LEELA HOTELS LTD.versusHOUSING & URBAN DEVELOPMENT CORPORATION LTD.

                    [2011] 13 (ADDL.) S.C.R. 156


A                       LEELA HOTELS LTD.
                                  v.
      HOUSING & URBAN DEVELOPMENT CORPORATION
                            LTD.
              (Civil Appeal No. 9763 of 2011)
B                      NOVEMBER 15, 2011
     [ALTAMAS KABIR, CYRIAC JOSEPH AND SURINDER
                   SINGH NIJJAR, JJ.]

C       ARBITRATION:

        Award - Principal and interest payable under award -
  Appropriation of by creditor - Debtor depositing Rs. 89. 78
  crores with the assertion that it represented the net principal
  amount due and payable to the credit9r - According to the
D calculation sheets of the creditor, the said sum deposited was
  appropriated towards the interest due under the award - Held:
  Admittedly, there was no agreement between the parties as
  to how the amounts to be paid in terms of the award were to
  be appropriated by the creditor - Accordingly, in terms of the
E we// settled principle that in such cases it was for the creditor
  to appropriate such payment firstly against the interest
  payable, would be squarely attracted to the facts of the case
  - The deposit made by the debtor with the assertion that it
  was towards the principal amount, was accepted by the creditor
F without prejudice to its rights and contentions in the
  proceedings - Accordingly, the creditor cannot be denied its
  dues on a unilateral stipulation that the amount of Rs. 89. 78
  crores was being deposited as against the principal sum due
  in terms of the award - Since the said amount was accepted
G by the creditor on protest, it would be entitled to appropriate
  the same against the interest which was due and payable till
  that date on the principal amount, as has been asserted by it
  - Section 59 of the Contract Act was not attracted in the case
  - Contract Act, 1872 - ss. 59 and 60.
H                                156
    LEELA HOTELS LTD. v. HOUSING & URBAN            157
          DEVELOPMENT CORP. LTD.
    Arbitration and Conciliation Act, 1996:                A
    s. 36 - Award of arbitrator - Enforcement of - HELD:
Such an award has to be enforced under the Code of Civil
Procedure in the same manner as it were a decree of the
court.
                                                           B
     Consequent upon cancellation of a lease agreement
for construction of a Five-Star Hotel, the dispute between
the parties was referred to the arbitrator, who allowed the
claims of the appellant and rejected the counter-claim
made by the respondent-HUDCO. The arbitrator held that C
the appellant was entitled to recover and HUDCO was
obliged to pay, inter alia, the amounts received by it from
the appellant along with 20% interest thereon for the
period the amount(s) remained with HUDCO till the date
of the Award. HUDCO filed its objections uls 34 of the D
Arbitration and Conciliation Act, 1996, which was
dismissed by the Single Judge of the High Court on 20-
1-2003. Before the said petition was dismissed, HUDCO
undertook to deposit the principal sum awarded by the
arbitrator on or before 21.10.2002. Such deposit (Rs. E
89,78,84,930/) was allowed to be made without prejudice
to the rights and contentions of HUDCO in the
proceedings before the High Court. Subsequently, by
order dated 21.10.2002, the said position was reiterated
and it was recorded that the deposit made by HUDCO F
would be without prejudice to the rights and contentions
of the parties in the pending proceedings. The first
appeal from the order dated 20-1-2003, having been
dismissed by the Single Judge of the High Court on 9-
11-2004, the respondent filed a special leave petition G
before the Supreme Court, which was dismissed on 12-
2-2008, but the rate of interest was reduced from 20% to
18%. Meanwhile HUDCO had also paid a sum of Rs.59.61
crores to the appellant on 23-3-2006. It paid a further sum
of Rs.48.09 crores on 16.4.2008. With these payments, H
    158   SUPREME COURT REPORTS (2011] 13 (ADDL.) S.C.R.


A according to HUDCO, the award was satisfied.

      In the execution petition, the case of the appellant ..
  was that the sum of Rs.89,78,84,930/- deposited by
  HUDCO was appropriated towards the interest due under
B the award; whereas the stand of the respondent-HUDCO
  was that the said amount should be appropriated
  towards the principal sum payable to the appellant under
  the award. The Single Judge of the High Court directed
  the payment to the appellant as per its calculations.
C However, the Division Bench of the High Court held that
  the said amount deposited by HUDCO would be
  appropriated towards the principal amount due and not
  towards the interest; and set aside the order of the Single
  Judge.

D      In the instant appeal, the question for consideration
  before the Court was: whether the amount/ deposited
  and/or paid by the respondent to the appellant in terms
  of the Award of the Arbitrator, was first to be appropriated
  towards payment of the interest due on the principal sum
E or whether the same was to be appropriated against the
  principal sum itself.

