Gujarat High Court
M vs Eckhardt on 8 April, 2010
Author: M.R. Shah
Bench: M.R. Shah
Gujarat High Court Case Information System
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OJCA/128/2010 43/ 45 JUDGMENT
IN
THE HIGH COURT OF GUJARAT AT AHMEDABAD
CIVIL
APPLICATION No. 128 of 2010
In
ADMIRALITY
SUIT No. 2 of 2010
For
Approval and Signature:
HONOURABLE
MR.JUSTICE M.R. SHAH
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1
Whether
Reporters of Local Papers may be allowed to see the judgment ?
2
To
be referred to the Reporter or not ?
3
Whether
their Lordships wish to see the fair copy of the judgment ?
4
Whether
this case involves a substantial question of law as to the
interpretation of the constitution of India, 1950 or any order
made thereunder ?
5
Whether
it is to be circulated to the civil judge ?
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M
V D D MASTER - Applicant(s)
Versus
ECKHARDT
MARINE GMBH - Respondent(s)
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Appearance :
MR
MIHIR JOSHI, SR.ADVOCATE WITH MR DAKSHESH MEHTA
for Applicant(s) : 1,
MR
KAMAL TRIVEDI, SR.ADVOCATE FOR SINGHI & CO for Respondent(s) :
1,
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CORAM
:
HONOURABLE
MR.JUSTICE M.R. SHAH
Date
: 08/04/2010
CAV
JUDGMENT
1. Present Application has been submitted by the applicant herein original defendant for an appropriate order of vacating order of arrest dated 17.02.2010 of Vessel M.V.D.D.Master and to release the said vessel from arrest.
2. Respondent herein original applicant has instituted Admiralty Suit No.2 of 2010 before this Court in its admiralty jurisdiction with following prayer :
(a) That a decree be passed against the defendant and in favour of the plaintiff in the sum of US$20,80,495.85 (United States Dollars Twenty Lakhs Eighty Thousand Four Hundred Ninety Six and Cents Eighty Five only) [equivalent of Rs.9,55,98,830.25 (Rupees Nine Crores Fifty Five Lakhs Ninety Eight Thousand Eight Hundred and Thirty and Paise Twenty Five only)] as per particulars of the plaintiff claim (being Exhibit 'A' hereto) together with interest at the rate of 9% per annum from the date till payment and/or realisation;
(b) That the defendant vessel together with her hull, tackle, engines, machinery, apparel, equipment, stores, articles, things and other paraphernalia be arrested and detained by warrant of arrest of this Hon'ble Court;
(c) That the defendant vessel together with her hull, tackle, engines, machinery, apparel, equipment, stores, articles, things and other paraphernalia, be condemned and sold by this Hon'ble Court and the net sale proceeds thereof be paid over to the plaintiff in satisfaction of the plaintiff's claim in suit.
3. That in the said Suit, respondent herein original plaintiff has claimed US$284,846 deposit alleged to have been forfeited by the applicant herein original defendant; US$54,628 towards loss of profit and US$17,41,022.85 (About Rs.8 Crores) towards damages claimed by one Sarvag Shipping Services Private Limited (herein after referred to as 'Sarvag') in the Special Civil Suit No.1 of 2010 in the Court of learned Special Judge, Alang at Bhavnagar instituted against respondent herein original plaintiff as well as applicant herein original defendant.
4. It appears that contract was executed between the applicant herein original defendant in favour of original plaintiff for sell of vessel. It is the case on behalf of the said Sarvag and original plaintiff that inturn respondent herein original plaintiff agreed to sell said vessel to said Sarvag and as applicant herein original defendant did not give custody / possession of the vessel to respondent herein original plaintiff and inturn vessel was not supplied to said Sarvag, therefore, said Sarvag has instituted aforesaid Special Civil Suit No.1 of 2010 claiming damages / compensation mainly against respondent herein original plaintiff and also against applicant herein original defendant and has claimed Rs.8 Crores towards damages / compensation and therefore, respondent herein original plaintiff has claimed aforesaid amount of Rs.8 Crores claimed by said Sarvag in the aforesaid suit claimed by way of damages. Thus, present Admiralty Suit came to be instituted by the respondent herein original plaintiff for decree in the sum of US$20,80,495.85 (U.S.Dollars Twenty Lakhs Eighty Thousand Four Hundred Ninety five and Cents Eighty Five only) [equivalent of Rs.9,55,98,830.25 (Rupees Nine Crores Fifty Five Lakhs Ninety Eight Thousand Eight Hundred and Thirty and Paise Twenty Five only)]
5. In the aforesaid Admiralty Suit, respondent herein original plaintiff prayed for arrest of defendant vessel by way of interim order alleging inter-alia that plaintiff is entitled to decree for amount claimed in the plaint and owners of the defendant vessel do not have any other significant assets within jurisdiction of this Court to meet or secure the plaintiff's claim, save and except the defendant vessel, whose ownership, the owners are at present attempting to transfer. Therefore, it was requested to pass and appropriate order of arrest of defendant vessel in satisfaction of the maritime lien of the plaintiff. The learned Single Judge by ex-parte order dated 17.02.2010 passed an order of arrest of defendant vessel subject to the plaintiff furnishing usual Undertaking accompanied by a deposit of Rs.10,00,000/- (Rupees Ten Lacs). It is required to be noted that considering the fact that total claim made by the plaintiff of Rs.8 Crores was claimed on the basis of filing of Special Civil Suit No.1 of 2010 instituted by aforesaid Sarvag Shipping Services Private Limited against the plaintiff, the defendant and others and in the application below Exh.5 in the said suit one of the relief prayed for was arrest of the defendant vessel and therefore, while passing order of arrest of vessel in para 4 learned Single Judge observed as under :-
'(4) It is required to be noted that Special Civil Suit No.1 of 2010 has been instituted by one Sarvag Shipping Services Private Limited against the plaintiff, the defendant and others and one of the reliefs prayed for is arrest of the vessel. Hence, the order made hereinafter shall be subject to any order which may be made in the suit affecting the movement of the vessel.' 5.1. It is required to be noted that it was brought to the notice of the learned Single Judge while granting interim order of arrest of defendant vessel that as per terms of contract, the parties are governed by an arbitration clause and therefore, learned Single Judge directed plaintiff to invoke arbitration clause regardless of pendency of Admiralty Suit as well as Special Civil Suit before the Court at Bhavnagar by issuing necessary notice to the defendant for invoking jurisdiction of arbitral tribunal. While granting interim order of arrest of defendant vessel, learned Single Judge has also observed that on the returnable date, the Court shall also consider whether the suit is required to be kept pending or not and record a decision, after hearing both the sides on the same. That thereafter, having served with order of arrest applicant herein original defendant has preferred present application for an appropriate order of vacating order or arrest of defendant vessel dated 17.02.2010 and for release of defendant vessel M.V.D.D.Master from its arrest.
