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REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 1930 OF 2008
CHRISOMAR CORPORATION …APPELLANT
VERSUS
MJR STEELS PRIVATE LIMITED ...RESPONDENT
J U D G M E N T
R.F. Nariman, J.
1. The present appeal raises several interesting questions
which arise in admiralty law. The vessel, M.V. Nikolaos-S, was
owned by one Third Element Enterprises, a Cyprus company,
and was flying the flag of the Republic of Cyprus. The plaintiff
in the admiralty suit, who is the appellant before us, supplied
bunkers and other necessaries to the said vessel at the port of
Durban on terms and conditions agreed between the parties in
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November, 1999. According to the plaintiff, the bunkers were
received by the master of the vessel and services were
rendered to the vessel as acknowledged by the master. The
plaintiff raised invoices on 26.11.1999 for US$ 94,611.25 which
have not yet been paid.
2. When the vessel docked in the port of Haldia, the plaintiff
filed admiralty suit No.1 of 2000 in the Calcutta High Court
praying for an arrest of the vessel because, according to the
plaintiff, the necessaries supplied to the vessel would not only
amount to a maritime claim but would also be a maritime lien on
the vessel. By an order dated 6.1.2000, the vessel was so
arrested but nobody came forward for release of the vessel at
that point of time. It is only on 25.1.2000 that learned counsel
appearing on behalf of the plaintiff approached the learned
admiralty Judge expressing the plaintiff’s intention not to
proceed with the application for arrest as, according to him, the
parties had reached an out of court settlement. The order
passed on 25.1.2000 reads as follows:-
“The Court by an order dated January 6, 2000
directed that the vessel known as M.V.Nikolaos – S
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was to be arrested. On the returnable date no one
appeared on behalf of the respondents. The
directions for affidavits had been given on January
10, 2000. Today when the matter was called on for
hearing, counsel appearing for the petitioner
submitted that an out of court settlement has been
reached between the parties and the petitioner was
not inclined to proceed with the matter any further.
For these reasons, this application is dismissed for
non prosecution.
All interim orders are vacated.
The vessel shall cease to be under arrest as of
now.”
3. It is important at this stage to advert to the agreement that
was entered into on 18.1.2000. Since both sides have argued
extensively on the aforesaid agreement, it is necessary to set it
out completely. The said agreement reads as follows:-
“AGREEMENT GUARANTEE
In Piraeus and at the offices of “LALLIS
OUTSINOS ANAGNOSTOPOULOS” Lawyers
Maritime Consultants of 100, Kololotroni Street,
Piraeus, this Tuesday the 18th January 2000, by and
between:
A. CHRISOMAR CORPORATION, a company duly
established and operating under the laws of
Liberia, maintaining an office in Greece (5
Solomou Str. Kifissia) (hereinafter called
Chrisomar), duly represented, for the purpose of
this agreement by its authorized lawyer Mr.
Dimitrios Voutsinos,
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B. THIRD ELEMENT ENTERPRISES LTD, a
company duly established and operating under
the laws of Cyprus (hereinafter called “THE
SHIPOWNERS”), duly represented for the
purpose of this agreement by the President of
the Board of Directors, Mr. Sotirios Soulkas, who
also declared that he has the necessary
authorization and capacity to bind the company
to this agreement by his sole signature.
C. Sotirios Soukas, of 145 Filonos Str, Piraeus, the
following were stated and agreed.
WHEREAS
1. The shipowners are the legal owners of the
Cyprus flag vessel Nikolaos S, Int. Sign: P 3 KT
6 (“the vessel”) managed in Greece by Suter
Shipping and Trading Ltd.
2. Chrisomar has sold and delivered to the vessel in
the port of Durban a certain quantity of bunkers,
on or about 26th November, 1999, Chrisomar has
issued its invoice no. 99232/15.12.1999 for the
amount of USD 94,611.25, payable on 26th
November, 1999 (Copy of the invoice is attached
herewith as app. I).
3. The owners have failed to pay the amount of the
above invoice by the 26th November 1999 and
consequently, Chrisomar arrested the vessel in
the port of Haldia, India for security of the above
claim.
THE PARTIES AGREE AS FOLLOWS
1. The shipowners hereby confirm that they owe to
Chrisomar USD 104,688.60, analysed as follows:
USD 94,611.25 for the invoice amount + USD
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2,177.35 for interest accrued + USD 7,900.00 for
legal costs.
2. The shipowners, through their President Mr.
Sotirios Soukas, represent to Chrisomar that (a)
their vessel is due to be chartered out for a
voyage from Bangkok, Thailand to ports of West
Africa as against a freight of about USD 35.00
per metric ton of cargo; (b) that if Chrisomar
releases their vessel from the above arrest shall
be able to proceed to Bangkok for loading and to
perform the intended charter voyage; (c) that the
shipowners as soon as their vessel is released
from its arrest by Chrisomar shall include in their
recap and charter party with the intended
charterers of their vessel a clause that part of the
freight amounting to USD 104,668.60 shall be
paid directly by the charterers to Chrisomar’s
bank account as follows:
ANZ GRINDLAYS BANK
21, Akti Miaouli, 18535 Piraeus
Swift: GRNDGRAA,
A/C No. 815142 USD 40632
In favour of Chrisomar Corp.
3. The above recap shall be faxed by the
shipowners to Chrisomar one (1) working day
after its conclusion.
4. The shipowners will not sell their vessel prior to
the satisfaction of Chrisomar’s above claim and
shall provide Chrisomar with a report by fax of
the movements of their vessel every five (5)
days.
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5. The above payment shall be made in full and
final settlement of Chrisomar’s above claim per
capital and costs.
6. If, for any reason the above amount is not paid to
Chrisomar within ten (10) working days after the
ships sailing from the port of loading Bangkok or,
the shipowners are in breach of any of the
representations and obligations set out in paras
2, 3 and 4 above then Chrisomar will be entitled
to take all the appropriate legal steps including
the arrest of the vessel for recovering the above
amount or any higher one which they may be
entitled to.
7. Sotirios Soukas hereby guarantees to Chrisomar
and in favour of the shipowner the due payment
of the above amount, working the right of division
and exclusion i.e. he admits that he will pay
amounts due to Chrisomar without the latter
having first to enforce its claim against the
shipowners and their vessel.
8. If the vessel is lost, for any reason or if the
mortgagee bank or any other claimant arrests the
vessel before reaching Bangkok and as a result,
the shipowners are unable to proceed for loading
to Bangkok, and thus execute the above stated
charter voyage, the above obligations of the
guarantor shall cease to exist but Chrisomar will
maintain its rights of recovery only against the
shipowners and the vessel but not against the
guarantor.
9. This agreement is subject to Greek law and the
exclusive jurisdiction of the Piraeus Courts. ”
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4. It appears that nothing in the meanwhile happened. At no
point of time did the vessel sail for the port of Bangkok – it
remained continuously in Haldia. It is only on 2.5.2000 that the
vessel was re-arrested. The Court recorded that no payment
had yet been made and that the claim of the plaintiff continued
to remain unsatisfied. It is this re-arrest that is the bone of
contention between the parties in the present matter.
5. A written statement was filed on behalf of respondent
no.1, MJR Steels, an Indian company who allegedly purchased
the vessel from one Fairsteel Corporation, Singapore.
Apparently, an agreement was entered into between Fairsteel
and respondent no.1 on 21.1.2000. The written statement filed
by respondent no. 1 alleged:
“The said vessel was originally owned by The Third
Element Enterprises Shipping Ltd. Third Element
Enterprises Shipping Ltd. sold and transferred the
said vessel to Eastern Wealth Investment Ltd.
Eastern Wealth Investment Ltd. sold and transferred
the said vessel to Fairsteel Corporation. Fairsteel
Corporation sold and transferred the said vessel to
this defendant. This defendant acquired the right,
title or interest in respect of the said vessel from the
said Fairsteel Corporation.”
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6. The learned single Judge by his judgment and order
dated 28.4.2005 listed as many as seven issues and adverted
to the fact that three witnesses were called on behalf of the
plaintiffs, who not only deposed and were cross-examined, but
also produced various documents. The defendants, however,
did not produce any witness but tendered as their evidence six
exhibits which were produced only through the plaintiff’s
witnesses.
7. According to the learned single Judge, the order of
25.1.2000 made it clear that suit No.1 of 2000 was kept alive
and remained alive on the date of the re-arrest, namely,
2.5.2000. All that was done by the order dated 2.5.2000 was to
recall the order dated 25.1.2000, and when that was done, the
original order of arrest was automatically revived. This being
the case, it is clear that the plaintiffs were entitled to recover
their dues. The learned single Judge further went on to hold
that respondent no.1’s claim that ownership had changed and
that they had become owners of the vessel in April, 2000, was
not conclusively proved. The single Judge referred, among
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other documents, to a suit filed by respondent no.1 against
Fairsteel Corporation on 9.5.2000 in which respondent no.1
prayed for a decree for rescission of the agreement for sale
dated 21.1.2000, as also for cancellation of the said agreement,
and perpetual injunction restraining Fairsteel from claiming any
money under the Letter of Credit furnished by respondent no.1.
It recorded that the said suit was dismissed for non-prosecution
on 12.10.2004, and from the averments made in the said suit, it
was clear that there was no concluded sale in favour of
respondent no.1.
8. An appeal to the Division Bench by respondent no.1
however succeeded. By the impugned judgment dated
13.9.2006, it was held that the plaintiff’s first witness admitted
the fact that the vessel’s ownership changed hands and that on
the date of re-arrest, i.e. 2.5.2000, it was respondent no.1 who
was the owner. It also examined various documents to arrive at
the conclusion that the vessel physically changed hands on
15.4.2000 and payments under the Letter of Credit were made
pursuant to the agreement dated 21.1.2000 on 26.4.2000. The
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Division Bench further went on to hold that though the
allegation as regards the successive transfers of title had not
been proved by the defendant, the said fact would make no
difference. It also went on to hold that there could be a good
title by estoppel. The Division Bench further went on to apply
Section 62 of the Indian Contract Act, 1872 to the out of court
settlement dated 18.1.2000 and stated that as there was a
novatio of the original agreement in law, the original cause of
action pleaded in admiralty Suit No. 1 of 2000 no longer
subsisted. Therefore, the claim made in the suit was held to
have been abandoned when the settlement dated 18.1.2000
was acted upon. In this view of the case, the Division Bench
reversed the single Judge’s decision and held that the suit was
liable to be dismissed on all these grounds.
9. Shri Shyam Divan, learned senior counsel appearing on
behalf of the appellants, has argued before us that the
agreement dated 18.1.2000 would not amount to a novatio of
the original agreement. According to him, the original
agreement continued and was in fact enforced by the second
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order of arrest dated 2.5.2000. According to him, the right that
was vested in the appellant on 5.1.2000, i.e. the date of the
institution of the suit, is alone material, and it is on that date,
and not the date of arrest on 2.5.2000, that the ownership of the
vessel has to be seen. For this purpose, he cited certain
English precedents. He also cited an American judgment to
buttress his submission that the present was a case not merely
of a maritime claim but also of a maritime lien in that
necessaries supplied to the vessel would amount to a maritime
lien. According to him, in any event, on facts, the Division
Bench was completely wrong in arriving at a conclusion that
there was a concluded sale in April, 2000 in favour of
respondent no.1 inasmuch as several documents produced by
the plaintiff’s witnesses would show that no such sale had, in
fact, taken place.
10. Shri Banerjee, learned senior counsel appearing on
behalf of the respondents, has countered each of these
submissions. According to Shri Banerjee, the Division Bench is
absolutely correct. The present is the case of enforcement of a
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maritime claim, but there is no maritime lien in law for
necessaries supplied to the vessel. This being the case, it is
important to know who the owner of the vessel is on the date of
arrest, i.e. on 2.5.2000. If the owner is respondent no.1, then a
claim for necessaries against the original owner, Third Element,
on the date of institution of the suit would not lie against the
respondent on the date of arrest. According to learned counsel,
English authorities cited by Shri Divan would not apply to the
present case as in England there is a completely different
procedure for arresting a vessel. A writ of summons is issued
under Order 53 of the U.K. Civil Procedure Code for service
outside the jurisdiction of the court which is kept alive for a
period of six months. Further, according to learned counsel,
Section 62 of the Contract Act is squarely attracted inasmuch
as the settlement dated 18.1.2000 completely replaced the
original agreement as a result of which the original cause of
action pleaded in the suit has disappeared. Learned counsel
also painstakingly took us through various documents to show
that the sale of the vessel to respondent no.1 had indeed taken
place in April, 2000 and that, therefore, on the date of arrest,
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i.e. 2.5.2000, since his client was the owner of the vessel, the
amounts could not be recovered from respondent no.1.
11. Admiralty law in England, as was held by Lord Halsbury in
Currie v. M’Knight 1897 AC 97, is derived from the laws of
Oleron1
and other ancient maritime codes like the Rhodian Sea
Law, the Basilika, the Assizes of Jerusalem, the Baltic Laws of
Wisbuy and the Hanseatic Code. In England, the common law
courts could not give effective redress to cases which arose in
admiralty, which were then left to the jurisdiction of specialist
admiralty Judges. By the 18th Century, the admiralty jurisdiction
had fallen into “a feeble and neglected condition, and for long
its proceedings excited no attention” 2. The Admiralty Court Act,
1840 was the first of a series of statutes extending and defining
the jurisdiction of the High Court of Admiralty in England. This
was followed by the 1861 Admiralty Court Act and various
subsequent enactments which were consolidated by the
1
The rolls of Oleron are associated with the island of Oleron, off the coast of Western France, which was the site of
an ancient maritime court associated with a seaman’s guild of the Atlantic. In England, they were promulgated by
Eleanor of Aquitaine, wife of Henry II, as vice-regent for her son King Richard I, while the latter was fighting the
Saracens on the Third Crusade. King Henry VIII later published these rolls as, “The judgment of the sea, of Masters,
of Mariners and Merchants, and all their doings”. They are expressly included in the compilation of English
admiralty law, the “Black Book of the Admiralty”.
2
See, Roscoe’s Admiralty Practice, 5th edn. at Pg. 14.
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Supreme Court of Judicature (Consolidation) Act, 1925. By the
Administration of Justice Act of 1956, the admiralty jurisdiction
of the High Court was further widened and the Supreme Court
Act of 1981 now defines what the admiralty jurisdiction of the
High Court in England is.
12. Insofar as our law is concerned, the admiralty law of the
chartered High Courts has historically been traced to the
charters of 1774 and 1798 as subsequently extended and
clarified by the Letters Patents of 1823, 1862 and 1865. The
Admiralty Court Act, 1840 and 1861, and the Colonial Courts of
Admiralty Act, 1890 and 1891 essentially stated what the
admiralty law in this country is, and these enactments
continued as existing laws under Article 372 of the Constitution
of India. Some of the relevant provisions of these Acts are set
out hereinbelow:-
“Admiralty Court Act, 1840
6. The court in certain cases may adjudicate, etc.—
The High Court of Admiralty shall have jurisdiction
to decide all claims and demands whatsoever in the
nature of salvage for services rendered to or
damage received by any ship or seagoing vessel or
in the nature of towage, or for necessaries supplied
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to any foreign ship or seagoing vessel, and to
enforce the payment thereof, whether such ship or
vessel may have been within the body of a country,
or upon the high seas, at the time when the services
were rendered or damage received, or necessaries
furnished, in respect of which such claim is made.
Admiralty Court Act, 1861
5. As to claims for necessaries.—The High Court of
Admiralty shall have jurisdiction over any claim for
necessaries supplied to any ship elsewhere than in
the port to which the ship belongs, unless it is
shown to the satisfaction of the court that at the time
of the institution of the cause any owner or partowner
of the ship is domiciled in England or Wales:
Provided always, that if in any such cause the
plaintiff do not recover twenty pounds, he shall not
be entitled to any costs, charges, or expenses
incurred by him therein, unless the judge shall
certify that the cause was a fit one to be tried in the
said Court.
Colonial Courts of Admiralty Act, 1890
2. Colonial Courts of Admiralty.—(1) Every court of
law in a British possession, which is for the time
being declared in pursuance of this Act to be a
Court of Admiralty, or which, if no such declaration
is in force in the possession, has therein original
unlimited civil jurisdiction, shall be a Court of
Admiralty, with the jurisdiction in this Act mentioned,
and may for the purpose of that jurisdiction,
exercise all the powers which it possesses for the
purpose of its other civil jurisdiction and such Court
in reference to the jurisdiction conferred by this Act
is in this Act referred to as a Colonial Court of
Admiralty. …
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(2) The jurisdiction of a Colonial Court of Admiralty
shall, subject to the provisions of this Act, be over
the like places, persons, matters, and things, as the
admiralty jurisdiction of the High Court in England,
whether existing by virtue of any statute or
otherwise and the Colonial Court of Admiralty may
exercise such jurisdiction in like manner and to as
full an extent as the High Court in England, and
shall have the same regard as that Court to
international law and the comity of nations.
Colonial Courts of Admiralty (India) Act, 1891
2. Appointment of Colonial Courts of Admiralty.—
The following courts of unlimited civil jurisdiction are
hereby declared to be Colonial Courts of Admiralty,
namely:
(1) the High Court of Judicature at Fort William in
Bengal,
(2) the High Court of Judicature at Madras, and
(3) the High Court of Judicature at Bombay.”