        Allowing the appeal, the Court
      HELD: 1.1 Admittedly, there was no agreement
F between the parties as to how the amounts to be paid in
  terms of the Award were to be appropriated by the
  appellant. Accordingly, the well settled principle that in
  such cases it was for the creditor to appropriate such
  payment firstly against the interest payable, would be
G squarely attracted to the facts of this case. [para 26) [173-
  H; 174-A·B]
      1.2 In the instant case, a unilateral assertion had been
  made by HUDCO as the debtor that the sum of Rs.89.78
H crores was being tendered as payment towards the
   LEELA HOTELS LTD. v. HOUSING & URBAN                159
         DEVELOPMENT CORP. LTD.

principal amount and that there was, therefore, no other A
amount/ due and payable to the creditor-appellant; but
the amount as deposited was accepted by the appellant
without prejudice to its rights and contentions in the
appeal. [para 27] [174-F-H]
                                                           B
     1.3 The philosophy behind the principle set out in
Meka Venkatadri's case and as reiterated in Rai Bahadur
Seth Nemichand's case and also in Smithaben's case and
then consistently followed by this Court, is that a debtor
cannot be allowed to take advantage of his default to C
deny to the creditor the amount to which he would be
entitled on account of such default, by way of elimination
of the principal amount due itself, unless, of course, the
provisions of s.59 of the Contract Act, 1872, were
attracted or there was a separate agreement between the
parties in that regard. That is not so in the instant case D
and, accordingly, the creditor cannot be denied its dues
on a unilateral stipulation that the amount of Rs.89.78
crores was being deposited as against the principal sum
due in terms of the Award. Since the said amount was
accepted by the appellant on protest, it would be entitled E
to appropriate the same against the interest which was
due and payable till that date on the principal amount, as
has been asserted by it. [para 28] [175-A-D]

    Mis l.C.D.S. Ltd. Vs. Smithaben H. Patel & Ors., (1999)   F
3 SCC 80; Meghraj Vs. Mst. Bayabai & others, 1970 (1) SCR
523 =AIR 1970 SC 161- relied on.

    Meka Venkatadri Appa Rao Bahadur Zamindar Garu &
Ors. Vs. Raja Parthasarathy Appa Rao Bahadur Zamindar G
Garu, AIR 1922 PC 233; and Rai Bahadur Seth Nemichand
Vs. Seth Radha Kishen, AIR 1922 PC 26 - referred to.

    1.4 The Division Bench of the High Court erred in
presuming that the said amount had been accepted by
                                                              H
    160 SUPREME COURT REPORTS [2011] 13 (ADDL.) S.C.R.


A the appellant on account of good business sense in view
   of the uncertainty of the final outcome of the case. The
   Division Bench of the High Court should have proceeded
   on the basis of the principles of law as laid down by this
   Court in Smithaben's case, keeping in mind the earlier
8 decisions of the Privy Council in both Meka Venkatadri's
  case and Rai Bahadur Seth Nemichand's case in
  interfering with the judgment of the Single Judge. The
  Division Bench seems to have erroneously taken the
  presence of the counsel for the appellant, when the said
C undertaking of the respondent was recorded, in coming
  to the conclusion that since no objection had been raised
  with regard to the said deposit, it must be presumed that
  it had the consent of the appellant and, therefore, was
  covered by the provisions of ss. 59 and 60 of the
  Contract Act. [para 29) [175-E-H]
0
        2. Regarding the question as to whether the Award
  of the Arbitrator tantamounts to a decree or not, the
  language used in s.36 of the Arbitration and Conciliation
  Act, 1996, makes it very clear that such an Award has to
E be enforced under the Code of Civil Procedure in the
  same manner as it were a decree of the court. The said
  language leaves no room for doubt as to the manner in
  which the Award of the Arbitrator was to be accepted.
  [para 30) [176-A-B]
F
        3. The judgment and order of the Division Bench of
    the High Court is set aside and that of the Single Judge
    restored. [para 31] [176-C]
      NALCO Vs. Prestee/ & Fabrication Pvt. Ltd., (2004) 1
G SCC 540; Paramjeet Singh Patheja Vs. /CDS Ltd., 2006
                          =
  Suppl. (8) SCR 178 (2006) 13 SCC 322; Morgan
  Securities and Credit Pvt. Ltd. Vs. Modi Rubber Ltd., 2006
                          =
  Suppl. (10) SCR 1022 (2006) 12 SCC 642; West Bengal
  Essential Commodities Supply Corporation Vs. Swadesh
H
    LEELA HOTELS LTD. v. HOUSING & URBAN                     161
          DEVELOPMENT CORP. LTD.
Agro Farming & Storage Pvt. Ltd. & Anr., 1999 Suppl.               A
(2) SCR 399   =(1999) 8 sec 315 - cited.
                      Case Law Reference:
    1970 (1) SCR 523                   relied on para         8
                                                                   B
    2004 (1) sec 540                   cited       para 20
    2006 Suppl. (8) SCR 178            cited       para 20
    2006 Suppl. (10) SCR 1022          cited       para 20
     1999 Suppl. (2) SCR 399           cited       para 20         c
    AIR 1922 PC 26                     relied on para 20
    AIR 1922 PC 233                    relied on para 26
    CIVIL APPELLATE JURISDICTION : Civil Appeal No.                D
9763 of 2011.

