Ceasing the accrual: when interest on arbitration awards truly stops?
On 12 January 2026, the Delhi High Court in Shenzhen Shandong Nuclear Power Construction Company Ltd. v Vedanta Limited clarified a less pondered upon question, as to when the accrual of interest would cease on compensation amounts awarded in arbitration cases? This question assumes importance in the context of complex commercial arbitral awards, wherein courts need to deal with challenges related to interest computation and the impact of procedural delays on the same. Shenzhen Shandong Nuclear Power Construction Company Ltd., (“Shenzhen”) a foreign company, entered into contractual arrangements with Vedanta Ltd. (“Vedanta”) in relation to certain construction and project-related works. Disputes arose between the parties and were referred to arbitration. The arbitral tribunal passed an award in favour of Shenzhen and directed Vedanta to furnish security of INR 1.87 billion (USD 20.6 million). Vedanta furnished a bank guarantee of the same amount, which continued during the pendency of the arbitration proceedings.
The final arbitration award was passed on 09 November 2017 granting Shenzhen an undisclosed amount. Aggrieved by the award, Vedanta filed an application under Section 34 of Arbitration and Conciliation Act, 1996 (“Act”). While the court directed that the bank guarantee be returned to Vedanta once the full deposit is made, Vedanta deposited an amount of INR 1.55 billion with the registry. Later, the Section 34 application filed by Vedanta was dismissed. The said decision was carried in appeal before the Division Bench by the judgment debtor under Section 37 of the Act, during the pendency of which, Vedanta was directed to deposit the entire amount of the arbitration award along with interest to the court registry. Consequently, Vedanta filed a Special Leave Petition (“SLP”) before the Hon’ble Supreme Court challenging the High Court’s dismissal, while in parallel, Shenzhen filed an execution petition to enforce the award. Further, the Delhi High Court directed the registry to release INR 600 million to Shenzhen, which was to be retained in Vedanta’s bank account until it’s SLP was listed before the Hon’ble Supreme Court.
The Hon’ble Supreme Court on 11 October 2018 decided the mater and modified the interest rate on the euro component from 9% p.a. to London interbank offered rate (LIBOR) plus 3%. On 08 August 2019, the High Court again ordered the release of an additional INR 346.9 million to Shenzhen. On 06 January 2020, the High Court ordered adjustments of deposits first towards interest, then principal, and directed euro component to be converted into INR basis the exchange rate as on 17 October 2012. Finally, on 12 September 2022, Shenzhen’s contention was that it was entitled to INR 2.1 billion including interest up to 23 November 2022, however, Vedanta contended that Shenzhen was entitled to INR 1.84 billion, which meant Vedanta was entitled to a refund of INR 823.14 billion.
Distinction Between Securing an Award and Satisfying an Award
A principal theme in the issue of accrual of interest on principal amount is the clear conceptual distinction between “securing” and “satisfying” an arbitral award. While, the Delhi High Court held that steps taken by an award debtor to secure the awarded amount such as furnishing bank guarantees or making part-payments do not automatically amount to satisfaction of the award. Satisfaction, in practicality occurs only when the award holder is placed in a position to actually fully retrieve and utilize the awarded sums. Making this distinction is critical because interest is linked not to only securing the amount, but to actually being able to utilize the funds by gaining effective control over it. Thus, the true meaning of “date of payment” remains contested and unclarified.
Section 31(7)(b) of the Act provides that unless otherwise directed by the arbitral tribunal:
“The sum directed to be paid by an arbitral award shall carry interest at the rate of two per cent higher than the current rate of interest, from the date of the award to the date of payment.”
The expression “date of payment” has been a recurring subject of judicial interpretations. It can be interpreted in a myriad of ways like making deposit of money in court, furnishing of bank guarantee or conditional compliance with stay orders, all of these can be equated with “payment” with regard to determination of interest. Arbitral Tribunals in India routinely award interest on principal amount as compensation under Section 31(7)(b) of the Act. However, the question arises during the enforcement proceedings as to when exactly does the interest clock stop ticking? The question that was analysed by the Delhi High Court was whether the amounts deposited pursuant to judicial directions could be treated as constructive payment to the award holder. While, the Act is silent on this interpretation, reference can be made to the Code of Civil Procedure, 1908 (“CPC”). Order XXI Rule1(4) of the CPC provides:
“(4) On any amount paid under clause (a) or clause (c) of sub-rule (1) interest, if any, shall cease to run from the date of service of the notice referred to in sub-rule (2).”