6. Mr.Mihir Joshi, learned Senior Advocate with Mr.Dakshesh Mehta, learned Advocate have appeared on behalf of the applicant herein original defendant. It is submitted that the order of arrest dated 17.02.2010 deserves to be vacated on the ground that the present proceedings are vexatious and amount to an abuse of process of Court.
It is submitted that the plaintiff has filed the present suit and prayed for a decree to be passed against the defendant for a sum of Rs.9.55 Crores and has thereby sought adjudication of its claim on merits by the Court. However, the plaintiff has simultaneously initiated arbitration proceedings in respect of the same relief and therefore, parallel proceedings have been resorted to by the plaintiff and its conduct is therefore, clearly vexatious. It is submitted that infact before hearing of ad interim order of arrest of vessel, plaintiff had already invoked arbitration clause which was not pointed to the learned Single Judge at the time when order of arrest was passed and suppressing aforesaid fact plaintiff has obtained order of arrest of vessel which deserves to be vacated forthwith. It is submitted that even otherwise once plaintiff has already invoked arbitration there cannot be two parallel proceedings claiming same amount or for the same dispute, therefore, it is submitted that as such suit itself is required to be dismissed now.
6.1. Mr.Mihir Joshi, learned Senior Advocate has submitted that plaintiff in collusion with a third party namely Sarvag Shipping Services Private Limited concocted a claim of Rs.8 Crores against the defendant, by Sarvag filing a suit being Special Civil Suit No.1 of 2010 before the Bhavnagar Special Judge, Alang Court, Bhavnagar claiming the said amount from the plaintiff and the present defendant on account of purported breach of contract regarding sale of the subject vessel by the plaintiff to Sarvag. It is submitted that said suit of Sarvag is collusive and not bona fide is apparent from the following facts :
The present plaintiff informed the present defendant that such suit for compensation is likely to be filed and that stay against movement of vessel would have been sought by its message dated 02.02.2010 (p.32) and the suit is filed on the same date (p.54) The claim of Rs.8 Crores made in the suit is ex-facie frivolous and without any material particulars whatsoever.
The suit is based on a breach of the purported contract dated 18.01.2010 (p.43) between the plaintiff and Sarvag. However, the said contract itself provides in the Clause 27D (p.50) that if the sellers are unable to deliver the vessel on account of failure to obtain a title from the former owners or on account of any event over which they had no control, the agreement would be considered null and void.
Moreover, it is inexplicable as to how such damage would arise when it is the plaintiff's own case in letter dated 01.02.2010 (p.22) that the prices have dropped from US$ 385.08 per LDT to US$ 335 per LDT during the period of delay on account of the purported breach by the defendant and therefore, it was unwilling to pay the contracted amount.
The Trial Court did not grant ex-parte order for arrest of the vessel and thereafter the notice of motion has not been pursued by the plaintiff in the said suit and the present plaintiff has not even filed a reply tot he suit or notice of motion.
Having failed to get an ex-parte stay in the said suit albeit at the behest of a purported third party, the present suit appears to have been filed by the plaintiff on 15.02.2010.
6.2. Now with respect to contention on behalf of the plaintiff that proceedings under admiralty jurisdiction are only for the purpose of securing the amount under a decree likely to be awarded in its favour and therefore, the order of arrest should continue for the purpose of ensuring securing an amount in respect of the award that may be passed in the arbitration proceedings is concerned, it is submitted that same is misconceived. It is submitted that as such claim made by the plaintiff in the plaint is claiming damage on the basis of Suit filed by one Sarvag; loss of profit and forfeiting of deposit and order of arrest is not sought / prayed by way of security in respect of award that may be passed in the arbitration proceedings.
It is submitted that to claim damages and to pray for arrest of vessel ensuring security in respect of decree that may be passed in the Admiralty Suit is different thing and to pray for arrest of vessel for ensuring security in respect of award that may be passed in the arbitration proceedings is different.
6.3. It is submitted by Mr.Joshi, learned Senior Advocate that even aforesaid contention is absolutely misconceived inter-alia for the following reasons :
(a) Invocation of admiralty jurisdiction and seeking the arrest of a vessel is for three distinct purpose being (i) to acquire jurisdiction or (ii) to obtain security for satisfaction of the claim or (iii) in execution of a decree. (in the case of M.V.Elizabeth v/s. Harwan Investment and Trading Pvt. Ltd.
reported in AIR 1993 SC 1014 para 49) once the foreign vessel is arrested and the owner posts bail / security and submits to the jurisdiction of the Court, the proceedings continue against the owner in personam as in any other suit. (Para 93).
(b) Even the International Convention of the Arrest of Ships (1999) makes a distinction between arrest of a vessel in respect of a maritime claim and arrest of a vessel fro the purpose of obtaining security (Article 2). The procedure regarding the arrest or security, in the event of adjudication by the arresting Court or by any other forum is provided under Article 7.
