Supreme Court Asks Law Commission To Frame Uniform Approach On Court Deposits, Interest

The Supreme Court has held that merely depositing money in court does not amount to payment to the creditor and does not stop the running of interest on a decretal or awarded amount, unless the deposit is unconditional and freely available for withdrawal by the decree-holder.

A Bench of Justices P S Narasimha and Alok Aradhe ruled that a deposit made beyond the debtor’s control neither extinguishes the liability nor places the money in the hands of the creditor.

When does a court deposit stop interest from running?

The Supreme Court clarified that an unconditional deposit, which is freely available for withdrawal by the decree-holder, is required to stop the accrual of interest.

“A deposit of the amount in the court has to be made unconditionally and the same must be available to the decree-holder for withdrawal, in order to make the deposit in consonance with Order XXI Rule 1 of the Civil Procedure Code,” the Bench observed.

“If the deposit is not made in terms of Order XXI Rule 1 of the Code, the interest continues to run on the amount after the deposit,” it added.

Court emphasised that a conditional deposit made only to secure a stay on the execution of a decree or arbitral award does not interrupt the liability to pay interest.

The Bench observed that between depositing a sum and finally discharging the liability lies a range of possibilities marked by uncertainty, particularly in cases involving the enforcement of arbitral awards.

Why did the Supreme Court ask the Law Commission to examine the issue?

The Bench noted that disputes over the treatment of deposits and accrual of interest arise regularly, but the Arbitration and Conciliation Act, 1996 does not provide clear guidance on how conditional deposits should be treated.

Observing that this legal gap cannot be ignored, Court directed the Law Commission of India to examine the issue comprehensively.

It asked the Law Commission to study comparative international practices and consult the Reserve Bank of India, the Ministry of Finance, and the Ministry of Law and Justice before recommending reforms.

Court also stressed the need for systemic reforms to bring uniformity and certainty in the treatment of deposits made before courts and tribunals.

How should deposited amounts and interest be handled?

The Supreme Court said there is a need to evolve a normative principle covering three aspects: how decretal amounts are deposited in courts or tribunals and how interest on them is treated when cases are finally decided; how the deposit protects both the decree-holder and the judgment-debtor from mounting interest liability; and how the principal and accrued interest are adjusted in the final settlement.

The Bench also highlighted the “time value of money”, observing that money available today is more valuable than money receivable at a future date because of the opportunity cost involved.

“The time value of money establishes that money available today is more valuable than money receivable at a future date, creating an opportunity cost. Lack of standardization in how courts handle deposits undermines this principle and necessitates uniform procedures for investment to preserve economic integrity,” the Bench said.

Court stressed that clarity and uniformity are required in the handling of deposited amounts so that their economic value is preserved and interest is properly accounted for.

It observed that the absence of standardisation undermines the principle of the time value of money and makes it difficult to ensure the clear accrual and adjustment of interest.

The apex court said disputes of this nature occur frequently enough to require a consistent approach to depositing, investing and adjusting interest that accumulates while appeals remain pending.

What was the dispute before the Supreme Court?

The dispute arose from an arbitral award dated June 13, 2019, directing National Seeds Corporation Ltd to pay approximately Rs 1.46 crore to National Agro Seed Corporation (India), along with interest at 12% per annum from August 26, 2017, until the date of the award.

National Seeds challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996.

The Delhi High Court stayed enforcement of the award on the condition that 50% of the principal amount, amounting to Rs 73.20 lakh, be deposited. National Seeds complied with the condition in November 2019.

The company later challenged an August 5, 2024 order of the Delhi High Court, which held it liable to pay 12% interest on the awarded sum from the date of the award, June 13, 2019, until September 8, 2022, when the deposited amount was ordered to be released to the award-holder.

Upholding the high court’s view, the Supreme Court held that National Seeds Corporation Ltd remained liable to pay interest at 12% even after depositing the money in court.

Court said the deposit had been made only as a condition for staying the award and was not freely available for withdrawal by the award-holder.

The Bench also noted that a stay of execution of a decree pending appeal is conditional upon the applicant demonstrating that substantial loss would result otherwise and providing security for the due performance of the decree.

The Supreme Court thus clarified that only an unconditional deposit that is available for withdrawal by the decree-holder can stop the running of interest.

Case Title: National Seeds Corporation Ltd Vs National Agro Seed Corporation (India)

Bench: Justices P S Narasimha and Alok Aradhe 

Date of Judgment: September 18, 2026