13. The Republic of India has finally woken up to the need for
updating its admiralty law. The Admiralty (Jurisdiction and
Settlement of Maritime Claims) Act, 2017 has been made by
Parliament and has received the assent of the President on
9.8.2017, though it has not yet been brought into force. In this
Act, “maritime claim” is defined in Section 2(1)(f) as being a
claim referred to in Section 4 and a “maritime lien” is defined in
sub-section (g) of 2(1) as follows:
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“2. Definitions
(1) In this Act,—
(g) “maritime lien” means a maritime claim against
the owner, demise charterer, manager or operator
of the vessel referred to in clauses (a) to (e) of subsection
(1) of section 9, which shall continue to exist
under sub-section (2) of that section;”
Section 4 reads as follows:
“4. Maritime Claim
(1) The High Court may exercise jurisdiction to hear
and determine any question on a maritime claim,
against any vessel, arising out of any—
(a) dispute regarding the possession or ownership
of a vessel or the ownership of any share therein;
(b) dispute between the co-owners of a vessel as to
the employment or earnings of the vessel;
(c) mortgage or a charge of the same nature on a
vessel;
(d) loss or damage caused by the operation of a
vessel;
(e) loss of life or personal injury occurring whether
on land or on water, in direct connection with the
operation of a vessel;
(f) loss or damage to or in connection with any
goods;
(g) agreement relating to the carriage of goods or
passengers on board a vessel, whether contained in
a charter party or otherwise;
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(h) agreement relating to the use or hire of the
vessel, whether contained in a charter party or
otherwise;
(i) salvage services, including, if applicable, special
compensation relating to salvage services in
respect of a vessel which by itself or its cargo
threatens damage to the environment;
(j) towage;
(k) pilotage;
(l) goods, materials, perishable or non-perishable
provisions, bunker fuel, equipment (including
containers), supplied or services rendered to the
vessel for its operation, management, preservation
or maintenance including any fee payable or
leviable;
(m) construction, reconstruction, repair, converting
or equipping of the vessel;
(n) dues in connection with any port, harbour, canal,
dock or light tolls, other tolls, waterway or any
charges of similar kind chargeable under any law for
the time being in force;
(o) claim by a master or member of the crew of a
vessel or their heirs and dependents for wages or
any sum due out of wages or adjudged to be due
which may be recoverable as wages or cost of
repatriation or social insurance contribution payable
on their behalf or any amount an employer is under
an obligation to pay to a person as an employee,
whether the obligation arose out of a contract of
employment or by operation of a law (including
operation of a law of any country) for the time being
in force, and includes any claim arising under a
manning and crew agreement relating to a vessel,
notwithstanding anything contained in the provisions
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of sections 150 and 151 of the Merchant Shipping
Act, 1958;
(p) disbursements incurred on behalf of the vessel
or its owners;
(q) particular average or general average;
(r) dispute arising out of a contract for the sale of
the vessel;
(s) insurance premium (including mutual insurance
calls) in respect of the vessel, payable by or on
behalf of the vessel owners or demise charterers;
(t) commission, brokerage or agency fees payable
in respect of the vessel by or on behalf of the vessel
owner or demise charterer;
(u) damage or threat of damage caused by the
vessel to the environment, coastline or related
interests; measures taken to prevent, minimise, or
remove such damage; compensation for such
damage; costs of reasonable measures for the
restoration of the environment actually undertaken
or to be undertaken; loss incurred or likely to be
incurred by third parties in connection with such
damage; or any other damage, costs, or loss of a
similar nature to those identified in this clause;
(v) costs or expenses relating to raising, removal,
recovery, destruction or the rendering harmless of a
vessel which is sunk, wrecked, stranded or
abandoned, including anything that is or has been
on board such vessel, and costs or expenses
relating to the preservation of an abandoned vessel
and maintenance of its crew; and
(w) maritime lien.
Explanation.—For the purposes of clause (q), the
expressions “particular average” and “general
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average” shall have the same meanings as
assigned to them in sub-section (1) of section 64
and sub-section (2) of section 66 respectively of the
Marine Insurance Act, 1963.
(2) While exercising jurisdiction under sub-section
(1), the High Court may settle any account
outstanding and unsettled between the parties in
relation to a vessel, and direct that the vessel, or
any share thereof, shall be sold, or make such other
order as it may think fit.
(3) Where the High Court orders any vessel to be
sold, it may hear and determine any question
arising as to the title to the proceeds of the sale.
(4) Any vessel ordered to be arrested or any
proceeds of a vessel on sale under this Act shall be
held as security against any claim pending final
outcome of the admiralty proceeding.”
14. Under Section 5 of the Act, the High Court may order for
the arrest of a vessel which is within its jurisdiction for the
purpose of providing security against a maritime claim. Under
Section 6 of the said Act, the High Court may also exercise
admiralty jurisdiction by an order in personam in respect of the
maritime claims referred to in Section 4. Section 9 of the Act
sets out the inter se priority of maritime liens, but in so doing
also informs us that they are restricted to five subject matters
only. Section 9 reads as follows:
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“Sec. 9 Inter se priority on maritime lien
(1) Every maritime lien shall have the following
order of inter se priority, namely:—
(a) claims for wages and other sums due to the
master, officers and other members of the vessel’s
complement in respect of their employment on the
vessel, including costs of repatriation and social
insurance contributions payable on their behalf;
(b) claims in respect of loss of life or personal injury
occurring, whether on land or on water, in direct
connection with the operation of the vessel;
(c) claims for reward for salvage services including
special compensation relating thereto;
(d) claims for port, canal, and other waterway dues
and pilotage dues and any other statutory dues
related to the vessel;
(e) claims based on tort arising out of loss or
damage caused by the operation of the vessel other
than loss or damage to cargo and containers carried
on the vessel.
(2) The maritime lien specified in sub-section (1)
shall continue to exist on the vessel notwithstanding
any change of ownership or of registration or of flag
and shall be extinguished after expiry of a period of
one year unless, prior to the expiry of such period,
the vessel has been arrested or seized and such
arrest or seizure has led to a forced sale by the
High Court:
Provided that for a claim under clause (a) of subsection
(1), the period shall be two years from the
date on which the wage, sum, cost of repatriation or
social insurance contribution, falls due or becomes
payable.
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(3) The maritime lien referred to in this section shall
commence—
(a) in relation to the maritime lien under clause (a)
of sub-section (1), upon the claimant’s discharge
from the vessel;
(b) in relation to the maritime liens under clauses (b)
to (e) of sub-section (1), when the claim arises,
and shall run continuously without any suspension
or interruption:
Provided that the period during which the vessel
was under arrest or seizure shall be excluded.
(4) No maritime lien shall attach to a vessel to
secure a claim which arises out of or results from—
(a) damage in connection with the carriage of oil or
other hazardous or noxious substances by sea for
which compensation is payable to the claimants
pursuant to any law for the time being in force;
(b) the radioactive properties or a combination of
radioactive properties with toxic, explosive or other
hazardous properties of nuclear fuel or of
radioactive products or waste.”
15. Section 12 states that the Code of Civil Procedure is to
apply in all proceedings before the High Court insofar as it is
not inconsistent or contrary to the provisions of the Act. By
Section 17, the Admiralty Court Acts of 1840 and 1861 and the
Colonial Courts of Admiralty Acts of 1890 and 1891 stand
repealed. Also, the Letters Patent of 1865, insofar as it applies
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to the admiralty jurisdiction of the Bombay, Calcutta and
Madras High Courts, also stands repealed.
16. An admiralty action in the courts of India commences
against a vessel to enforce what is called a “maritime claim”.
Though India is not a signatory to the Brussels Convention of
1952, a long list of maritime claims is given in Article 1 thereof.
Suffice it to say that sub-clause (k) of Article 1 states that
important materials wherever supplied to a ship for her
operation or maintenance would fall within the definition of a
maritime claim. A maritime lien, on the other hand, attaches to
the property of the vessel whenever the cause of action arises,
and travels with the vessel and subsists whenever and
wherever the action may be commenced. In The Bold
Buccleugh, (1852) 7 Moo PCC 267, Sir John Jervis defined
maritime lien as follows:-
“[A] maritime lien is well defined … to mean a claim
or privilege upon a thing to be carried
into effect by legal process … that process to be a
proceeding in rem…. This claim or privilege travels
with the thing into whosesoever possession it may
come. It is inchoate from the moment the claim or
privilege attaches, and, when carried into effect by
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legal process by a proceeding in rem, relates back
to the period when it first attached.”
17. This judgment was referred to in M.V. Elisabeth and
others v. Harwan Investment and Trading Private Limited,
1993 Supp. (2) SCC 433 at 462, paragraph 56 and Epoch
Enterrepots v. M.V. Won Fu (2003) 1 SCC 305 at 311,
paragraph 13. In M.V. Al Quamar v. Tsavliris Salvage
(International) Ltd. and others, (2000) 8 SCC 278 at 301, the
Supreme Court observed as follows:-
“33. Be it noted that there are two attributes to
maritime lien: (a) a right to a part of the property in
the res; and (b) a privileged claim upon a ship,
aircraft or other maritime property in respect of
services rendered to, or injury caused by that
property. Maritime lien thus attaches to the property
in the event the cause of action arises and remains
attached. It is, however, inchoate and very little
positive in value unless it is enforced by an action.
It is a right which springs from general maritime law
and is based on the concept as if the ship itself has
caused the harm, loss or damage to others or to
their property and thus must itself make good that
loss. (See in this context Maritime Law by
Christopher Hill, 2nd Edn.).”
25
18. Only a small number of claims give rise to maritime liens
as was noted in M.V. Won Fu (supra). Paragraph 19 of the
said judgment states as follows:-
“19. We have in this judgment hereinbefore dealt
with the attributes of maritime lien. But simply
stated, maritime lien can be said to exist or
restricted to in the event of (a) damage done by a
ship; (b) salvage; (c) seamen’s and master’s wages;
(d) master’s disbursement; and (e) bottomry; and in
the event a maritime lien exists in the aforesaid five
circumstances, a right in rem is said to exist.
Otherwise, a right in personam exists for any claim
that may arise out of a contract.”
(at pages 314-315)
19. In an illuminating judgment of the Calcutta High Court
Justice Mrs. Ruma Pal, as she then was, dealt with an action in
rem filed in the admiralty court jurisdiction in Calcutta. With
respect to the plaintiffs claim of the price of bunkers supplied to
the ship owners, the Court held that the supply of necessaries
to a vessel does not create a maritime lien. In Bailey
Petroleum Company v. Owners and parties interested in
the vessel M.V. Dignity, (1993) 2 CHN 208 at 213-214, the
learned Judge held:
26
“16. It has been established by a wealth of
decisions that the supply of necessaries does not
create a maritime lien. Indeed the point was
conceded by the counsel for the plaintiff at the
hearing. It is only necessary to refer to two
authorities on the point to emphasize the fact that
this Court does not base its conclusion on the
concession of the plaintiff’s counsel but on the
authorities cited.
17. It is not disputed that the jurisdiction of this court
is governed by the Admiralty Court Act 1861 (Imp).
Section 5 of the 1861 Act provides:
“5. The High Court of Admiralty shall have
jurisdiction over any claim for necessaries
supplied to any ship elsewhere than in the
port to which the ship belongs, unless it is
shown to the satisfaction of the court that
at the time of the institution of the cause
any owner or part owner of the ship is
domiciled in England or Wales: Provided
always, that if in any such cause the
plaintiff do not recover twenty pounds, he
shall not be entitled to any costs, charges,
or expenses incurred by him therein,
unless the judge shall certify that the
cause was a fit one to be tried in the said
Court.”
18. In the case of Laws and others and Smith: the
“Rio Tinto”: 9 PD 356, the plaintiff had supplied
necessaries to the vessel. The Trial Court held that
the necessaries were supplied on the credit of the
vessel and that the plaintiff had a right to a maritime
lien and that, therefore, in spite of the fact that the
vessel had been transferred subsequent to the
supply of necessaries, the ship was liable. Sir
James Hannen who delivered the opinion of the
27
Privy Council held that the phrase “the court shall
have jurisdiction” simply gave the Court jurisdiction
but did not create any lien. A distinction was drawn
between a provision for proceedings by arrest of the
ship and the express creation of a lien. The Court
held:
“The Admiralty Court Act, 1861 (24 Vict.
c. 10) and the decisions upon it must
next be considered. By the 5th section it
is enacted that the High Court shall
have jurisdiction over a claim for
necessaries supplied to any ship
elsewhere than in the port to which the
ship belongs, unless it is shown to the
satisfaction of the court that, at the time
of the institution of the cause, any owner
or part owner of the ship is domiciled in
England or Wales.
The words ‘the High Court of Admiralty
shall have jurisdiction’, mean only what
they purport to say, neither more nor
less, that is, that the court shall take
judicial cognizance of the cases
provided for.
The conclusion [is] that there is nothing
from which it can be inferred that by the
use of the words “the court shall have
jurisdiction” the Legislature intended to
create a maritime lien with respect to
necessaries supplied within the
possession.”
19. In Shell Oil Co. v. The Ship “Lastrigoni” 3 ALR
399 the plaintiff had filed a suit for enforcement of
the claim on the ground of bunkers provided by the
28
plaintiff under a contract between the plaintiff and
the agents of the time charterer. The contract
provided that the sale and delivery of inter
alia necessaries would be made on the faith and
credit of the vessel. The arguments before the Court
were that the supply of fuel itself created maritime
lien to which the ship was subject and which could
be enforced by an action in rem in admiralty. The
second was that, in the circumstances, an action in
rem lay notwithstanding the absence of any
contractual liability on the part of the owners to pay
for the bunkers supplied and that this was so by
virtue of section 6 of the Admiralty Court Act 1840
(Imp), and section 5 of the Admiralty Court Act 1861
(Imp), either with or without the aid of cl. 6.4 of the
Bunker Fuel Oil Contract. Menzies, J. held:
“The matter was, I think, put at rest by
the decision of the Privy Council in the
Rio Tinto (1884) 9 APP Cas 356, by
which it was decided that no maritime
lien attaches to a ship in respect of
coals or other necessaries supplied to
it.”
20. In Saba International Shipping and Project Investment
Private Limited v. Owners and parties interested in the
Vessel M.V. Brave Eagle, previously known as M.V. Lima-I
and others, (2002) 2 CHN 280 at 287-288 and 289-290,
another single Judge of the same High Court differentiated
between a maritime claim and a maritime lien and held as
follows:
29
“20. Now the issue is what is a maritime claim and
what is a maritime lien. These questions are to be
answered in this proceeding before continuation of
the interim order or passing any further interim
order.
21. All cases of maritime lien are based on maritime
claims but all maritime claims do not give rise to a
maritime lien on the ship. Normally a lien in the
general law is a rather limited right over some one
else’s property. It is a right to retain possession of
that property usually to receive a claim. But a
maritime lien differs from other liens in one very
important respect. Liens generally require
possession of the ‘res’ before they can come into
effect. As an example an innkeeper has a lien over
his guest’s luggage against the payment of the bill,
but if the guest is smart enough to remove his
luggage, the innkeeper is left without a lien. But a
maritime lien does not require prior possession for
its creation. In a fit and proper case a claimant on
the strength of his maritime lien can secure the
arrest of a ship which then comes under the
possession of the court and she cannot be moved
without the court’s order.
22. ‘No Indian Statute defines a maritime claim’ is
the clear finding of Supreme Court in M.V.
Elisabeth (AIR 1993 SC 1014, para 85, page 1040).
But our Supreme Court followed the provisions of
the Supreme Court Act 1981 of England where
maritime claims have been listed on the basis of
Brussels Convention of 1952 on the Arrest of Sea
Going Ships. Under Article 1 of the said Convention
various maritime claims have been catalogued. Out
of which 1(k) answers the description of the claims
of the plaintiff in this proceeding. Article 1(k) reads
“goods or materials whether supplied to a ship for
30
her operation or maintenance”. Even though India is
not a signatory to the Brussels Convention, but the
Supreme Court held that the provisions of these
Conventions should be regarded as part of
International Common Law and these provisions
‘supplement’ and ‘complement’ our maritime laws
and fill up the lacunae in The Merchant Shipping
Act.
23. But in Elisabeth, the Hon’ble Supreme Court did
not notice any convention on maritime lien.
However the Hon’ble Supreme Court accepted in
para 57 of Elisabeth the judicial determination of the
concept of ‘maritime lien’ by English courts and
which I quote as follows:
“A maritime lien is a privileged claim
against the ship or a right to a part of the
property in the ship, and it “travels” with
the ship. Because the ship has to “pay
for the wrong it has done”, it can be
compelled to do so by a forced sale.
(See The Bold Buccleugh, (1852) 7 Moo
PCC 267).”
24. A definition of maritime lien has also been given
in Stroud’s Judicial Dictionary, 5th Edition page
1466 to the following effect:
“A maritime lien may be defined as a
right specifically binding a ship, her
furniture, tackle, cargo, and freight, or
any of them, for payment of a claim
founded upon the maritime law and
entitling the claimant to take judicial
proceedings against the property bound
to enforce, or to ascertain and enforce,
satisfaction of his demand; thus, a
31
salvor has a maritime lien on the
property saved for such an amount as a
court exercising admiralty jurisdiction
shall award. Maritime lien are
distinguished from all other liens in
these two chief particulars: (i) they are in
no way founded on possession or
property in the claimant, (ii) they are
exercised by taking proceedings against
the property itself in a form of action
styled an action in rem (The Glasgow
Packet, 2 Rob. W. 312; The Repulse, 4
Notes of Cas. 170), and, from this and
their secret nature, they closely
resemble the species of security known
to Roman law under the name of
hypotheca (Dig. xiii). Interest, if any
allowed, and the costs of enforcing a
claim for which a maritime lien exists,
will be included in such lien (The
Margaret, 3 Hagg. Adm. 240).”
25. According to the well known treatise of Thomas
on maritime lien, the following claims may give rise
to maritime lien namely:
“(a) Damage done by a ship
(b) Salvage
(c) Seamen’s wages
(d) Master’s wages and disbursements
(e) Bottomry and respondentia”.
26. The aforesaid passage from Thomas has been
approved by the Division Bench of Calcutta High
Court in Mohammed Saleh Behbehani &
Company v. Bhoja Trader, reported in (1983) 2
Calcutta Law Journal 334. At 344 of the report, the
learned Judges of the Division Bench referred to
maritime liens as representing ‘a small cluster of
32
claims’ and referred to the aforementioned passage
from Thomas.
(27) and (28) xxx xxx xxx
29. Counsel for the respondent also relies on a
passage from Roscoe on The Admiralty Jurisdiction
and Practice, 5th Edition. While dealing with
necessaries, the learned author has stated as
follows:
“Persons who have supplied a ship,
whether British or foreign, with
necessaries have not a maritime lien
upon her, and the vessel does not
become chargeable with the debt till the
suit is actually instituted; consequently
there can be no claim against a ship
which has been sold, even with notice of
such a claim in respect of which an
action has not been commenced, and a
want of caution in supplying the
necessaries may, it would seem, cause
a postponement of claims to others
more carefully begun. The necessaries
claimant is not a secured creditor until
the moment of arrest.”
30. There is a direct judgment on this point by a
learned Judge of this court in Bailey Petroleum,
referred to above.
31. Relying on the judgment of the Privy Council
in Rio Tinto, reported in 1884 (9) Appeal Cases 356
and the judgment in Shell Oil Co. v. The Ship
Lastrigoni, reported in 1974 (3) All England Reports
399, the learned single Judge held in Bailey
Petroleum that a claim arising out of the supply of
33
necessaries may give rise to a statutory right of
action ‘in rem’ under section 5 of Admiralty Court
Act, 1861 but it does not give rise to maritime lien.
Paragraphs 23 and 24 of the judgment in Bailey
Petroleum make it clear and I quote them in
extenso:
“23. Whereas a maritime lien attaches to
the res and travels with it and may be
enforced against a subsequent
purchaser of the res, a statutory right of
action in rem is defeated by a change of
ownership. This later principle follows
from the nature of the right described in
the preceding paragraph.
24. This view of the law is supported by
a catena of decisions.”
21. In fact, the International Convention on Maritime Lien and
Mortgages, 1993 defines maritime liens in Article 4 as follows:-
“Article 4: Maritime liens
I. Each of the following claims against the owner,
demise charterer, manager or operator of the vessel
shall be secured by a maritime lien on the vessel:
(a) claims for wages and other sums due to the
master, officers and other members of the vessel’s
complement in respect of their employment on the
vessel, including costs of repatriation and social
insurance contributions payable on their behalf;
34
(b) claims in respect of loss of life or personal injury
occurring, whether on land or on water, in direct
connection with the operation of the vessel;
(c) claims for reward for the salvage of the vessel;
(d) claims for port, canal, and other waterway dues
and pilotage dues;
(e) claims based on tort arising out of physical loss
or damage caused by the operation of the vessel
other than loss of or damage to cargo, containers
and passengers’ effects carried on the vessel.
