the date the decree holder is served with notice of a deposit that is genuinely available. A deposit made without the notice leaves the interest clock running however large the sum.
Why a Deposit to Secure a Stay Fails the Test
The Court identified four features of this deposit, each of which pointed away from payment:
Its purpose: The money was placed in court to obtain a stay of the award under Section 36(3), not to discharge the liability. A condition of a stay is a security, and security is not satisfaction.
The absent notice: No notice under Order XXI Rule 1(2) was given, so the event from which sub-rule (4) measures the cessation of interest never occurred.
The conditions on release: The award holder could obtain the money only against security. A withdrawal that costs the award holder a bank guarantee is not an unconditional availability of funds.
The staggered payments: Half the principal was deposited in November 2019 and the balance not until April 2022. The deposit was never of the whole sum due at any single point.
A Reference to the Law Commission
The Court also asked the Law Commission of India to examine a uniform framework for deposits made during appeals, covering where money should be deposited, how interest should be treated while it sits there, and how the final adjustment should be made. The request reflects the asymmetry that the judgment exposes. A sum can sit in court for years earning a nominal return while a twelve per cent award interest continues to accrue against the depositor.
Practice Notes
In practice, the judgment separates two objectives that are routinely conflated:
Security and satisfaction are different transactions: A deposit ordered as a condition of stay secures the award. Stopping interest requires payment. A single deposit achieves both only if it is structured to do so, and a deposit of a percentage of the principal never will.
Serve the notice: Sub-rule (4) keys the cessation of interest to service of the notice under sub-rule (2). The notice is cheap, and its absence in this case was one of the four reasons the argument failed. Serve it and retain proof of service.
For award holders resisting conditions: A release condition requiring security is worth objecting to, but the objection is now double edged. It protects the award holder's position on interest, because a fettered withdrawal is not an available one.
For award debtors: Model the cost. Where the award carries interest at twelve per cent, a deposit that secures a stay without stopping interest is an expensive way to buy time. The arithmetic may favour unconditional payment with a reservation of the right to restitution.
On drafting the application: Where the intention is to stop interest, say so in the deposit application, tender the whole sum, and ask the court to permit withdrawal without security. A deposit described only as compliance with a stay condition will be read as exactly that.
Key Provisions Discussed
Section 34 of the Arbitration and Conciliation Act, 1996: Application for setting aside an arbitral award.
Section 36 of the Arbitration and Conciliation Act, 1996: Enforcement of an award, with sub-section (2) providing that the filing of a Section 34 application does not by itself render the award unenforceable unless a stay is granted, and sub-section (3) permitting a stay subject to such conditions as the court thinks fit.
Order XXI Rule 1 of the Code of Civil Procedure, 1908: Modes of paying money under a decree, with sub-rule (2) requiring notice of a deposit to the decree holder and sub-rule (4) providing that interest ceases to run from the date of service of that notice.
Case Details
Case: National Seeds Corporation Limited v. National Agro Seed Corporation (India)
Case No: Arising out of Special Leave Petition (Civil) No. 5710 of 2025
Citation: 2026 INSC 1017
Court: Supreme Court of India
Date of Judgment: September 18, 2026
Bench: Justice P.S. Narasimha and Justice Alok Aradhe
Order Below: Judgment of the Delhi High Court dated August 5, 2024
Outcome: Challenge rejected. Interest at twelve per cent held payable from June 13, 2019 until September 8, 2022. The Law Commission was requested to examine a uniform framework for deposits in appeals.
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
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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