    From the Judgment & Order dated 20.07.2009 of the High
Court of Delhi at New Delhi in EFA (OS) No. 4 of 2009.
    Ashok Desai, Mukul Rohtagi, Abhimanyu Mahajan, Rahul           E
Pratap, "Coac" for the Appellant.

    Parag P. Tripathi, ASG Shadan Farasat. Sanjay Kumar,
Ayush Agrawal (for Suresh A. Shroff & Co.) for the Respondent.

    The Judgment of the Court was delivered by                     F

    ALTAMAS KABIR, J. 1. Leave granted.

      2. This Appeal has been filed by Leela Hotels Ltd. against
the judgment and order dated 20th July, 2009, passed by the        G
Division Bench of the Delhi High Court in EFA(OS) No.4 of
2009, heard along with several Miscellaneous Applications
setting aside the order dated 19th November, 2008, passed
by the learned Single Judge, who had directed payment to the
Appellant herein as per its calculations. It is the common case    H
     162   SUPREME COURT REPORTS [2011) 13 (ADDL.) S.C R


A of the parties that on 17th October, 1996, the Housing and
    Urban Development Corporation Ltd. (HUDCO) invited offers
    for grant of sub-lease of land measuring 11,480 sq. meters in
    HUDCO Place situated in Andrews Ganj, New Delhi, for
    construction of a Five-Star Hotel thereupon. The Appellant
B herein being the highest bidder, a letter of allotment of the said
   land was issued to it on 31st March, 1997, which was followed
   by a perpetual sub-lease dated 4th July, 1997. Out of the total
   consideration, the first instalment comprising 40% of the
   consideration amount was paid by the Appellant herein on 10th
c  April, 1997. The second and third instalments, each amounting
   to Rs.65,38,29,000/-, were payable by 31st March, 1998, and
   31st March, 1999, respectively. It was stipulated in the sub-
   lease that in case of default in payment of the second and third
   instalments, the same could be paid along with interest at tlie
D rate of 20% per annum within three months of the due date. It
  was further stipulated that in default of payment even in terms
  of the said relaxation, the allotment would automatically stand
  cancelled and in such event 50% of the amount paid upto that
  date would stand forfeited and the balance 50% would be
E refunded without interest. Admittedly, the second instalment was
  paid by the Appellant herein along with interest for the delayed
  payment and ground rent was also paid till 31st March, 1998.
  Since, however, the Appellant defaulted in payment of the third
  instalment, the lease agreement was cancelled and as per the
  terms of the agreement 50% of the total amount paid by the
F Appellant amounting to Rs.76,28,00,500/-was refunded by the
  Corporation to the Appellant, while forfeiting the balance 50%.

       3. Being aggrieved by the steps taken by the Respondent
  Corporation, the Appellant filed a Petition before the Chief
G Justice of the Delhi High Court to appoint an Arbitrator in terms
  of the arbitration clause, which was registered as Arbitration
  Application No.193of1999. On 23rd June, 1999, an Arbitrator
  was appointed by the Delhi High Court before whom the
  Appellant herein claimed a sum of Rs.142, 16,08,896/- from the
H Respondent Corporation along with interest at the rate of 20%
   LEELA HOTELS LTD. v. HOUSING & URBAN     163
 DEVELOPMENT CORP. LTD. [ALTAMAS KABIR, J.]
per annum along with a further sum of Rs.19,24,45,800/-           A
comprising the ground rent paid along with interest thereon at
the rate of 25% per annum along with a sum of Rs.5,98,22,058/
- towards refund of property tax. A sum of Rs.5,62,27,715/-was
also claimed by way of damages.
                                                                    B
     4. The learned Arbitrator allowed the claims of Leela
Hotels and rejected the counter-claim made by HUDCO. In his
Award, the learned Arbitrator held that Leela Hotels was entitled
to recover and HUDCO was obliged to pay damages
computed with regard to the amounts paid as the first and
second instalments of the premium, together with interest paid C
with the second instalment, less the amount refunded by
HUDCO to Leela Hotels under letter dated 8th July, 1999, and
as further reduced by the amount of property tax paid by
HUDCO on behalf of Leela Hotels to the Municipal Corporation
of Delhi. It was also directed that the interest at the rate of 20% D
per annum would be paid by HUDCO to Leela Hotels on the
amount representing property tax for the period during which
the amount remained with HUDCO until payment to MCD and
also on the amount refunded by HUDCO under its letter dated
8th July, 1999, for the period for which that amount remained E
with HUDCO until repayment to Leela Hotels. Leela Hotels was
also held to be entitled to such interest on the balance of the
amount from the date of the respective payments made initially
by Leela Hotels to HUDCO till the date of the Award.
                                                                   F
     5. The Appellant filed its objections under Section 34 of
the Arbitration and Conciliation Act, 1996, hereinafter referred
to as the "1996 Acf', before the High Court. The same was
dismissed by the High Court by its order dated 21st January,
2003. Before the said petition was dismissed, the Respondent G
herein undertook to deposit the principal sum awarded by the
Arbitrator on or before 21st October, 2002. The said sum of
Rs.89,78,84,930/-, was allowed to be deposited without
prejudice to the rights and contentions of the Respondent
 herein. When the cheque for the aforesaid amount was brought H
     164 SUPREME COURT REPORTS [2011] 13 (ADDL.) S.C.R.


