Decree Holder Not Entitled To Interest For Period Between Deposit of amount and its Release : Delhi High Court

The bench held that the entitlement to interest does not extend to the period between the deposit and the withdrawal application if the deposit was unconditional and available for withdrawal without any impediment.

It held that the entitlement to interest for the Decree Holder ceases once the Judgment Debtor deposits the decretal amount in Court.

Brief Facts:

The matter pertained to arbitral proceedings between the Petitioner, Ramacivil India Constructions Pvt Ltd, and the Respondent, the Union of India. These proceedings culminated in an award which required the Respondent to pay the Petitioner ₹2,99,55,403/- along with simple interest at 11% per annum. The dispute primarily revolved around the entitlement to interest under this award. The Respondent challenged the award before the High Court while the Petitioner sought enforcement of the award.

The Respondent also filed petition under Section 36 of the Arbitration Act 1996 for stay on the execution of the arbitral award. The High Court granted a stay on the execution subject to the Respondent depositing the awarded amount including interest. The Respondent complied with this directive. Subsequently, the Petitioner filed an application for permission to withdraw the deposited amount and offered to furnish a bank guarantee equivalent to the deposited amount. The High Court allowed this request subject to the Petitioner providing a bank guarantee for ₹4.75 crores within two weeks and the remaining ₹7,09,323/- stayed deposited with the Registrar General.

The Section 36 was dismissed by the High Court. The Petitioner filed an application for the release of the bank guarantee and the remaining deposited amount. This application was allowed by the High Court which directed the unconditional return of the bank guarantee and the release of the remaining ₹7,09,323/-.

The core dispute before the High Court was whether the Petitioner was entitled to interest on the amount deposited by the Respondent for the period between the date of deposit and the date of release permitted by the court.

Observations by the High Court:

The High Court noted that an identical claim was addressed by the Supreme Court in the case of Union of India v. M.P. Trading and Investment RAC Corporation Ltd. The Supreme Court held that once the amount was deposited in a fixed deposit account at the request of the Respondent, the Respondent would only be entitled to the interest accrued on the deposit, not the higher interest awarded by the Arbitral Tribunal from the date of deposit until the withdrawal.

The High Court referred to its own decision in Cobra Instalaciones Y Servicios v. Haryana Vidyut Prasaran Nigam Ltd where it was held that if the judgment debtor deposits the award amount in the court without any conditions and the decree holder fails to withdraw it, the interest on the amount ceases from the date of deposit. In Cobra, the judgment debtor deposited the amount to avoid coercive action and the decree holder withdrew the amount only after the objections under Section 34 were dismissed. The decree holder's claim for interest for the period between the deposit and withdrawal was denied as the deposit was deemed tendered once it was available for withdrawal without any stay on the award.

The High Court in the current case the deposit directed by the court on 11 August 2021 was unconditional without any requirement for the petitioner to furnish a bank guarantee. The condition of furnishing a bank guarantee arose from the Petitioner's own undertaking in an application. Thus, it noted that the Petitioner was not prevented or inhibited from withdrawing the deposited amount. Consequently, the High Court found no difference between the order of deposit in Cobra and the current case.

Further, the Petitioner argued that the Respondent should not benefit from Order XXI Rule 1(4) of the CPC as the deposit was made under Section 36(3) of the Arbitration Act. The High Court held that both types of deposits serve to secure the awarded amount and ensure the decree holder's security. Whether the deposit was made under Section 36(3) or Order XXI Rule 1(1)(a) should not change the decree holder's entitlement to interest while the amount remains in the court. Further, it noted that the Petitioner could not commit to staking the claim for interest by moving an application under Section 34 proceedings which underscored the interconnectedness of the execution proceedings with the Section 34 proceedings.

Thus, the High Court held that the Petitioner's entitlement to interest does not extend to the period between the deposit and the withdrawal application if the deposit was unconditional and available for withdrawal without any impediment.

The High Court referred to the decisions of the Supreme Court in Gurpreet Singh v. U.O.I., Himachal Pradesh Housing and Urban Development Authority v. Ranjit Singh Rana, and MP Trading, along with the Division Bench's judgment in Bhai Sardar Singh and held that the decree holder's entitlement to interest ceases once the judgment debtor deposits the decretal amount in court. Therefore, it held that such deposit even when made for obtaining a stay of the award constitutes payment within the meaning of Order XXI Rule 1(1)(a).

Therefore, the High Court rejected the Petitioner's claim for additional interest on the deposited amount from the date of deposit to the date of release. It held that the Petitioner was only entitled to the interest earned on the fixed deposit of the amount not the interest as per the award.

Case Title: M/S Ramacivil India Constructions Pvt. Ltd. Vs Union Of India

Case Number: OMP (ENF.) (COMM.) 126/2021

Advocate for the Decree Holder: Mr. Avinash Trivedi, Ms. Ritika Kaushik, Mr. Rhythem Nagpal and Mr. Jatin Arora, Advs.

Advocate for the Judgment Debtor: Mr. Ruchir Mishra and Mr. Mukesh Kumar Tiwari, Advs.

Date of Judgment: 16.07.2024

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