Karnataka High Court: Judgment Debtors Must Pay Interest on Compensation Even If Amount Deposited in Court

Karnataka High Court: Judgment Debtors Must Pay Interest on Compensation Even If Amount Deposited in Court

The Karnataka High Court recently ruled that a party in whose favour a judgment or award is passed is entitled to the principal amount and interest thereon until the date the amounts are received.

Justice Suraj Govindaraj stated that the obligation to pay interest on the compensation amount until it is paid does not cease simply because the judgment debtor is required to deposit the amount in a court of law while appealing the trial court order.

Justice Govindaraj ruled that whenever a judgment or award is passed in favour of a party, that party is entitled to the principal amount and interest thereon until the date they receive the amounts. Simply because the defendant or judgment debtor is required to deposit the amounts in a court of law, as done in this case before the Workmen's Compensation Commissioner, does not mean that their obligation to pay the amounts ceases.

A person named Nagraj filed a claim petition in the Civil Court in Raichur, which awarded him ₹4,02,416 in compensation, plus interest at an annual rate of 12 per cent from November 24, 2011, until the date of payment. The petitioner, an insurance company, aggrieved by the order, filed a Miscellaneous First Appeal.

Before filing the appeal, the petitioner deposited the awarded amount and interest of ₹81,498 on August 1, 2013. The appeal was eventually dismissed on April 8, 2022.

After Nagraj filed an execution petition, the petitioner-insurance company challenged the Executing Court's ruling in the current proceedings, which ordered it to pay the balance interest of ₹3,37,014, calculated from August 1, 2012, to April 19, 2023.

The company argued that the obligation to pay interest ceased from the date they deposited the awarded amount and interest with the Workmen's Commissioner before filing the appeal, and therefore, no further amount is due, as per the impugned order. The court rejected this argument.

The Court noted that the petitioner had opposed the claimant's application for the release of the deposited amount on November 16, 2013, and had written to the Workmen's Compensation Commissioner on November 21, 2014, requesting that the deposited amounts not be disbursed.

On February 17, 2023, the amounts were finally released to the claimant. The Executing Court calculated and ordered payment of the interest that had accrued during this period.

The Court added that a party in whose favour a judgment or award is made is entitled to both the principal amount and interest until the date they receive the amounts.

The Court's ruling clarified that depositing the money, whether in the court's custody or in a fixed deposit, does not absolve the judgment debtor of their responsibility to pay the awarded amount to the claimant. It emphasised that the crucial factor is for the claimant or plaintiff to receive the funds awarded in their favour. Depositing the money in either the court or a fixed deposit account does not serve to benefit the plaintiff or claimant, as it prevents them from enjoying the practical use of the funds. This deprivation arises due to the judgment debtor or petitioner, in the current case, failing to release the money in favour of the claimant, decree-holder, or plaintiff.

Additionally, the Court affirmed that the judgment debtor bears the responsibility for any interest that continues to accumulate until the actual payment is transferred to the claimant.

“It is the Petitioner-judgment debtor who took on the risk of continued accrual of interest on the said amount, till the actual payment thereon. If at all the judgment debtor wishes for the interest to stop running, then the payment is required to be made to the decree-holder and mere deposit would not suffice, since the deposit made would not enure to the benefit of the decree-holder,” the Court observed.

Furthermore, the Court specified that if the deposited amount is placed in a fixed deposit account, any interest earned on it would be considered an asset of the judgment debtor and could be used to cover the accrued interest. Consequently, the Court dismissed the petition during the admission stage.