Delhi High Court Rejects Interim Security Claim Against Public Sector Enterprise Rashtriya Ispat Nigam - 2025-08-28

Delhi High Court Rejects Interim Security Claim Against Public Sector Enterprise Rashtriya Ispat Nigam

In a significant ruling concerning pre-arbitral interim measures, the High Court of Delhi has dismissed a petition filed by Rescom Mineral Trading Fze seeking to secure its outstanding claims against Rashtriya Ispat Nigam Limited (RINL). Presided over by Justice Jasmeet Singh, the Court held that the petitioner failed to satisfy the stringent requirements for securing an amount in dispute under Section 9 of the Arbitration and Conciliation Act, 1996.

The Genesis of the Dispute

The conflict arose from a supply contract dated August 29, 2023, under which Rescom supplied 77,465 metric tonnes of hard coking coal to RINL. While the coal was delivered and consumed, a payment impasse occurred. Rescom claimed an outstanding sum of approximately ₹139 crores, citing the buyer's inability to pay. Conversely, RINL argued that the quality of the coal did not meet contractual standards—specifically regarding ash content—entitling the state-owned enterprise to a price rebate. The matter was further complicated by delays in unloading, leading to additional claims for demurrage and hull cleaning charges.

Arguments: Financial Stability vs. Legal Standards

Rescom contended that RINL’s precarious financial condition, evidenced by substantial annual losses, would render any future arbitral award a "paper decree." The petitioner urged the Court to attach RINL's assets to protect its investment.

RINL, represented by senior counsel, argued that financial distress alone is insufficient to warrant the drastic measure of asset attachment. They maintained that the Government of India has actively supported their revival through significant equity infusions, including a recent cabinet-approved infusion of ₹11,440 crores. RINL insisted that the underlying principles of Order XXXVIII Rule 5 of the Code of Civil Procedure ( CPC ) must be strictly applied, requiring evidence of actual dissipation of assets to defeat a potential award—a threshold they argued the petitioner had failed to meet.

Legal Analysis: The Threshold for Interim Protection

The Court examined the contradictory precedents regarding the application of the CPC to the Arbitration Act. While acknowledging that Section 9 grants courts wide powers, Justice Singh emphasized that the Court is "not strictly bound by the provisions of CPC , it cannot completely disregard its underlying principles."

The ruling underscored that in matters of public revenue, courts must exercise caution. The Court noted that RINL had consistently made partial payments, demonstrating a willingness to fulfill obligations, which contradicted the petitioner's claim of a malafide intent to obstruct recovery.

Key Observations from the Bench

• "Proof of actual attempts to deal with, remove or dispose of the property with a view to defeat or delay the realisation of an impending Arbitral Award is not imperative for grant of relief under Section 9 of the Arbitration Act. A strong possibility of diminution of assets would suffice."
• "It is trite law that unadjudicated claims cannot be secured through interim relief merely because a party is in financial distress."
• "If the Courts, in exercise of powers under Section 9 , start enforcing the terms of the contract, it would do extreme disservice to the very concept of arbitration."

The Final Verdict

The High Court ultimately dismissed the petition, concluding that the petitioner failed the three-prong test: establishing a strong prima facie case, proving the balance of convenience, and demonstrating irreparable harm. The Court clarified that the parties remain at liberty to seek appropriate interim measures under Section 17 once the Arbitral Tribunal is constituted. By refusing to preemptively secure the contested amount, the Court has reinforced the principle that arbitration remains the primary forum for adjudicating complex commercial and quality-based disputes, rather than summary judicial intervention.