2. No maritime lien shall attach to a vessel to secure
claims as set out in subparagraphs (b) and (e) of
paragraph 1 which arise out of or result from:
(a) damage in connection with the carriage of oil or
other hazardous or noxious substances by sea for
which compensation is payable to the claimants
pursuant to international conventions or national law
providing for strict liability and compulsory insurance
or other means of securing the claims; or
(b) the radioactive properties or a combination of
radioactive properties with toxic, explosive or other
hazardous properties of nuclear fuel or of
radioactive products or waste.”
22. Article 8 then states that the characteristics of such liens
are as follows:-
“Article 8: Characteristics of maritime liens
Subject to the provisions of article 12, the maritime
liens follow the vessel, notwithstanding any change
of ownership or of registration or of flag.”
35
It is, thus, clear that a claim for necessaries supplied to a
vessel does not become a maritime lien which attaches to the
vessel.
23. Shri Divan, however, cited U.S. case law in support of his
submission that a claim for necessaries raises a maritime lien.
We are afraid that given the Indian case law on the subject read
with the various international Conventions referred to above,
the U.S. seems to stand alone in considering that claims for
necessaries would amount to maritime lien enforceable against
the vessel as such wherever it goes. It is clear that in our
country at least claims for necessaries, though maritime claims,
do not raise a maritime lien.
24. What arises next, therefore, is the manner of enforcement
of maritime claims in our Courts. In M.V. Elisabeth (supra) at
459-462, this Court laid down, in some detail, the basic features
of the admiralty jurisdiction in this country, and how maritime
claims are to be enforced. The Court held:
“Admiralty Law confers upon the claimant a right in
rem to proceed against the ship or cargo as
distinguished from a right in personam to proceed
36
against the owner. The arrest of the ship is
regarded as a mere procedure to obtained security
to satisfy judgment. A successful plaintiff in an
action in rem has a right to recover damages
against the property of the defendant. “The liability
of the shipowner is not limited to the value of
the res primarily proceeded against …. An action …
though originally commenced in rem, becomes a
personal action against a defendant upon
appearance, and he becomes liable for the full
amount of a judgment unless protected by the
statutory provisions for the limitation of liability”.’
(Roscoe’s Admiralty Practice, 5th ed. p. 29)
The foundation of an action in rem, which is a
peculiarity of the Anglo-American law, arises from a
maritime lien or claim imposing a personal liability
upon the owner of the vessel. A defendant in an
admiralty action in personam is liable for the full
amount of the plaintiff’s established claim. Likewise,
a defendant acknowledging service in an action in
rem is liable to be saddled with full liability even
when the amount of the judgment exceeds the
value of the res or of the bail provided. An action in
rem lies in the English High Court in respect of
matters regulated by the Supreme Court Act 1981,
and in relation to a number of claims the jurisdiction
can be invoked not only against the offending ship
in question but also against a ‘sistership’ i.e., a ship
in the same beneficial ownership as the ship in
regard to which the claim arose.
“The vessel which commits the
aggression is treated as the offender, as
the guilty instrument or thing to which
the forfeiture attaches, without any
reference whatsoever to the character
or conduct of the owner ….” (Per Justice
Story, The United States v. The Big
37
Malek Adhel [43 US (2 How) 210, 233
(1844)]).”
xxx xxx xxx
A ship may be arrested (i) to acquire jurisdiction; or
(ii) to obtain security for satisfaction of the claim
when decreed; or (iii) in execution of a decree. In
the first two cases, the court has the discretion to
insist upon security being furnished by the plaintiff
to compensate the defendant in the event of it being
found that the arrest was wrongful and was sought
and obtained maliciously or in bad faith. The
claimant is liable in damages for wrongful arrest.
This practice of insisting upon security being
furnished by the party seeking arrest of the ship is
followed in the United States, Japan and other
countries. The reason for the rule is that a wrongful
arrest can cause irreparable loss and damages to
the shipowner; and he should in that event be
compensated by the arresting party. (See Arrest of
Ships by Hill, Soehring, Hosoi and Helmer, 1985).
The attachment by arrest is only provisional and its
purpose is merely to detain the ship until the matter
has been finally settled by a competent court. The
attachment of the vessel brings it under the custody
of the Marshal or any other authorized officer. Any
interference with his custody is treated as a
contempt of the court which has ordered the arrest.
But the Marshal’s right under the attachment order
is not one of possession, but only of custody.
Although the custody of the vessel has passed from
the defendant to the Marshal, all the possessory
rights which previously existed continue to exist,
including all the remedies which are based on
possession. The warrant usually contains a
monition to all persons interested to appear before
the court on a particular day and show cause why
38
the property should not be condemned and sold to
satisfy the claim of the plaintiff.
The attachment being only a method of
safeguarding the interest of the plaintiff by providing
him with a security, it is not likely to be ordered if the
defendant or his lawyer agrees to “accept service
and to put in bail or to pay money into court in lieu
of bail”. (See Halsbury’s Laws of England, 4th edn.,
Vol. 1, p. 375 etc.).
xxx xxx xxx
A personal action may be brought against the
defendant if he is either present in the country or
submits to jurisdiction. If the foreign owner of an
arrested ship appears before the court and deposits
security as bail for the release of his ship against
which proceedings in rem have been instituted, he
submits himself to jurisdiction.
An action in rem is directed against the ship itself to
satisfy the claim of the plaintiff out of the res. The
ship is for this purpose treated as a person. Such an
action may constitute an inducement to the owner to
submit to the jurisdiction of the court, thereby
making himself liable to be proceeded against by
the plaintiff in personam. It is, however, imperative
in an action in rem that the ship should be within
jurisdiction at the time the proceedings are started.
A decree of the court in such an action binds not
merely the parties to the writ but everybody in the
world who might dispute the plaintiff’s claim.
It is by means of an action in rem that the arrest of a
particular ship is secured by the plaintiff. He does
not sue the owner directly and by name; but the
owner or any one interested in the proceedings may
appear and defend. The writ is issued to “owners
39
and parties interested in the property proceeded
against”. The proceedings can be started in
England or in the United States in respect of a
maritime lien, and in England in respect of a
statutory right in rem. A maritime lien is a privileged
claim against the ship or a right to a part of the
property in the ship, and it “travels” with the ship.
Because the ship has to “pay for the wrong it has
done”, it can be compelled to do so by a forced
sale. [See Bold Buccleaugh (The) [Harmer v. Bell,
(1851) 7 Moo PC 267 : 13 ER 884]]. In addition to
maritime liens, a ship is liable to be arrested in
England in enforcement of statutory rights in
rem (Supreme Court Act 1981). If the owner does
not submit to the jurisdiction and appear before the
court to put in bail and release the ship, it is liable to
be condemned and sold to satisfy the claims
against her. If, however, the owner submits to
jurisdiction and obtains the release of the ship by
depositing security, he becomes personally liable to
be proceeded against in personam in execution of
the judgment if the amount decreed exceeds the
amount of the bail. The arrest of the foreign ship by
means of an action in rem is thus a means of
assuming jurisdiction by the competent court.”
25. The Court went on to hold that though Indian statutes lag
behind international law in this context, the principles in these
Conventions derived from the common law of nations, will be
treated as a part of the common law of India. Paragraph 76 in
this behalf reads as under:-
“76. It is true that Indian statutes lag behind the
development of international law in comparison to
40
contemporaneous statutes in England and other
maritime countries. Although the Hague Rules are
embodied in the Carriage of Goods by Sea Act,
1925, India never became a party to the
International Convention laying down those rules
(International Convention for the Unification of
Certain Rules of Law relating to Bills of Lading,
Brussels, 1924). The Carriage of Goods by Sea Act,
1925 merely followed the (United Kingdom)
Carriage of Goods by Sea Act, 1924. The United
Kingdom repealed the Carriage of Goods by Sea
Act, 1924 with a view of incorporating the Visby
Rules adopted by the Brussels Protocol of 1968.
The Hague-Visby Rules were accordingly adopted
by the Carriage of Goods by Sea Act 1971 (United
Kingdom). Indian legislation has not, however,
progressed, notwithstanding the Brussels Protocol
of 1968 adopting the Visby Rules or the United
Nations Convention on the Carriage of Goods by
Sea, 1978 adopting the Hamburg Rules. The
Hamburg Rules prescribe the minimum liabilities of
the carrier far more justly and equitably than the
Hague Rules so as to correct the tilt in the latter in
favour of the carriers. The Hamburg Rules are
acclaimed to be a great improvement on the Hague
Rules and far more beneficial from the point of view
of the cargo owners. India has also not adopted the
International Convention relating to the Arrest of
Seagoing Ships, Brussels, 1952. Nor has India
adopted the Brussels Conventions of 1952 on civil
and penal jurisdiction in matters of collision; nor the
Brussels Conventions of 1926 and 1967 relating to
maritime liens and mortgages [(a) International
Convention relating to the Arrest of Seagoing Ships,
Brussels, May 10, 1952 (IMC); (b) International
Convention on Certain Rules concerning Civil
Jurisdiction in Matters of Collision, Brussels, May
10, 1952 (IMC); (c) International Convention for the
Unification of Certain Rules relating to Penal
41
Jurisdiction in Matters of Collision, Brussels, May
10, 1952 (IMC); and (d) International Conventions
for the Unification of Certain Rules of Law relating to
Maritime Liens and Mortgages, Brussels, April 10,
1926, and the Revised Convention on Maritime
Lines and Mortgages, Brussels, May 29, 1967
(IMC).] India seems to be lagging behind many
other countries in ratifying and adopting the
beneficial provisions of various conventions
intended to facilitate international trade. Although
these conventions have not been adopted by
legislation, the principles incorporated in the
conventions are themselves derived from the
common law of nations as embodying the felt
necessities of international trade and are as such
part of the common law of India and applicable for
the enforcement of maritime claims against foreign
ships.”
(at pages 469-470)
A list of maritime claims was then referred to in paragraph
84 and the Brussels Convention relating to the Arrest of SeaGoing
Ships, 1992 was referred to and followed.
26. The next important aspect that was argued was that the
ownership of the vessel to enforce a maritime claim has to be
seen at the stage of institution of the suit and not at the stage
of arrest. The general rule that is contained in our country as to
what crystallises on the date of a suit is reflected in
42
Rameshwar and others v. Jot Ram and others, 1976 1 SCR
847 at 851-52. This Court held:-
“In P. Venkateswarlu v. Motor & General
Traders [(1975) 1 SCC 770, 772 : AIR 1975 SC
1409, 1410] this Court dealt with the adjectival
activism relating to post-institution circumstances.
Two propositions were laid down. Firstly, it was held
that [SCC p. 772, para 4] ‘it is basic to our
processual jurisprudence that the right to relief must
be judged to exist as on the date a suitor institutes
the legal proceeding.’ This is an emphatic statement
that the right of a party is determined by the facts as
they exist on the date the action is instituted.
Granting the presence of such facts, then he is
entitled to its enforcement. Later developments
cannot defeat his right because, as explained
earlier, had the court found his facts to be true the
day he sued he would have got his decree. The
Court’s procedural delays cannot deprive him of
legal justice or rights crystallised in the initial cause
of action. This position finds support in Bhajan
Lal v. State of Punjab [(1971) 1 SCC 34].
The impact of subsequent happenings may now be
spelt out. First, its bearing on the right of action,
second, on the nature of the relief and third, on its
impotence to create or destroy substantive rights.
Where the nature of the relief, as originally sought,
has become obsolete or unserviceable or a new
form of relief will be more efficacious on account of
developments subsequent to the suit or even during
the appellate stage, it is but fair that the relief is
moulded, varied or reshaped in the light of updated
facts. Patterson [Patterson v. State of Alabama,
(1934) 294 US 600, 607] illustrates this position. It is
important that the party claiming the relief or change
of relief must have the same right from which either
43
the first or the modified remedy may flow.
Subsequent events in the course of the case cannot
be constitutive of substantive rights enforceable in
that very litigation except in a narrow category (later
spelt out) but may influence the equitable
jurisdiction to mould reliefs. Conversely, where
rights have already vested in a party, they cannot
be nullified or negated by subsequent events save
where there is a change in the law and it is made
applicable at any stage. Lachmeshwar Prasad
Shukul v. Keshwar Lal Chaudhuri [1940 FCR 84 :
AIR 1941 FC 5] falls in this category. Courts of
justice may, when the compelling equities of a case
oblige them, shape reliefs — cannot deny rights —
to make them justly relevant in the updated
circumstances. Where the relief is discretionary,
courts may exercise this jurisdiction to avoid
injustice. Likewise, where the right to the remedy
depends, under the statute itself, on the presence or
absence of certain basic facts at the time the relief
is to be ultimately granted, the Court, even in
appeal, can take note of such supervening facts
with fundamental impact. Venkateswarlu, read in its
statutory setting, falls in this category.”
27. However, the International Convention on the Arrest of
Ships, 1999, in which India participated, states as follows:-
“Article 3: Exercise of right of arrest
1. Arrest is permissible of any ship in respect of
which a maritime claim is asserted if:
(a) the person who owned the ship at the time when
the maritime claim arose is liable for the claim and
is owner of the ship when the arrest is effected; or
(b) – (e) xxx xxx xxx
44
(2) xxx xxx xxx
3. Notwithstanding the provisions of paragraphs 1
and 2 of this article, the arrest of a ship which is not
owned by the person liable for the claim shall be
permissible only if, under the law of the State where
the arrest is applied for, a judgment in respect of
that claim can be enforced against that ship by
judicial or forced sale of that ship.”
28. India is not a signatory to the aforesaid Convention, yet
following M.V. Elisabeth (supra), this Convention becomes part
of our national law and must, therefore, be followed
by this Court. Article 3(1)(a) is in two parts. First, arrest is only
permissible of any ship if a maritime claim is
asserted against the person who owned the ship at a time when
the maritime claim arose for which the owner is liable, and
second, that the same ship owner should be the owner of the
ship when the arrest is effected. Thus, article 3(1)(a) sets the
controversy at rest because a maritime claim can be asserted
only at the time the arrest is effected and not at the time of the
institution of the suit. This being so, Shri Divan’s reliance on
English judgments to the contrary, namely Monica S. (1967) 2
Lloyd’s Rep. 113 as followed in Re, Aro Co Limited 1980 1 All
45
ER 1067, cannot be followed. Both judgments were prior to the
1999 Convention and it is this Convention that must be
followed. It is, therefore, clear that the relevant date on which
ownership of the vessel is to be determined is the date of arrest
and not the date of institution of the suit.
29. At this stage it becomes important to refer to the
agreement dated 18.1.2000 entered into between the petitioner
and the original owner of the vessel, Third Element Enterprises.
The agreement has been set out fully earlier in this judgment.
A perusal of the agreement would show that so far as the
appellant is concerned, performance is over — namely that a
certain quantity of bunkers has in accordance with the original
agreement been supplied. Indeed this is expressly recited in
the later agreement. It is only performance under the original
agreement that is lacking from the side of the owner of the
vessel, namely Third Element Enterprises. The very first clause
of the agreement shows that the ship owners confirm that they
owe to the appellant the original amount of the bunkers plus
interest plus legal costs, which amounts are parasitic on the
46
original invoice amount of US$ 94,611.25, and need to be
recovered in order to put the appellant in the same position as if
the original contract had been performed by Third Element
Enterprises. The agreement then goes on to state that since the
vessel is being chartered for a voyage from Bangkok and will
earn freight, the part of the freight amounting to the original
invoice amount plus interest plus legal costs will be paid directly
by the charterers of the vessel to the bank account of the
appellants.
30. Sections 62 and 63 of the Contract Act read as follows:-
“62. Effect of novation, rescission, and alteration
of contract.—If the parties to a contract agree to
substitute a new contract for it, or to rescind or alter
it, the original contract need not be performed.
63. Promisee may dispense with or remit
performance of promise.— Every promisee may
dispense with or remit, wholly or in part, the
performance of the promise made to him, or may
extend the time for such performance, or may
accept instead of it any satisfaction which he thinks
fit.”
31. It is the appellant’s case that Section 63 of the Contract
Act is attracted to the facts of the present case whereas it is the
47
respondent’s case that Section 62 is so attracted, the result
being that the original agreement is substituted by a fresh
agreement.
32. The respondent’s case is that Section 62 applies, since
the original contract has been “altered”. This being the case,
the original contract need not be performed.
33. It is clear that where parties to a contract agree to
substitute a completely different contract for the first, or to
rescind a contract, the performance under the original contract
and/or rescinded contract comes to an end. When parties to a
contract “alter” a contract, the question that has to be answered
is as to whether the original contract is altered in such a
manner that performance under it is at an end.
34. In Juggilal Kamlapat v. N.V. Internationale Crediet-EnHandels
Vereeninging ‘Rotter-dam’, AIR 1955 Cal 65, the
original contract dated 10.8.1950 contained an arbitration
clause. In paragraph 11 of the judgment, it was found as a fact
that the original contract was modified in certain material
48
particulars. Despite this, it was found that since the
modifications do not go to the root of the original contract and
do not change its essential character, the facts do not warrant
the inference that the parties intended to rescind the original
contract. The High Court held:-
“14. In the present case the modifications do not go
to the very root of the first contract and do not
change its essential character. The facts do not
warrant the inference that the parties intended to
rescind the contract, dated 10-8-1950. The April
arrangement was entered into in response to
pressing demands for delivery under that contract
and with a view to implement it. The arrangement
has no independent contractual force, no meaning
and content separately from and independently of
the original contract.
15. The effect of the alterations or modifications is
that there is a new arrangement; in the language of
Viscount Haldane in 1918 A. C. 1 at p. 17 (A),
“a new contract containing as an entirety the
old terms together with and as modified by the
new terms incorporated.”
The modifications are read into and become part
and parcel of the original contract. The original
terms also continue to be part of the contract and
are not rescinded and/or superseded except in so
far as they are inconsistent with the modifications.
Those of the original terms which cannot make
sense when read with the alterations must be
rejected. In my view the arbitration clause in this
49
case is in no way inconsistent with the subsequent
modifications and continues to subsist.”
(at page 67)
35. We approve of the said judgment as laying down the
correct law on the expression “alter” in Section 62 of the
Contract Act. In order that a contract that is altered in material
particulars fall under Section 62, it must be clear that the
alteration must go to the very root of the original contract and
change its essential character, so that the modified contract
must be read as doing away with the original contract. If the
modified contract has no independent contractual force, in that
it has no meaning and content separately from and
independently of the original contract, it is clear that there is no
new contract which comes into being. The original terms
continue to be part of the modified contract except to the extent
that they are inconsistent with the modifications made.
36. On the other hand, Section 63 of the Contract Act would
clearly apply to the facts of the present case. Illustration “c” to
Section 63 is apposite, and reads as follows:-
“(c) A owes B 5,000 rupees. C pays to B 1,000
rupees and B accepts them, in satisfaction of his
50
claim on A. This payment is a discharge of the whole
claim.”
37. The aforesaid illustration makes it clear that a promisee
may accept satisfaction from a third party which then
discharges the promisor from further performance of the
original contract.
