Andhra Pradesh High Court: An appeal was filed by Tuff Metallurgical Private Limited (appellants) under Section 37 of Arbitration and Conciliation Act, 1996 challenging the order dated 12-09-2024 passed by the Single Judge which directed the attachment of 50,000 WMT of iron ore as a precautionary measure to protect the interests of the Respondent in an ongoing arbitration. A division bench of Ninala Jayasurya and Nyapathy Vijay, JJ., upheld the Single Judge’s order, emphasizing the adequacy of the prima facie case and the sufficiency of the procedure followed.
The present dispute arises between BST HK Limited, a company registered under the laws of Hong Kong (Respondent 1), and the Tuff Metallurgical Private Limited (appellant), an Indian company incorporated under the Indian Companies Act, 1956. Both parties are engaged in the trading of iron ore. On 19-12-2023, they entered into a contract for the sale and purchase of iron ore fines. The appellant agreed to supply the cargo with an ‘Fe’ content of 56%, at a base price. The contract provided for provisional payment of 96% upon shipment, based on a certificate issued by the nominated surveyor, with final payment contingent on inspection results from the Chinese authority, CIQ. On 08-01-2024, the appellant shipped the cargo from Vizag Port, accompanied by a certificate confirming the ‘Fe’ content as 56.04%. Following this, the appellant received provisional payment however, upon discharge of the cargo at Lanshan Port, China, on 28-01-2024, CIQ reported an average ‘Fe’ content of 52.21%, prompting Respondent 1 to invoke the contractual clause for price renegotiation, as the iron content was below 54%.
Subsequently, both parties executed an addendum on 06-03-2024, agreeing to re-sampling by Bureau Veritas (BV), which issued a certificate on 30-04-2024, confirming the ‘Fe’ content as 52.60%. Based on the adjusted price of USD 56 per DMT for iron ore with 52-53% ‘Fe’, the price payable for the cargo was USD 2,907,249.41. Respondent 1 had already paid USD 4,908,653.99 and sought a refund of USD 2,001,404.58. Despite negotiations and several communications, the Appellant neither paid the refund nor resolved the matter amicably. Consequently, Respondent 1 initiated arbitration proceedings under the SIAC Rules, invoking the arbitration clause in the contract, and filed an application under Section 9(1) of the Arbitration and Conciliation Act before the High Court. The Single judge granted an interim order on 27-06-2024, directing attachment of its iron ore stock at Vizag Port. Dissatisfied, the appellant filed an appeal before the Division Bench, which declined to interfere with the attachment order. Aggrieved by the decision, the appellant filed the present appeal.
Counsel for appellant submitted that the procedure under Order 38 Rule 5 CPC should have been followed and that the Appellant is a well-reputed company having assets of around Rs.91 crores and the property which is attached is the trading commodity of the Appellant and their business has been badly hit in view of the impugned attachment order.
Counsel for respondent submitted that the impugned order should be sustained as the respondent 1 suffered huge loss on account of in-correct sample report submitted by the Appellant. Though the value of the company is Rs.91 crores approximately, the Appellant company does not have any fixed assets, and the only realizable source of amount is the property which is attached. Thus, if the appeal was allowed, it would not be possible for the Respondent 1 to realize the claimed amount as there are no immovable assets of the Appellant company and as the Appellant company is only a trading company, the net worth of Rs.91 crores as on 31-03-2023 is not safe to be relied upon.
The issue under consideration is whether the order of attachment of the single Judge calls for interference or not.
The Court further placed reliance on Sanghi Industries Limited v. Ravin Cables Ltd., 2022 SCC OnLine SC 1329, wherein it was held that unless and until the pre-conditions under Order 38 Rule 5 CPC are specified and unless there are specific allegations with cogent material and unless prima facie case, the Court is satisfied that the Appellant is likely to defeat the decree/Award, the interim order under Section 9 of the Arbitration Act may not be passed.
Placing reliance on Raman Tech. & Process Engg. Co. v. Solanki Traders, (2008) 2 SCC 302 wherein it was held that the power of attachment under Order 38 Rule 5 CPC is a drastic and extraordinary power and that it should be used sparingly and strictly in accordance with the Rule, the Court observed that considering the drastic and extraordinary power of attachment, it would be quite odd to say that such a power can be exercised de hors the pleadings just because the language of Section 9 of the Arbitration Act enables the civil Court to pass orders which are “just and convenient”.
The Court stated that in the present case, respondent 1 had specifically averred that the appellant does not have any physical assets and may sell/alienate the iron ore lying at Vizag port if it is known to them that arbitration proceedings are being initiated, and that the arbitration award would be rendered unfruitful. As there were necessary pleadings to the effect that there is a likelihood of erosion, diminution of assets and considering the urgency, this Court passed the interim order on 27-06-2024.
On the aspect of the whether the procedure was adhered to before ordering attachment, the Court observed that the Order 38 Rule 5 CPC contemplates a notice to the defendant to furnish security within a specified time, either to furnish security in such sum as may be specified in the order, to produce and place at the disposal of the Court, when required, the said property or value of the same, or such portion thereof as may be sufficient to satisfy the decree, or to appear and show because he should not furnish security. Order 38 Rule 5(3) CPC also provides for conditional attachment of the whole or part of the property so specified. Order 38 Rule 5(2) CPC provides an opportunity to the defendant to show cause the Court or furnishes the required security, and the property specified or any portion of it has been attached, the Court shall order the attachment to be withdrawn.
The Court opined that Order 38 Rule 5 CPC does not debar the Court to pass ex parte order of attachment if the Court is of the opinion that there is a requirement of doing so as the defendant might dispose of the property in the interregnum. On attachment, the defendant can appear before the Court and show cause as to why attachment should be removed. Thus, in the present case, the interim order of the single Judge directing conditional attachment dated 27-06-2024 provides an opportunity to the Appellant to furnish security in favor of the Respondent 1 for a sum of USD 2,423,404.58 within 48 hours of receiving of the notice, failing which 50,000 WMT iron ore fines were attached. Therefore, the single Judge adhered to the conventional principle of prima facie case, balance of convenience and adhered to the procedure prescribed.
On the aspect of the sufficiency of prima facie case and balance of convenience, the undisputed fact is that the parties have entered into an agreement and 96% of the contract value was received on the basis of ‘Fe’ content in the cargo being more than 56%. The ‘Fe” content in the cargo was checked again at the port of discharge as provided in the contract and the results showed that the ‘Fe’ content was 52.21%. The contract provides that the ‘Fe’ content at the port of unloading at China would be final.
The Court concluded that in the absence of any alternative asset provided by the appellant and that the appellant has received 96% of the contract value, interim protection should be given to Respondent 1 (a company based in Hong Kong) so that the arbitral award if passed in favor of Respondent 1 does not become unrealizable.
Thus, the Court held that the Court does not find any fault in the order dated 12-09-2024 passed by the Single Judge, and the appeal is accordingly dismissed.
[Tuff Metallurgical Private Limited v. Bst Hk Limited, 2025 SCC OnLine AP 13, decided on 03-01-2025]
Judgment by: Justice Nyapathy Vijay
Advocates who appeared in this case :
Counsel for the Appellant: Mr. B.S. PRASAD Sr. Counsel for Mr N. SIVA REDDY
Counsel for the Respondent(s): O. MANOHAR REDDY
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