Delhi HC – Arbitral Award -Clarifies on Rules of Appropriation First for Interest before Principal
Delhi HC Reaffirms the principle that payments made by judgment debtor are first appropriated towards interest and then towards principal, unless the decree or contract specifies otherwise. This ensures fairness to decree-holders and discourages debtors from exploiting the delays.
Delhi HC – Arbitral Award -Clarifies on Rules of Appropriation First for Interest before Principal
Arbitral Award – Payments of Judgment Debtor – Interest Takes Priority, rules Delhi High Court
Doctrine of Appropriation in Execution Proceedings of Arbitral Award – Delhi HC Ruling
Section 36 Arbitration Act and Execution of the Arbitral Award
The petitioner filed petition for execution of the arbitral award dated 16.12.1997 for Rs.1,70,70,720.80 with interest of Rs.2,36,89,755.10 upto 16.12.1997 and Rs.25,52,834 upto 22.4.1998 i.e. till filing of the execution petition.
The controversy was whether the interest given by the Arbitrator would be part of the principal or would be separately treated as interest on the principal.
The judgment debtor had paid Rs.12,68,70,889/- in three instalments to the decree holder.
According to the decree holder, the amounts deposited by the judgment debtor should be adjusted towards the interest and the balance amount should be adjusted towards the principal.
In this context, reliance is placed on the decision of the Supreme Court in Bharat Heavy Electricals Ltd Vs. R.S. Avtar Singh and Company (2013)(1) SCC 243.
31.1. The general rule of appropriation towards a decretal amount was that such an amount was to be adjusted strictly in accordance with the directions contained in the decree and in the absence of such directions adjustments be made firstly towards payment of interest and costs and thereafter towards payment of the principal amount subject, of course, to any agreement between the parties.
31.2. The legislative Intent in enacting sub-rules (4) and (5) is a clear pointer that interest should cease to run on the deposit made by the judgment-debtor and notice given or on the amount being tendered outside the court in the manner provided in Order 21 Rule 1(1)(b).
31.3. If the payment made by the judgment-debtor falls short of the decreed amount, the decree-holder will be entitled to apply the general rule of appropriation by appropriating the amount deposited towards the Interest, then towards costs and finally towards the principal amount due under the decree.
31.4. Thereafter, no further interest would run on the sum appropriated towards the principal. In other words if a part of the principal amount has been paid along with interest due thereon as on the date of issuance of notice of deposit interest on that part of the principal sum will cease to run thereafter.
31.5. In cases where there is a shortfall in deposit of the principal amount, the decree-holder would be entitled to adjust interest and costs first and the balance towards the principal and beyond that the decree-holder cannot seek to reopen the entire transaction and proceed to recalculate the interest on the whole of the principal amount and seek for reappropriation.”
Judgment dated 6.12.2025 of the High Court of Delhi in EX.P.99/1998 of M/s. S.A.Builders Ltd Vs. Municipal Corporation of Delhi with connected matters