38. In Kapur Chand Godha v. Mir Nawab Himayatalikhan
Azamjah, (1963) 2 SCR 168, one Baboo Mull and Company
sold and delivered to the Prince of Berar various articles of
jewellery. The jewellery was, in fact, delivered by the appellants
to the Prince. Several payments were made by a Princes
Debts Settlement Committee. Ultimately, a payment for a sum
of Rs.27,79,078/- was made which was received by the
appellant stating that payment had been made in full.
39. Since a balance of Rs.9,99,940/- still remained, the
appellants filed a suit against the respondent-Prince. The suit
was allowed by the trial court but dismissed by the first
Appellate Court which came to a contrary conclusion. The
51
Supreme Court agreed with the Appellate Court in dismissing
the suit. It was, therefore, held:
“There was some difference of evidence as to
whether Ex. C bore the signature of Kapurchand
when it was first presented to Madhava Rao or
whether the signature was later put on it. With that
difference we are not now concerned. Nor are we
concerned with certain minor discrepancies
between the evidence of the two witnesses referred
to above. The substantial result of the evidence of
the two witnesses to whom we have referred is that
whatever reluctance Kapurchand might have had in
accepting Rs. 20 lacs in full satisfaction of the claim
of the appellants, he ultimately agreed to do so. Not
only did he agree, but he actually endorsed full
satisfaction and payment on all the promissory
notes and thereafter he received payment of the
second instalment of Rs. 8,75,000/ which along with
the first instalment of Rs.11,25,000/- made up the
sum of Rs. 20 lacs. On these facts which are
established by the evidence given on behalf of the
appellants themselves, the only conclusion is that
there was full satisfaction of the claim of the
appellants.
The legal position is clear enough. Section 63 of the
Indian Contract Act reads:
“Every promisee may dispense with or
remit, wholly or in part, the performance
of the promise made to him, or may
extend the time for such performance or
may accept instead of it any satisfaction
which he thinks fit.”
Illustration (c) to the section says
52
“A owes B 5000 rupees. C pays to B
1000 rupees, and B accepts them in
satisfaction of his claim on A. This
payment is a discharge of the whole
claim.”
It seems to us that this case is completely covered
by s. 63 and illustration (c) thereof. The appellants
having accepted payment in full satisfaction of their
claim, are not now entitled to sue the respondent for
the balance.”
(at pages 178-179)
This Court further went on to hold that the niceties of English
Law in the matter of accord and satisfaction do not concern
Indian Courts in view of Section 63 of the Act.
40. It is clear that on the facts in the present case as the
original contract has been performed only by one party to the
contract and not by the other, the second agreement is entered
into so that the promisee (i.e. the appellant herein) may accept,
instead of the original performance of the agreement, any
satisfaction which it thinks fit. Thus, the agreement deals with
one leg of the original transaction, the leg of payment which has
not yet been made while keeping the original transaction alive.
The other clauses of the agreement buttress this conclusion.
Under clause 4, the ship owner will not sell the vessel prior to
53
the satisfaction of the aforesaid claim. And, above all, under
clause (6), if for any reason the said payment is not made, the
appellant will be entitled to take all appropriate legal steps,
which include arrest of the vessel, for recovery of the said
amount. Even by clause (8), the original agreement is kept
alive. In the event that the ship is unable to proceed to
Bangkok, the appellant maintains its rights of recovery against
the shipowner and the vessel. If the original agreement had
disappeared by novatio, there is no question of taking
appropriate steps to arrest the vessel which is owned by the
ship owner who is the promisee and who has not yet performed
his part of the contract. A guarantee clause contained in
clauses 7 and 8 is again only an additional string to the bow of
payment. The fact that exclusive jurisdiction is given to the
courts at Piraeus, Greece has to be read with clause 6 of the
agreement. Obviously, arrest of the vessel for recovering the
aforesaid amount in case payment is not made can be at any
port, and not merely at Piraeus. For all these reasons, we are
of the view that the aforesaid agreement read as a whole does
not amount to a novatio of the original agreement, but was in
54
fact entered into keeping the original agreement alive in order
to ensure that payment under the original agreement is made to
the appellants. In fact, the agreement dated 18.1.2000 is not a
settlement of the original claim at a lesser amount. As has
been held by us, it is only a means of enforcing the payment leg
of the original transaction through a third party charterer.
Consequent upon the vessel not sailing to Bangkok or the third
party charterer failing to make payment, the original obligation
of the appellant continued, and was enforceable by the arrest of
the vessel. It is settled law that an agreement such as the
agreement dated 18.1.2000 is not to be construed legalistically
but is to be construed as ordinary businessmen would construe
it. In words which have become classic, Lord Wright in Hillas
v. Arcos, [1932] All ER 494 at 503-504, has stated:-
“Business men often record the most important
agreements in crude and summary fashion; modes
of expression sufficient and clear to them in the
course of their business may appear to those
unfamiliar with the business far from complete or
precise. It is, accordingly, the duty of the court to
construe such documents fairly and broadly, without
being too astute or subtle in finding defects; but, on
the contrary, the court should seek to apply the old
maxim of English law, verba ita sunt intelligenda ut
55
res magis valeat quam pereat. That maxim,
however, does not mean that the court is to make a
contract for the parties, or to go outside the words
they have used, except insofar as there are
appropriate implications of law, as, for instance, the
implication of what is just and reasonable to be
ascertained by the court as matter of machinery
where the contractual intention is clear but the
contract is silent on some detail. Thus in contracts
for future performance over a period, the parties
may not be able nor may they desire to specify
many matters of detail, but leave them to be
adjusted in the working out of the contract.”
41. Equally in Satya Jain and others v. Anis Ahmed
Rushdie and others (2013) 8 SCC 131 at 143, this Court has
held:-
“The principle of business efficacy is normally
invoked to read a term in an agreement or contract
so as to achieve the result or the consequence
intended by the parties acting as prudent
businessmen. Business efficacy means the power
to produce intended results. The classic test of
business efficacy was proposed by Bowen, L.J.
in Moorcock [(1889) LR 14 PD 64 (CA)]. This test
requires that a term can only be implied if it is
necessary to give business efficacy to the contract
to avoid such a failure of consideration that the
parties cannot as reasonable businessmen have
intended. But only the most limited term should then
be implied—the bare minimum to achieve this goal.
If the contract makes business sense without the
term, the courts will not imply the same. The
following passage from the opinion of Bowen, L.J.
56
in Moorcock [(1889) LR 14 PD 64 (CA)] sums up
the position: (PD p. 68)
“… In business transactions such as
this, what the law desires to effect by
the implication is to give such business
efficacy to the transaction as must have
been intended at all events by both
parties who are businessmen; not to
impose on one side all the perils of the
transaction, or to emancipate one side
from all the chances of failure, but to
make each party promise in law as
much, at all events, as it must have
been in the contemplation of both
parties that he should be responsible for
in respect of those perils or chances.”
42. Reading the agreement through the prism of a
businessman’s eye, it is clear that all that the agreement does
is to reinforce the original agreement by seeing that the
payment under the said agreement is made. We, therefore,
disagree with the view taken by the Division Bench that there is
a novatio of the original agreement in the fact circumstance of
the present case.
43. However, Mr. Banerjee cited a passage from Halsbury’s
Laws of England and strongly relied upon a Singapore High
57
Court judgment to argue otherwise. The passage from
Halsbury (Vol. 37, 4th ed., p. 287) reads as follows:-
“391. Effect of settlement or compromise. Where
the parties settle or compromise pending
proceedings, whether before, at or during the trial,
the settlement or compromise constitutes a new and
independent agreement between them made for
good consideration. Its effects are (1) to put an end
to the proceedings, for they are thereby spent and
exhausted; (2) to preclude the parties from taking
any further steps in the action, except where they
have provided for liberty to apply to enforce the
agreed terms; and (3) to supersede the original
cause of action altogether. A judgment or order
made by consent is binding unless and until it has
been set aside in proceedings instituted for that
purpose and it acts, moreover, as an estoppel by
record.”
44. It is important to remember that when Section 63 of the
Contract Act is to be applied, the High Courts in India have
cautioned that, being a wide departure from English law, the
Section alone should be enforced according to its terms and not
in accordance with English law. Thus, in New Standard Bank,
Ltd. v. Probodh Chandra Chakravarty, AIR 1942 Cal 87 at
90-91, the Calcutta High Court held:-
“By s. 63, Contract Act, every promisor may
dispense with or remit wholly or in part the
performance of the promise made to him or may
58
accept instead of it any satisfaction which he thinks
fit. This section makes a wide departure from the
English law, inasmuch as it does not refer to any
agreement and valuable consideration. It should not
therefore, be enlarged by any implication of English
doctrine: Chunna Mal Ram Nath v. Mool ChandRam
Bhagat [(1928) I.L.R. 9 Lah. 510 (518) : L.R.
55 I.A. 154 (160)].”
45. To similar effect is a judgment of the Bombay High Court
reported as Anandram Mangturam v. Bholaram Tanumal,
AIR 1946 Bom 1 at 6, in which Chagla, J. stated:-
“But the learned Judge expresses his opinion that
time can be extended even though the promisee
may not bind himself to do so. With great respect to
the learned Judge, I cannot accept that part of the
statement of the law. The learned Judge’s judgment
is based on English decisions to which he has
referred in his judgment. The Privy Council has
repeatedly warned Courts in India not to import
doctrines of common law when construing the plain
sections of the Contract Act and the danger of
relying on principles of Common Law is all the
greater in this case when one remembers that s. 63,
Contract Act constitutes a wide departure from the
principles of the English common law.”
46. Even if the passage in Halsbury is to be applied, it is
obvious that the settlement terms spoken of must be made for
good consideration, which is absent under Section 63. Also, for
such settlement to constitute a new and independent
59
agreement, it must put an end to the proceeding which is
thereby spent and exhausted; and it is for this reason that the
original cause of action is superseded altogether. We have
seen on the facts of the present case how, by the order dated
25.1.2000, the application in Suit No.1 of 2000 alone was
dismissed for non-prosecution, only interim orders were
vacated and it was stated that “the vessel shall cease to be
under arrest as of now.” It is clear, therefore, that in
accordance with the agreement dated 18.1.2000, the
proceedings were not put an end to. Neither was the original
cause of action superseded, as we have stated earlier. The
moment there is a breach of the settlement agreement, the
appellants would be entitled to take appropriate legal steps
against the ship owner, including the arrest of the vessel, which
can only be if the original contract still subsists.
47. Mr. Banerjee laid great reliance on a judgment of the
Singapore High Court in The Dilmun Fulmar, (2003) SGHC
270. On the facts of that case, the ship repairers repaired the
vessel and supplied material to the vessel. The ship owner
60
paid a sum of $650,000 for repairs, leaving an outstanding
balance sum of $770,822.28 as at 8.5.2001. A subsequent
settlement agreement was entered into in which the ship
repairer agreed to accept a total sum of $310,000, inclusive of
$25,000 interest and $25,000 as legal costs in full and final
settlement of their claim in the admiralty suit, which was for a
sum of $1,154,916.78. Paragraph 7 of the said judgment is
important and reads as under:
“7. The issue raised by this appeal touched on the
true construction and effect of the Settlement
Agreement. In coming to my decision to set aside
the writ and warrant of arrest, I had to construe the
accord. Generally, an agreement of compromise
would discharge all original claims and
counterclaims unless it expressly provides for their
revival in the event of breach. The Settlement
Agreement was worded in such a way that there
was by its terms an immediate binding compromise
of the claim amount of $1,154,916.78. By cl 1, the
plaintiff agreed to accept a sum of $310,000
inclusive of interest and legal costs in full and final
settlement of a larger claim...”
48. From this paragraph, it is clear that the plaintiffs agreed to
accept a lesser sum in full and final settlement of a larger claim
61
and this was the amount stated in the settlement agreement.
Indeed, in paragraphs 11 and 13 of the judgment, it is stated:
“11…The plaintiffs’ solicitors in a fax dated 1 August
2002 wrote: “[T]he sum due is in fact S$170,000 as
stated in the Settlement Agreement together with
interest thereon up to 23rd January 2002 …”
“13…There was no explanation as to where the
figure of $170,000 had come from if it was not from
the Settlement Agreement...”
49. On the facts of that case it was, therefore, held that the
original cause of action had been superseded and that the
Court had no jurisdiction in respect of the original claim.
50. This case is wholly distinguishable in that, on the facts of
the present case, the very sum due under the original contract
continued to be due and payable under the settlement
agreement. The fact that interest and legal costs were added
would not amount in itself to superseding the original contract,
as these relate to payments under the original contract and put
the promisee in the same position as if the contract had
originally been performed. We have also seen that the original
agreement was not superseded but was only sought to be
62
enforced, the manner of performance being different. This
being the case, we are of the view that the High Court’s
conclusion that there was a novatio of the original agreement
on the facts of the present case is incorrect.
51. It only remains to be considered as to whether, on the
date of arrest i.e. 2.5.2000, respondent no. 1 happened to be
the owner of the vessel, as was found by the impugned
judgment.
52. The High Court strongly relied upon an oral admission of
PW1 to the effect that respondent no.1 had become the owner
of the vessel sometime in April 2000. On going through the
deposition of Mr. Stephen Livanos, we are clearly of the view
that no such admission was ever made. The answers to
questions 257 to 262 would clearly show that the witness’s
statement that respondent no.1 was the end buyer of the vessel
was equivocal at best, and was obviously hearsay as the
answer to question 260 states that a lawyer in Greece had at
some point of time told Mr. Livanos what happened with the
vessel. To therefore conclude from this oral evidence that the
63
vessel had changed hands in April, 2000 does not take the
respondent’s case very far.
53. However, the High Court also relied upon a notarized bill
of sale dated 14.4.2000, the notice of readiness of 15.4.2000,
which was accepted by the respondent at 11.00 A.M, and was
followed by the delivery of possession of the vessel at 2.00
P.M. What is important to note is that the signatory to the
physical delivery certificate was on behalf of Pennon Shipping
Corporation, which was only an agent of Third Element
Enterprises, and not an agent of Fairsteel. The High Court then
went on to state that payment under the Letter of Credit was
also made on 26.4.2000 and since this would show that the
property in the vessel was transferred in April, 2000, no cause
of action would survive against the new owner of the vessel
namely respondent no.1. The High Court also went on to state
that the transfers pleaded in the written statement of
respondent no. 1, namely from Third Element Enterprises to
Eastern Wealth Investment Limited and thereafter to Fairsteel
Corporation Limited after which Fairsteel sold and transferred
64
the vessel to respondent no.1, had not been proved by
respondent no.1, but that this did not affect the respondent’s
case.
54. We have been shown a bill of sale dated 27.4.2000 by
which Third Element Enterprises effected the first of these four
sales to Eastern Wealth Investment Limited, only on 27.4.2000.
This sale has for its consideration “one US Dollar and/or other
valuable consideration” casting grave doubts about its efficacy
in law. Be that as it may, since this sale is the first sale in the
chain of sales made ultimately to respondent no.1, it is obvious
that the sale made by Fairsteel to respondent no.1 could only
have been after this date. Shri Banerjee cited before us
authorities to the effect that it is well known that back to back
sales of this nature take place between different parties for the
same vessel. That may well be so, but it is still necessary to
prove and explain each back to back sale from which
respondent no.1 ultimately derives its title, in accordance with
its pleading in the written statement filed by it. As has correctly
been held by the High Court, there is no proof of any of these
65
back to back sales, and in point of fact the very first sale from
the original owner has taken place in favour of Eastern Wealth
after the High Court has found that the vessel has been sold by
Fairsteel to respondent no.1, which goes contrary to the
pleaded case of respondent no.1 itself. We were also referred
to a document dated 26.4.2000 by which a new clause 8 was to
be added to the Letter of Credit which read as follows:-
“COPY OF FREE OF ENCUMBRANCES
CERTIFICATE ISSUED BY EMBASSY OF
REPUBLIC OF CYPRUS, MARITIME SECTION,
PIRAEUS, CERTIFYING THAT THE MOTOR
VESSEL “NIKOLAS S” PERMANENTLY
REGISTERED IN THE CYPRUS REGISTER OF
SHIPS, OWNED BY “THIRD ELEMENT
ENTERPRISES SHIPPING LTD.” OF CYPRUS IS
FREE OF MORTGAGE AND ANY OTHER
ENCUMBRANCES.”
Further, as per clause no.8 we confirm that the
Buyers have received the Notice of Readiness
(NOR) on 15.04.2000 from the Sellers or their
Agents in Calcutta and authorize you to negotiate
the L/C as per the terms.”
This clause would again go to show that even on
26.4.2000 the owner of the vessel was Third Element
Enterprises and not respondent no.1.
66
55. With regard to the High Court finding that full payment
had been made under the Letter of Credit on 26.4.2000, the
respondent’s own suit that was filed by it against Fairsteel on
9.5.2000 shows that no such payment had been made by the
date of the filing of the said suit. The suit was for the relief of
rescission of the agreement between Fairsteel and respondent
no.1 dated 21.1.2000 on the ground of fraud. Para 27 of the
suit is important and states as follows:-
“27. In the facts and circumstances aforestated,
the defendant no.1 has fraudulently induced the
plaintiff to issue/open the said L/C through the
defendant no.2 in favour of the defendant no.1. The
defendant no.1 is not entitled to receive and should
be restrained from receiving any payment under the
said L/C and the plaintiff claims a decree of
perpetual injunction in that regard.”
56. The relief claimed in the other suit is also important and
prayers “C” and “D” are material and read as under:-
“(c) Decree of perpetual injunction restraining the
defendant no.1 whether by itself or through its
servants or agents from receiving any money
under the Letter of Credit No.CAL/24006
dated 8th April 2000, issued by the defendant
no.2 in favour of the defendant no.1.
67
(d) Decree of perpetual injunction restraining the
defendant no.2 from making any payment
under the Letter of Credit No.CAL/24006
dated 8th April 2000 issued/opened by it in
favour of the defendant no.1.”
57. This would show, on the respondent’s own admission
made in the plaint dated 9.5.2000, that monies were not yet
received under the Letter of Credit even on 9.5.2000 and that,
therefore, an injunction should be granted restraining defendant
no.1 from receiving this money and against the Bank of Baroda
– plaintiff’s bank – from making any such payment to defendant
no.1. Thus, it is clear that the High Court was not correct in its
view that it was proved by respondent no.1 that sale had taken
place in April, 2000 by Fairsteel Corporation to respondent no.1
by which respondent no.1 became the owner of the vessel. It is
clear, therefore, that respondent no. 1 has failed to prove that
there was a change of ownership of the vessel in its favour on
the date of arrest i.e. on 2.5.2000. This being the case, we set
aside the judgment of the High Court and restore the decree of
the trial court which reads as under:-
“In the result, the suit succeeds. There would be a
decree as against the vessel M.V. Nikolaos-S of
68
US$ 94,611.25 equivalent to Rs.42,57,500.00 in
Indian currency. The plaintiff would be entitled to
recover the said sum from the cash security
furnished to the Registrar, High Court, Original Side
together with accrued interest thereon. The
Registrar, Original Side, High Court, however, is
entitled to deduct necessary commission applicable
thereto.”
58. The appeal is, accordingly, allowed in the aforesaid
terms.
…………………………......J.
(R.F. Nariman)
…………………………......J.
(Sanjay Kishan Kaul)
New Delhi;
September 14, 2017.