A to Court on 21st October, 2002, the said Respondent got it
  recorded that it represented the net principal amount due and
  payable to the Appellant herein under the Award and that the
  said deposit was without liability on its part to pay future interest
  thereupon.
B
       6. The first appeal from the said order dated 20th January,
  2003, having been dismissed by the High Court on 9th
  November, 2004, the Respondent filed a Special Leave
  Petition before this Court, which was dismissed on 12th
  February, 2008. Although, the Special Leave Petition was
C dismissed, the rate of interest for the pre-Award period was
  reduced from 20% to 18% per annum. Furthermore, since this
  Court had directed the Appellant to pay or deposit 50% of the
  balance decretal amount, the Respondent paid a sum of
  Rs.59.61 crores to the Appellant herein on 23rd March, 2006.
D The Respondent paid a further sum of Rs.48.09 crores to the
  Appellant herein on 16th April, 20C8, which, according to the
  Respondent, satisfied the decree. This, in fact, was the genesis
  of the dispute between the parties.

E      7. As far as the Appellant herein was concerned, in its
  calculation sheet the sum of Rs.89,78,84,930/- was shown to
  be appropriated towards the interest due under the Award. A
  claim was also made for interest on the interest. On the other
  hand, in the calculation sheet filed by the Respondent herein it
F was indicated that the aforesaid amount deposited should be
  appropriated towards the principal sum payable to the Appellant
  herein under the Award and had calculated simple interest at
  the rate awarded by the Arbitrator as modified by this Court.
  Consequently, as was noted by the Division Bench of the Delhi
G High Court, the controversy which surfaced on account of the
  contesting claims of the parties was whether the aforesaid
  amount could be adjusted, as claimed by the Appellant herein,
  towards the interest, or was the Appellant obliged to
  appropriate the said sum towards the principal sum due to it
  under the Award. A further question which surfaced was whether
H
   LEELA HOTELS LTD. v. HOUSING & URBAN     165
 DEVELOPMENT CORP. LTD. [ALTAMAS KABIR, J.]
the Appellant herein was entitled to charge interest on interest   A
or compound interest in accordance with the method indicated
in the calculation sheet filed by it.

       8. In dealing with the first question as to whether the
payment made by the judgment-debtor is to be appropriated B
first towards discharge of the principal or towards discharge
of the interest, the Division Bench noted the decision of this
court in Mis /.C.D.S. Ltd. Vs. Smithaben H. Patel & Ors.
((1999) 3 SCC 80), wherein, this Court had held that Sections
59 and 60 of the Contract Act, 1872, would only be applicable C
at the pre-decretal stage and not thereafter and that post-
decretal payments would have to be made either in terms of
the decree or in accordance with the agreement arrived at
between the parties, though, on the genuine principles indicated
 in Sections 59 and 60 of the aforesaid Act. After referring to
 various other decisions of this Court and the Lahore High Court, D
 the Division Bench of the High Court referred to the decision
 in Meghraj Vs. Mst. Bayabai & others, [AIR 1970 SC 161],
 wherein the law in this regard was laid down by this Court that
 the general rule of appropriation of payment towards a decretal
 amount is that such an amount is to be adjusted firstly strictly E
 in accordance with the directions contained in the decree and
 in the absence of such direction, adjustments would have to be
 made firstly towards payment of interest and costs and,
 thereafter, in payment of the principal amount. It was, however,
 indicated that such a principle would be subject to an exception F
 when the parties might agree to the adjustment of the payment
  in any manner despite the decree. It was, accordingly, held that
  unless the Respondent herein was able to show that the parties
  had either impliedly or expressly agreed to adjustment of the
  said sum of Rs.89,78,84,930/- towards the principal amount, G
  the Appellant herein would be entitled to appropriate the said
  amount fully towards the payment of interest.