(c) The aforesaid facts establish though though the Admiralty Courts have jurisdiction to order arrest of a vessel for satisfying a maritime claim / lien to be adjudicated by the Court or as security for adjudication proceedings before another Court / Tribunal the foundational facts and the basis for seeking the order of arrest and the considerations for grant thereof, are distinct and different. The plaint must disclose material facts on which the party relies for his claim. In the absence of necessary pleadings, it is impermissible for a party to seek the same relief on wholly different set of facts.
(d) In the instant case the plaintiff has not even referred to arbitration proceedings and there is no claim made for seeking the arrest of the vessel for security in respect of such proceedings. No particulars regarding the arbitration proceedings, or claim made therein are given in the plaint. The contention of the plaintiff that the absence of any such claim is a mere technicality, is misconceived and in fact such proceedings are on this very count also vexatious. (in the case of The Vasso reported in 1984 (1) Llyod's Law Report 235).
(e) The contention of the plaintiff that the present situation is analogous to a case where the Court relegates the party to an alternative forum is misconceived. In that case the plaintiff does not abandon its stand, and pursues adjudication in the Admiralty Court, but on an objection by the defendant, the Courts holds that it has no jurisdiction to decide the dispute at which stage the Court has a discretion either to continue the security pending alternative adjudication or not. Even where the plaintiff has made alternative pleas in the plaint itself, he would be called upon to elect his case and the foundational facts would have been pleaded in the plaint even if in the alternative, which would justify the order of arrest. In the present case, as stated above there are not pleadings for claiming arrest as security for an award that may be passed in arbitration proceedings at all.
(f) The fact that the arbitrator had been appointed by the plaintiff on 15.02.2010 much before the order of arrest was passed on 17.02.2010 was suppressed from the Hon'ble Court even when a pointed reference was made by the Court as recorded in para 5 of the said order, disentitle the plaintiff to any equitable relief since it has not made a true and full disclosure of facts before the Court. The same cannot be passed off as miscommunication since the question is not whether the advocates were aware of this fact or not but that the plaintiff itself cannot plead miscommunication or ignorance regarding its own conduct.
6.4. It is submitted that even otherwise and without prejudice to its aforesaid contentions, amount claimed by the plaintiff is exaggerated and the plaintiff is not entitled to seek security for such inflated claims.
It is submitted that first head of claim is US$ 54,628 which is stated to be loss of profit for the plaintiff which it would have earned by resale of the vessel. The plaintiff has annexed the purported contract with the third party and the price difference is approximately to the extent of its claim. The plaintiff could be said to be entitled to a security for this sum.
It is submitted that the second head of claim is for US$ 284,846 being the 10% deposit made by the plaintiff with the defendant for purpose of the vessel, which the defendant claims is liable to be forfeited. The said amount is however lying in an escrow account operated jointly by the plaintiff and the defendant and has not been physically appropriated by the defendant. The said sum can abide by the final orders upon adjudication and no additional security is necessary for the purpose.
It is submitted that the third head of claim is for US$ 17,41,022,85 being the claim raised by Sarvag against the plaintiff. The plaint does not disclose any particulars or basis of such claim. Moreover, for the reasons stated above the claim of Sarvag is collusive, fabricated, imaginary and legally untenable in view of their contract itself. In any case, on the principles of section 73 of the Contract Act and more particularly illustration (k) thereof, such damages cannot be recovered from the defendant at all since the defendant was not put to notice at the time of the subject contract that any breach thereof would entail such or similar damages against the plaintiff by a third party. (in the case of Karsandas H.Thacker v/s. M/s. The Saran Engineering Co. Ltd. reported in AIR 1965 SC 1981).
Even as per the plaintiff, reference to an end buyer was made for the first time on 01.02.2010 (p.22) much after the contract dated 18.01.2010 and in any case this was refuted by the defendant vide its message dated 01.02.2010 (p.20). This is apart from the fact that admiralty jurisdiction cannot be invoked for indemnification.
7. Making above submissions and relying upon aforesaid decisions, it is requested to allow present Application and vacate order of arrest of defendant vessel and order release of applicant herein original defendant vessel forthwith.
8. The application is opposed by Mr.Kamal Trivedi, learned Senior Advocate appearing with Mr.Sandeep Singh appearing for respondent herein original plaintiff.
8.1. It is submitted that as such there is no suppression on the part of the plaintiff as alleged by the defendant. It is submitted that plaint was filed on 15.02.2010 at about 12.00 noon (IST) before this Court along with copy of Memorandum of agreement dated 18.01.2010 arrived at between the plaintiff and the defendant containing arbitration clause. It is submitted that at that time no notice invoking arbitration was issued. It is submitted and it appears that M/s.Dale Stevens who were engaged by the plaintiff as English Attorneys had on 15.02.2010 at about 11.28 p.m. (GMT) issued a notice on behalf of the plaintiff invoking arbitration and appointing an Arbitrator. That said notice was issued at 11.28 p.m. (GMT) nearly 16 hours after the institution of the plaint in this Court. It is submitted that at the time of hearing on 16.02.2010, the plaintiff had themselves informed this Court that there existed an arbitration clause and the plaintiff is ready and willing to proceed with arbitration as provided in the contract. It is submitted however at that time the plaintiff had no knowledge about the arbitration clause of Memorandum of Agreement having already been invoked by its English Attorneys. It is submitted that therefore, this Court vide order dated 17.02.2010 directed the plaintiff to invoke the arbitration and issue necessary notice to the defendant. It is submitted that defendants allegations that the plaintiff had not mentioned about the notice invoking arbitration does not hold good as the plaintiff themselves have brought to the notice of the Court the clause of arbitration.
