Court Cannot Use Attachment In Arbitration To Turn Unsecured Damages Claim Into Secured Debt: AP High Court

The Andhra Pradesh High Court has said that a claim for demurrage, which is essentially a charge demanded for delay in loading or unloading a ship, cannot be treated as an actual money debt until an arbitral tribunal finally decides who is at fault.

Because of this, the court held that such a claim cannot be secured by attaching goods under Section 9 of the Arbitration Act while arbitration is still pending.

A division bench of Justice Ravi Nath Tilhari and Justice Maheswara Rao Kuncheam, in an order passed on January 7, made it clear that courts cannot use interim powers to convert a disputed delay charge into a secured amount before liability is decided.

The bench said, “It is pertinent to note that the demurrage here is liquidated damages, and liability is being contested before the arbitrator. As no pecuniary obligation arises until adjudication is complete, 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. ”

The case arose from a shipping arrangement entered into in March 2021, under which Zion Shipping Ltd agreed to carry rice from Kakinada to Vietnam. Zion later claimed that unloading at the destination was delayed beyond the agreed free time and demanded demurrage, that is, payment for the extra days the ship had to wait. In April 2024, while arbitration was pending, Zion approached the high court seeking attachment of about 1,600 metric tons of rice and security of around Rs 2.46 crore to protect its claim.

Zion argued that unless the cargo was secured, it might be left without an effective remedy even if it succeeded in arbitration. The respondents opposed this, saying the delay charge itself was under dispute before the arbitrator and that there was no fixed or admitted amount due. They also pointed out that Zion had waited nearly three years before seeking court protection and had shown no evidence that assets were being moved to avoid payment.

The court agreed with the single judge who had lifted the earlier attachment. It said that in law, when there is an alleged breach of contract, the affected party only gets a right to ask for damages. No actual monetary liability arises until a competent forum decides the issue. It also noted that attachment before judgment is an extraordinary step and can be granted only when there is clear material showing an attempt to defeat a future award.

In this case, the court said the rice cargo was part of the respondents' normal trading activity and did not appear to be an asset being moved or hidden to defeat a possible arbitral award.

The bench also noted the unexplained delay of nearly three years in approaching the court and found no material showing a real risk to recovery at the interim stage. On these facts, it dismissed the appeal and reiterated that courts must be cautious while granting security in arbitration matters, particularly where the claim relates to disputed demurrage and liability has not yet been determined.

Case Title: Zion Shipping Ltd v. Sarala Foods Pvt Ltd & Ors

Citation: 2026 LLBiz HC(APH) 5

Case Number: International Commercial Arbitration Appeal No. 2/2025

For Petitioner: Advocate Sai Sanjay Suraneni