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 1930 OF 2008
CHRISOMAR CORPORATION …APPELLANT
VERSUS
MJR STEELS PRIVATE LIMITED ...RESPONDENT
J U D G M E N T
R.F. Nariman, J.
1. The present appeal raises several interesting questions
which arise in admiralty law. The vessel, M.V. Nikolaos-S, was
owned by one Third Element Enterprises, a Cyprus company,
and was flying the flag of the Republic of Cyprus. The plaintiff
in the admiralty suit, who is the appellant before us, supplied
bunkers and other necessaries to the said vessel at the port of
Durban on terms and conditions agreed between the parties in
2
November, 1999. According to the plaintiff, the bunkers were
received by the master of the vessel and services were
rendered to the vessel as acknowledged by the master. The
plaintiff raised invoices on 26.11.1999 for US$ 94,611.25 which
have not yet been paid.
2. When the vessel docked in the port of Haldia, the plaintiff
filed admiralty suit No.1 of 2000 in the Calcutta High Court
praying for an arrest of the vessel because, according to the
plaintiff, the necessaries supplied to the vessel would not only
amount to a maritime claim but would also be a maritime lien on
the vessel. By an order dated 6.1.2000, the vessel was so
arrested but nobody came forward for release of the vessel at
that point of time. It is only on 25.1.2000 that learned counsel
appearing on behalf of the plaintiff approached the learned
admiralty Judge expressing the plaintiff’s intention not to
proceed with the application for arrest as, according to him, the
parties had reached an out of court settlement. The order
passed on 25.1.2000 reads as follows:-
“The Court by an order dated January 6, 2000
directed that the vessel known as M.V.Nikolaos – S
3
was to be arrested. On the returnable date no one
appeared on behalf of the respondents. The
directions for affidavits had been given on January
10, 2000. Today when the matter was called on for
hearing, counsel appearing for the petitioner
submitted that an out of court settlement has been
reached between the parties and the petitioner was
not inclined to proceed with the matter any further.
For these reasons, this application is dismissed for
non prosecution.
All interim orders are vacated.
The vessel shall cease to be under arrest as of
now.”
3. It is important at this stage to advert to the agreement that
was entered into on 18.1.2000. Since both sides have argued
extensively on the aforesaid agreement, it is necessary to set it
out completely. The said agreement reads as follows:-
“AGREEMENT GUARANTEE
In Piraeus and at the offices of “LALLIS
OUTSINOS ANAGNOSTOPOULOS” Lawyers
Maritime Consultants of 100, Kololotroni Street,
Piraeus, this Tuesday the 18th January 2000, by and
between:
A. CHRISOMAR CORPORATION, a company duly
established and operating under the laws of
Liberia, maintaining an office in Greece (5
Solomou Str. Kifissia) (hereinafter called
Chrisomar), duly represented, for the purpose of
this agreement by its authorized lawyer Mr.
Dimitrios Voutsinos,
4
B. THIRD ELEMENT ENTERPRISES LTD, a
company duly established and operating under
the laws of Cyprus (hereinafter called “THE
SHIPOWNERS”), duly represented for the
purpose of this agreement by the President of
the Board of Directors, Mr. Sotirios Soulkas, who
also declared that he has the necessary
authorization and capacity to bind the company
to this agreement by his sole signature.
C. Sotirios Soukas, of 145 Filonos Str, Piraeus, the
following were stated and agreed.
WHEREAS
1. The shipowners are the legal owners of the
Cyprus flag vessel Nikolaos S, Int. Sign: P 3 KT
6 (“the vessel”) managed in Greece by Suter
Shipping and Trading Ltd.
2. Chrisomar has sold and delivered to the vessel in
the port of Durban a certain quantity of bunkers,
on or about 26th November, 1999, Chrisomar has
issued its invoice no. 99232/15.12.1999 for the
amount of USD 94,611.25, payable on 26th
November, 1999 (Copy of the invoice is attached
herewith as app. I).
3. The owners have failed to pay the amount of the
above invoice by the 26th November 1999 and
consequently, Chrisomar arrested the vessel in
the port of Haldia, India for security of the above
claim.
THE PARTIES AGREE AS FOLLOWS
1. The shipowners hereby confirm that they owe to
Chrisomar USD 104,688.60, analysed as follows:
USD 94,611.25 for the invoice amount + USD
5
2,177.35 for interest accrued + USD 7,900.00 for
legal costs.
2. The shipowners, through their President Mr.
Sotirios Soukas, represent to Chrisomar that (a)
their vessel is due to be chartered out for a
voyage from Bangkok, Thailand to ports of West
Africa as against a freight of about USD 35.00
per metric ton of cargo; (b) that if Chrisomar
releases their vessel from the above arrest shall
be able to proceed to Bangkok for loading and to
perform the intended charter voyage; (c) that the
shipowners as soon as their vessel is released
from its arrest by Chrisomar shall include in their
recap and charter party with the intended
charterers of their vessel a clause that part of the
freight amounting to USD 104,668.60 shall be
paid directly by the charterers to Chrisomar’s
bank account as follows:
ANZ GRINDLAYS BANK
21, Akti Miaouli, 18535 Piraeus
Swift: GRNDGRAA,
A/C No. 815142 USD 40632
In favour of Chrisomar Corp.
3. The above recap shall be faxed by the
shipowners to Chrisomar one (1) working day
after its conclusion.
4. The shipowners will not sell their vessel prior to
the satisfaction of Chrisomar’s above claim and
shall provide Chrisomar with a report by fax of
the movements of their vessel every five (5)
days.
6
5. The above payment shall be made in full and
final settlement of Chrisomar’s above claim per
capital and costs.
6. If, for any reason the above amount is not paid to
Chrisomar within ten (10) working days after the
ships sailing from the port of loading Bangkok or,
the shipowners are in breach of any of the
representations and obligations set out in paras
2, 3 and 4 above then Chrisomar will be entitled
to take all the appropriate legal steps including
the arrest of the vessel for recovering the above
amount or any higher one which they may be
entitled to.
7. Sotirios Soukas hereby guarantees to Chrisomar
and in favour of the shipowner the due payment
of the above amount, working the right of division
and exclusion i.e. he admits that he will pay
amounts due to Chrisomar without the latter
having first to enforce its claim against the
shipowners and their vessel.
8. If the vessel is lost, for any reason or if the
mortgagee bank or any other claimant arrests the
vessel before reaching Bangkok and as a result,
the shipowners are unable to proceed for loading
to Bangkok, and thus execute the above stated
charter voyage, the above obligations of the
guarantor shall cease to exist but Chrisomar will
maintain its rights of recovery only against the
shipowners and the vessel but not against the
guarantor.
9. This agreement is subject to Greek law and the
exclusive jurisdiction of the Piraeus Courts. ”
7
4. It appears that nothing in the meanwhile happened. At no
point of time did the vessel sail for the port of Bangkok – it
remained continuously in Haldia. It is only on 2.5.2000 that the
vessel was re-arrested. The Court recorded that no payment
had yet been made and that the claim of the plaintiff continued
to remain unsatisfied. It is this re-arrest that is the bone of
contention between the parties in the present matter.
5. A written statement was filed on behalf of respondent
no.1, MJR Steels, an Indian company who allegedly purchased
the vessel from one Fairsteel Corporation, Singapore.
Apparently, an agreement was entered into between Fairsteel
and respondent no.1 on 21.1.2000. The written statement filed
by respondent no. 1 alleged:
“The said vessel was originally owned by The Third
Element Enterprises Shipping Ltd. Third Element
Enterprises Shipping Ltd. sold and transferred the
said vessel to Eastern Wealth Investment Ltd.
Eastern Wealth Investment Ltd. sold and transferred
the said vessel to Fairsteel Corporation. Fairsteel
Corporation sold and transferred the said vessel to
this defendant. This defendant acquired the right,
title or interest in respect of the said vessel from the
said Fairsteel Corporation.”
8
6. The learned single Judge by his judgment and order
dated 28.4.2005 listed as many as seven issues and adverted
to the fact that three witnesses were called on behalf of the
plaintiffs, who not only deposed and were cross-examined, but
also produced various documents. The defendants, however,
did not produce any witness but tendered as their evidence six
exhibits which were produced only through the plaintiff’s
witnesses.
7. According to the learned single Judge, the order of
25.1.2000 made it clear that suit No.1 of 2000 was kept alive
and remained alive on the date of the re-arrest, namely,
2.5.2000. All that was done by the order dated 2.5.2000 was to
recall the order dated 25.1.2000, and when that was done, the
original order of arrest was automatically revived. This being
the case, it is clear that the plaintiffs were entitled to recover
their dues. The learned single Judge further went on to hold
that respondent no.1’s claim that ownership had changed and
that they had become owners of the vessel in April, 2000, was
not conclusively proved. The single Judge referred, among
9
other documents, to a suit filed by respondent no.1 against
Fairsteel Corporation on 9.5.2000 in which respondent no.1
prayed for a decree for rescission of the agreement for sale
dated 21.1.2000, as also for cancellation of the said agreement,
and perpetual injunction restraining Fairsteel from claiming any
money under the Letter of Credit furnished by respondent no.1.
It recorded that the said suit was dismissed for non-prosecution
on 12.10.2004, and from the averments made in the said suit, it
was clear that there was no concluded sale in favour of
respondent no.1.
8. An appeal to the Division Bench by respondent no.1
however succeeded. By the impugned judgment dated
13.9.2006, it was held that the plaintiff’s first witness admitted
the fact that the vessel’s ownership changed hands and that on
the date of re-arrest, i.e. 2.5.2000, it was respondent no.1 who
was the owner. It also examined various documents to arrive at
the conclusion that the vessel physically changed hands on
15.4.2000 and payments under the Letter of Credit were made
pursuant to the agreement dated 21.1.2000 on 26.4.2000. The
10
Division Bench further went on to hold that though the
allegation as regards the successive transfers of title had not
been proved by the defendant, the said fact would make no
difference. It also went on to hold that there could be a good
title by estoppel. The Division Bench further went on to apply
Section 62 of the Indian Contract Act, 1872 to the out of court
settlement dated 18.1.2000 and stated that as there was a
novatio of the original agreement in law, the original cause of
action pleaded in admiralty Suit No. 1 of 2000 no longer
subsisted. Therefore, the claim made in the suit was held to
have been abandoned when the settlement dated 18.1.2000
was acted upon. In this view of the case, the Division Bench
reversed the single Judge’s decision and held that the suit was
liable to be dismissed on all these grounds.
9. Shri Shyam Divan, learned senior counsel appearing on
behalf of the appellants, has argued before us that the
agreement dated 18.1.2000 would not amount to a novatio of
the original agreement. According to him, the original
agreement continued and was in fact enforced by the second
11
order of arrest dated 2.5.2000. According to him, the right that
was vested in the appellant on 5.1.2000, i.e. the date of the
institution of the suit, is alone material, and it is on that date,
and not the date of arrest on 2.5.2000, that the ownership of the
vessel has to be seen. For this purpose, he cited certain
English precedents. He also cited an American judgment to
buttress his submission that the present was a case not merely
of a maritime claim but also of a maritime lien in that
necessaries supplied to the vessel would amount to a maritime
lien. According to him, in any event, on facts, the Division
Bench was completely wrong in arriving at a conclusion that
there was a concluded sale in April, 2000 in favour of
respondent no.1 inasmuch as several documents produced by
the plaintiff’s witnesses would show that no such sale had, in
fact, taken place.
10. Shri Banerjee, learned senior counsel appearing on
behalf of the respondents, has countered each of these
submissions. According to Shri Banerjee, the Division Bench is
absolutely correct. The present is the case of enforcement of a
12
maritime claim, but there is no maritime lien in law for
necessaries supplied to the vessel. This being the case, it is
important to know who the owner of the vessel is on the date of
arrest, i.e. on 2.5.2000. If the owner is respondent no.1, then a
claim for necessaries against the original owner, Third Element,
on the date of institution of the suit would not lie against the
respondent on the date of arrest. According to learned counsel,
English authorities cited by Shri Divan would not apply to the
present case as in England there is a completely different
procedure for arresting a vessel. A writ of summons is issued
under Order 53 of the U.K. Civil Procedure Code for service
outside the jurisdiction of the court which is kept alive for a
period of six months. Further, according to learned counsel,
Section 62 of the Contract Act is squarely attracted inasmuch
as the settlement dated 18.1.2000 completely replaced the
original agreement as a result of which the original cause of
action pleaded in the suit has disappeared. Learned counsel
also painstakingly took us through various documents to show
that the sale of the vessel to respondent no.1 had indeed taken
place in April, 2000 and that, therefore, on the date of arrest,
13
i.e. 2.5.2000, since his client was the owner of the vessel, the
amounts could not be recovered from respondent no.1.
11. Admiralty law in England, as was held by Lord Halsbury in
Currie v. M’Knight 1897 AC 97, is derived from the laws of
Oleron1
and other ancient maritime codes like the Rhodian Sea
Law, the Basilika, the Assizes of Jerusalem, the Baltic Laws of
Wisbuy and the Hanseatic Code. In England, the common law
courts could not give effective redress to cases which arose in
admiralty, which were then left to the jurisdiction of specialist
admiralty Judges. By the 18th Century, the admiralty jurisdiction
had fallen into “a feeble and neglected condition, and for long
its proceedings excited no attention” 2. The Admiralty Court Act,
1840 was the first of a series of statutes extending and defining
the jurisdiction of the High Court of Admiralty in England. This
was followed by the 1861 Admiralty Court Act and various
subsequent enactments which were consolidated by the
1
The rolls of Oleron are associated with the island of Oleron, off the coast of Western France, which was the site of
an ancient maritime court associated with a seaman’s guild of the Atlantic. In England, they were promulgated by
Eleanor of Aquitaine, wife of Henry II, as vice-regent for her son King Richard I, while the latter was fighting the
Saracens on the Third Crusade. King Henry VIII later published these rolls as, “The judgment of the sea, of Masters,
of Mariners and Merchants, and all their doings”. They are expressly included in the compilation of English
admiralty law, the “Black Book of the Admiralty”.
2
See, Roscoe’s Admiralty Practice, 5th edn. at Pg. 14.
14
Supreme Court of Judicature (Consolidation) Act, 1925. By the
Administration of Justice Act of 1956, the admiralty jurisdiction
of the High Court was further widened and the Supreme Court
Act of 1981 now defines what the admiralty jurisdiction of the
High Court in England is.
12. Insofar as our law is concerned, the admiralty law of the
chartered High Courts has historically been traced to the
charters of 1774 and 1798 as subsequently extended and
clarified by the Letters Patents of 1823, 1862 and 1865. The
Admiralty Court Act, 1840 and 1861, and the Colonial Courts of
Admiralty Act, 1890 and 1891 essentially stated what the
admiralty law in this country is, and these enactments
continued as existing laws under Article 372 of the Constitution
of India. Some of the relevant provisions of these Acts are set
out hereinbelow:-
“Admiralty Court Act, 1840
6. The court in certain cases may adjudicate, etc.—
The High Court of Admiralty shall have jurisdiction
to decide all claims and demands whatsoever in the
nature of salvage for services rendered to or
damage received by any ship or seagoing vessel or
in the nature of towage, or for necessaries supplied
15
to any foreign ship or seagoing vessel, and to
enforce the payment thereof, whether such ship or
vessel may have been within the body of a country,
or upon the high seas, at the time when the services
were rendered or damage received, or necessaries
furnished, in respect of which such claim is made.
Admiralty Court Act, 1861
5. As to claims for necessaries.—The High Court of
Admiralty shall have jurisdiction over any claim for
necessaries supplied to any ship elsewhere than in
the port to which the ship belongs, unless it is
shown to the satisfaction of the court that at the time
of the institution of the cause any owner or partowner
of the ship is domiciled in England or Wales:
Provided always, that if in any such cause the
plaintiff do not recover twenty pounds, he shall not
be entitled to any costs, charges, or expenses
incurred by him therein, unless the judge shall
certify that the cause was a fit one to be tried in the
said Court.
Colonial Courts of Admiralty Act, 1890
2. Colonial Courts of Admiralty.—(1) Every court of
law in a British possession, which is for the time
being declared in pursuance of this Act to be a
Court of Admiralty, or which, if no such declaration
is in force in the possession, has therein original
unlimited civil jurisdiction, shall be a Court of
Admiralty, with the jurisdiction in this Act mentioned,
and may for the purpose of that jurisdiction,
exercise all the powers which it possesses for the
purpose of its other civil jurisdiction and such Court
in reference to the jurisdiction conferred by this Act
is in this Act referred to as a Colonial Court of
Admiralty. …
16
(2) The jurisdiction of a Colonial Court of Admiralty
shall, subject to the provisions of this Act, be over
the like places, persons, matters, and things, as the
admiralty jurisdiction of the High Court in England,
whether existing by virtue of any statute or
otherwise and the Colonial Court of Admiralty may
exercise such jurisdiction in like manner and to as
full an extent as the High Court in England, and
shall have the same regard as that Court to
international law and the comity of nations.
Colonial Courts of Admiralty (India) Act, 1891
2. Appointment of Colonial Courts of Admiralty.—
The following courts of unlimited civil jurisdiction are
hereby declared to be Colonial Courts of Admiralty,
namely:
(1) the High Court of Judicature at Fort William in
Bengal,
(2) the High Court of Judicature at Madras, and
(3) the High Court of Judicature at Bombay.”
