Clarifying the Interplay Between Order 38 Rule 5 CPC and Section 9 of the Arbitration Act

1. Introduction

The Andhra Pradesh High Court’s decision in TUF Metallurgical Private Limited v. BST (HK) Limited, decided on January 3, 2025, provides significant clarification on the circumstances in which an order of attachment can be granted under Section 9 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”). The judgment, delivered by a Division Bench comprising the Hon’ble Sri Justice Ninala Jayasurya and the Hon’ble Sri Justice Nyapathy Vijay, focuses on the interplay between the traditional requirements of Order 38 Rule 5 of the Civil Procedure Code, 1908 (“CPC”) and the powers of the Court under Section 9 of the Arbitration Act in international commercial arbitration settings.

The case is an appeal under Section 37 of the Arbitration Act, filed by TUF Metallurgical Private Limited (the “Appellant”) challenging an order of attachment granted by a learned single Judge in favor of BST (HK) Limited (the “Respondent”). The contentious point was whether the strict preconditions of Order 38 Rule 5 CPC, especially the requirement of demonstrating an intention to defeat a possible award, should apply strictly or only provide guiding principles in a proceeding under Section 9 of the Arbitration Act.

The judgment is particularly relevant for parties involved in international commercial arbitrations seated outside India. It balances the necessity of protecting a claimant’s interests with the due procedural safeguards mandated by Indian law.

2. Summary of the Judgment

The Court dismissed the appeal by TUF Metallurgical Private Limited and upheld the order of attachment passed by the learned single Judge. The single Judge had granted a conditional attachment of iron ore belonging to the Appellant, stored at Vizag Port, in order to secure the potential award in favor of the Respondent. Relying on both Essar House Private Limited v. Arcellor Mittal Nippon Steel India Limited and Sanghi Industries Limited v. Ravin Cables Ltd., the Division Bench explored whether procedural rigors of CPC Order 38 Rule 5 apply strictly or serve as guidelines in Section 9 applications.

Ultimately, the Court reasoned that while basic principles of Order 38 Rule 5 CPC should inform the inquiry under Section 9, the Court need not be fettered by technical or rigid procedural requirements so long as it is satisfied that there is a bona fide apprehension that the award might be rendered nugatory if urgent protection is not granted.

The Bench found that the Respondent’s pleadings established a credible risk that the only valuable, easily realizable asset of the Appellant could be alienated, thereby defeating any future award. In the absence of any clear offer of alternative security and based on testing reports indicating the Appellant had been overpaid for iron ore of allegedly lower quality, the Court concluded that requiring security or attachment was just and convenient.

3. Analysis

a) Precedents Cited

• 2022 AIR (SC) 4685 (Sanghi Industries Limited v. Ravin Cables Ltd.)
  In Sanghi Industries, the Supreme Court underscored that an order for attachment (or similar relief) under Section 9 of the Arbitration Act generally requires satisfaction of the fundamental conditions under Order 38 Rule 5 CPC—namely, that the respondent is attempting to dispose of or remove assets in a manner that might stultify a potential decree or award. The Court emphasized that such powers are “drastic” and cannot be employed routinely without the requisite factual basis.
• 2020 SCC Online Del 721 (Ashwani Minda v. U-Shin Ltd.)
  This case dealt with the question of whether Indian courts could entertain petitions under Section 9 of the Arbitration Act when a foreign-seated arbitration had already commenced. The Delhi High Court recognized that Indian courts retain jurisdiction to grant interim measures even if the seat of arbitration is outside India, so long as the circumstances warrant intervention.
• 2022 SCC Online SC 1219 (Essar House Private Limited v. Arcellor Mittal Nippon Steel India Limited)
  Here, the Supreme Court noted that while the power under Section 9 of the Arbitration Act cannot disregard the fundamental principles of the CPC, it is not strictly bound to follow every procedural formality. The “technicalities of CPC” cannot defeat the ends of justice when there is a clear need for urgent relief to preserve assets or protect the efficacy of arbitration proceedings.
• 2008 (2) SCC 302 (Raman Tech. & Process Engg. Co. v. Solanki Traders)
  The Court in Raman Tech. described the attachment before judgment as a “drastic and extraordinary power” that must be exercised sparingly. This precedent was invoked to highlight that courts should remain cautious but not paralyzed by fear of overstepping, especially in the face of compelling evidence.
• 2007 (2) SCC 125 (Adhunik Steels Ltd. v. Orissa Manganese and Minerals (P) Ltd.)
  This ruling clarified that courts granting injunctions or appointing a receiver under Section 9 must be mindful of the generally recognized principles for such relief. The Court must weigh factors like prima facie case, balance of convenience, and irreparable harm.

b) Legal Reasoning

The Division Bench carefully reconciled Sanghi Industries and Essar House. While recognizing Sanghi Industries for its emphasis on the seriousness and extraordinary nature of attachment, the Court ultimately placed greater weight on the reasoning in Essar House. In the Court’s view, the language of Section 9 confers wide power to grant interim measures “as may be just and convenient,” which should not be curtailed by overly rigid procedural requirements.