    9. It may be indicated that on 11th October, 2002, the
 Respondent herein undertook to deposit the principal amount       H
     166    SUPREME COURT REPORTS [2011] 13 (ADDL.) S.C.R


A awarded by the Arbitrator on or before 21st October, 2002.
    Such deposit was allowed to be made without prejudice to the
    rights and contentions of HUDCO in the proceedings before
    the High Court. Subsequently, by order dated 21st October,
    2002, the said position was reiterated and it was recorded that
B the deposit made by the Respondent would be without prejudice
    to the rights and contentions of the parties in the pending
   proceedings and without any liability on the part of the
    Respondent to make payment of further interest on the above-
   mentioned amount. The Division Bench took the view that
c having regard to the submissions made on behalf of the
   Respondent herein that the said amount of Rs.89,78,84,930/-
   was on account of the principal sum due and payable to the
   Appellant herein under the Award, and since no objection had
   been raised by the Appellant herein to such contention, it would
D have to be held that the said sum had, in fact, been adjusted
   towards the principal sum. After observing that before
   withdrawing the amount, the Appellant herein had neither sought
   permission of the Court to appropriate the sum towards interest
   nor given any intimation regarding withdrawal of the said
E amount, the Division Bench made it clear that the said amount
  would be appropriated towards the principal amount due and
   not towards interest. The Division Bench noted that the amount
   being withdrawn was without prejudice to the Appellant's rights
  towards payment of interest. The Division Bench took the view
  that since the Respondent herein was keen to avoid the
F possibility of paying further interest on the principal sum, in the
  event of its objections being dismissed, it offered to deposit
  the principal sum payable under the Award. The Division Bench
  observed that it made good business sense on the part of the
  Appellant, at that time, to accept the aforesaid amount towards
G the principal sum payable to it under the Award and to utilize
  the said sum for its business, instead of waiting for the final
  outcome of the litigation between the parties. The Division
  Bench came to the conclusion that it was in such circumstances
  that the Respondent had agreed to deposit the said sum of
H
   LEELA HOTELS LTD. v. HOUSING & URBAN     167.
 DEVELOPMENT CORP. LTD. [ALTAMAS KABIR, J.]
Rs.89,78,84,930/- specifically, towards the principal amount         A
under the Award.

      10. The Division Bench further observed that both the
parties were duly represented by their respective counsel, when
the Respondent herein offered and undertook to deposit the           B
principal amount awarded by the Arbitrator and also insisted
that it be recorded as part of the proceedings that the said
payment was to be appropriated towards the principal amount
awarded by the learned Arbitrator and was without any further
liability on the part of the Respondent to make payment of
further interest on the said amount. The Division Bench based        C
its judgment, to a large extent, on the assumption that since the
Appellant had remained silent to the said stipulation made on
behalf of the Respondent, it would have to be presumed that
the Appellant herein had consented to the said proposal.
                                                                     D
     11. On such reasoning, !he Division Bench set aside the
order passed by the learned Single Judge on 19th November,
2008, and after noting that a sum of Rs.50.54 crores had been
deposited by the Respondent No.1 herein during the pendency
of the Appeal, directed him to decide in the light of the judgment   E
rendered by the Division Bench as to whether any further amount
was payable by the Respondent No.1 herein to the Appellant
in terms of the judgment. Consequential directions were also
given on the outcome of such findings.

    12. As mentioned hereinbefore, this Appeal is directed           F
against the said judgment of the Division Bench dated 20th July,
2009.
    13. Appearing for the Appellant, Mr. Ashok Desai, learned
Senior Advocate, submitted that the crucial question to be           G
considered and decided in this case was whether the amounts
deposited or paid by HUDCO from time to time were to be
appropriated first towards the interest payable on the principal
amount, following the decision in Smithaben's case (supra), or
towards the principal, having regard to the provision in the         H
     168 SUPREME COURT REPORTS [2011] 13 (ADDL.) S.C.R.

A Award relating to future interest which states that Leela Hotels
   is entitled to interest at the rate of 15% per annum from the date
   of the Award to the date of recovery. Mr. Desai submitted that
   the language of the Award is clear that the amount on which
   future interest has to be calculated includes interest awarded
B by the Arbitrator till the date of the Award. Mr. Desai submitted
   that it was not a case of compound interest, but a case of
   calculating simple interest on the amount as remained unpaid
  each year. Mr. Desai also submitted that after the Award had
  been passed, Leela Hotels had calculated interest on the basis
c of yearly rests, but subsequently gave up its claim on the basis
  of compound interest and limited its claim to simple interest
  after appropriating the amount received from HUDCO first
  towards interest and then towards principal, in accordance with
  the decision in Smithaben's case (supra). Mr. Desai submitted
D that the High Court had erred in accepting the calculation made
  by HUDCO which had not computed the amount awarded by
  the Arbitrator and had not computed future interest in terms of
  the Award.