8.2. So far as reliance placed upon by the learned Advocate for the defendant in the case of 'Vasso' reported in Lloyd's Law Reports [1984] Vol.1 page 235, it is submitted that said decision would not be applicable and/or of any assistance to the defendant in the facts of the present case.
It is submitted that the Court of Appeal in the aforesaid case was dealing with the situation obtaining prior to the amendment in Civil Jurisdiction of Judgments Act which took place in the year 1982, when the English Courts had no jurisdiction to arrest a ship in an action in rem for the purpose of providing security for an award in arbitration proceedings. It is submitted that in the aforesaid case it was found that though the appellant had after the dispute between the parties arose, entered into an adhoc arbitration agreement in April, 1981 and though the appellant was actively pursuing the arbitration proceedings, did not state the said fact before the Court when it brought the action for arrest of the vessel in August, 1981. If the appellant had so mentioned about its invocation of and participation in the arbitration proceedings, the Court would have rejected the action of the appellant for securing its claim at the threshold. However, the appellant in the said case, without disclosing the aforesaid aspect got the vessel arrested and subsequently, it came to the knowledge of the Court that the purpose of the appellant was to obtain security for its claim in the arbitration proceedings, which have been actively pursued by it without disclosing to the Court. It is submitted that it was under
these circumstances, that the Court of Appeal came to the conclusion that the said proceedings initiated by the appellant were vexatious in nature since ex-parte proceedings, there should be full and frank disclosure to the Court of the facts known to the appellant and the failure to make such disclosure should result in discharge of any order made upon the ex-parte application. It is submitted that in U.K., however, in the year 1982, Civil Jurisdiction of Judgments Act was enacted and section 26 thereof substantially altered the afore noticed legal position inasmuch as it gave the Court the power to retain or order alternative security when Court proceedings were stayed because of an arbitration agreement. Thus the statutory sanction has been given to the Court in England now to retain to order the alternative security when Court proceedings were stayed because of an arbitration agreement. Section 26 gives the Court power to retain or order security for arbitration proceedings if the vessel had already been arrested or some other form of security has been put up before the Court ordered a stay of proceedings.
8.3. It is therefore, submitted that aforesaid judgment of Court of Appeal cannot apply to the facts of the present case, more particularly, when the Courts in India have jurisdiction to direct arrest of the vessel so as to secure the parties claim in the decree that may be passed or to secure its claim pending the commencement and outcome of the arbitration proceedings.
8.4. Now so far as question whether plaintiff is entitled an action in rem ( in admiralty jurisdiction) in view of arbitration clause in the contract dated 18.01.2010, it is submitted by the learned Senior Advocate appearing for the plaintiff that action in rem (in admiralty jurisdiction) for recovery of the claim and arrest of the vessel can be maintained where the parties have agreed to submit the dispute to arbitration and in such case, if by way of an interim measure, the vessel is arrested, the matter shall proceed in accordance with Article VII of the International Convention on Arrest of Ships, 1999.
It is further submitted that peculiarity of the admiralty action in rem is that the coastal authorities in respect of any maritime claim, can assume jurisdiction by arrest of the ship, irrespective of the nationality of the ship or that of its owners, or place of business or residence of its owners or the place where the cause of action arose wholly or in part. It is submitted that in admiralty, the vessel has a juridical personality. Admiralty law confers upon the claimant, right in rem to proceed against the ship or cargo as distinguished from a right in personam to proceed against the owner. A ship may be arrested (I) to acquire jurisdiction (ii) to obtain security for satisfaction of the claim when decreed or (iii) in execution of the decree.
8.5. It is submitted that ship may be arrested for the purpose of obtaining security notwithstanding that by virtue of a jurisdiction clause or arbitration clause in any relevant contract, or otherwise, the maritime claim in respect of which the arrest is effected is to be adjudicated in a State other than the State where the arrest is effected, or is to be arbitrated, or is to be adjudicated upon subject to the law of another State.
8.6. It is submitted that it is well settled position under law with regard to Maritime law that the power of the Court is plenary and unlimited unless it is expressly or by necessary implication curtailed. In absence of such curtailment of jurisdiction, all remedies which are available to the Courts to administer justice are available to a claimant against a foreign ship and its owner found within the jurisdiction of the High Court concerned. It is submitted that said power of Court to render justice must necessarily include the power to make interlocutory orders for arrest and attachment before judgement. It is submitted that power to enforce claims against foreign ships is an essential attribute of admiralty jurisdiction and it is assumed over such ships while they are within the jurisdiction of the High Court by arresting and detaining them. It is submitted that the jurisdiction can be assumed by the High Court concerned, whether or not the defendant resides or carries on business, or the cause of action arose wholly or in part, within the local limits of its jurisdiction.
8.7. In support of above submissions, learned Senior Advocate for the plaintiff has relied upon following decisions:
M.V.Elisabeth v/s. Harwan Investment & Trading Pvt. Ltd. reported in (1993) Supp. 2 SCC 433 (Para 48,92 and 93) which in turn came be followed by the Full Bench of Hon'ble Bombay High Court in case of J.S.Ocean Liner LLC, Bur Dubai (UAE) v/s. Golden Progress & Another [2007(2) Mh.L.J. - page 410] 8.8. Now on the question whether in view of arbitration clause being invoked, Suit is required to be continued or not or whether there is any bar for this Court to secure the plaintiff's claim in arbitration, more particularly, when the Suit is initially filed claiming damages without pleading for securing its claim pending the arbitration proceedings, which may be resorted to after the institution of the suit, the learned Counsel for the plaintiff has submitted that in India when the Suit is initially filed claiming damages and for the purpose of securing declaratory amount, there is no bar, statutory or otherwise that plaintiff is estopped from claiming relief at a later stage for securing its arbitration claim, if the matter is referred to arbitration. It is submitted that in our country, there is no clear cut statutory provision dealing with such situation and distinction between the suit for securing the decree of damages, if any, which may be finally passed in the suit on one hand and the suit for security simpliciter for the award that may be made in the pending arbitration proceedings, on the other and that therefore, in the matter like the present one, it is always permissible to this Court to secure the plaintiff's claim in arbitration proceedings having been resorted to subsequent to the institution of the suit, which did not initially refer to such a claim.
