Court’s Decision
The Andhra Pradesh High Court at Amaravati, presided over by Justice Challa Gunaranjan, dismissed an application filed by a Hong Kong-based shipping company under Section 9 of the Arbitration and Conciliation Act, 1996, seeking interim attachment of 1,600 metric tonnes of rice and furnishing of security for USD 296,326.74 pending arbitration.
The Court vacated the ex-parte attachment order granted on 23 April 2024 and directed the Registry to return the deposited security to the respondent. It held that the applicant failed to satisfy the strict preconditions under Order 38 Rule 5 of the Civil Procedure Code (CPC) for attachment before judgment.
Justice Gunaranjan observed:
“The power under Order 38 Rule 5 CPC is drastic and extraordinary and should not be exercised mechanically or merely for the asking. The Court cannot permit an unsecured claim to be converted into a secured debt by way of attachment.”
Accordingly, the Court held that the applicant failed to establish a prima facie case, reasonable expedition, or any material indicating that the respondent was attempting to dispose of assets to defeat a potential arbitral award.
Facts
The petitioner, a Hong Kong-based shipping company, had chartered its vessel MV Han Thar to the respondent, an Indian rice exporter, under a fixture note dated 12 March 2021 for transporting 9,000 MT of rice from Kakinada Port, India, to Ho Chi Minh City, Vietnam. The contract stipulated a demurrage rate of USD 7,500 per day beyond permitted laytime and provided for arbitration in Singapore.
After the voyage, the petitioner claimed that discharge operations were delayed by 17 days, resulting in demurrage charges of USD 1,28,409.74, later increased with interest and costs to USD 296,326.74. Despite reminders and a legal notice in 2021, the respondent did not make payment.
In April 2024, while the respondent was loading fresh cargo of 1,600 MT of rice on MV Bulk Manara at Kakinada Seaport, the petitioner filed a Section 9 application seeking attachment of the cargo or, alternatively, security deposit of the claimed amount. The Court granted an ex-parte conditional attachment, later lifted when the respondent deposited security.
The respondent then moved an application to vacate the order, arguing that the claim was disputed, unadjudicated, and time-barred, and that the attachment was being used to coerce settlement rather than protect a legitimate debt.
Issues
- Whether a claim for demurrage, being in the nature of liquidated damages, constitutes an actionable debt enforceable through interim attachment under Section 9.
- Whether the petitioner satisfied the conditions of Order 38 Rule 5 CPC for attachment before judgment.
- Whether the delay of nearly three years in invoking legal remedies disentitled the petitioner from interim protection.
Petitioner’s Arguments
The petitioner argued that the fixture note clearly provided for demurrage as pre-estimated liquidated damages, and once delay beyond laytime was established, liability was automatic. Relying on Section 74 of the Indian Contract Act, it was contended that no further proof of actual loss was required.
It asserted that the respondents never disputed the invoices or notices, and that e-mails from their brokers even admitted liability. The petitioner maintained that the balance of convenience lay in its favour to prevent the respondent from selling or encumbering cargo, as there was a strong prima facie case of debt.
The petitioner relied upon precedents including:
- Essar House Pvt. Ltd. v. Arcelor Mittal Nippon Steel India Ltd. (2022 SCC OnLine SC 1219) – holding that Section 9 permits securing disputed amounts without proof of actual disposal of assets.
- TUF Metallurgical Pvt. Ltd. v. BST (HK) Ltd. (2025 SCC OnLine AP 13) – affirming that Order 38 Rule 5 CPC principles apply flexibly in Section 9 proceedings.
- Value Shipping Ltd. v. MV Nadhenu Purna (Madras HC, 2024) – recognizing attachment to protect arbitral claims.
Respondent’s Arguments
The respondent contended that demurrage was not a debt but a claim for damages, and until liability was adjudicated, no debt existed. It cited Union of India v. Raman Iron Foundry (1974) 2 SCC 231, where the Supreme Court held that even liquidated damages are not recoverable until determined by a competent authority.
The respondent further argued that the petitioner had slept over its rights for three years, only approaching the Court after the respondent began a new shipment, suggesting that the Section 9 petition was a pressure tactic.
