1. Arbitral award for security deposit refund — Interim order for partial deposit to stay execution — Withdrawal of deposited amount by decree holder. (Para 1 , 4 , 5 )
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2022 Supreme(SC) 1269
SUPREME COURT OF INDIA
Sanjiv Khanna, Sudhanshu Dhulia, JJ.
Nepa Limited through its Senior Manager (Legal) – Appellant
Versus .
Manoj Kumar Agrawal – Respondent
Civil Appeal No. 3984 of 2019
Decided On : 08-12-2022
Important Points
The main legal point established in the judgment is that interest ceases to run on the amount paid to the decree holder upon withdrawal, and the judgment debtor is not liable to pay interest on the amount already paid.
Subject
Arbitration Law - Interest on Awarded Amount
Act Referred
Headnote
Arbitration - Interest on Awarded Amount - Arbitration and Conciliation Act, 1996 - Section 34, Section 37 - The court held that interest ceases to run on the amount paid to the decree holder upon withdrawal, and the judgment debtor is not liable to pay interest on the amount already paid. The court also emphasized that the interim order merges into the final order, and the beneficiary of the interim order must pay interest on the amount withheld. The judgment clarified the principles of interest payment and set aside the order directing the appellant to pay interest on the principal amount from the date of the award till the date of the decision of the appeal under Section 37 of the Act.
Fact of the Case:
The appellant, M/s Nepa Limited, was held liable to pay Rs. 14,49,300/- to the respondent, Manoj Kumar Agrawal, towards refund of the balance security deposit. The appellant paid an amount of Rs. 1,50,000/- to the respondent, which was adjusted/set-off against the interest, not from the principal amount of the award. The appellant's objections under Section 34 of the Arbitration and Conciliation Act, 1996 were dismissed, and the appeal under Section 37 of the Act was also dismissed. The dispute was regarding the entitlement to interest on the principal amount of Rs. 14,49,300/- till the decision of the appeal under Section 37 of the Act on 02.02.2012, or interest on the net principal amount after the set-off/adjustment of interest due on 08.11.2001.
Finding of the Court:
The court found that interest ceases to run on the amount paid to the decree holder upon withdrawal, and the judgment debtor is not liable to pay interest on the amount already paid. The court also emphasized that the interim order merges into the final order, and the beneficiary of the interim order must pay interest on the amount withheld. The court clarified the principles of interest payment and set aside the order directing the appellant to pay interest on the principal amount from the date of the award till the date of the decision of the appeal under Section 37 of the Act.
Issues: The issues revolved around the entitlement to interest on the principal amount and the net principal amount after the set-off/adjustment of interest due on 08.11.2001.
Ratio Decidendi: The court held that interest ceases to run on the amount paid to the decree holder upon withdrawal, and the judgment debtor is not liable to pay interest on the amount already paid. The court also emphasized that the interim order merges into the final order, and the beneficiary of the interim order must pay interest on the amount withheld.
Final Decision: The court allowed the appeal and set aside the order directing the appellant to pay interest on the principal amount from the date of the award till the date of the decision of the appeal under Section 37 of the Act.
Legal Category Hierarchy
Advocates appeared:
For the Appellant(s) : Mr. Sumeer Sodhi, AOR Mr. Aman Nandrajog, Adv. Mr. Devashish Tiwari, Adv.
For the Respondent(s):Respondent-in-person
For the Appellant(s) : Mr. Sumeer Sodhi, AOR Mr. Aman Nandrajog, Adv. Mr. Devashish Tiwari, Adv.
For the Respondent(s):Respondent-in-person
Table of Contents
2. Whether interest continues on the full awarded principal or only on the net principal after the decree holder withdraws a partial deposit. (Para 9 , 13 , 16 )
3. Interest is compensation for deprivation of money; once the decree holder withdraws and utilizes the deposited amount, interest on that portion ceases. (Para 14 , 21 , 24 )
4. Interest ceases to run on the principal amount once it is transferred or credited to the decree holder, regardless of formal notice of deposit. (Para 14 )
5. Appeal allowed — High Court order set aside — Interest payable only on the net principal amount from the date of partial payment. (Para 25 )
6. Does the failure to provide notice of deposit under Order XXI Rule 1 CPC entitle the decree holder to continued interest if the amount was already withdrawn?