        14. On the second issue as to how the money paid by
E HUDCO is to be appropriated, Mr. Desai urged that in
  Smithaben's case (supra), it had been very clearly explained
  that in view of the consistent view taken first by the Privy Council
  and then by this Court, the general rule of appropriation of
  payment towards a decretal amount is that such an amount is
F to be adjusted firstly in accordance with the directions
  contained in the decree and in the absence of such directions,
  adjustment should firstly be made in payment of interest and
  costs and thereafter towards payment of the principal amount.
  Mr. Desai urged that the Division Bench had misapplied the
G ratio in Smithaben's case (supra) in assuming that the unilateral
  and voluntary deposit offered to be made by HUDCO in Court
  amounted to such deposit being made upon an implied
  acceptance that the same would be appropriated towards the
  principal amount.· It was urged that the issue of implied
H agreement had never been raised or argued before the learned
   LEELA HOTELS LTD. v. HOUSING & URBAN     169
 DEVELOPMENT CORP. LTD. [ALTAMAS KABIR, J.]
                                                                   A
Single Judge and there is no pleading in support thereof. Mr.
Desai also urged that the provisions of Sections 59 and 60 of
the Indian Contract Act would also have no application to the
facts of this case since they only applied in regard to distinct
debts and not for enforcing a decree or what is regarded as a
decree by legal fiction.                                           B

      15. Mr. Desai submitted that the judgments of both the
learned Single Judge and the Division Bench were centered
around the payment of Rs.89.78 crores and the manner in
which the same was to be appropriated. It was urged that since     C
the same was paid after the passing of the decree, Leela
Hotels is entitled to appropriate the said amount first towards
the interest and costs and then towards the principal. Mr. Desai
urged that on account of the wrong assumptions made by the
 Division Bench, its judgment under appeal was liable to be set    D
 aside.

       16. On the other hand, appearing for HUDCO, Mr. Parag
P. Tripathi, learned Additional Solicitor General, firstly urged
that the issue regarding charging of compound interest did not
survive, since the parties had agreed that no compound interest E
was payable in terms of the Award. As to the other question
as to whether the sums deposited by HUDCO were to be
appropriated first against the interest and then against the
principal, it was contended that the same was no longer res
integra since the Award had made it clear that the first payment F
of Rs.76.28 crores had to be reduced from the principal amount
which was due. The learned ASG submitted that it was for the
first time before this Court that the Appellant has contended that
the sum of Rs.76.28 crores would be appropriated first towards
the interest and then towards the principal amount. The learned G
ASG pointed out that the refund had been made even prior to
the making of a Reference to the Arbitrator or pronouncing of
the Award i.e. at the pre-decretal stage and, accordingly, when
 the refund was made, there was no determination as to whether
 any payment was due from HUDCO to the Appellant. H
     170   SUPREME COURT REPORTS [2011] 13 (ADDL.) S.C.R.


A Accordingly, the contention of Leela Hotels that the said refund
   of Rs. 76.28 crores was to be first appropriated towards the
  interest does not even arise. It was also submitted that the first
  payment of 50% of the awarded amount amounting to Rs.76.28
  crores was, therefore, treated by the Award to be payment
B appropriated towards the principal and since the Award had
  not been challenged by the Appellant herein, the objections to
  the Award under Section 34 of the Act filed by the Respondent
  also stood concluded by the decision of this Court in Civil
  Appeal No.1094 of 2006.
c      17. As regards the second amount of Rs.89.78 crores
  tendered by HUDCO in the Delhi High Court on 21st October,
  2002, during the pendency of the proceedings under Section
  34 of the Arbitration and Conciliation Act, 1996, it was
  submitted by the learned ASG that the same has to be
D appropriated towards the principal amount due from HUDCO
  to Leela Hotels. It was submitted that the said amount was in
  the nature of a pre-decretal payment a1d that the appropriation
  of the amount will have to be in the manner indicated by the
  Respondent to which there had been no demur.
E
        18. It was next submitted by the learned ASG that analogy
  of a post-decretal payment cannot be applied to an Arbitration
  Award under the 1996 Act for the simple reason that the
  Arbitration Award under the 1996 Act does not attain the status
F or character of a decree within the meaning of the Code of Civil
  Procedure. It is to be executed "as if it were a decree", which
  means that it is not a decree.
        19. It was thirdly urged by the learned ASG that assuming
  that the Award could be treated as a decree and the second
G payment is a post-decretal payment, even then the said
  payment will have to be treated as appropriation towards the
  principal sum, since Leela Hotels had been duly intimated of
  the nature of the deposit and by way of an impliell contract,
  Leela Hotels had appropriated the said sum towards the
H principal.
   LEELA HOTELS LTD. v. HOUSING & URBAN     171
 DEVELOPMENT CORP. LTD. [ALTAMAS KABIR, J.]
      20. The learned ASG referred to the decision of this Court A
in NALCO Vs. Presteel & Fabrication Pvt. Ltd. [(2004) 1 SCC
540], wherein it had been held that there is no question of any
decree being honoured pursuant to the passing of an Award
and unlike a judgment within the meaning of the Civil Procedure
Code, an Award remains unenforceable during the period B
 available for challenging the Award, and, thereafter, till such time
 as the Petition under Section 34 is disposed of by the
 appropriate Court. Reference was also made to the decision
 of this Court in (1) Paramjeet Singh Patheja Vs. /COS Ltd.
 [(2006) 13 sec 322), wherein it was explained that the c
 Arbitrator is not a Court and accordingly an arbitration is not
 an adjudication and an Award is not a decree, (2) Morgan
 Securities and Credit Pvt. Ltd. Vs. Modi Rubber Ltd. [(2006)
 12 SCC 642] and (3) West Bengal Essential Commodities
 Supply Corporation Vs. Swadesh Agro Farming & Storage D
 Pvt. Ltd. & Anr. [(1999) 8 SCC 315), where similar views have
 been expressed. Reference was also made to the decision of
 the Privy Council in the case of Rai Bahadur Seth Nemichand
  Vs. Seth Radha Kishen [AIR 1922 PC 26), wherein it was, inter
 alia, held that a creditor to whom principal and interest are
 owed is entitled to appropriate any indefinite payment which E
  he gets from a debtor towards the payment of interest.
  However, a debtor might in making a payment stipulate that it
 was to be applied only towards the principal. If such a stipulation
 was made, the creditor was at liberty to refuse the payment on
 such terms, but then he would have to give back the money or F
 the cheque by which the money was offered. If the amount was
 accepted then the creditor would be bound by the appropriation
  as proposed by the debtor.
     21. As to the decision of this Court in Smithaben's case G
(supra), the learned ASG submitted that the payment was
unilaterally made out of Court by the debtor with a covering
letter, which was immediately responded to by the decree-
holder who made it clear that he had appropriated the amount
towards interest alone. This Court, therefore, held that the H
     172   SUPREME COURT REPORTS [2011] 13 (ADDL.) S.C.R.


