Supreme Court of India: Court Deposits Do Not Automatically Stop Interest on Debts

In a significant ruling dated September 19, 2026, the supreme court of india clarified that depositing money in court to secure a stay of an arbitral award does not automatically stop the "interest clock" on the debt. In the case of National Seeds Corporation Ltd. v. National Agro Seed Corporation (India) (Neutral Citation: 2026 INSC 1017), the Court established that a deposit is not synonymous with a payment [1].

The 'Interest Clock' and Order XXI Rule 1 CPC

The Court ruled that for the liability to pay interest to cease, the deposit must be made in accordance with Order XXI Rule 1 of the Code of Civil Procedure (CPC). This requires the deposit to be unconditional, meaning the award-holder (the creditor) must be free to withdraw the funds without further hurdles [1].

Conditional vs. Unconditional Deposits

The ruling distinguishes between two types of deposits to determine if interest continues to accrue:

• Unconditional Deposits: Funds deposited such that the creditor can withdraw them freely. This is treated as a payment, and interest stops.
• Conditional Deposits: If withdrawal is conditioned on furnishing security (such as title deeds) or is resisted by the debtor, the money is not considered to be in the creditor's hands. Consequently, interest continues to accrue until unconditional release occurs [2].

In the National Seeds Corporation case, the appellant deposited funds in 2019 and 2022 but resisted the respondent's applications for release. Because these deposits did not meet the "unconditional" threshold, the Court affirmed the appellant's liability for interest at 12% per annum until the final unconditional release on September 8, 2022 [1].

Call for Legislative Reform

A Division Bench comprising Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe identified a systemic "lacuna" in the Arbitration and Conciliation Act, 1996, noting that it provides no clear guidance on the interplay between conditional deposits and interest [1].

To address the "wide asymmetry" across High Courts, the supreme court of india has requested the Law Commission of India to examine the issue and develop uniform rules. The Court suggested the Law Commission consult with the Reserve Bank of India (RBI), the Ministry of Finance, and the Ministry of Law and Justice, while studying legal practices in the United States and Canada [1].