No. Notice is intended to enable the decree holder to withdraw the deposit. If the decree holder has already withdrawn the amount, the failure to give notice is irrelevant, and interest ceases from the date the amount is credited to the decree holder. (Para 14 )
7. Does a requirement to furnish an undertaking for restitution make a payment conditional such that interest continues to accrue?
No. Because the decree holder utilizes the money and the judgment debtor is deprived of its use, the right to restitution does not make the payment conditional for the purpose of interest, as interest is compensation for the deprivation of use of money. (Para 24 )
8. How is interest calculated when a stay of execution is granted subject to a partial deposit of the awarded amount?
The stay operates only for the balance amount. The judgment debtor remains liable for interest on the unpaid balance, but interest ceases on the portion actually paid and withdrawn by the decree holder. (Para 21 , 22 , 23 )
JUDGMENT :
Sanjiv Khanna, J.
1. By award dated 14.04.2000, the appellant, M/s Nepa Limited, was held liable to pay Rs. 14,49,300/- to the respondent, Manoj Kumar Agrawal. The amount was towards refund of the balance security deposit, which was made by Manoj Kumar Agrawal in terms of the agreement dated 25.10.1996. The award had stipulated that Rs. 14,49,300/- would carry an interest @ the rate of 18% per annum from the date of the award, till payment.
2. It is an accepted case that the appellant paid an amount of Rs. 1,50,000/- to the respondent on 22.10.2001. It is also undisputed that this payment would be adjusted/set-off against the interest, and not from the principal amount of the award, i.e., Rs.14,49,300/-.
3. The objections filed by the appellant under Section 34 of the Arbitration and Conciliation Act, 1996, 1[For short, the “Act”], were dismissed on 28.02.2001.
4. The appellant had thereupon preferred an appeal under Section 37 of the Act before the Division Bench of the High Court. On 30.10.2001, the Division Bench passed an order whereby, on the appellant depositing 50% of the awarded amount within ten days from the date of the order before the executing court, the execution proceedings for the balance amount were to remain stayed. The respondent was entitled to withdraw the deposited amount after furnishing personal undertaking for restitution of the amount if he is so directed, within three months from the date of the final disposal of the appeal. The direction/order attaching the properties of the appellant was to continue.
5. Pursuant to the interim order, the appellant had deposited Rs. 7,78,280/- on 05.11.2001. On 08.11.2001, the respondent withdrew Rs.7,78,280/-, after furnishing personal undertaking in terms of the order dated 30.10.2001.
6. The appeal preferred by the appellant under Section 37 of the Act was dismissed by the Division Bench on 02.02.2012.
7. It may be stated here that the respondent had also challenged the award by filing objections under Section 34 of the Act, which were dismissed. Thereupon, the respondent had filed an appeal under Section 37 of the Act which was also dismissed. It is stated by the respondent, who appears in-person, that both the appellant and the respondent had preferred a special leave petition before this Court, which were dismissed.
8. Learned counsel appearing for the appellant accepts that the payment of Rs.7,78,280/-, which was withdrawn by the respondent on 08.11.2001, would be first adjusted/set-off against the interest element payable in terms of the decree, which in this case, is the award. The balance amount would be set off/adjusted towards the principal amount payable. To this extent also, there is no dispute.
9. The dispute before us is whether the respondent is entitled to interest @ the rate of 18% as per the award on the principal amount of Rs. 14,49,300/- till the decision of the appeal under Section 37 of the Act on 02.02.2012, or interest @ the rate of 18% is payable on the net principal amount2[See paragraph 25 below. As per calculations made by the appellant vide Annexure ‘A’ to this judgment the net principal amount payable is Rs. 9,13,483/-. As per the calculations made by the respondent vide Annexure ‘B’ to this judgment the net principal amount payable is Rs.9,30,300/-.] after the set-off/adjustment of interest due on 08.11.2001 from Rs.7,78,280/- which was withdrawn by the respondent on 08.11.2001.
10. On 01.08.2012, the respondent had filed an application for recovery of amount of Rs. 3,97,382/- along with the interest. On 18.08.2012, the respondent had filed another application stating and claiming that he was entitled to interest on Rs.14,06,259/-, i.e., the principal amount awarded along with the 18% interest till the decision of the appeal under Section 37 of the Act, which was decided on 02.02.20123[It appears that some payments were made by the appellants post dismissal of their appeal under Section 37 of the Act on 02.02.2012. Therefore, the fig
