Bigger the award, smaller the deposit? – Securing large arbitration awards pending challenge

Arbitration has become the preferred route for resolving high-value commercial and infrastructure disputes in India. Yet the matter seldom ends when the award is passed. The losing party usually challenges it in court and, until that challenge is decided, seeks a stay on enforcement, the price of which is ordinarily a deposit of the awarded sum. Curiously, for the very large awards, the courts have of late directed the losing party, often a government body, to deposit a smaller share, not a larger one. This article examines that trend.

The deposit and its two-fold purpose

When a party wins an arbitration, the award stands on the footing of a civil court decree. Prior to 2015, the mere filing of a challenge under Section 34 of the Arbitration and Conciliation Act, 1996 (“Act”) operated as an automatic stay on enforcement. The 2015 amendment changed this: the losing party must now separately apply for a stay, on such terms as the court thinks fit.^[1]

The deposit serves two purposes. On one hand, it protects the losing party, for if the challenge succeeds, the amount can be returned. Whereas on the other hand, it protects the successful party, who has been found entitled to the money and ought not to be kept out of it. This itself is the problematic point. The deposit cannot logically meet both ends as, protecting the award debtor means locking the money away, while protecting the award holder means letting him use it, especially since it is well settled that a public body enjoys no special dispensation.^[2]

Larger the award, smaller the deposit

Earlier this year the Supreme Court considered an order of the Delhi High Court directing the National Highways Authority of India to deposit the whole of an award exceeding Rs. 1,197 crore, and directed it to deposit only 50% of the award amount.^[3] While the explanation for this reduction is not specifically founded in the judgement, one can safely assume that the size of the sum and the burden of locking up so much public money played a role in the ultimate reduction. The concern is understandable, as tying up hundreds of crores while the challenge is undecided is inefficient.

A recent opinion - the National Seeds decision

In National Seeds Corporation Ltd. v. National Agro Seed Corporation (India), the Supreme Court held that an amount deposited merely to secure a stay cannot be treated as payment.^[4] Interest continues to run until the successful party can withdraw the money. Where only a portion of the awardis deposited, interest ceases only to that extent. Further, where it may be drawn only against security, the deposit counts as security, not payment, so interest continues. This problem is illustrated below.

Assume that a contractor secures an award of INR 1,000 crore against a public authority. On challenge, the jurisdictional court stays the operation of the award on the condition that the contractor deposit half the amount. In such a situation, the interest under the Act keeps running on the unpaid half for the years the challenge may take,^[5] and at commercial rates can approach the sum withheld. A public body that deposits half to conserve funds may thus owe more by the end than had it deposited the whole and stopped the clock at once.

When the government delays paying contractors for public projects like roads and ports, it hurts both parties. Contractors often wait years for money they are already entitled to. As a result, prices for future bids accounting for late payments end up costing taxpayers more. For this reason, the Supreme Court in National Seeds (supra) referred the matter to the Law Commission for a uniform framework. This trend also aligns with a wider pattern: since 2024, the Finance Ministry has steered large government contracts away from arbitration and toward mediation.^[6] The Ministry of Highways has also done this for major road contracts.^[7]

The way ahead

If disputes of this magnitude deserve special treatment, that is a matter of policy, and the choice must come from the legislature, not be improvised by the court. The cleaner course would be to amend Section 36 of the Act so that, for public and infrastructure awards above a threshold, a 50% deposit is deemed sufficient to stop interest on the whole, in recognition of the public funds tied up during the challenge.

There can be no unconditional concession, and it must come with two safeguards. Firstly, the deposited half must be available to the award holder for withdrawal, so that it can put the money to use. Secondly, the challenge must be decided within a fixed outer limit of one or two years and the provisions of the Act, especially Section 34(6), must be enforced rigorously

Conclusion

An arbitration award is a promise that the award holder will get paid. When the government is the award debtor, and the system makes it easier to postpone payment as the debt keeps growing, it breaks trust for everyone doing business with the state.

The solution isn’t to leave award holders waiting for their dues. Instead, Parliament must pass a clear law stating exactly how much money must be secured, when interest stops, and when award holders get paid. Until that happens, the government shouldn’t treat a partial deposit as the limit of what it owes, and winners should fight to withdraw whatever money has been deposited, offering a bank guarantee as an alternative if necessary.

^[1] Section 36(2), Arbitration and Conciliation Act, 1996, as substituted by the Arbitration and Conciliation (Amendment) Act, 2015; on the end of the automatic stay, Hindustan Construction Co. Ltd. v. Union of India, (2020) 17 SCC 324.

^[2] Pam Developments Pvt. Ltd. v. State of West Bengal, (2019) 8 SCC 112.

^[3] National Highways Authority of India v. Vadodara Mumbai Expressway PKG-08 Pvt. Ltd., SLP (C) Nos. 622-623 of 2026 (SC).

^[4] National Seeds Corporation Ltd. v. National Agro Seed Corporation (India), 2026 INSC 1017.

^[5] Section 31(7)(b) of the Act.

^[6] Ministry of Finance, Department of Expenditure, Office Memorandum No. F.1/2/2024-PPD, Guidelines for Arbitration and Mediation in Contracts of Domestic Public Procurement, dated 03 June 2024.

^[7] Ministry of Road Transport and Highways, Circular No. H-25011/02/2025-P&P, dated 12 January 2026.