The Bombay High Court has affirmed that court-deposited funds under binding consent terms remain accessible to creditors even after the debtor company’s dissolution, reinforcing the enforceability of judicially recorded settlements. This ruling clarifies that depositing amounts with the Prothonotary & Senior Master does not extinguish a creditor’s entitlement, provided the underlying obligation is established.
Background & Facts
The Dispute
The Applicant, Dmsons Metal Private Limited, supplied materials to the Respondent-Company, Hitech Engineering Corporation India Private Limited, in 2012. Invoices were raised for the supply, but payment remained outstanding. The Applicant filed Company Petition No.985 of 2014 under the Companies Act, seeking recovery of the unpaid amount.
Key Facts
- Materials were supplied and invoices raised in 2012
- The dispute was resolved through consent terms recorded in court on 16.01.2018
- Consent terms provided for payment in 18 installments, with the first due on 30.06.2016 and the last on 30.11.2017
- Interest was agreed at 12% per annum on unpaid amounts
- The Company paid 16 installments but defaulted on the final two: due on 31.10.2017 and 30.11.2017
- The Company admitted default but sought time, and the Court granted a final extension on 16.01.2018, directing payment of the two outstanding installments by 25.01.2018 and 03.02.2018 respectively
- The Company failed to pay the final two installments and the accrued interest
- The Company subsequently filed an appeal before the Division Bench, during which it deposited Rs.15,30,000/- with the Prothonotary & Senior Master, as recorded in the Order dated 14.02.2018
- The Company was later dissolved
- The Applicant now seeks withdrawal of the deposited amount, which has accrued interest to Rs.15,82,817/-
Procedural History
- 2012: Supply of materials and invoicing by Applicant
- 2014: Company Petition No.985 of 2014 filed by Applicant
- 16.01.2018: Consent terms recorded by K.R. Shriram, J., with payment schedule and final deadlines
- 14.02.2018: Company deposits Rs.15,30,000/- with Prothonotary & Senior Master, as recorded in court order
- 04.12.2025: Single Judge (Arif S. Doctor, J.) dismisses interim application for withdrawal, directing Applicant to approach Prothonotary & Senior Master first
- 2026: Prothonotary & Senior Master confirms deposit and investment, directs Applicant to approach the Court
- 08.06.2026: Praecipe filed by Applicant seeking withdrawal of Rs.15,82,817/- plus interest
- 11.06.2026: Judgment delivered by Madhav J. Jamdar, J.
Relief Sought
The Applicant seeks withdrawal of Rs.15,82,817/-, comprising the principal amount of Rs.15,30,000/- and accrued interest at 12% per annum, from the funds deposited with the Prothonotary & Senior Master.
The Legal Issue
The central question was whether a creditor is entitled to withdraw funds deposited with the Prothonotary & Senior Master under court-recorded consent terms, after the debtor company has been dissolved, and whether such withdrawal requires fresh adjudication or is a mechanical enforcement of a binding judicial settlement.
Arguments Presented
For the Appellant/Petitioner
Mr. Anil Agarwal argued that the deposit of Rs.15,30,000/- was made pursuant to a judicially recorded consent order dated 16.01.2018, which was binding on both parties. The deposit was not a mere security but an acknowledgment of liability and a mechanism for discharge. The dissolution of the company does not extinguish the creditor’s right to the deposited amount, especially when the deposit was made in compliance with a court order. The interest accrued is part of the agreed settlement and must be included.
For the Respondent/State
The Official Liquidator did not oppose the withdrawal, acknowledging that the deposit was made under court direction and that the Applicant’s claim was valid. The Deputy Official Liquidator confirmed the deposit and its current value, including interest, and did not raise any objection to the Applicant’s entitlement.
The Court's Analysis
The Court examined the nature of the consent terms recorded on 16.01.2018 and the subsequent deposit of funds. It noted that the deposit was not voluntary or extrajudicial but was made in compliance with a judicial order and formally recorded in the court’s record on 14.02.2018. The Court emphasized that consent terms, once recorded, acquire the status of a decree and are binding on the parties.
"The deposit of the amount with the Prothonotary & Senior Master was made in compliance with a judicial direction and was recorded in the court’s order. The dissolution of the company does not extinguish the creditor’s right to the funds deposited pursuant to a binding settlement."
The Court further held that the Prothonotary & Senior Master holds the amount in trust for the purpose specified in the consent terms. Since the Applicant is the sole creditor with a valid claim under those terms, and no other party has asserted a competing claim, the release of the amount is not only permissible but necessary to give effect to the judicial settlement.
The Court rejected the notion that the Applicant must initiate fresh proceedings to claim the deposited amount. The deposit was made to satisfy a pre-existing judicially recognized obligation. The dissolution of the company does not alter the nature of the deposit or the entitlement of the creditor.
The Verdict
The Applicant succeeded. The Court directed the Prothonotary & Senior Master to pay the Applicant the amount of Rs.15,82,817/-, inclusive of accrued interest at 12% per annum, and permitted withdrawal within two weeks from the date of judgment. The praecipe dated 08.06.2026 was disposed of accordingly.
What This Means For Similar Cases
Consent Terms Create Enforceable Rights Beyond Corporate Existence
- Practitioners must treat court-recorded consent terms as binding obligations that survive corporate dissolution
- Deposits made under such terms are not mere security but instruments of discharge
- Creditors need not file fresh suits to claim deposited amounts if the deposit was made pursuant to a judicial order
Prothonotary Deposits Are Not a Legal Black Hole
- Funds deposited with the Prothonotary & Senior Master under court orders are held in fiduciary capacity
- The custodian’s role is administrative; entitlement is determined by the underlying judicial record
- Delay in withdrawal due to procedural confusion cannot defeat a creditor’s established right
Procedural Clarity Is Essential in Liquidation Proceedings
- Liquidators must identify and preserve court-deposited funds tied to adjudicated claims
- Creditors should immediately seek formal confirmation of deposit status upon company dissolution
- Courts should explicitly record the purpose and beneficiary of any deposit made under consent terms to avoid future disputes
