The High Court of Andhra Pradesh has dismissed an appeal filed by Zion Shipping Ltd., upholding the Single Judge’s decision to vacate an interim order of attachment against Sarala Foods Pvt Ltd. The Division Bench, comprising Justice Ravi Nath Tilhari and Justice Maheswara Rao Kuncheam, ruled that a disputed claim for demurrage is a mere right to sue for damages and does not constitute an actionable debt until liability is adjudicated. The Court emphasized that Section 9 of the Arbitration and Conciliation Act, 1996, cannot be used to convert an unsecured claim into a secured debt absent a strong prima facie case and proof of intent to defeat the award.
Background of the Dispute
The case originated from a fixture note/charterparty agreement dated March 12, 2021, between the appellant, Zion Shipping Ltd., and the respondents (Sarala Foods Pvt Ltd and others) for the carriage of 9,000 MT of rice from Kakinada to Ho Chi Minh City, Vietnam. The agreement included a clause for demurrage at the rate of USD 7,500 per day.
The appellant alleged that the discharge of cargo was delayed by 17 days and 2 hours beyond the agreed laytime. Consequently, the appellant issued a Statement of Facts on June 23, 2021, and raised an invoice for USD 128,409.74. Despite issuing a legal notice in August 2021, the appellant claimed the amount remained unpaid. Nearly three years later, on April 18, 2024, the appellant raised an updated invoice for USD 296,326.74 (including interest and costs) and approached the High Court under Section 9 of the Arbitration Act seeking attachment of 1,600 MT of rice belonging to the respondent.
Initially, on April 23, 2024, a Single Judge granted an ex parte conditional order of attachment, subject to the respondent furnishing security. The respondent complied by depositing the security amount but subsequently filed an application to vacate the order. On October 13, 2025, the Single Judge vacated the interim order and dismissed the Section 9 petition, directing the return of the security. The appellant challenged this dismissal in the present appeal under Section 37 of the Act.
Arguments of the Parties
Appellant’s Contentions: The appellant argued that the respondents were “regular defaulters” and expressed doubts about their financial health. They contended that without securing the amount, they would be unable to enforce any future arbitral award. The appellant maintained that they had approached the Court with “reasonable expedition” as soon as they located the respondents’ assets and that the balance of convenience lay in their favour.
Respondents’ Contentions: The respondents argued that the appellant had no title or interest in the attached cargo, which was being exported under a Free On Board (FOB) contract where title had already passed to the buyer. They contended that the claim was for unliquidated damages, which warranted adjudication before any security could be ordered. Furthermore, the respondents highlighted the “inexplicable delay” of three years between the first invoice (2021) and the second invoice (2024), arguing that this inaction disentitled the appellant to equitable relief.
Court’s Analysis and Observations
The Division Bench scrutinized the appeal within the “narrow and circumscribed” scope of Section 37 of the Arbitration Act. The Court reiterated that interference is warranted only if the impugned order suffers from arbitrariness, perversity, or violation of settled legal principles.
1. Nature of Demurrage Claim: Right to Sue vs. Debt: The Court examined whether the appellant had a strong prima facie case. It observed that the claim for demurrage was effectively a claim for liquidated damages, liability for which was being contested in arbitration. Relying on the principle laid down in Union of India v. Raman Iron Foundry, the Bench distinguished between a “debt” and a “right to sue for damages.”
The Court observed:
“It is well settled legal principle that a claim for un-liquidated damages does not give rise to a debt until the liability is adjudicated and damages assessed by a decree or order of a Court or other adjudicatory forum.”
The Bench further held:
“The claim is a mere right to sue for damages, which cannot by itself justify securing the amount through attachment because Order XXXVIII Rule 5 of the CPC cannot be used to convert an unsecured claim for damages into a secured debt.”
2. Failure to Prove Intent to Defeat Award: Applying the principles of Order 38 Rule 5 of the CPC (Attachment before Judgment), as reiterated by the Supreme Court in Raman Tech. & Process Engg. Co. v. Solanki Traders and Sanghi Industries Ltd. v. Ravin Cables Ltd., the Court held that the appellant failed to prove that the respondents were attempting to remove or dispose of assets with the intention of defeating the decree.
The Court noted:
“The appellant has not even able to show any real risk of asset diminution… By refusing attachment based on such vague, unsubstantiated claims, the learned Single Judge correctly applied the well settled legal principles.”
3. Delay and Balance of Convenience: The Court found the appellant’s three-year silence fatal to their claim of urgency. The Bench noted that the appellant issued the first invoice in June 2021 but waited until April 2024 to approach the Court.
“In fact, this absolute unexplained silence for such a long period leads us to conclude that the balance of convenience clearly does not lie in favour of the appellant and emphasises that the appellant had not approached the court with reasonable expedition.”
The Court also observed that restraining the respondent from dealing with 1,600 MT of rice—which constituted “routine business stock”—would disrupt their core export operations, causing greater hardship to them than to the appellant.
Decision
The High Court concluded that the appellant failed to satisfy the essential prerequisites for granting interim measures under Section 9: a strong prima facie case, balance of convenience, and reasonable expedition.
Dismissing the appeal, the Court held:
“The discretion vested in and exercised by the learned Single Judge while dismissing the petition under Section 9, calls for no interference by us. Moreover, the orders under the appeal cannot be characterised as perverse, arbitrary, or vitiated by any patent illegality.”
The Court upheld the Single Judge’s order directing the return of the security amount to the respondent.
Case Details:
- Case Title: Zion Shipping Ltd. v. Sarala Foods Pvt Ltd & Ors.
- Case Number: International Commercial Arbitration Appeal No. 2 of 2025
- Bench: Justice Ravi Nath Tilhari and Justice Maheswara Rao Kuncheam