However, Indian courts in the context of an Arbitral award have layered nuances, especially in case of arbitration matters.
Interest accruing in the post award stage continues unrestricted unless the award debtor deposits the amount in court, often as a condition for staying execution proceedings under Section 36 of the Act. Yet, there is no clarity whether such deposits are “unconditional” meaning that the award holder can withdraw this amount freely without facing any procedural challenges or furnishing security.
In the case of DDA v. Bhai Sardar Singh12009 SCC OnLine Del 519 the Delhi High Court held that for a payment to fall within the ambit of Order XXI Rule 1 of the CPC, there must be an unconditional payment by the judgment debtor to the decree holder either directly or through the executing court. Mere deposit of the decretal amount in a court other than executing court can never amount to payment. Further, in this particular case, what weighed with the Division Bench of the High Court was the aspect whether the decree holder could have withdrawn the amount deposited by the judgment debtor in Court. In the facts of the said case, the Division Bench noted that even though the judgment debtor had deposited the Award amount in Court, the said amount was not available to the decree holder for appropriation. There was no consent by the judgment debtor to the decree holder for withdrawal of the amount lying deposited with the Court in appeal under Section 37 of the Act. The Division Bench further observed that if the decree holder still had to resort to the execution process to recover the amount, the deposit would not amount to payment of the decretal amount under Order XXI Rule 1 of CPC. Thus, what emerges is that even if part payment towards the decree has been paid, then interest would cease to accrue to the extent of the amount paid.
Further, by relying upon the judgment of Hon’ble Supreme Court in PSL Ramanathan Chettiar & Ors Vs. O.R.M.P.RM. Ramanathan Chettiar21968 SCC OnLine SC 28 the Delhi High Court observed that where a judgement debtor deposits a sum before the court for the purpose of securing a stay of execution of the decree, subject to the condition that the decree holder may withdraw the same upon furnishing security, such deposit does not pass the title in the said amount to the decree holder. The decree holder is at the liberty to withdraw the amount in accordance with the terms of the order. However, until such withdrawal is effected there is nothing to exclude the judgement debtor from seeking release of the deposited amount by furnishing other security, say, immovable property, subject to the permission of the court. In event of dismissal of the appeal, the judgement debtor may thereafter deposit the decretal amount before the court in compliance with Order XXI Rule 1 of CPC, for satisfaction of the decree. Further, the Hon’ble Supreme Court, also observed that real effect of deposit of money in court is to put the money beyond the reach of the parties pending the disposal of the appeal. The decree-holder could only take it out on furnishing security which means that the payment was not in satisfaction of the decree and the security could be proceeded against by the judgment-debtor in case of his success in the appeal. Pending the determination of the same, it was beyond the reach of the judgment-debtor.
Thus, holding that if a deposit is not in terms of Order XXI Rule I CPC there is no question of the stopping the interest after the deposit. A similar question was dealt with by the Bombay High Court3Nahar Builders Ltd. Vs. Housing Development and Infrastructure Ltd. 2020 SCC OnLine Bom 2522, wherein the court held that the amount once deposited in the court was placed beyond the reach of either party. Once the money is deposited in the court no party can automatically claim any right to it without an adjudication by a court.
The Delhi High Court in another case4Cobra Instalaciones Y Servicios, S.A & M/s Shyam Indus Power Solutions Pvt. Ltd. (JV) v. HVPNL 2023 SCC OnLine Del 5439 held that once the judgment debtor has intimated the decree holder with a notice of the deposit and the Award amount is available for withdrawal to the decree holder unconditionally, the liability of the judgment debtor would cease on the date of the deposit. Further, in the case of DLF Limited v. Koncar Generators and Motors5(2025) 1 SCC 343, the Hon’ble Supreme Court held that through a deposit, the award debtor parts with the money on that date and provides the benefit of that amount to the award holder. Subject to the award-holder being granted permission to withdraw the said amount, he shall, upon such withdrawal, be entitled to convert, utilise, and benefit from the same. Considering that the deposited amount inures to the benefit of the award-holder, it would be inequitable and unjust to hold that the amount does not stand converted on the date of its deposit.