8.9. It is submitted that in fact this Court while passing the order dated 17.02.2010 directing the arrest of the vessel, was conscious of the fact that the said arrest was directed by way of securing plaintiff's claim in arbitration because and that is why in para 5 of the said order, the plaintiff was in fact directed to invoke the arbitration clause. Learned Counsel for the original plaintiff has relied upon decision of the Full Bench of Bombay High Court in the case of J.S.Ocean Liner LLC, Bur Dubai (UAE) (supra), more particularly, para 11, 12, 55, 61 and 76 of the said judgment in support of his submission that to secure the amount of award that may be passed in Arbitration Proceedings, vessel can be arrested in Admiralty Jurisdiction.
9. Now whether for release of vessel the security of US$20,80,495.85 is required to be furnished by the defendants, it is submitted by the learned Counsel for the original plaintiff that security of US$20,80,496.85 comprises following components :
(a) US$284,846 which the plaintiff had deposited and defendant has withheld. It is submitted that the defendant by their e-mail dated 09.02.2010 have categorically stated that they have forfeited buyers deposit, therefore, plaintiff is entitled to have security for the said amount of US$ 284,846.
(b) US$ 54,628 the profit the plaintiff would have made from sale of the defendant vessel. It is submitted that the plaintiff is entitled to have security for the amount of US$ 54,628 as there are no other assets with the knowledge of the plaintiff available in case and award is passed in favour of the plaintiff.
(c) US$ 17,41,022.85 plaintiff having been exposed for claim for damages.
9.1. It is submitted that suit has been instituted in the Court of the Special Judge at Bhavnagar by Sarvag with whom the plaintiff had a contract for the sale of the vessel on the basis of the contract with the defendant. In the said suit the claim has been made against the plaintiff for Rs.8 Crores. Therefore, plaintiff is required to be secured for the said claim.
9.2. It is submitted that in absence of explicit legislation providing that action in rem may be used to obtain and retain security even though the merits of the dispute are to be determined in the arbitration proceedings and that subject matter of the disputes fall within admiralty jurisdiction, the vessel can be arrested and retained for security.
9.3. It is submitted that hypothetically if this Court releases the vessel only on the defendant furnishing security of US$284,846 and US$54,628, it is possible that a higher Court might take a different view; but in the meantime the ship, which is a foreign ship, has been freed from arrest, has gone and may never return to this country. It is submitted that it might be that in those circumstances, the plaintiff would have loose their security forever as this being the only security of the defendant available for satisfying any claim which may be passed in future. Relying upon the decision of the Hon'ble Supreme Court in the case of V.S.N.L. v/s. M.V. 'Kapitan Kud' reported in (1996) 7 SCC 127 more particularly, para 13 to 14, it is requested to apply said test to the present case also.
10. It is submitted that even otherwise, considering the fact plaintiff has reasonably arguable best case, it is requested not to vacate order of arrest. It is submitted that in the case of M.V.Kapitan Kud (supra), Hon'ble Supreme Court has laid down the test that in matters of arrest of foreign ships, the test is that of the 'reasonably arguable best case'. It is submitted that Hon'ble Supreme Court after considering the English case of Moschanty, laid down aforesaid test because once an arrest was refused or vacated, there is a strong likelihood of the security being irretrievably lost. It is submitted that what is to be found in the present case is as to whether the plaintiff's claim referred to above is adjudicatable or not. It is submitted that at this stage this Court is not adjudicating upon the validity or otherwise of the said claim and that therefore, various aspects sought to be highlighted on behalf of the defendant based upon the provisions of the Contract Act should not apply at least at the present interim stage when the anxiety should be to secure the plaintiff's claim which is triable and arguable which may ultimately be tried at the appropriate time as observed by the Hon'ble Supreme Court in the case of M.V.Kapitan Kud (supra).
11. Making above submissions and relying upon aforesaid decisions, it is requested not to vacate order of arrest of defendant vessel and/or to release defendant vessel only on furnishing security of US$20,80,496 before this Court.
12. Heard Mr.Mihir Joshi, learned Senior Advocate with Mr.D.B.Mehta, learned Advocate appearing for the applicant herein original defendant and Mr.Kamal Trivedi, learned Senior Advocate with Mr.Sandeep Singhi for Singhi & Co. appearing for respondent herein original plaintiff.
13. At the outset it is required to be noted that Admiralty Suit No.2 of 2010 has been instituted by the plaintiff before this Court under Admiralty and Vice Admiralty jurisdiction. In the suit plaintiff has claimed to pass decree against defendant in favour of the plaintiff in the sum of US$20,80,496.85. Plaintiff has also prayed that the defendant vessel together with her hull, tackle, engines, machinery, apparel, equipment, stores, articles, things and other paraphernalia be arrested and detained by warrant of arrest of this Court. Plaintiff has also prayed that the defendant vessel together with her hull, tackle, engines, machinery, apparel, equipment, stores, articles, things and other paraphernalia be condemned and sold by this court and net sale proceeds thereof be paid over to the plaintiff in satisfaction of the plaintiff's claim in the Suit. By way of interim relief and pending hearing of the aforesaid suit, the plaintiff has prayed for warrant of arrest of defendant vessel.
