Claim for Demurrage is Not a Crystallized Debt—Only an Unadjudicated Right to Sue: Andhra Pradesh High Court

“Right to Sue Is Not a Right to Secure…..Mere Right to Sue Cannot Be Converted Into a Secured Debt” – On 7 January 2026, the Andhra Pradesh High Court , comprising Justice Ravi Nath Tilhari and Justice Maheswara Rao Kuncheam, delivered a significant judgment clarifying the legal limits of interim relief under Section 9 of the Arbitration and Conciliation Act, 1996, particularly in the context of unadjudicated demurrage claims. Dismissing an appeal by Zion Shipping Ltd., the Court upheld the order of the learned Single Judge vacating an earlier ex parte attachment order, emphasizing that no enforceable debt had crystallized, and a mere contractual claim for damages cannot trigger attachment of assets.

The Bench decisively held:

“The appellant has only the right to sue for damages until the arbitrator determines liability. That right, by itself, does not justify converting an unsecured claim into a secured debt.”

 “Claim for Demurrage is Not a Crystallized Debt—Only an Unadjudicated Right to Sue”

The judgment arose from an appeal filed under Section 37 of the Arbitration Act, challenging the Single Judge’s 13 October 2025 decision in I.C.O.M.A.O.A. No. 5 of 2024, where the court vacated an interim order of attachment obtained by Zion Shipping for its demurrage claim of USD 296,326.74 against the respondent-exporters, Sarala Foods Pvt Ltd. & Others, under a charterparty dated 12 March 2021.

While the appellant had originally secured an ex parte conditional attachment of 1600 MT of rice and a direction for security deposit, the Division Bench observed that the appellant's entire claim arose from an unadjudicated contractual dispute, which did not amount to an actionable debt, and hence did not warrant protective interim relief.

“Until adjudication is complete, the claim remains a mere right to sue. Order XXXVIII Rule 5 CPC cannot be used to convert unadjudicated damages into a secured claim,” the Court observed.

Appellate Court Declines Interference: “Appeal Under Section 37 Lies Only Where Order is Perverse or Arbitrary”

At the core of the Court’s reasoning was the limited scope of appellate intervention under Section 37 of the Act. Referring to precedents including Wander Ltd. v. Antox India (P) Ltd. and Ramakant Ambala Choksi v. Harish Ambalal Choksi, the Court reaffirmed that:

“In the absence of perversity or patent illegality, appellate interference is not warranted. The learned Single Judge’s findings are consistent with settled law.”

The Court elaborated on the distinction between a mere prima facie case and a strong prima facie case, holding that Zion Shipping's demurrage claim was disputed, lacked immediate enforceability, and thus did not justify freezing or attaching assets of the respondent-exporters.

Delay Defeats Equity: Three-Year Inaction by Appellant Weakens Its Case

The Bench heavily criticized the three-year delay by Zion Shipping in initiating arbitration proceedings and seeking interim protection. Despite issuing its first invoice in June 2021, the appellant remained silent until April 2024, a delay the Court found unexplained and indicative of lack of bona fides.

“The appellant only acted when attachable cargo became available, not when the alleged breach occurred. Such selective invocation of legal process cannot invoke the Court’s extraordinary powers under Section 9.”

The Court stressed that timely action and bona fide conduct are integral to seeking interim protection. Here, the delay, coupled with absence of urgency or risk of dissipation, tilted the balance of convenience decisively against the appellant.

Attachment Cannot Be Granted Without Material on Asset Dissipation

Rejecting the appellant’s claims of apprehended asset dissipation, the Court noted that the allegations were vague, unsupported by specifics, and did not satisfy the threshold under Order 38 Rule 5 CPC, which applies by analogy to Section 9 applications.

The Court cited Raman Tech & Process Engg. Co. v. Solanki Traders, reaffirming:

“Attachment before judgment is a drastic remedy. It cannot be issued on mere apprehensions or speculative fears.”

In this case, the cargo in question—1600 MT of rice—was regular stock-in-trade of the exporter, part of routine business. There was no evidence of any fraudulent intent or dissipation strategy, nor any attempt to defeat possible execution of an arbitral award.

Demurrage Claim Not an Actionable Debt – Appellant Cannot Use Section 9 as a Coercive Lever

The Court delved into the nature of demurrage, observing that it is essentially liquidated damages payable for delay in discharge of cargo, and that the claim remained contested. Citing Union of India v. Raman Iron Foundry and Essar House Pvt. Ltd. v. Arcelor Mittal Nippon Steel India Ltd., the Court held:

“An obligation to pay damages does not arise until determined by a judicial or arbitral forum. The appellant has a claim, not a debt. It cannot coerce payment by invoking Section 9.”

The Court also referenced Section 6(e) of the Transfer of Property Act, which bars transfer of a “mere right to sue,” noting that:

“A claim for damages—without adjudication—cannot form the basis for attachment or security. It is neither assignable nor enforceable, and thus not actionable for purposes of interim protection.”

Judicial Restraint in Arbitration Regime – Court Reiterates Principle of Minimal Intervention

The Division Bench invoked the 2015 amendments to the Arbitration and Conciliation Act, highlighting the legislative intent to minimize court intervention in arbitral processes. Quoting the Supreme Court in Punjab State Civil Supplies Corp. Ltd. v. Sanam Rice Mills, the Court underlined:

“Appellate power under Section 37 is not akin to ordinary civil appellate jurisdiction. It is limited, narrow, and confined to correcting perversity or patent illegality.”

No such infirmity was found in the Single Judge’s order vacating the interim relief.

Appeal Dismissed – Court Refuses to Convert Contractual Dispute into Pre-Award Attachment

In conclusion, the Andhra Pradesh High Court held that:

• Zion Shipping’s claim for demurrage was contested, unadjudicated, and at best, a mere right to sue;
• The appellant failed to establish any act or intent by respondents to defeat execution;
• The delay of 3 years in invoking arbitration undermined the urgency and bona fides of the plea;
• The attachment of business stock would disrupt legitimate trade without lawful justification.

“The discretion exercised by the learned Single Judge is neither arbitrary nor perverse. No interference is warranted under Section 37,” the Court held.

The appeal was accordingly dismissed, with no order as to costs, and all pending applications were closed.

Date of Decision: 07 January 2026