When an award-debtor challenges an arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996, courts routinely require the awarded amount to be deposited as a condition of stay. Whose money is that deposit while the challenge is pending? In McNally Bharat Engineering Company Limited v. Metso India Pvt. Ltd., O.M.P. (COMM) 362/2018, decided on 3 August 2026, Justice Avneesh Jhingan of the High Court of Delhi has held that the deposit remains an asset of the depositor — so when the depositor went through insolvency resolution and the award-holder failed to lodge its claim, the money went back to the resolved company, not to the award-holder.
How the dispute arose
The dispute traced back to a sub-contract connected with a BHEL tender. Arbitration between the parties ended in a 2018 award of about Rs 5.52 crore in favour of Metso India. McNally Bharat challenged the award under Section 34 before the High Court of Delhi and, in 2021, deposited the awarded amount with the Registrar General — kept in a fixed deposit — as the condition for stay of enforcement.
In 2022, McNally Bharat entered the corporate insolvency resolution process under the Insolvency and Bankruptcy Code, 2016. A resolution plan submitted by BTL EPC Limited was approved in December 2023. Metso, despite the public process, did not lodge its claim before the Resolution Professional. After the plan was approved, the resolved company sought dismissal of its own Section 34 petition as infructuous and refund of the deposit; Metso countered that the deposited money should come to it as the award-holder.
The two questions and the Court's answers
| Question | Holding |
|---|---|
| Did the deposit in court amount to payment to the award-holder? | No. The deposit was a pre-condition for stay, made to secure the amount due; it did not transfer ownership. The money remained the corporate debtor's asset in the custody of the court. |
| Did Metso's award claim survive the approved resolution plan? | No. Claims not lodged and not included in the approved plan stand extinguished under Section 31 IBC; the successful resolution applicant takes the company on a clean slate. |
Justice Jhingan relied on the Supreme Court's decisions in Ghanashyam Mishra and Sons v. Edelweiss Asset Reconstruction Company and Essar Steel (Committee of Creditors) v. Satish Kumar Gupta for the clean-slate principle, and on the Bombay High Court's ruling in Siti Networks Ltd. v. Rajiv Suri for the proposition that money deposited by a corporate debtor in court remains its asset despite court custody. The Section 34 petition was dismissed as infructuous, and the Registry was directed to release the fixed deposit with accrued interest to the resolved company.
The logic of the clean slate
Lessons for commercial litigants
The decision is a sharp reminder that arbitration and insolvency operate on different clocks, and the insolvency clock does not pause for pending court proceedings. An award-holder who treats a court deposit as money already in hand takes a real risk: the deposit secures the claim, but the claim itself lives or dies by the insolvency process once CIRP intervenes.
Points of practice that follow from the judgment:
- Watch for CIRP announcements against every counterparty with an outstanding award or decree, including those who have deposited money in court.
- File the claim with the Resolution Professional within time even if the award is under challenge; a contingent or disputed claim can and should still be lodged.
- Do not assume a lien over the deposit: ownership stays with the depositor until the court actually releases the money to the creditor.
- For resolution applicants, the judgment strengthens the clean slate — amounts lying in court deposits made by the corporate debtor return to the resolved entity where the underlying claim was extinguished.
Deposits under Order XLI Rule 5 CPC in civil appeals and pre-deposits under special statutes raise related but distinct questions; the reasoning here turned on the specific character of a Section 34 stay deposit as security rather than satisfaction of the award.
Conclusion
For companies and creditors alike, McNally Bharat v. Metso India underlines a simple discipline: enforceability is not the same as recovery. An award is a claim; a deposit is security; only the insolvency process — once it begins — decides what any claim is ultimately worth. Creditors who participate in that process protect their awards; creditors who stand apart from it may find, as here, that even money lying in court returns to the other side.
The chamber of Advocate Manish Jha advises on arbitration, enforcement and insolvency-related litigation before the District Courts of Delhi, the High Court of Delhi and the NCLT. This article is for general information only and is not legal advice.
Frequently Asked Questions
Does depositing the award amount in court discharge the award-debtor's liability?
No. The Delhi High Court held that a deposit made as a pre-condition for stay of an award only secures the amount; it does not amount to payment to the decree-holder or transfer ownership of the money. Until the money is released to the award-holder, it remains an asset of the party who deposited it, held in the custody of the court.
What happens to an arbitral award when the award-debtor goes through CIRP?
A creditor holding an award must lodge its claim before the Resolution Professional within the insolvency timelines. Under Section 31 of the Insolvency and Bankruptcy Code, an approved resolution plan binds all stakeholders, and claims not included in the plan stand extinguished — the successful resolution applicant takes over the company on a clean slate.
Why did Metso India lose the deposited amount in this case?
Metso did not file its claim before the Resolution Professional during McNally Bharat's corporate insolvency resolution process, and the resolution plan approved in December 2023 did not provide for it. Its claim therefore stood extinguished, the Section 34 petition became infructuous, and the Court directed the fixed deposit with interest to be released back to the company.
What should award-holders do when the opposite party enters insolvency?
Monitor the public announcement of CIRP and file the claim with the Resolution Professional in time, even where the award is under challenge or the amount lies deposited in court. A court deposit is security, not payment, so it does not protect the creditor from extinguishment of the underlying claim under the resolution plan.