Thus, the principal issue as clear from the decisions is whether the award-holder is unconditionally allowed to withdraw, convert and utilise the amount deposited by the judgement debtor.
Legal Status of Bank Guarantees in Relation to Interest Accrual
A major point of contention in relation to determination of interest accrual is whether furnishing of bank guarantee constitutes “payment”. In the present case, submissions were made by the decree holder that bank guarantee is only a security and would not amount to payment in Court, and the interest would continue to run despite furnishing a bank guarantee. The judgment debtor had contended that the sum of Rs.187 crores was admittedly available with the decree holder for immediate encashment in the form of an unconditional and irrevocable bank guarantee, thus it amounted to payment as per Order XXI Rule 1(1) of CPC and the interest would cease to run in terms of Order XXI Rule 1(4) of CPC.
The Delhi High Court referred to the judgement of Bhadani Associates v. Kamlini Dharamraj Ashar & Ors62017 SCC OnLine Bom 249, wherein a Single Bench of the Bombay High Court took the view that giving a bank guarantee would amount to “payment” of money in the Court. In this case, it was held that a bank guarantee would not amount to a security as it could be invoked. In the said case, the bank guarantee could not be encashed as the decree holder had challenged the Award which was pending. But the Delhi High Court was unable to subscribe to the view taken by the Bombay High Court that amount secured by way of a bank guarantee can be taken to be a deposit in Court in terms of Order XXI Rule 1 of the CPC.
The Delhi High Court observed that bank guarantee only serves as a form of security to secure the amounts that may be due to a party. The decree holder cannot enjoy the benefit of the money which is secured by the bank guarantee. Further, practically the decree holder could not have invoked the bank guarantee on 23 March 2018 as the bank guarantee, as per its terms was payable upon enforcement of the Arbitral Award in favour of the decree holder, a stage that had not yet arisen as the matter was still pending adjudication. It is also not the case of the judgment debtor that it conveyed its consent for the invocation of the bank guarantee on 23 March 2018. Further, the judgment debtor resisted the release of amount by stating that it is in the process of filing an SLP. Therefore, the date of dismissal of appeal under Section 37 would also not be relevant for the purposes of stopping the ‘interest clock’.
Further, it was contended by the judgment debtor that after the dismissal of the SLP by the Hon’ble Supreme Court, the decree holder was free to withdraw the deposited amount and encash the bank guarantee. However, this was not done as the decree holder insisted that the Euro component of the Arbitral Award should be paid in Euros.
The Delhi High Court after applying all the legal principles held that when the judgment debtor, for the first time, consented to the decree holder encashing the bank guarantee of Rs. 187 crores towards satisfaction of the decretal amount in addition to a further sum of Rs. 40 crores from the amount deposited, the entire decretal amount would have been received and the decree fully satisfied, had the decree holder accepted the submission of the judgment debtor on the said date. Further, the non-accessibility of the amounts deposited by the judgement debtor on account of objections was rejected by court as an “afterthought”. Thus, the court held that the “interest clock” would stop running on the date on which for the first time the judgment debtor consented that the decree holder can encash the bank guarantee.
Thus, the date on which the consent is given to encash the bank guarantee and the funds can be utilized to their full effect would put an end to the “interest clock”.
Conclusion
The Delhi High Court’s reasoning aligns with India’s broader pro-arbitration and pro-enforcement model and policy under the Act. By holding that interest continues until actual access to award money is granted, the courts protect the economic sanctity of arbitral awards and discourage the tactical delays created by award-holders to gain extra money. Simultaneously, by cutting off interest where delays are attributable to the award-holder after access has been granted, the court prevent unjust enrichment and prolonged interest liability. Cases like Sardar Singh and Vedanta provide clarity that deposits tied to stays or appeals don’t count as “payment” if security or conditions block actual withdrawal. Bank guarantees, while common for securing stays, fall short as substitutes for cash deposits as they cannot be invoked or encashed prematurely, without proper consent. Thus, practically, award holders should demand for unconditional release or invocable guarantees to minimize ongoing liability. By identifying 08 August 2019, the date on which Vedanta consented to encash the 187 Crore bank guarantee, as the legally relevant date for cessation of interest, the Delhi High Court has adopted a pragmatic and equitable framework for interest computation. This decision has substantial precedential value in high value, complex commercial arbitrations involving court deposits, bank guarantees and foreign currency disputes.
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