Rescom Minerals vs Rashtriya Ispat Nigam Limited (RINL)

This case arises from a petition filed by Rescom Mineral Trading FZE, a company incorporated in the United Arab Emirates and engaged in mining and trading of minerals, against Rashtriya Ispat Nigam Limited (RINL), a Public Sector Enterprise operating the Visakhapatnam Steel Plant. The petition was filed under Section 9 of the Arbitration and Conciliation Act, 1996, seeking interim measures to secure claims of approximately USD 16.5 million (about INR 139 crores).

The dispute traces back to a long-term agreement executed between the parties in August 2023 for the supply of Tuhup Hard Coking Coal. Under the arrangement, Rescom was to supply coal while RINL was required to make payments through letters of credit. Over time, due to RINL’s financial difficulties, the terms were amended to allow open account payments. Rescom supplied about 77,465 metric tons of coal under five invoices, with payment due by August 2024. However, only partial payments were made, leaving a substantial outstanding balance.

The petitioner alleged that RINL was in serious financial distress, citing its reported losses exceeding Rs. 2,800 crores and liabilities far outweighing assets. It was argued that without securing the claim, any arbitral award in favor of Rescom would risk becoming meaningless. Interim measures such as attachment of coal stock, security in the form of bank guarantee, and restrictions on disposal of assets were sought.

RINL, on the other hand, denied liability for the full amount, contending that the coal supplied did not meet quality specifications, with the ash content exceeding contractual limits. On this basis, it claimed entitlement to a rebate and disputed additional charges such as hull cleaning and demurrage, which the petitioner had raised due to delayed berthing of the vessel. RINL further argued that it had already made part payments and also supplied steel worth over Rs. 40 crores to the petitioner’s subsidiary. It emphasized that being a Central Public Sector Enterprise, it was supported by significant government infusions, including recent equity and working capital assistance, which ensured its financial stability and ability to honor any arbitral award.

The Court examined whether interim relief could be granted solely on the ground of financial distress. It referred to precedents of the Supreme Court and Delhi High Court, which establish that for an order of attachment or security under Section 9, a strong prima facie case must exist, supported by evidence of attempts to dissipate assets or defeat enforcement of an arbitral award. Mere financial weakness, without proof of dishonest intent, was held insufficient. The Court also noted that the claims raised by Rescom were unadjudicated, disputed on both quantum and quality grounds, and hence could not be secured at this stage.

While acknowledging that dues remained outstanding, the Court found that RINL had continued to make payments and there was no evidence of asset dissipation. It also took note of the higher threshold required when granting interim reliefs against public sector enterprises involving public revenue. Consequently, the Court held that the petitioner had failed to establish a strong prima facie case, balance of convenience, or irreparable harm.

The petition was therefore dismissed. However, the Court clarified that these observations were confined to the interim application and would not prejudice the arbitration proceedings, where the disputes regarding quality of coal, rebates, and outstanding dues would be finally adjudicated. Both parties were given liberty to approach the Arbitral Tribunal for appropriate reliefs under Section 17 of the Arbitration Act once it is constituted.