13. The Republic of India has finally woken up to the need for
updating its admiralty law. The Admiralty (Jurisdiction and
Settlement of Maritime Claims) Act, 2017 has been made by
Parliament and has received the assent of the President on
9.8.2017, though it has not yet been brought into force. In this
Act, “maritime claim” is defined in Section 2(1)(f) as being a
claim referred to in Section 4 and a “maritime lien” is defined in
sub-section (g) of 2(1) as follows:
17
“2. Definitions
(1) In this Act,—
(g) “maritime lien” means a maritime claim against
the owner, demise charterer, manager or operator
of the vessel referred to in clauses (a) to (e) of subsection
(1) of section 9, which shall continue to exist
under sub-section (2) of that section;”
Section 4 reads as follows:
“4. Maritime Claim
(1) The High Court may exercise jurisdiction to hear
and determine any question on a maritime claim,
against any vessel, arising out of any—
(a) dispute regarding the possession or ownership
of a vessel or the ownership of any share therein;
(b) dispute between the co-owners of a vessel as to
the employment or earnings of the vessel;
(c) mortgage or a charge of the same nature on a
vessel;
(d) loss or damage caused by the operation of a
vessel;
(e) loss of life or personal injury occurring whether
on land or on water, in direct connection with the
operation of a vessel;
(f) loss or damage to or in connection with any
goods;
(g) agreement relating to the carriage of goods or
passengers on board a vessel, whether contained in
a charter party or otherwise;
18
(h) agreement relating to the use or hire of the
vessel, whether contained in a charter party or
otherwise;
(i) salvage services, including, if applicable, special
compensation relating to salvage services in
respect of a vessel which by itself or its cargo
threatens damage to the environment;
(j) towage;
(k) pilotage;
(l) goods, materials, perishable or non-perishable
provisions, bunker fuel, equipment (including
containers), supplied or services rendered to the
vessel for its operation, management, preservation
or maintenance including any fee payable or
leviable;
(m) construction, reconstruction, repair, converting
or equipping of the vessel;
(n) dues in connection with any port, harbour, canal,
dock or light tolls, other tolls, waterway or any
charges of similar kind chargeable under any law for
the time being in force;
(o) claim by a master or member of the crew of a
vessel or their heirs and dependents for wages or
any sum due out of wages or adjudged to be due
which may be recoverable as wages or cost of
repatriation or social insurance contribution payable
on their behalf or any amount an employer is under
an obligation to pay to a person as an employee,
whether the obligation arose out of a contract of
employment or by operation of a law (including
operation of a law of any country) for the time being
in force, and includes any claim arising under a
manning and crew agreement relating to a vessel,
notwithstanding anything contained in the provisions
19
of sections 150 and 151 of the Merchant Shipping
Act, 1958;
(p) disbursements incurred on behalf of the vessel
or its owners;
(q) particular average or general average;
(r) dispute arising out of a contract for the sale of
the vessel;
(s) insurance premium (including mutual insurance
calls) in respect of the vessel, payable by or on
behalf of the vessel owners or demise charterers;
(t) commission, brokerage or agency fees payable
in respect of the vessel by or on behalf of the vessel
owner or demise charterer;
(u) damage or threat of damage caused by the
vessel to the environment, coastline or related
interests; measures taken to prevent, minimise, or
remove such damage; compensation for such
damage; costs of reasonable measures for the
restoration of the environment actually undertaken
or to be undertaken; loss incurred or likely to be
incurred by third parties in connection with such
damage; or any other damage, costs, or loss of a
similar nature to those identified in this clause;
(v) costs or expenses relating to raising, removal,
recovery, destruction or the rendering harmless of a
vessel which is sunk, wrecked, stranded or
abandoned, including anything that is or has been
on board such vessel, and costs or expenses
relating to the preservation of an abandoned vessel
and maintenance of its crew; and
(w) maritime lien.
Explanation.—For the purposes of clause (q), the
expressions “particular average” and “general
20
average” shall have the same meanings as
assigned to them in sub-section (1) of section 64
and sub-section (2) of section 66 respectively of the
Marine Insurance Act, 1963.
(2) While exercising jurisdiction under sub-section
(1), the High Court may settle any account
outstanding and unsettled between the parties in
relation to a vessel, and direct that the vessel, or
any share thereof, shall be sold, or make such other
order as it may think fit.
(3) Where the High Court orders any vessel to be
sold, it may hear and determine any question
arising as to the title to the proceeds of the sale.
(4) Any vessel ordered to be arrested or any
proceeds of a vessel on sale under this Act shall be
held as security against any claim pending final
outcome of the admiralty proceeding.”
14. Under Section 5 of the Act, the High Court may order for
the arrest of a vessel which is within its jurisdiction for the
purpose of providing security against a maritime claim. Under
Section 6 of the said Act, the High Court may also exercise
admiralty jurisdiction by an order in personam in respect of the
maritime claims referred to in Section 4. Section 9 of the Act
sets out the inter se priority of maritime liens, but in so doing
also informs us that they are restricted to five subject matters
only. Section 9 reads as follows:
21
“Sec. 9 Inter se priority on maritime lien
(1) Every maritime lien shall have the following
order of inter se priority, namely:—
(a) claims for wages and other sums due to the
master, officers and other members of the vessel’s
complement in respect of their employment on the
vessel, including costs of repatriation and social
insurance contributions payable on their behalf;
(b) claims in respect of loss of life or personal injury
occurring, whether on land or on water, in direct
connection with the operation of the vessel;
(c) claims for reward for salvage services including
special compensation relating thereto;
(d) claims for port, canal, and other waterway dues
and pilotage dues and any other statutory dues
related to the vessel;
(e) claims based on tort arising out of loss or
damage caused by the operation of the vessel other
than loss or damage to cargo and containers carried
on the vessel.
(2) The maritime lien specified in sub-section (1)
shall continue to exist on the vessel notwithstanding
any change of ownership or of registration or of flag
and shall be extinguished after expiry of a period of
one year unless, prior to the expiry of such period,
the vessel has been arrested or seized and such
arrest or seizure has led to a forced sale by the
High Court:
Provided that for a claim under clause (a) of subsection
(1), the period shall be two years from the
date on which the wage, sum, cost of repatriation or
social insurance contribution, falls due or becomes
payable.
22
(3) The maritime lien referred to in this section shall
commence—
(a) in relation to the maritime lien under clause (a)
of sub-section (1), upon the claimant’s discharge
from the vessel;
(b) in relation to the maritime liens under clauses (b)
to (e) of sub-section (1), when the claim arises,
and shall run continuously without any suspension
or interruption:
Provided that the period during which the vessel
was under arrest or seizure shall be excluded.
(4) No maritime lien shall attach to a vessel to
secure a claim which arises out of or results from—
(a) damage in connection with the carriage of oil or
other hazardous or noxious substances by sea for
which compensation is payable to the claimants
pursuant to any law for the time being in force;
(b) the radioactive properties or a combination of
radioactive properties with toxic, explosive or other
hazardous properties of nuclear fuel or of
radioactive products or waste.”
15. Section 12 states that the Code of Civil Procedure is to
apply in all proceedings before the High Court insofar as it is
not inconsistent or contrary to the provisions of the Act. By
Section 17, the Admiralty Court Acts of 1840 and 1861 and the
Colonial Courts of Admiralty Acts of 1890 and 1891 stand
repealed. Also, the Letters Patent of 1865, insofar as it applies
23
to the admiralty jurisdiction of the Bombay, Calcutta and
Madras High Courts, also stands repealed.
16. An admiralty action in the courts of India commences
against a vessel to enforce what is called a “maritime claim”.
Though India is not a signatory to the Brussels Convention of
1952, a long list of maritime claims is given in Article 1 thereof.
Suffice it to say that sub-clause (k) of Article 1 states that
important materials wherever supplied to a ship for her
operation or maintenance would fall within the definition of a
maritime claim. A maritime lien, on the other hand, attaches to
the property of the vessel whenever the cause of action arises,
and travels with the vessel and subsists whenever and
wherever the action may be commenced. In The Bold
Buccleugh, (1852) 7 Moo PCC 267, Sir John Jervis defined
maritime lien as follows:-
“[A] maritime lien is well defined … to mean a claim
or privilege upon a thing to be carried
into effect by legal process … that process to be a
proceeding in rem…. This claim or privilege travels
with the thing into whosesoever possession it may
come. It is inchoate from the moment the claim or
privilege attaches, and, when carried into effect by
24
legal process by a proceeding in rem, relates back
to the period when it first attached.”
17. This judgment was referred to in M.V. Elisabeth and
others v. Harwan Investment and Trading Private Limited,
1993 Supp. (2) SCC 433 at 462, paragraph 56 and Epoch
Enterrepots v. M.V. Won Fu (2003) 1 SCC 305 at 311,
paragraph 13. In M.V. Al Quamar v. Tsavliris Salvage
(International) Ltd. and others, (2000) 8 SCC 278 at 301, the
Supreme Court observed as follows:-
“33. Be it noted that there are two attributes to
maritime lien: (a) a right to a part of the property in
the res; and (b) a privileged claim upon a ship,
aircraft or other maritime property in respect of
services rendered to, or injury caused by that
property. Maritime lien thus attaches to the property
in the event the cause of action arises and remains
attached. It is, however, inchoate and very little
positive in value unless it is enforced by an action.
It is a right which springs from general maritime law
and is based on the concept as if the ship itself has
caused the harm, loss or damage to others or to
their property and thus must itself make good that
loss. (See in this context Maritime Law by
Christopher Hill, 2nd Edn.).”
25
18. Only a small number of claims give rise to maritime liens
as was noted in M.V. Won Fu (supra). Paragraph 19 of the
said judgment states as follows:-
“19. We have in this judgment hereinbefore dealt
with the attributes of maritime lien. But simply
stated, maritime lien can be said to exist or
restricted to in the event of (a) damage done by a
ship; (b) salvage; (c) seamen’s and master’s wages;
(d) master’s disbursement; and (e) bottomry; and in
the event a maritime lien exists in the aforesaid five
circumstances, a right in rem is said to exist.
Otherwise, a right in personam exists for any claim
that may arise out of a contract.”
(at pages 314-315)
19. In an illuminating judgment of the Calcutta High Court
Justice Mrs. Ruma Pal, as she then was, dealt with an action in
rem filed in the admiralty court jurisdiction in Calcutta. With
respect to the plaintiffs claim of the price of bunkers supplied to
the ship owners, the Court held that the supply of necessaries
to a vessel does not create a maritime lien. In Bailey
Petroleum Company v. Owners and parties interested in
the vessel M.V. Dignity, (1993) 2 CHN 208 at 213-214, the
learned Judge held:
26
“16. It has been established by a wealth of
decisions that the supply of necessaries does not
create a maritime lien. Indeed the point was
conceded by the counsel for the plaintiff at the
hearing. It is only necessary to refer to two
authorities on the point to emphasize the fact that
this Court does not base its conclusion on the
concession of the plaintiff’s counsel but on the
authorities cited.
17. It is not disputed that the jurisdiction of this court
is governed by the Admiralty Court Act 1861 (Imp).
Section 5 of the 1861 Act provides:
“5. The High Court of Admiralty shall have
jurisdiction over any claim for necessaries
supplied to any ship elsewhere than in the
port to which the ship belongs, unless it is
shown to the satisfaction of the court that
at the time of the institution of the cause
any owner or part owner of the ship is
domiciled in England or Wales: Provided
always, that if in any such cause the
plaintiff do not recover twenty pounds, he
shall not be entitled to any costs, charges,
or expenses incurred by him therein,
unless the judge shall certify that the
cause was a fit one to be tried in the said
Court.”
18. In the case of Laws and others and Smith: the
“Rio Tinto”: 9 PD 356, the plaintiff had supplied
necessaries to the vessel. The Trial Court held that
the necessaries were supplied on the credit of the
vessel and that the plaintiff had a right to a maritime
lien and that, therefore, in spite of the fact that the
vessel had been transferred subsequent to the
supply of necessaries, the ship was liable. Sir
James Hannen who delivered the opinion of the
27
Privy Council held that the phrase “the court shall
have jurisdiction” simply gave the Court jurisdiction
but did not create any lien. A distinction was drawn
between a provision for proceedings by arrest of the
ship and the express creation of a lien. The Court
held:
“The Admiralty Court Act, 1861 (24 Vict.
c. 10) and the decisions upon it must
next be considered. By the 5th section it
is enacted that the High Court shall
have jurisdiction over a claim for
necessaries supplied to any ship
elsewhere than in the port to which the
ship belongs, unless it is shown to the
satisfaction of the court that, at the time
of the institution of the cause, any owner
or part owner of the ship is domiciled in
England or Wales.
The words ‘the High Court of Admiralty
shall have jurisdiction’, mean only what
they purport to say, neither more nor
less, that is, that the court shall take
judicial cognizance of the cases
provided for.
The conclusion [is] that there is nothing
from which it can be inferred that by the
use of the words “the court shall have
jurisdiction” the Legislature intended to
create a maritime lien with respect to
necessaries supplied within the
possession.”
19. In Shell Oil Co. v. The Ship “Lastrigoni” 3 ALR
399 the plaintiff had filed a suit for enforcement of
the claim on the ground of bunkers provided by the
28
plaintiff under a contract between the plaintiff and
the agents of the time charterer. The contract
provided that the sale and delivery of inter
alia necessaries would be made on the faith and
credit of the vessel. The arguments before the Court
were that the supply of fuel itself created maritime
lien to which the ship was subject and which could
be enforced by an action in rem in admiralty. The
second was that, in the circumstances, an action in
rem lay notwithstanding the absence of any
contractual liability on the part of the owners to pay
for the bunkers supplied and that this was so by
virtue of section 6 of the Admiralty Court Act 1840
(Imp), and section 5 of the Admiralty Court Act 1861
(Imp), either with or without the aid of cl. 6.4 of the
Bunker Fuel Oil Contract. Menzies, J. held:
“The matter was, I think, put at rest by
the decision of the Privy Council in the
Rio Tinto (1884) 9 APP Cas 356, by
which it was decided that no maritime
lien attaches to a ship in respect of
coals or other necessaries supplied to
it.”
20. In Saba International Shipping and Project Investment
Private Limited v. Owners and parties interested in the
Vessel M.V. Brave Eagle, previously known as M.V. Lima-I
and others, (2002) 2 CHN 280 at 287-288 and 289-290,
another single Judge of the same High Court differentiated
between a maritime claim and a maritime lien and held as
follows:
29
“20. Now the issue is what is a maritime claim and
what is a maritime lien. These questions are to be
answered in this proceeding before continuation of
the interim order or passing any further interim
order.
21. All cases of maritime lien are based on maritime
claims but all maritime claims do not give rise to a
maritime lien on the ship. Normally a lien in the
general law is a rather limited right over some one
else’s property. It is a right to retain possession of
that property usually to receive a claim. But a
maritime lien differs from other liens in one very
important respect. Liens generally require
possession of the ‘res’ before they can come into
effect. As an example an innkeeper has a lien over
his guest’s luggage against the payment of the bill,
but if the guest is smart enough to remove his
luggage, the innkeeper is left without a lien. But a
maritime lien does not require prior possession for
its creation. In a fit and proper case a claimant on
the strength of his maritime lien can secure the
arrest of a ship which then comes under the
possession of the court and she cannot be moved
without the court’s order.
22. ‘No Indian Statute defines a maritime claim’ is
the clear finding of Supreme Court in M.V.
Elisabeth (AIR 1993 SC 1014, para 85, page 1040).
But our Supreme Court followed the provisions of
the Supreme Court Act 1981 of England where
maritime claims have been listed on the basis of
Brussels Convention of 1952 on the Arrest of Sea
Going Ships. Under Article 1 of the said Convention
various maritime claims have been catalogued. Out
of which 1(k) answers the description of the claims
of the plaintiff in this proceeding. Article 1(k) reads
“goods or materials whether supplied to a ship for
30
her operation or maintenance”. Even though India is
not a signatory to the Brussels Convention, but the
Supreme Court held that the provisions of these
Conventions should be regarded as part of
International Common Law and these provisions
‘supplement’ and ‘complement’ our maritime laws
and fill up the lacunae in The Merchant Shipping
Act.
23. But in Elisabeth, the Hon’ble Supreme Court did
not notice any convention on maritime lien.
However the Hon’ble Supreme Court accepted in
para 57 of Elisabeth the judicial determination of the
concept of ‘maritime lien’ by English courts and
which I quote as follows:
“A maritime lien is a privileged claim
against the ship or a right to a part of the
property in the ship, and it “travels” with
the ship. Because the ship has to “pay
for the wrong it has done”, it can be
compelled to do so by a forced sale.
(See The Bold Buccleugh, (1852) 7 Moo
PCC 267).”
24. A definition of maritime lien has also been given
in Stroud’s Judicial Dictionary, 5th Edition page
1466 to the following effect:
“A maritime lien may be defined as a
right specifically binding a ship, her
furniture, tackle, cargo, and freight, or
any of them, for payment of a claim
founded upon the maritime law and
entitling the claimant to take judicial
proceedings against the property bound
to enforce, or to ascertain and enforce,
satisfaction of his demand; thus, a
31
salvor has a maritime lien on the
property saved for such an amount as a
court exercising admiralty jurisdiction
shall award. Maritime lien are
distinguished from all other liens in
these two chief particulars: (i) they are in
no way founded on possession or
property in the claimant, (ii) they are
exercised by taking proceedings against
the property itself in a form of action
styled an action in rem (The Glasgow
Packet, 2 Rob. W. 312; The Repulse, 4
Notes of Cas. 170), and, from this and
their secret nature, they closely
resemble the species of security known
to Roman law under the name of
hypotheca (Dig. xiii). Interest, if any
allowed, and the costs of enforcing a
claim for which a maritime lien exists,
will be included in such lien (The
Margaret, 3 Hagg. Adm. 240).”
25. According to the well known treatise of Thomas
on maritime lien, the following claims may give rise
to maritime lien namely:
“(a) Damage done by a ship
(b) Salvage
(c) Seamen’s wages
(d) Master’s wages and disbursements
(e) Bottomry and respondentia”.
26. The aforesaid passage from Thomas has been
approved by the Division Bench of Calcutta High
Court in Mohammed Saleh Behbehani &
Company v. Bhoja Trader, reported in (1983) 2
Calcutta Law Journal 334. At 344 of the report, the
learned Judges of the Division Bench referred to
maritime liens as representing ‘a small cluster of
32
claims’ and referred to the aforementioned passage
from Thomas.
(27) and (28) xxx xxx xxx
29. Counsel for the respondent also relies on a
passage from Roscoe on The Admiralty Jurisdiction
and Practice, 5th Edition. While dealing with
necessaries, the learned author has stated as
follows:
“Persons who have supplied a ship,
whether British or foreign, with
necessaries have not a maritime lien
upon her, and the vessel does not
become chargeable with the debt till the
suit is actually instituted; consequently
there can be no claim against a ship
which has been sold, even with notice of
such a claim in respect of which an
action has not been commenced, and a
want of caution in supplying the
necessaries may, it would seem, cause
a postponement of claims to others
more carefully begun. The necessaries
claimant is not a secured creditor until
the moment of arrest.”
30. There is a direct judgment on this point by a
learned Judge of this court in Bailey Petroleum,
referred to above.
31. Relying on the judgment of the Privy Council
in Rio Tinto, reported in 1884 (9) Appeal Cases 356
and the judgment in Shell Oil Co. v. The Ship
Lastrigoni, reported in 1974 (3) All England Reports
399, the learned single Judge held in Bailey
Petroleum that a claim arising out of the supply of
33
necessaries may give rise to a statutory right of
action ‘in rem’ under section 5 of Admiralty Court
Act, 1861 but it does not give rise to maritime lien.
Paragraphs 23 and 24 of the judgment in Bailey
Petroleum make it clear and I quote them in
extenso:
“23. Whereas a maritime lien attaches to
the res and travels with it and may be
enforced against a subsequent
purchaser of the res, a statutory right of
action in rem is defeated by a change of
ownership. This later principle follows
from the nature of the right described in
the preceding paragraph.
24. This view of the law is supported by
a catena of decisions.”
21. In fact, the International Convention on Maritime Lien and
Mortgages, 1993 defines maritime liens in Article 4 as follows:-
“Article 4: Maritime liens
I. Each of the following claims against the owner,
demise charterer, manager or operator of the vessel
shall be secured by a maritime lien on the vessel:
(a) claims for wages and other sums due to the
master, officers and other members of the vessel’s
complement in respect of their employment on the
vessel, including costs of repatriation and social
insurance contributions payable on their behalf;
34
(b) claims in respect of loss of life or personal injury
occurring, whether on land or on water, in direct
connection with the operation of the vessel;
(c) claims for reward for the salvage of the vessel;
(d) claims for port, canal, and other waterway dues
and pilotage dues;
(e) claims based on tort arising out of physical loss
or damage caused by the operation of the vessel
other than loss of or damage to cargo, containers
and passengers’ effects carried on the vessel.