A  creditor was not bound by the appropriation so made by the
   debtor. The learned ASG submitted that in the instant case the
   Respondent had tendered a sum of Rs.89.78 crores in Court
  as payment towards the principal amount and the same had
  been accepted by Leela Hotels without objection and
B accordingly the decision in Smithaben's case (supra) would
  have no application to the facts of this case. The learned ASG
  submitted that there being little or no substance in the Appeal,
  the same was liable to be dismissed with costs.

C       22. Of the two issues involved in this matter, it appears that
   the issue relating to charging of compound interest did not
  survive since the parties had agreed that no compound interest
  would be payable in terms of the Award. In fact, although such
  an assertion had been made by the learned ASG, the same
  was not seriously opposed by Mr. Desai who had taken the
D stand that this was not a case of compound interest, but a case
  of calculating simple interest on the amount as remained
  unpaid. Mr. Desai also accepted the position that after the
  Award had been passed by the learned Arbitrator, Leela Hotels
  had calculated the interest on the basis of yearly rests, but had
E subsequently given up its claim of compound interest and
  limited its claim to simple interest after appropriating the
  amount received from HUDCO, first towards interest and then
  towards the principal in accordance with the decision in
  Smithaben's case (supra).
F
      23. Consequently, the only issue which remains for
  decision is whether the amounts deposited and/or paid by
  HUDCO to Mis Leela Hotels in terms of the Award of the
  learned Arbitrator, was first to be appropriated towards
G payment of the interest due on the principal sum or whether the
  same was to be appropriated against the principal sum itself.

        24. From the submissions made on behalf of th.e
    respective parties, the following payments appear to have been
    made by HUDCO to the Appellant herein:-
H
  LEELA HOTELS LTD. v. HOUSING & URBAN     173
DEVELOPMENT CORP. LTD. [ALTAMAS KABIR, J.]
    (i)     12.07.1999           Rs.76.28 crores                   A

    (ii)    21.10.2002           Rs.89.78 crores

    (iii)   March 2006           Rs.59.61 crores
    (iv)    May 2008             Rs.48.09 crores and               B

    (v)     May 2009             Rs.50.54 crores.

     It has been contended by the learned ASG that the amount
of Rs.89.78 crores having been paid towards the principal
amount, the other payments made subsequently were towards          C
interest and, accordingly, there was no amount due and payable
to the Appellant. On the other hand, it has been claimed on
behalf of the Appellant that the said sum of Rs.89.78 crores had
been appropriated against the interest as per the decision in
 Smithaben's case (supra), and, accordingly, the stand taken       D
 on behalf of HUDCO was erroneous.

     25. As indicated hereinbefore, the submissions made by
the learned ASG on behalf of HUDCO was based on the
proposition as contained in Sections 59 and 60 of the Indian E
Contract Act, 1872, on account of the stipulation recorded on
behalf of HUDCO that the amount of Rs.89.78 crores was being
tendered towards the principal sum, to which there was no
objection from the Appellant and, accordingly, it must be held
that that since the amount had been received without demur, F
such payment fell within the provisions of Section 59 of the
aforesaid Act. In fact, the Division Bench of the High Court
proceeded to consider such payment and acceptance to be a
voluntary acceptance by the Appellant of the aforesaid amount
as appropriat"1on towards the principal as it made good
business sense to accept the same and to utilise the same in G
spite of waiting for something indefinite in the future. Such a
submission, though legal and correct, is not supported by the
 materials on record.
     26. Admittedly, there was no agreement between the            H
     174    SUPREME COURT REPORTS [2011] 13 (ADDL.) S.C.R.