It was also submitted that the petitioner failed to produce any proof of the respondent disposing of or concealing assets, as required under Order 38 Rule 5 CPC, and that the attached cargo constituted stock-in-trade, not a capital asset.
Reliance was placed on:
- Sanghi Industries Ltd. v. Ravin Cables Ltd. (2022 SCC OnLine SC 1329) – holding that attachment cannot be granted unless conditions under Order 38 Rule 5 are satisfied.
- Skypower Solar India Pvt. Ltd. v. Sterling & Wilson International FZE (Delhi HC, 2023) and its affirmation by the Supreme Court (2024).
- Raman Tech. & Process Engg. Co. v. Solanki Traders (2008) 2 SCC 302) – emphasizing that attachment cannot be used to secure doubtful or unadjudicated claims.
Analysis of the Law
The Court analyzed Section 9 of the Arbitration and Conciliation Act, 1996, which empowers courts to grant interim protection, and Order 38 Rule 5 CPC, which governs attachment before judgment.
While Section 9 allows the Court to “secure the amount in dispute,” its exercise must be consistent with the principles of Order 38 Rule 5, i.e., there must be a prima facie case, balance of convenience, reasonable expedition, and material showing the defendant’s intention to frustrate recovery.
The Court reiterated that mere existence of a claim—even for liquidated damages—does not constitute a “debt.” Following Raman Iron Foundry, the Court observed that damages become payable only upon adjudication. Thus, a Section 9 applicant cannot seek attachment to convert a contingent contractual claim into a secured debt.
Precedent Analysis
- Essar House Pvt. Ltd. v. Arcelor Mittal Nippon Steel India Ltd. (2022 SCC OnLine SC 1219) – Clarified that Section 9 allows securing assets where a strong prima facie case and possibility of asset diminution exist.
- Sanghi Industries Ltd. v. Ravin Cables Ltd. (2022 SCC OnLine SC 1329) – Stressed that unless Order 38 Rule 5 conditions are met, no attachment can be granted.
- Raman Iron Foundry (1974) 2 SCC 231 – Held that a claim for liquidated damages is not a “debt” until adjudicated.
- TUF Metallurgical Pvt. Ltd. (2025 SCC OnLine AP 13) – Reiterated that pleadings must specifically disclose material showing attempt to frustrate decree.
- Raman Tech. v. Solanki Traders (2008) 2 SCC 302) – Warned against misuse of attachment as coercive leverage in commercial disputeszionshippingltdvssaralafoodspvt….
Court’s Reasoning
Applying these precedents, the Court held that:
- The petitioner failed to act with reasonable expedition, waiting nearly three years before seeking interim relief.
- No material was produced to show that the respondent was selling or concealing assets to defeat the award.
- The cargo of rice sought to be attached was mere stock-in-trade, not a permanent asset.
- The petitioner’s averments that the respondent “may sell or encumber” its goods were vague and unsupported.
The Court concluded that while a prima facie case existed on paper, the petitioner’s long inaction and lack of concrete evidence undermined the claim for urgent protection. The judgment emphasized that courts must balance commercial fairness with procedural discipline, ensuring Section 9 is not misused to pressurize adversaries.
“Had the petitioner been diligent, nothing prevented it from invoking arbitration and seeking relief earlier. Its belated effort to secure attachment cannot be permitted to transform a speculative claim into a secured interest.”
Conclusion
The High Court dismissed the Section 9 petition and vacated the interim attachment order dated 23 April 2024. It directed the Registry to return the security amount of USD 296,326.74 to the respondent.
No costs were awarded. The Court reiterated that liquidated damages under a charter-party contract remain a contingent claim until adjudicated by the arbitral tribunal, and therefore, interim attachment was impermissible.
Implications
- The ruling reinforces that Section 9 cannot be used to freeze assets for unadjudicated demurrage claims.
- Arbitral claimants must act with diligence and provide material proof of potential asset dissipation.
- Courts will closely scrutinize delay and bona fides before granting attachment orders in international commercial arbitrations.
- It upholds the delicate balance between protecting legitimate maritime claims and preventing abuse of process in cross-border disputes.