2. No maritime lien shall attach to a vessel to secure
claims as set out in subparagraphs (b) and (e) of
paragraph 1 which arise out of or result from:
(a) damage in connection with the carriage of oil or
other hazardous or noxious substances by sea for
which compensation is payable to the claimants
pursuant to international conventions or national law
providing for strict liability and compulsory insurance
or other means of securing the claims; or
(b) the radioactive properties or a combination of
radioactive properties with toxic, explosive or other
hazardous properties of nuclear fuel or of
radioactive products or waste.”
22. Article 8 then states that the characteristics of such liens
are as follows:-
“Article 8: Characteristics of maritime liens
Subject to the provisions of article 12, the maritime
liens follow the vessel, notwithstanding any change
of ownership or of registration or of flag.”
35
It is, thus, clear that a claim for necessaries supplied to a
vessel does not become a maritime lien which attaches to the
vessel.
23. Shri Divan, however, cited U.S. case law in support of his
submission that a claim for necessaries raises a maritime lien.
We are afraid that given the Indian case law on the subject read
with the various international Conventions referred to above,
the U.S. seems to stand alone in considering that claims for
necessaries would amount to maritime lien enforceable against
the vessel as such wherever it goes. It is clear that in our
country at least claims for necessaries, though maritime claims,
do not raise a maritime lien.
24. What arises next, therefore, is the manner of enforcement
of maritime claims in our Courts. In M.V. Elisabeth (supra) at
459-462, this Court laid down, in some detail, the basic features
of the admiralty jurisdiction in this country, and how maritime
claims are to be enforced. The Court held:
“Admiralty Law confers upon the claimant a right in
rem to proceed against the ship or cargo as
distinguished from a right in personam to proceed
36
against the owner. The arrest of the ship is
regarded as a mere procedure to obtained security
to satisfy judgment. A successful plaintiff in an
action in rem has a right to recover damages
against the property of the defendant. “The liability
of the shipowner is not limited to the value of
the res primarily proceeded against …. An action …
though originally commenced in rem, becomes a
personal action against a defendant upon
appearance, and he becomes liable for the full
amount of a judgment unless protected by the
statutory provisions for the limitation of liability”.’
(Roscoe’s Admiralty Practice, 5th ed. p. 29)
The foundation of an action in rem, which is a
peculiarity of the Anglo-American law, arises from a
maritime lien or claim imposing a personal liability
upon the owner of the vessel. A defendant in an
admiralty action in personam is liable for the full
amount of the plaintiff’s established claim. Likewise,
a defendant acknowledging service in an action in
rem is liable to be saddled with full liability even
when the amount of the judgment exceeds the
value of the res or of the bail provided. An action in
rem lies in the English High Court in respect of
matters regulated by the Supreme Court Act 1981,
and in relation to a number of claims the jurisdiction
can be invoked not only against the offending ship
in question but also against a ‘sistership’ i.e., a ship
in the same beneficial ownership as the ship in
regard to which the claim arose.
“The vessel which commits the
aggression is treated as the offender, as
the guilty instrument or thing to which
the forfeiture attaches, without any
reference whatsoever to the character
or conduct of the owner ….” (Per Justice
Story, The United States v. The Big
37
Malek Adhel [43 US (2 How) 210, 233
(1844)]).”
xxx xxx xxx
A ship may be arrested (i) to acquire jurisdiction; or
(ii) to obtain security for satisfaction of the claim
when decreed; or (iii) in execution of a decree. In
the first two cases, the court has the discretion to
insist upon security being furnished by the plaintiff
to compensate the defendant in the event of it being
found that the arrest was wrongful and was sought
and obtained maliciously or in bad faith. The
claimant is liable in damages for wrongful arrest.
This practice of insisting upon security being
furnished by the party seeking arrest of the ship is
followed in the United States, Japan and other
countries. The reason for the rule is that a wrongful
arrest can cause irreparable loss and damages to
the shipowner; and he should in that event be
compensated by the arresting party. (See Arrest of
Ships by Hill, Soehring, Hosoi and Helmer, 1985).
The attachment by arrest is only provisional and its
purpose is merely to detain the ship until the matter
has been finally settled by a competent court. The
attachment of the vessel brings it under the custody
of the Marshal or any other authorized officer. Any
interference with his custody is treated as a
contempt of the court which has ordered the arrest.
But the Marshal’s right under the attachment order
is not one of possession, but only of custody.
Although the custody of the vessel has passed from
the defendant to the Marshal, all the possessory
rights which previously existed continue to exist,
including all the remedies which are based on
possession. The warrant usually contains a
monition to all persons interested to appear before
the court on a particular day and show cause why
38
the property should not be condemned and sold to
satisfy the claim of the plaintiff.
The attachment being only a method of
safeguarding the interest of the plaintiff by providing
him with a security, it is not likely to be ordered if the
defendant or his lawyer agrees to “accept service
and to put in bail or to pay money into court in lieu
of bail”. (See Halsbury’s Laws of England, 4th edn.,
Vol. 1, p. 375 etc.).
xxx xxx xxx
A personal action may be brought against the
defendant if he is either present in the country or
submits to jurisdiction. If the foreign owner of an
arrested ship appears before the court and deposits
security as bail for the release of his ship against
which proceedings in rem have been instituted, he
submits himself to jurisdiction.
An action in rem is directed against the ship itself to
satisfy the claim of the plaintiff out of the res. The
ship is for this purpose treated as a person. Such an
action may constitute an inducement to the owner to
submit to the jurisdiction of the court, thereby
making himself liable to be proceeded against by
the plaintiff in personam. It is, however, imperative
in an action in rem that the ship should be within
jurisdiction at the time the proceedings are started.
A decree of the court in such an action binds not
merely the parties to the writ but everybody in the
world who might dispute the plaintiff’s claim.
It is by means of an action in rem that the arrest of a
particular ship is secured by the plaintiff. He does
not sue the owner directly and by name; but the
owner or any one interested in the proceedings may
appear and defend. The writ is issued to “owners
39
and parties interested in the property proceeded
against”. The proceedings can be started in
England or in the United States in respect of a
maritime lien, and in England in respect of a
statutory right in rem. A maritime lien is a privileged
claim against the ship or a right to a part of the
property in the ship, and it “travels” with the ship.
Because the ship has to “pay for the wrong it has
done”, it can be compelled to do so by a forced
sale. [See Bold Buccleaugh (The) [Harmer v. Bell,
(1851) 7 Moo PC 267 : 13 ER 884]]. In addition to
maritime liens, a ship is liable to be arrested in
England in enforcement of statutory rights in
rem (Supreme Court Act 1981). If the owner does
not submit to the jurisdiction and appear before the
court to put in bail and release the ship, it is liable to
be condemned and sold to satisfy the claims
against her. If, however, the owner submits to
jurisdiction and obtains the release of the ship by
depositing security, he becomes personally liable to
be proceeded against in personam in execution of
the judgment if the amount decreed exceeds the
amount of the bail. The arrest of the foreign ship by
means of an action in rem is thus a means of
assuming jurisdiction by the competent court.”
25. The Court went on to hold that though Indian statutes lag
behind international law in this context, the principles in these
Conventions derived from the common law of nations, will be
treated as a part of the common law of India. Paragraph 76 in
this behalf reads as under:-
“76. It is true that Indian statutes lag behind the
development of international law in comparison to
40
contemporaneous statutes in England and other
maritime countries. Although the Hague Rules are
embodied in the Carriage of Goods by Sea Act,
1925, India never became a party to the
International Convention laying down those rules
(International Convention for the Unification of
Certain Rules of Law relating to Bills of Lading,
Brussels, 1924). The Carriage of Goods by Sea Act,
1925 merely followed the (United Kingdom)
Carriage of Goods by Sea Act, 1924. The United
Kingdom repealed the Carriage of Goods by Sea
Act, 1924 with a view of incorporating the Visby
Rules adopted by the Brussels Protocol of 1968.
The Hague-Visby Rules were accordingly adopted
by the Carriage of Goods by Sea Act 1971 (United
Kingdom). Indian legislation has not, however,
progressed, notwithstanding the Brussels Protocol
of 1968 adopting the Visby Rules or the United
Nations Convention on the Carriage of Goods by
Sea, 1978 adopting the Hamburg Rules. The
Hamburg Rules prescribe the minimum liabilities of
the carrier far more justly and equitably than the
Hague Rules so as to correct the tilt in the latter in
favour of the carriers. The Hamburg Rules are
acclaimed to be a great improvement on the Hague
Rules and far more beneficial from the point of view
of the cargo owners. India has also not adopted the
International Convention relating to the Arrest of
Seagoing Ships, Brussels, 1952. Nor has India
adopted the Brussels Conventions of 1952 on civil
and penal jurisdiction in matters of collision; nor the
Brussels Conventions of 1926 and 1967 relating to
maritime liens and mortgages [(a) International
Convention relating to the Arrest of Seagoing Ships,
Brussels, May 10, 1952 (IMC); (b) International
Convention on Certain Rules concerning Civil
Jurisdiction in Matters of Collision, Brussels, May
10, 1952 (IMC); (c) International Convention for the
Unification of Certain Rules relating to Penal
41
Jurisdiction in Matters of Collision, Brussels, May
10, 1952 (IMC); and (d) International Conventions
for the Unification of Certain Rules of Law relating to
Maritime Liens and Mortgages, Brussels, April 10,
1926, and the Revised Convention on Maritime
Lines and Mortgages, Brussels, May 29, 1967
(IMC).] India seems to be lagging behind many
other countries in ratifying and adopting the
beneficial provisions of various conventions
intended to facilitate international trade. Although
these conventions have not been adopted by
legislation, the principles incorporated in the
conventions are themselves derived from the
common law of nations as embodying the felt
necessities of international trade and are as such
part of the common law of India and applicable for
the enforcement of maritime claims against foreign
ships.”
(at pages 469-470)
A list of maritime claims was then referred to in paragraph
84 and the Brussels Convention relating to the Arrest of SeaGoing
Ships, 1992 was referred to and followed.
26. The next important aspect that was argued was that the
ownership of the vessel to enforce a maritime claim has to be
seen at the stage of institution of the suit and not at the stage
of arrest. The general rule that is contained in our country as to
what crystallises on the date of a suit is reflected in
42
Rameshwar and others v. Jot Ram and others, 1976 1 SCR
847 at 851-52. This Court held:-
“In P. Venkateswarlu v. Motor & General
Traders [(1975) 1 SCC 770, 772 : AIR 1975 SC
1409, 1410] this Court dealt with the adjectival
activism relating to post-institution circumstances.
Two propositions were laid down. Firstly, it was held
that [SCC p. 772, para 4] ‘it is basic to our
processual jurisprudence that the right to relief must
be judged to exist as on the date a suitor institutes
the legal proceeding.’ This is an emphatic statement
that the right of a party is determined by the facts as
they exist on the date the action is instituted.
Granting the presence of such facts, then he is
entitled to its enforcement. Later developments
cannot defeat his right because, as explained
earlier, had the court found his facts to be true the
day he sued he would have got his decree. The
Court’s procedural delays cannot deprive him of
legal justice or rights crystallised in the initial cause
of action. This position finds support in Bhajan
Lal v. State of Punjab [(1971) 1 SCC 34].
The impact of subsequent happenings may now be
spelt out. First, its bearing on the right of action,
second, on the nature of the relief and third, on its
impotence to create or destroy substantive rights.
Where the nature of the relief, as originally sought,
has become obsolete or unserviceable or a new
form of relief will be more efficacious on account of
developments subsequent to the suit or even during
the appellate stage, it is but fair that the relief is
moulded, varied or reshaped in the light of updated
facts. Patterson [Patterson v. State of Alabama,
(1934) 294 US 600, 607] illustrates this position. It is
important that the party claiming the relief or change
of relief must have the same right from which either
43
the first or the modified remedy may flow.
Subsequent events in the course of the case cannot
be constitutive of substantive rights enforceable in
that very litigation except in a narrow category (later
spelt out) but may influence the equitable
jurisdiction to mould reliefs. Conversely, where
rights have already vested in a party, they cannot
be nullified or negated by subsequent events save
where there is a change in the law and it is made
applicable at any stage. Lachmeshwar Prasad
Shukul v. Keshwar Lal Chaudhuri [1940 FCR 84 :
AIR 1941 FC 5] falls in this category. Courts of
justice may, when the compelling equities of a case
oblige them, shape reliefs — cannot deny rights —
to make them justly relevant in the updated
circumstances. Where the relief is discretionary,
courts may exercise this jurisdiction to avoid
injustice. Likewise, where the right to the remedy
depends, under the statute itself, on the presence or
absence of certain basic facts at the time the relief
is to be ultimately granted, the Court, even in
appeal, can take note of such supervening facts
with fundamental impact. Venkateswarlu, read in its
statutory setting, falls in this category.”
27. However, the International Convention on the Arrest of
Ships, 1999, in which India participated, states as follows:-
“Article 3: Exercise of right of arrest
1. Arrest is permissible of any ship in respect of
which a maritime claim is asserted if:
(a) the person who owned the ship at the time when
the maritime claim arose is liable for the claim and
is owner of the ship when the arrest is effected; or
(b) – (e) xxx xxx xxx
44
(2) xxx xxx xxx
3. Notwithstanding the provisions of paragraphs 1
and 2 of this article, the arrest of a ship which is not
owned by the person liable for the claim shall be
permissible only if, under the law of the State where
the arrest is applied for, a judgment in respect of
that claim can be enforced against that ship by
judicial or forced sale of that ship.”
28. India is not a signatory to the aforesaid Convention, yet
following M.V. Elisabeth (supra), this Convention becomes part
of our national law and must, therefore, be followed
by this Court. Article 3(1)(a) is in two parts. First, arrest is only
permissible of any ship if a maritime claim is
asserted against the person who owned the ship at a time when
the maritime claim arose for which the owner is liable, and
second, that the same ship owner should be the owner of the
ship when the arrest is effected. Thus, article 3(1)(a) sets the
controversy at rest because a maritime claim can be asserted
only at the time the arrest is effected and not at the time of the
institution of the suit. This being so, Shri Divan’s reliance on
English judgments to the contrary, namely Monica S. (1967) 2
Lloyd’s Rep. 113 as followed in Re, Aro Co Limited 1980 1 All
45
ER 1067, cannot be followed. Both judgments were prior to the
1999 Convention and it is this Convention that must be
followed. It is, therefore, clear that the relevant date on which
ownership of the vessel is to be determined is the date of arrest
and not the date of institution of the suit.
29. At this stage it becomes important to refer to the
agreement dated 18.1.2000 entered into between the petitioner
and the original owner of the vessel, Third Element Enterprises.
The agreement has been set out fully earlier in this judgment.
A perusal of the agreement would show that so far as the
appellant is concerned, performance is over — namely that a
certain quantity of bunkers has in accordance with the original
agreement been supplied. Indeed this is expressly recited in
the later agreement. It is only performance under the original
agreement that is lacking from the side of the owner of the
vessel, namely Third Element Enterprises. The very first clause
of the agreement shows that the ship owners confirm that they
owe to the appellant the original amount of the bunkers plus
interest plus legal costs, which amounts are parasitic on the
46
original invoice amount of US$ 94,611.25, and need to be
recovered in order to put the appellant in the same position as if
the original contract had been performed by Third Element
Enterprises. The agreement then goes on to state that since the
vessel is being chartered for a voyage from Bangkok and will
earn freight, the part of the freight amounting to the original
invoice amount plus interest plus legal costs will be paid directly
by the charterers of the vessel to the bank account of the
appellants.
30. Sections 62 and 63 of the Contract Act read as follows:-
“62. Effect of novation, rescission, and alteration
of contract.—If the parties to a contract agree to
substitute a new contract for it, or to rescind or alter
it, the original contract need not be performed.
63. Promisee may dispense with or remit
performance of promise.— Every promisee may
dispense with or remit, wholly or in part, the
performance of the promise made to him, or may
extend the time for such performance, or may
accept instead of it any satisfaction which he thinks
fit.”
31. It is the appellant’s case that Section 63 of the Contract
Act is attracted to the facts of the present case whereas it is the
47
respondent’s case that Section 62 is so attracted, the result
being that the original agreement is substituted by a fresh
agreement.
32. The respondent’s case is that Section 62 applies, since
the original contract has been “altered”. This being the case,
the original contract need not be performed.
33. It is clear that where parties to a contract agree to
substitute a completely different contract for the first, or to
rescind a contract, the performance under the original contract
and/or rescinded contract comes to an end. When parties to a
contract “alter” a contract, the question that has to be answered
is as to whether the original contract is altered in such a
manner that performance under it is at an end.
34. In Juggilal Kamlapat v. N.V. Internationale Crediet-EnHandels
Vereeninging ‘Rotter-dam’, AIR 1955 Cal 65, the
original contract dated 10.8.1950 contained an arbitration
clause. In paragraph 11 of the judgment, it was found as a fact
that the original contract was modified in certain material
48
particulars. Despite this, it was found that since the
modifications do not go to the root of the original contract and
do not change its essential character, the facts do not warrant
the inference that the parties intended to rescind the original
contract. The High Court held:-
“14. In the present case the modifications do not go
to the very root of the first contract and do not
change its essential character. The facts do not
warrant the inference that the parties intended to
rescind the contract, dated 10-8-1950. The April
arrangement was entered into in response to
pressing demands for delivery under that contract
and with a view to implement it. The arrangement
has no independent contractual force, no meaning
and content separately from and independently of
the original contract.
15. The effect of the alterations or modifications is
that there is a new arrangement; in the language of
Viscount Haldane in 1918 A. C. 1 at p. 17 (A),
“a new contract containing as an entirety the
old terms together with and as modified by the
new terms incorporated.”
The modifications are read into and become part
and parcel of the original contract. The original
terms also continue to be part of the contract and
are not rescinded and/or superseded except in so
far as they are inconsistent with the modifications.
Those of the original terms which cannot make
sense when read with the alterations must be
rejected. In my view the arbitration clause in this
49
case is in no way inconsistent with the subsequent
modifications and continues to subsist.”
(at page 67)
35. We approve of the said judgment as laying down the
correct law on the expression “alter” in Section 62 of the
Contract Act. In order that a contract that is altered in material
particulars fall under Section 62, it must be clear that the
alteration must go to the very root of the original contract and
change its essential character, so that the modified contract
must be read as doing away with the original contract. If the
modified contract has no independent contractual force, in that
it has no meaning and content separately from and
independently of the original contract, it is clear that there is no
new contract which comes into being. The original terms
continue to be part of the modified contract except to the extent
that they are inconsistent with the modifications made.
36. On the other hand, Section 63 of the Contract Act would
clearly apply to the facts of the present case. Illustration “c” to
Section 63 is apposite, and reads as follows:-
“(c) A owes B 5,000 rupees. C pays to B 1,000
rupees and B accepts them, in satisfaction of his
50
claim on A. This payment is a discharge of the whole
claim.”
37. The aforesaid illustration makes it clear that a promisee
may accept satisfaction from a third party which then
discharges the promisor from further performance of the
original contract.
