Deposit Made To Stay Arbitral Award Is Security, Not Payment To Award-Holder: Delhi High Court

The Delhi High Court has held that depositing money in court as a condition for staying an arbitral award does not alter ownership of the amount.

It ruled that such a deposit remains only a form of security and creates no unconditional right in favour of the decree holder.

A single bench of Justice Avneesh Jhingan observed that the decree holder acquires no vested right over the money merely because it has been deposited in court.

"There is no vested right created in favour of the decree holder for unconditional receipt of the amount deposited in the court. The deposit continues to remain in the form of security," the court ruled. 

The court made the ruling while dismissing McNally Bharat Engineering Company Limited's challenge to an arbitral award of ₹5.52 crore in favour of Metso India Private Limited as infructuous.

It held that Metso's claim stood extinguished after the company failed to lodge it before the Resolution Professional during the corporate insolvency resolution process.

Since the claim did not form part of the approved resolution plan, the court directed that the ₹5.52 crore deposited in court, along with the accrued interest, be released to McNally Bharat

The dispute arose from a July 12, 2011 agreement under which the engineering company engaged the supplier to design, manufacture, supply, and supervise the erection and commissioning of two barrel-type blender reclaimers for a Bharat Heavy Electricals Limited (BHEL) project.

After the agreement was terminated on November 21, 2011, the supplier invoked arbitration.

On May 5, 2018, the arbitral tribunal awarded the supplier ₹5.52 crore along with post-award interest at 12% per annum.

The engineering company challenged the award on which the stay was granted on deposit of the award. 

The dispute took a different turn after the company entered the corporate insolvency resolution process in April 2022. Although the Resolution Professional invited claims, the supplier did not file one. The resolution plan was approved in December 2023.

The engineering company then sought release of the deposited amount, arguing that the supplier's claim had stood extinguished because it was not lodged before the Resolution Professional.

The supplier countered that no insolvency claim was required since the court deposit itself amounted to payment.

Rejecting the argument, the court held that the arbitral award constituted a "claim" under the Insolvency and Bankruptcy Code and had to be lodged before the Resolution Professional.

Since that was not done, the claim stood extinguished upon approval of the resolution plan, leaving nothing to be enforced.

The court also rejected the supplier's contention that depositing the awarded amount in court amounted to payment.

"The contention of learned counsel for the respondent that deposit of the amount tantamounts to payment to the decree holder is ill-founded. The deposit in court was a pre-condition for grant of stay with the object of securing the amount due to the decree holder. The amount deposited is subject to the outcome of the challenge to the impugned award. The deposit of the amount in the court does not affect the ownership of the asset."

Observing that the deposit remained in court as security and could be released only with the court's permission, Justice Jhingan held that the supplier had no automatic right to withdraw the amount.

The court accordingly dismissed the Section 34 petition as infructuous and directed the Registry to release the ₹5.52 crore deposited in court, along with the interest accrued on the FDR, to the engineering company.

For McNally Bharat Engineering Company Limited: Senior Advocate Gopal Jain with Advocates Udian Sharma, Sahil Saraswat, Prabal Pratap Singh, Harsha Sadhwani, Manav Mitra and Kriti Sharma.

For Metso India Private Limited: Advocates Sumant Batra, Nitin Khare, Abhishek Kumar, Riya Arora, Sarthak Bhandari, Hemlata Rawat, Abhay Singh and Saurabh.