14. It is admitted position that contract dated 18.01.2010 between plaintiff and defendant provides for arbitration clause and as per same in case of any dispute between the parties to the contract, dispute should be referred to Arbitration at London and as per English law. It is admitted position that now plaintiff has already invoked arbitration by notice from their attorney dated 15.02.2010. It is also required to be noted at this stage that even at the time when learned Single Judge granted ex-parte interim order of arrest of defendant vessel, learned Single Judge was conscious of arbitration clause in the contract dated 18.01.2010 and therefore, learned Single Judge as such directed the plaintiff to invoke arbitration by issuing necessary notice to the defendant for invoking the jurisdiction of arbitral tribunal. In view of invocation of arbitration by the plaintiff as per arbitration clause in the contract dated 18.01.2010 and in absence of any specific prayer of the plaintiff to arrest defendant vessel for the security of the amount / award to be declared by the arbitral tribunal, it is submitted on behalf of the defendant that in absence of any specific pleadings to that effect, plaintiff cannot pray for arrest of defendant vessel for security of amount / award to be declared by arbitral tribunal. It is the case on behalf of the defendant as such there are no other pleadings in the plaint to the aforesaid aspect and plaintiff has already invoked arbitration for the very claim prayed in the suit, as such suit is required to be dismissed as there cannot be any two parallel proceedings for the same claim. Therefore, first question which is posed for consideration of this Court is whether in such a situation where initially suit is filed claiming damages without any pleadings for securing its claim in the arbitral proceedings and when subsequently arbitration is invoked, without any pleadings and to secure plaintiff's claim in arbitration, can Court in exercise of admiralty jurisdiction pass an order to arrest vessel to secure plaintiff's claim in arbitration?
14.1. It is to be noted that and it cannot be disputed that plaintiff can institute / file suit for damages despite arbitration clause in the contract. In such a situation when plaintiff files suit claiming damages and for other reliefs without any intention to invoke arbitration, plaintiff can pray for interim order of arrest of defendant vessel to secure amount and/or amount under the decree to be passed by the Court. However, in such a situation when there is arbitration clause in the contract, having served with the summons of suit and interim order of arrest of defendant vessel, defendant may submit an appropriate application under section 45 of the Arbitration Act to relegate plaintiff and parties to arbitration and in that case considering arbitration clause Court may refer parties to arbitration and in such case Court can and may pass interim order of arrest of vessel to secure plaintiff's claim in arbitration. In any case, it may happen that defendant may not submit any application under section 45 of the Act, relegating plaintiff and /or parties to arbitration and in that case suit can be proceeded further. Therefore, in such a situation where plaintiff initially institutes / files suit claiming damages and pray for interim order of arrest of defendant vessel to secure amount claimed by him in the suit and thereafter, on the application submitted by the defendant under section 45 of the Act and/or for other reasons and /or voluntarily plaintiff invokes arbitration during pendency of the suit, in that case, Court in its admiralty jurisdiction can pass an order of arrest of defendant vessel to secure plaintiff's claim in arbitration, without any specific averments or prayer to arrest defendant vessel to secure plaintiff's claim in arbitration. In such a situation there need not be any specific pleadings and/or prayer by the plaintiff to pray for order of arrest of the defendant vessel specifically to secure plaintiff's claim in arbitration. There is no such requirement. It is for the Court to pass an appropriate order of arrest to secure plaintiff's claim in arbitration while relegating parties to arbitration (after and during institution of suit).
14.2. It is to be noted that as such learned Advocate for the defendant is not disputing that plaintiff cannot institute the suit and/or pray for order of arrest of vessel to secure claim in arbitration. Even otherwise considering decision of the Full Bench of the Bombay High Court in the case of J.S.Ocean (supra), such a prayer to arrest defendant vessel to secure claim in the arbitration can be made and is maintainable. It is held by the Full Bench of the Bombay High Court in the said decision that an action in rem (in admiralty jurisdiction) for recovery of the claim and arrest of the vessel where the parties have agree to submit the dispute to arbitration can be maintained and in such case if by way of an interim measure, the vessel is arrested or the security provided to obtain the release of the vessel, matter shall proceed in accord with Article VII of the International Convention on Arrest of Ships, 1999. It is further held by the Full Bench of the Bombay High Court that if the proceedings are brought within the time so ordered by the Court before the Arbitral Tribunal, any final decision resulting therefrom shall be recognized and given effect with respect to the arrested ship or to the security provided in order to obtain its release provided that the defendant has been given reasonable notice of such proceedings and a reasonable opportunity to present the case for defence and in accord with the provisions contained in Arbitration and Conciliation Act, 1996. It is further clarified in the said decision that retention of security shall remain a matter of discretion and it shall be for the Court to pass appropriate order in that regard after taking into consideration all relevant circumstances.
14.3. In view of above, first objection on the part of defendant that in absence of specific pleadings / prayer to arrest defendant vessel to secure claim in the arbitration proceedings, when now plaintiff has already invoked arbitration and initial claim of the plaintiff is to arrest defendant vessel to secure amount of decree that may be passed by the Court, no order of arrest can be passed, cannot be accepted. It is held that in case where suit filed by the plaintiff is to claim damages and by way of interim order arrest of vessel is prayed and during the pendency of said suit and simultaneously either plaintiff is relegated to go for arbitration and /or plaintiff invokes arbitration, Court in its admiralty jurisdiction can pass an order of arrest of defendant vessel, even to secure amount claimed in arbitration without any specific prayer of the plaintiff for arrest of defendant vessel to secure amount under arbitration.