 A parties as to how the amounts to be paid in terms of the Award
     were to be appropriated by the Appellant. Accordingly, in terms
     of the well settled principle that in such cases it was for the
    creditor to appropriate such payment firstly against the interest
    payable, would, in our view, be squarely attracted to the facts
B of this case. As was laid down by the Privy Council in Meka
    Venkatadri Appa Rao Bahadur Zamindar Garu & Ors. Vs.
    Raja Parthasarathy Appa Rao Bahadur Zamindar Garu [AIR
    1922 PC 233], and later reiterated in Rai Bahadur Seth
    Nemichand's case (supra), when monies are received without
c a definite appropriation on the one side or the other, the rule
    which is well established in ordinary cases is that in those
    circumstances, the money is first applied in payment of interest
    and when that is satisfied, in payment of the capital. fn the latter
    case, the said principal was restated and it was indicated that
    a creditor to whom principal and interest are- awed is entitled
0
   to appropriate any indefinite payment which he gets from a
   debtor to the payment of interest. It was also indicated that a
   debtor might in making a payment stipulate that it was to be
   applied only towards the principal. If he did so, the creditor was
E at liberty to refuse payment on such terms, but then he would
   have to give back the money or the cheque by which the money
   is proffered and if the same is accepted, the creditor would then
   be bound by the appropriation as proposed by the debtor.

        27. In the instant case, a unilateral assertion had been
F made by HUDCO as the debtor that the sum of Rs.89. 78 crores
  was being tendered as payment towards the principal amount
  and that there was, therefore, no· other amounts due and
  payable to the creditor Leela Hotels Ltd. The principle as laid
  down in the two aforesaid decisions, and as subsequently
G followed in Smithaben's case (supra) will not apply in the facts
  of the instant case, since the amount as deposited was
  accepted by the Appellant without prejudice to its rights and
  contentions in the appeal. Since the amount had been
  accepted on protest, the principle laid down in Rai Bahadur
H Seth Nemichand's case (supra) will have no application.
   LEELA HOTELS LTD. v. HOUSING & URBAN     175
 DEVELOPMENT CORP. LTD. [ALTAMAS KABIR, J.]
     28. The philosophy behind the principle set out in Meka A
Venkatadri's case (supra) and as reiterated in Rai Bahadur
Seth Nemichand's case (supra) and also in Smithaben's case
(supra) and then consistently followed by this Court, is that a
debtor cannot be allowed to take advantage of his default to
deny to the creditor the amount to which he would be entitled B
on account of such default, by way of elimination of the principal
amount due itself, unless, of course, the provisions of Section
59 of the Indian Contract Act, 1872, were attracted or there was
a separate agreement between the parties in that regard. That
is not so in the instant case and, accordingly, the creditor c
cannot be denied its dues on a unilateral stipulation that the
amount of Rs.89.78 crores was being deposited as against the
principal sum due in terms of the Award. Since the said amount
was accepted by the Appellant on protest, it would be entitled
to appropriate the same against the interest which was due and D
 payable till that date on the principal amount, as has been
 asserted by it.

      29. In our view, the Division Bench of the Delhi High Court
erred in presuming that the said amount had been accepted
by the Appellant on account of good business sense in view of E
the uncertainty of the final outcome of the case. In our view, the
Division Bench of the High Court should have proceeded on
the basis of the principles of law as laid down by this Court in
Smithaben's case (supra), keeping in mind the earlier
decisions of the Privy Council in both Meka Venkatadri's case F
(supra) and Rai Bahadur Seth Nemichand's case (supra) in
interfering with the judgment of the learned Single Judge. The
Division Bench seems to have erroneously taken the presence
of the learned counsel for the Appellant, when the aforesaid
 undertaking of the Respondent was recorded, in coming to the G
conclusion that since no objection had been raised with regard
to the said deposit, it must be presumed that it had the consent
 of the Appellant and hence was covered by the provisions of
 Sections 59 and 60 of the Indian Contract Act, 1872.
                                                                H
    176 SUPREME COURT REPORTS [2011) 13 (ADDL.) S.C.R.

A      30. Regarding the question as to whether the Award of the
  learned Arbitrator tantamounts to a decree or not, the language
  used in Section 36 of the Arbitration and Conciliation Act, 1996,
  makes it very clear that such an Award has to be enforced under
  the Code of Civil Procedure in the same manner as it were a
B decree of the Court. The said language leaves no room for
  doubt as to the manner in which the Award of the learned
  Arbitrator was to be accepted.

       31. Hence, the submissions made by the learned ASG on
  behalf of HUDCO cannot be accepted and are, therefore,
C rejected. Consequently, the Appeal succeeds and the judgment
  and order of the Division Bench of the High Court is set aside
  and that of the learned Single Judge is restored.

       32. Having regard to the nature of the issues involved in
D this case, the parties will bear their own costs.

    R.P.                                         Appeal allowed.