38. In Kapur Chand Godha v. Mir Nawab Himayatalikhan
Azamjah, (1963) 2 SCR 168, one Baboo Mull and Company
sold and delivered to the Prince of Berar various articles of
jewellery. The jewellery was, in fact, delivered by the appellants
to the Prince. Several payments were made by a Princes
Debts Settlement Committee. Ultimately, a payment for a sum
of Rs.27,79,078/- was made which was received by the
appellant stating that payment had been made in full.
39. Since a balance of Rs.9,99,940/- still remained, the
appellants filed a suit against the respondent-Prince. The suit
was allowed by the trial court but dismissed by the first
Appellate Court which came to a contrary conclusion. The
51
Supreme Court agreed with the Appellate Court in dismissing
the suit. It was, therefore, held:
“There was some difference of evidence as to
whether Ex. C bore the signature of Kapurchand
when it was first presented to Madhava Rao or
whether the signature was later put on it. With that
difference we are not now concerned. Nor are we
concerned with certain minor discrepancies
between the evidence of the two witnesses referred
to above. The substantial result of the evidence of
the two witnesses to whom we have referred is that
whatever reluctance Kapurchand might have had in
accepting Rs. 20 lacs in full satisfaction of the claim
of the appellants, he ultimately agreed to do so. Not
only did he agree, but he actually endorsed full
satisfaction and payment on all the promissory
notes and thereafter he received payment of the
second instalment of Rs. 8,75,000/ which along with
the first instalment of Rs.11,25,000/- made up the
sum of Rs. 20 lacs. On these facts which are
established by the evidence given on behalf of the
appellants themselves, the only conclusion is that
there was full satisfaction of the claim of the
appellants.
The legal position is clear enough. Section 63 of the
Indian Contract Act reads:
“Every promisee may dispense with or
remit, wholly or in part, the performance
of the promise made to him, or may
extend the time for such performance or
may accept instead of it any satisfaction
which he thinks fit.”
Illustration (c) to the section says
52
“A owes B 5000 rupees. C pays to B
1000 rupees, and B accepts them in
satisfaction of his claim on A. This
payment is a discharge of the whole
claim.”
It seems to us that this case is completely covered
by s. 63 and illustration (c) thereof. The appellants
having accepted payment in full satisfaction of their
claim, are not now entitled to sue the respondent for
the balance.”
(at pages 178-179)
This Court further went on to hold that the niceties of English
Law in the matter of accord and satisfaction do not concern
Indian Courts in view of Section 63 of the Act.
40. It is clear that on the facts in the present case as the
original contract has been performed only by one party to the
contract and not by the other, the second agreement is entered
into so that the promisee (i.e. the appellant herein) may accept,
instead of the original performance of the agreement, any
satisfaction which it thinks fit. Thus, the agreement deals with
one leg of the original transaction, the leg of payment which has
not yet been made while keeping the original transaction alive.
The other clauses of the agreement buttress this conclusion.
Under clause 4, the ship owner will not sell the vessel prior to
53
the satisfaction of the aforesaid claim. And, above all, under
clause (6), if for any reason the said payment is not made, the
appellant will be entitled to take all appropriate legal steps,
which include arrest of the vessel, for recovery of the said
amount. Even by clause (8), the original agreement is kept
alive. In the event that the ship is unable to proceed to
Bangkok, the appellant maintains its rights of recovery against
the shipowner and the vessel. If the original agreement had
disappeared by novatio, there is no question of taking
appropriate steps to arrest the vessel which is owned by the
ship owner who is the promisee and who has not yet performed
his part of the contract. A guarantee clause contained in
clauses 7 and 8 is again only an additional string to the bow of
payment. The fact that exclusive jurisdiction is given to the
courts at Piraeus, Greece has to be read with clause 6 of the
agreement. Obviously, arrest of the vessel for recovering the
aforesaid amount in case payment is not made can be at any
port, and not merely at Piraeus. For all these reasons, we are
of the view that the aforesaid agreement read as a whole does
not amount to a novatio of the original agreement, but was in
54
fact entered into keeping the original agreement alive in order
to ensure that payment under the original agreement is made to
the appellants. In fact, the agreement dated 18.1.2000 is not a
settlement of the original claim at a lesser amount. As has
been held by us, it is only a means of enforcing the payment leg
of the original transaction through a third party charterer.
Consequent upon the vessel not sailing to Bangkok or the third
party charterer failing to make payment, the original obligation
of the appellant continued, and was enforceable by the arrest of
the vessel. It is settled law that an agreement such as the
agreement dated 18.1.2000 is not to be construed legalistically
but is to be construed as ordinary businessmen would construe
it. In words which have become classic, Lord Wright in Hillas
v. Arcos, [1932] All ER 494 at 503-504, has stated:-
“Business men often record the most important
agreements in crude and summary fashion; modes
of expression sufficient and clear to them in the
course of their business may appear to those
unfamiliar with the business far from complete or
precise. It is, accordingly, the duty of the court to
construe such documents fairly and broadly, without
being too astute or subtle in finding defects; but, on
the contrary, the court should seek to apply the old
maxim of English law, verba ita sunt intelligenda ut
55
res magis valeat quam pereat. That maxim,
however, does not mean that the court is to make a
contract for the parties, or to go outside the words
they have used, except insofar as there are
appropriate implications of law, as, for instance, the
implication of what is just and reasonable to be
ascertained by the court as matter of machinery
where the contractual intention is clear but the
contract is silent on some detail. Thus in contracts
for future performance over a period, the parties
may not be able nor may they desire to specify
many matters of detail, but leave them to be
adjusted in the working out of the contract.”
41. Equally in Satya Jain and others v. Anis Ahmed
Rushdie and others (2013) 8 SCC 131 at 143, this Court has
held:-
“The principle of business efficacy is normally
invoked to read a term in an agreement or contract
so as to achieve the result or the consequence
intended by the parties acting as prudent
businessmen. Business efficacy means the power
to produce intended results. The classic test of
business efficacy was proposed by Bowen, L.J.
in Moorcock [(1889) LR 14 PD 64 (CA)]. This test
requires that a term can only be implied if it is
necessary to give business efficacy to the contract
to avoid such a failure of consideration that the
parties cannot as reasonable businessmen have
intended. But only the most limited term should then
be implied—the bare minimum to achieve this goal.
If the contract makes business sense without the
term, the courts will not imply the same. The
following passage from the opinion of Bowen, L.J.
56
in Moorcock [(1889) LR 14 PD 64 (CA)] sums up
the position: (PD p. 68)
“… In business transactions such as
this, what the law desires to effect by
the implication is to give such business
efficacy to the transaction as must have
been intended at all events by both
parties who are businessmen; not to
impose on one side all the perils of the
transaction, or to emancipate one side
from all the chances of failure, but to
make each party promise in law as
much, at all events, as it must have
been in the contemplation of both
parties that he should be responsible for
in respect of those perils or chances.”
42. Reading the agreement through the prism of a
businessman’s eye, it is clear that all that the agreement does
is to reinforce the original agreement by seeing that the
payment under the said agreement is made. We, therefore,
disagree with the view taken by the Division Bench that there is
a novatio of the original agreement in the fact circumstance of
the present case.
43. However, Mr. Banerjee cited a passage from Halsbury’s
Laws of England and strongly relied upon a Singapore High
57
Court judgment to argue otherwise. The passage from
Halsbury (Vol. 37, 4th ed., p. 287) reads as follows:-
“391. Effect of settlement or compromise. Where
the parties settle or compromise pending
proceedings, whether before, at or during the trial,
the settlement or compromise constitutes a new and
independent agreement between them made for
good consideration. Its effects are (1) to put an end
to the proceedings, for they are thereby spent and
exhausted; (2) to preclude the parties from taking
any further steps in the action, except where they
have provided for liberty to apply to enforce the
agreed terms; and (3) to supersede the original
cause of action altogether. A judgment or order
made by consent is binding unless and until it has
been set aside in proceedings instituted for that
purpose and it acts, moreover, as an estoppel by
record.”
44. It is important to remember that when Section 63 of the
Contract Act is to be applied, the High Courts in India have
cautioned that, being a wide departure from English law, the
Section alone should be enforced according to its terms and not
in accordance with English law. Thus, in New Standard Bank,
Ltd. v. Probodh Chandra Chakravarty, AIR 1942 Cal 87 at
90-91, the Calcutta High Court held:-
“By s. 63, Contract Act, every promisor may
dispense with or remit wholly or in part the
performance of the promise made to him or may
58
accept instead of it any satisfaction which he thinks
fit. This section makes a wide departure from the
English law, inasmuch as it does not refer to any
agreement and valuable consideration. It should not
therefore, be enlarged by any implication of English
doctrine: Chunna Mal Ram Nath v. Mool ChandRam
Bhagat [(1928) I.L.R. 9 Lah. 510 (518) : L.R.
55 I.A. 154 (160)].”
45. To similar effect is a judgment of the Bombay High Court
reported as Anandram Mangturam v. Bholaram Tanumal,
AIR 1946 Bom 1 at 6, in which Chagla, J. stated:-
“But the learned Judge expresses his opinion that
time can be extended even though the promisee
may not bind himself to do so. With great respect to
the learned Judge, I cannot accept that part of the
statement of the law. The learned Judge’s judgment
is based on English decisions to which he has
referred in his judgment. The Privy Council has
repeatedly warned Courts in India not to import
doctrines of common law when construing the plain
sections of the Contract Act and the danger of
relying on principles of Common Law is all the
greater in this case when one remembers that s. 63,
Contract Act constitutes a wide departure from the
principles of the English common law.”
46. Even if the passage in Halsbury is to be applied, it is
obvious that the settlement terms spoken of must be made for
good consideration, which is absent under Section 63. Also, for
such settlement to constitute a new and independent
59
agreement, it must put an end to the proceeding which is
thereby spent and exhausted; and it is for this reason that the
original cause of action is superseded altogether. We have
seen on the facts of the present case how, by the order dated
25.1.2000, the application in Suit No.1 of 2000 alone was
dismissed for non-prosecution, only interim orders were
vacated and it was stated that “the vessel shall cease to be
under arrest as of now.” It is clear, therefore, that in
accordance with the agreement dated 18.1.2000, the
proceedings were not put an end to. Neither was the original
cause of action superseded, as we have stated earlier. The
moment there is a breach of the settlement agreement, the
appellants would be entitled to take appropriate legal steps
against the ship owner, including the arrest of the vessel, which
can only be if the original contract still subsists.
47. Mr. Banerjee laid great reliance on a judgment of the
Singapore High Court in The Dilmun Fulmar, (2003) SGHC
270. On the facts of that case, the ship repairers repaired the
vessel and supplied material to the vessel. The ship owner
60
paid a sum of $650,000 for repairs, leaving an outstanding
balance sum of $770,822.28 as at 8.5.2001. A subsequent
settlement agreement was entered into in which the ship
repairer agreed to accept a total sum of $310,000, inclusive of
$25,000 interest and $25,000 as legal costs in full and final
settlement of their claim in the admiralty suit, which was for a
sum of $1,154,916.78. Paragraph 7 of the said judgment is
important and reads as under:
“7. The issue raised by this appeal touched on the
true construction and effect of the Settlement
Agreement. In coming to my decision to set aside
the writ and warrant of arrest, I had to construe the
accord. Generally, an agreement of compromise
would discharge all original claims and
counterclaims unless it expressly provides for their
revival in the event of breach. The Settlement
Agreement was worded in such a way that there
was by its terms an immediate binding compromise
of the claim amount of $1,154,916.78. By cl 1, the
plaintiff agreed to accept a sum of $310,000
inclusive of interest and legal costs in full and final
settlement of a larger claim...”
48. From this paragraph, it is clear that the plaintiffs agreed to
accept a lesser sum in full and final settlement of a larger claim
61
and this was the amount stated in the settlement agreement.
Indeed, in paragraphs 11 and 13 of the judgment, it is stated:
“11…The plaintiffs’ solicitors in a fax dated 1 August
2002 wrote: “[T]he sum due is in fact S$170,000 as
stated in the Settlement Agreement together with
interest thereon up to 23rd January 2002 …”
“13…There was no explanation as to where the
figure of $170,000 had come from if it was not from
the Settlement Agreement...”
49. On the facts of that case it was, therefore, held that the
original cause of action had been superseded and that the
Court had no jurisdiction in respect of the original claim.
50. This case is wholly distinguishable in that, on the facts of
the present case, the very sum due under the original contract
continued to be due and payable under the settlement
agreement. The fact that interest and legal costs were added
would not amount in itself to superseding the original contract,
as these relate to payments under the original contract and put
the promisee in the same position as if the contract had
originally been performed. We have also seen that the original
agreement was not superseded but was only sought to be
62
enforced, the manner of performance being different. This
being the case, we are of the view that the High Court’s
conclusion that there was a novatio of the original agreement
on the facts of the present case is incorrect.
51. It only remains to be considered as to whether, on the
date of arrest i.e. 2.5.2000, respondent no. 1 happened to be
the owner of the vessel, as was found by the impugned
judgment.
52. The High Court strongly relied upon an oral admission of
PW1 to the effect that respondent no.1 had become the owner
of the vessel sometime in April 2000. On going through the
deposition of Mr. Stephen Livanos, we are clearly of the view
that no such admission was ever made. The answers to
questions 257 to 262 would clearly show that the witness’s
statement that respondent no.1 was the end buyer of the vessel
was equivocal at best, and was obviously hearsay as the
answer to question 260 states that a lawyer in Greece had at
some point of time told Mr. Livanos what happened with the
vessel. To therefore conclude from this oral evidence that the
63
vessel had changed hands in April, 2000 does not take the
respondent’s case very far.
53. However, the High Court also relied upon a notarized bill
of sale dated 14.4.2000, the notice of readiness of 15.4.2000,
which was accepted by the respondent at 11.00 A.M, and was
followed by the delivery of possession of the vessel at 2.00
P.M. What is important to note is that the signatory to the
physical delivery certificate was on behalf of Pennon Shipping
Corporation, which was only an agent of Third Element
Enterprises, and not an agent of Fairsteel. The High Court then
went on to state that payment under the Letter of Credit was
also made on 26.4.2000 and since this would show that the
property in the vessel was transferred in April, 2000, no cause
of action would survive against the new owner of the vessel
namely respondent no.1. The High Court also went on to state
that the transfers pleaded in the written statement of
respondent no. 1, namely from Third Element Enterprises to
Eastern Wealth Investment Limited and thereafter to Fairsteel
Corporation Limited after which Fairsteel sold and transferred
64
the vessel to respondent no.1, had not been proved by
respondent no.1, but that this did not affect the respondent’s
case.
54. We have been shown a bill of sale dated 27.4.2000 by
which Third Element Enterprises effected the first of these four
sales to Eastern Wealth Investment Limited, only on 27.4.2000.
This sale has for its consideration “one US Dollar and/or other
valuable consideration” casting grave doubts about its efficacy
in law. Be that as it may, since this sale is the first sale in the
chain of sales made ultimately to respondent no.1, it is obvious
that the sale made by Fairsteel to respondent no.1 could only
have been after this date. Shri Banerjee cited before us
authorities to the effect that it is well known that back to back
sales of this nature take place between different parties for the
same vessel. That may well be so, but it is still necessary to
prove and explain each back to back sale from which
respondent no.1 ultimately derives its title, in accordance with
its pleading in the written statement filed by it. As has correctly
been held by the High Court, there is no proof of any of these
65
back to back sales, and in point of fact the very first sale from
the original owner has taken place in favour of Eastern Wealth
after the High Court has found that the vessel has been sold by
Fairsteel to respondent no.1, which goes contrary to the
pleaded case of respondent no.1 itself. We were also referred
to a document dated 26.4.2000 by which a new clause 8 was to
be added to the Letter of Credit which read as follows:-
“COPY OF FREE OF ENCUMBRANCES
CERTIFICATE ISSUED BY EMBASSY OF
REPUBLIC OF CYPRUS, MARITIME SECTION,
PIRAEUS, CERTIFYING THAT THE MOTOR
VESSEL “NIKOLAS S” PERMANENTLY
REGISTERED IN THE CYPRUS REGISTER OF
SHIPS, OWNED BY “THIRD ELEMENT
ENTERPRISES SHIPPING LTD.” OF CYPRUS IS
FREE OF MORTGAGE AND ANY OTHER
ENCUMBRANCES.”
Further, as per clause no.8 we confirm that the
Buyers have received the Notice of Readiness
(NOR) on 15.04.2000 from the Sellers or their
Agents in Calcutta and authorize you to negotiate
the L/C as per the terms.”
This clause would again go to show that even on
26.4.2000 the owner of the vessel was Third Element
Enterprises and not respondent no.1.
66
55. With regard to the High Court finding that full payment
had been made under the Letter of Credit on 26.4.2000, the
respondent’s own suit that was filed by it against Fairsteel on
9.5.2000 shows that no such payment had been made by the
date of the filing of the said suit. The suit was for the relief of
rescission of the agreement between Fairsteel and respondent
no.1 dated 21.1.2000 on the ground of fraud. Para 27 of the
suit is important and states as follows:-
“27. In the facts and circumstances aforestated,
the defendant no.1 has fraudulently induced the
plaintiff to issue/open the said L/C through the
defendant no.2 in favour of the defendant no.1. The
defendant no.1 is not entitled to receive and should
be restrained from receiving any payment under the
said L/C and the plaintiff claims a decree of
perpetual injunction in that regard.”
56. The relief claimed in the other suit is also important and
prayers “C” and “D” are material and read as under:-
“(c) Decree of perpetual injunction restraining the
defendant no.1 whether by itself or through its
servants or agents from receiving any money
under the Letter of Credit No.CAL/24006
dated 8th April 2000, issued by the defendant
no.2 in favour of the defendant no.1.
67
(d) Decree of perpetual injunction restraining the
defendant no.2 from making any payment
under the Letter of Credit No.CAL/24006
dated 8th April 2000 issued/opened by it in
favour of the defendant no.1.”
57. This would show, on the respondent’s own admission
made in the plaint dated 9.5.2000, that monies were not yet
received under the Letter of Credit even on 9.5.2000 and that,
therefore, an injunction should be granted restraining defendant
no.1 from receiving this money and against the Bank of Baroda
– plaintiff’s bank – from making any such payment to defendant
no.1. Thus, it is clear that the High Court was not correct in its
view that it was proved by respondent no.1 that sale had taken
place in April, 2000 by Fairsteel Corporation to respondent no.1
by which respondent no.1 became the owner of the vessel. It is
clear, therefore, that respondent no. 1 has failed to prove that
there was a change of ownership of the vessel in its favour on
the date of arrest i.e. on 2.5.2000. This being the case, we set
aside the judgment of the High Court and restore the decree of
the trial court which reads as under:-
“In the result, the suit succeeds. There would be a
decree as against the vessel M.V. Nikolaos-S of
68
US$ 94,611.25 equivalent to Rs.42,57,500.00 in
Indian currency. The plaintiff would be entitled to
recover the said sum from the cash security
furnished to the Registrar, High Court, Original Side
together with accrued interest thereon. The
Registrar, Original Side, High Court, however, is
entitled to deduct necessary commission applicable
thereto.”
58. The appeal is, accordingly, allowed in the aforesaid
terms.
…………………………......J.
(R.F. Nariman)
…………………………......J.
(Sanjay Kishan Kaul)
New Delhi;
September 14, 2017.