15. Now it is the case on behalf of the defendant that though plaintiff invoked arbitration prior to institution of suit and same was not disclosed, therefore, there is suppression of fact and therefore, plaintiff is not entitled to arrest of defendant vessel and/or ex-parte interim order of arrest of defendant vessel is required to be vacated is concerned, it is to be noted and it appears that plaint came to be instituted / filed by the plaintiff on 15.02.2010 and its English Attorneys invoked arbitration by notice dated 15.02.2010 at about 11.28 p.m. (GMT) and issued notice on behalf of the plaintiff invoking arbitration and appointing arbitrator. It is to be noted that it is the case on behalf of the plaintiff that at the time of hearing on 16.02.2010, plaintiff had themselves informed this Court that their exists arbitration clause. It is to be noted that even while passing order of arrest of defendant vessel dated 17.02.2010, even learned Single Judge has directed the plaintiff to issue notice invoking arbitration. Therefore, this Court was very much informed with respect to arbitration clause in the contract dated 18.01.2010 and despite the same this Court granted order of arrest. Therefore, as such it cannot be said that there was suppression of material fact and/or plaintiff deliberately did not disclose invocation of arbitration on 15.02.2010. Therefore, as such decision in the case of Vasso (supra) decided by Court of Appeal in U.K., would not be of any assistance to the defendant in the aforesaid facts and circumstances. Therefore, this Court is not further discussing said decision in the case of Vasso (supra).
16. Now next question which is posed for consideration of this Court on what amount of security is required to be furnished by the defendant while release of vessel. As stated above, claim made by the plaintiff in the suit is of US$ 20,80,496.85 and same is in three components (1) US$ 284,846 towards forfeiting of deposit (2) US$54,628 towards loss of profit being purchase price and sell price of defendant vessel. (3) US$17,41,022.85 (about Rs. 8 crores) towards damages claimed by one Sarvag against the plaintiff and defendant in the Court of learned Special Judge at Bhavnagar being Special Civil Suit No.1 of 2010.
16.1. Now so far as claim made by the plaintiff of US$ 284,846 is concerned, it has been specifically stated on behalf of the defendant that aforesaid amount of US$ 284,846 has not been forfeited by the defendant at all ( as claimed by the plaintiff) and it is stated by and on behalf of the defendant that aforesaid amount is lying in escrow account operated jointly by the plaintiff and the defendant and said sum can abide by the final order upon adjudication and no additional security is necessary for the purpose. In view of above categoric stand on behalf of the defendant no further additional security is required to be furnished by the defendant for the aforesaid claim.
16.2. Now so far as main claim of plaintiff is of US$ 17,41,022,85 (Rs. 8 Crores) by way of damages claimed by Sarvag against plaintiff and defendant in Special Civil Suit No.1 of 2010 pending in the Court of learned Special Judge, Bhavnagar and plaintiff is claiming that if any decree for damages is passed against plaintiff in the said suit instituted by Sarvag, same is to be make good by the defendant and defendant is liable to pay same and plaintiff can claim from the defendant. It appears that it is the case on behalf of the plaintiff and said Sarvag that on getting delivery of defendant vessel as per contract 18.01.2010, plaintiff has agreed to sale the said vessel to said Sarvag and subsequently on failure of seller to make defendant vessel available within agreed time frame as per contract 18.01.2010, plaintiff is filing suit for damages, therefore, the question which is required to be considered is whether is there any prima facie case in favour of the plaintiff with respect to such claim for which defendant is required to furnish security of the said amount of US$ 17,41,022,85.
16.3. Considering above claim made by the plaintiff for an amount of US$17,41,022.85, it can be said that claim is by way of damages and same is provided under section 73 of the Contract Act. Section 73 of the Contract Act provides that when a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it. It is further submitted that such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach.
16.4. Mr.Mihir Joshi, learned Senior Advocate appearing for the applicant herein original defendant has relied upon illustration (k) to section 73 of the Contract Act. Learned Advocate for the original defendant has relied upon decision of the Hon'ble Supreme Court in the case of Karsandas H.Thacker(supra). Now before dealing with the aforesaid aspect it is to be noted that first of all nothing is on record that at the time of contract between the plaintiff and defendant on 18.01.2010, sellers of defendant vessel were informed that plaintiff has entered into contract with Sarvag and/or nothing is on record that sellers of defendant vessel were informed that on getting delivery of defendant vessel, plaintiff is going to sell it to third party more particularly, Sarvag. Nothing is on record and even it is not the case on behalf of the plaintiff that at the time of entering into contract dated 18.01.2010, sellers of the defendant vessel were informed accordingly. Nothing is on record that at the time of execution of contract between the plaintiff and defendant on 18.01.2010, sellers of defendant vessel were informed and/or sellers of defendant vessel knew about compensation or damages likely to result from breach of contract. Therefore, it prima facie appears that in absence of knowledge of sellers of defendant vessel with respect to contract (if any) entered into between the plaintiff and Sarvag and/or sellers of defendant vessel damage know when they made the contract on 18.01.2010, as such loss or damage likely to result from the breach of it, sellers of defendant vessel cannot be saddled with liability to pay damages if any awarded by the Special Court, Bhavnagar in Special Civil Suit No.1 of 2010 passed against plaintiff and in favour of Sarvag.
16.5. At this stage decision of the Hon'ble Supreme Court in the case of Karsandas H.Thacker (supra) is required to be referred to and considered. Hon'ble Supreme Court in the said decision, has observed and held that on a breach of contract by one party the other party is entitled to receive compensation for any loss by the damage caused to him which naturally arose in the usual course of business from such breach or which the parties knew when they made the contract to be likely to result from the breach of it. Remote or indirect loss or damage sustained by reason of the breach will not entitle the party to any compensation. It is further observed by the Hon'ble Supreme Court that according to illustration (k) to section 73, the person guilty of the breach has to pay to the other party the difference between the contract price of the articles agreed to be sold and the sum paid by the other party for purchasing another article on account of the default of the first party; the first party has not, however, to pay the compensation which the second party had to pay to third parties as he had not been told at the time of the contract that the second party was making the purchase of the article for delivery to such third parties. In the present case sellers of defendant vessel did not know and could not have known when contract was made on 18.01.2010 that defendant vessel would be sold by the plaintiff to Sarvag and therefore, defendant would not have been known of the likelihood of loss / damage to be suffered by the plaintiff / Sarvag on account of failure of defendant to fulfill contract. Therefore, prima facie claim of US$ 17,41,022,85 (about Rs.8 Crores) made by the plaintiff in the suit against the defendant towards damages claimed by Sarvag claimed in Special Civil Suit No.1 of 2010 pending in the Court of Bhavnagar is not sustainable at all and therefore, defendant is not required to give security for the said amount.