The Court noted that Essar House addresses head-on the argument that the Court must strictly apply Order 38 Rule 5 CPC and rejects it. The Supreme Court in Essar House held that while essential CPC principles cannot be ignored, a Court may still pass suitable orders to safeguard the efficacy of arbitration, even if technicalities (such as specific averments required under Order 38 Rule 5) are absent. The objective is to prevent frustration of the arbitration’s outcome.

Applying this rationale, the Andhra Pradesh High Court found that Respondent’s pleadings showed a bona fide apprehension that the Appellant might dispose of or otherwise render unreachable the only tangible asset (the iron ore) in India. Because the cargo was allegedly overvalued (by virtue of incorrect sampling of the “Fe” content), the potential arbitral award could presently be secured only if the property was preserved. In this circumstance, the Court determined that the single Judge had validly passed an attachment by directing the Appellant first to furnish security. The attachment was made conditional and therefore aligned with the principles underpinning Order 38 Rule 5.

c) Impact

The decision will likely have a notable influence on future Section 9 applications in international commercial arbitrations. First, it reaffirms that Indian courts have considerable discretion in granting interim measures when foreign-seated arbitrations are at stake. Second, litigants cannot simply rely on a formalistic reading of Order 38 Rule 5 CPC to defeat a legitimate request for protection under Section 9. If there is credible evidence that an asset could be alienated or that funds might be unrecoverable, courts will be inclined to secure the claimant’s rights.

Furthermore, the judgment underscores that Indian courts can operate with necessary flexibility, ensuring that injustice is not done by rigid procedural requirements. By balancing fundamental CPC principles with a pragmatic approach tailored to international arbitration disputes, the High Court’s ruling serves as guidance for lower courts, arbitral participants, and practitioners involved in cross-border commercial transactions.

4. Complex Concepts Simplified

Section 9 of the Arbitration and Conciliation Act, 1996: This provision allows parties to approach an Indian court for interim reliefs—such as attachment, injunction, or security—before or during arbitral proceedings. The primary objective is to ensure that a future arbitral award is not rendered irrelevant due to the disappearance or dissipation of assets.

Order 38 Rule 5 of the CPC: This rule allows a court to attach the defendant’s property before a judgment, if it finds that the defendant may dispose of or hide the property to defeat the eventual decree. It is considered an “extraordinary” and “drastic” measure, and courts typically exercise it only when there is substantial proof or fear of asset disposal.

Foreign-Seated Arbitration: When parties opt for arbitration rules or an arbitral seat outside India (e.g., SIAC in Singapore), Indian courts can still be approached for interim measures under Section 9 of the Arbitration Act, provided certain jurisdictional and statutory conditions are satisfied.

Prima Facie Case and Balance of Convenience: Courts must be convinced that there is a credible case at first glance (prima facie case) and that the harm to the seeking party if relief is denied outweighs any potential inconvenience to the opposing party (balance of convenience).

5. Conclusion

The Andhra Pradesh High Court’s ruling in TUF Metallurgical Private Limited v. BST (HK) Limited clarifies that while courts must remain cognizant of the basic principles underlying Order 38 Rule 5 of the CPC, they are not strictly bound by all formalities in awarding attachment as an interim measure under Section 9 of the Arbitration Act. If a strong prima facie case is advanced and a genuine risk exists that assets will vanish or become irrecoverable, courts can intervene swiftly.

This judgment fortifies the message that the Arbitration Act’s objective of expeditious and effective dispute resolution should not be undermined by rigid procedural technicalities. It affirms a balanced approach—requiring a credible showing of vulnerability to an award’s enforcement, but also empowering courts to preserve assets crucial for arbitral relief.

In sum, parties to international commercial arbitrations seated outside India, but having assets within Indian territory, are now on notice that Indian courts will look beyond mere formalities if the facts convincingly demonstrate a need to protect the arbitral process and secure the potential award.