17. Now contention on behalf of the plaintiff that as such this Court at this stage is not required to consider whether claim of the plaintiff is sustainable or not as at this stage Court is required to consider question with respect to interim order of arrest of defendant vessel. Aforesaid cannot be accepted. While considering question with respect to what amount of security defendant is required to furnish, the Court is required to consider whether there is prima facie case or not and to what extent claim is prima facie sustenance. If the contention on behalf of the plaintiff is accepted, in that case, plaintiff can claim any amount either by exaggerating claim or frivolous claim which is not sustainable at all, in that case, if prima facie claim is not considered while considering passing of order of arrest of vessel and/or what amount of security defendant is required to furnish, grave damage or injustice shall be caused to the defendant. As such order of arrest of defendant vessel in Admiralty jurisdiction is Paramataria to grant of injunction under Order 39 Rule 1 and 2 of the Code of Civil Procedure, therefore, while considering grant of order of arrest of vessel, to secure claim made n the suit, the Court is required to consider prima facie case / claim also.
17.1. Even as held by the Full Bench of the Bombay High Court in the case of J.S.Ocean (supra), retention of security shall remain a matter of discretion and it shall be for the Court to pass appropriate order in that regard after taking into consideration all relevant circumstances.
18. At this stage the time when plaintiff instituted present suit and obtained ex-parte order of arrest of defendant vessel is also required to be considered. It is to be noted that Sarvag instituted Special Civil Suit No.1 of 2010 in the Court of learned Special Judge, Bhavnagar claiming damages of Rs.8 Crores against the plaintiff and defendant herein on 02.02.2010. In the said suit, Sarvag also prayed for interim injunction of arrest of defendant vessel. That notice of Exh.5 has been served upon plaintiff on 02.02.2010 itself. It is admitted position that in the said Suit instituted by Sarvag no injunction has been granted by the learned Civil Court. It appears that having failed to get ad interim / interim injunction by Sarvag of arrest of defendant vessel, thereafter, present suit has been instituted by plaintiff and obtained order of arrest of defendant vessel. It is to be noted that it is the specific case on behalf of the defendant that suit filed by the Sarvag against plaintiff claiming Rs.8 Crores by way of damages is collusive suit. It is also required to be noted that no reply has been filed by the plaintiff in the said suit or even in the application Exh.5 in the aforesaid suit filed by Sarvag.
18.1. It is also required to be noted at this stage that even while granting ad interim order of arrest of defendant vessel on 17.02.2010 in para
-4 learned Single Judge has specifically observed that 'it is required to be noted that Special Civil Suit No.1 of 2010 has been instituted by one Sarvag Shipping Private Limited against the plaintiff, the defendant and other and one of the reliefs prayed for is arrest of the vessel. Hence, the order made hereinafter shall be subject to any order which may be made in the suit affecting the movement of the vessel'. Therefore, even considering specific order passed in para 4 of the order of arrest dated 17.02.2010, even order of arrest of defendant vessel is subject to order that may be passed below Exh.5 in the Special Civil Suit No.1 of 2010 meaning thereby if there is no injunction granted by the learned Trial Court in the aforesaid suit with respect to defendant vessel, in that case, plaintiff is not entitled to order of arrest of defendant vessel to secure amount claimed in the said suit. There is simple reason for that. If original plaintiff who claims damages does not get any order of injunction in the suit filed by it, naturally plaintiff being defendant in the aforesaid suit cannot claim arrest of defendant vessel to secure amount claimed by said plaintiff (Sarvag).
19. Therefore, now claim of the plaintiff of US$54,628 claimed towards loss of profit is required to be considered for the purpose of security to be furnished by the defendant.
20. In view of above and for the reasons stated above, it is ordered to release applicant herein original defendant vessel M.V.D.D.Master from arrest on condition applicant herein original defendant furnishing security of US$54,628. With respect to claim made by the plaintiff of US$20,80,496.85, as observed herein above, order with respect to furnishing security of said amount is not required to be passed in view of stand taken by the defendant that there is no forfeiture of aforesaid amount at all (as claimed by the plaintiff) and that said amount is lying in an escrow account operated jointly by the plaintiff and defendant and same can be abide by the final order upon adjudication in the arbitration proceedings. Therefore, it is hereby ordered that on furnishing security of US$54,628 and/or equivalent amount in Rupees with the Registry of this Court, defendant vessel M.V.D.D.Master is hereby ordered to be released. The Port Officer, Bhavnagar / Alang and the Customs Authority be informed accordingly.
21. Present Application is disposed of.
22. However, before parting with the present order it is observed that as the plaintiff has now invoked arbitration, therefore, whether suit is required to kept pending or not, said question is kept open and same shall be dealt with in accordance with law on appropriate independent proceedings initiated or at the time of further hearing of the suit.
[M.R.Shah,J.] Further order At this stage, Mr.Kamal Trivedi, learned Senior Advocate for the respondent herein original plaintiff has requested to suspend the present order for a period of 10(ten) days so as to enable the respondent original plaintiff to obtain appropriate order from the higher forum. Mr.Dakshesh Mehta, learned Advocate for the applicant herein original defendant has opposed the prayer. However, in the facts and circumstances of the case, the order passed today is suspended upto 19th April, 2010 so as to enable the respondent original plaintiff to obtain appropriate order from the higher forum, in case the appeal is preferred against the present order and it is ordered that present order shall come into effect from 19.04.2010.
[M.R.Shah,J.] satish Top