Gujarat High Court
R.K. Industries (Unit 2) vs M.T. Chespeake Ex Chesapeake City Ex Umm ... on 30 April, 2002
ORDER D.A. Mehta, J.
1. The following reliefs have been sought by the plaintiff in the suit.
"15. The Plaintiff prays :
(A) that the Honourable Courtbepleased to declarethattheplaintiffis entitled to the ownershipand possession of the vessel MT Chesapeake City and the defendants be directed to specificallyperformthe contract by transferring ownershiprights,title and interest and handing over physical possession of the vessel alongwith its hull, tackle, machinery,apparel, equipment,stores,articles,things and other paraphernalia to the plaintiff;
(B) that the defendantvesselMT ChesapeakeCitytogetherwith hull, tackle, machinery, apparel, equipment, stores,articles,thingsandother paraphernalia be arrested and detained by a warrantofarrestbythis Honourable Court and the defendants be permanently restrainedfrombeaching the said vessel on any other plot;
(C) thatpendingthehearingand final disposal of thissuitthedefendant vesselMTChesapeakeCitytogether with hull, tackle, machinery, apparel, equipment, stores, articles,things and other paraphernaliabearrestedand detainedbyawarrantof arrest by this Honourable Court andthe defendants be restrained from beaching the said vessel on any other plot;
(D) for costs;
(E) forsuch further and other reliefs as the circumstances of the case require.
2. The brief facts necessaryandrelevanttothe controversy maybe stated.The plaintiff, a partnership firm entered into aMemorandumofAgreement(MoA)on 13-04-2002 with the Defendant No.2 for purchase of vessel named, MT CHESAPEAKE EX CHESAPEAKE CITY, which is a Motor Tanker. Thesaidvesselhas been joined as Defendant No.1 and Defendant No.3 is a LimitedCompanybeingthe Agent of the owner,namely,DefendantNo.2.The DefendantNo.1vesselispresentlyregistered with DirectorateGeneralof Merchant Marine of Panama and is presentlylyingintheHarbourandPortof Alang (District Bhavnagar).
3. Itappears that on 02-04-2002, Defendant No.3 on the basis of details ofthevesselcirculatedamongst variousshipbreakersentered into a Pre-Memorandum of Agreement whereby theplaintiffagreedtoapurchase priceofUSD 2,506,544 on lump-sum basis payable in two installments as under : " US$ 1,255,000 payable at 89 days from the date of Physical Delivery.
And US$ 1,251,544 payable at 120 days from the date of Physical Delivery. "
4. As a consequence, theplaintiffpurchaser deposited a sum of Rs.50 lacs which was returnable to the plaintiff at the time of opening of LC for thedefendant No.1 vessel. It appears that the said Pre-Memorandum of Agreement's term wasincorporatedasClause-1ofthe MemorandumofAgreement(MoA) entered into 13-04-2002. The said Clause-1 reads as under :
"1. Total lumpsumpriceUSD2,506,544 (UnitedStatesDollarsTwoMillion Five Hundred Six Thousand Five Hundred Forty Four Only).Lightdisplacement tonexcludingpermanentballast Net LDTbeing17,707MetricTonnesor equivalent17,428.15Long tons after removals and excluding permanent ballast only."
5. Clause 8(a) of the Memorandum of Agreement(MoA) whichisnecessaryfor the present is in the following terms :
"8.1 TheSELLER shall issue the notice ofreadinessfordeliveryonly afterthevesselhas arrived at Alang and is ready in all respects for physical delivery as perthis agreement along with the following certificatesfrom a reputed licensed and independentSurveyor at the Port of delivery.
i. Port worthy certificate.
ii. Proofoflightweight : certificate confirming the LDTof vessel excluding permanent ballast andremovals only as per the copy of the Trim and stabilitybooklet or Capacity PlanorBuilders Letter sighted on board the vessel i.e. 17,707MetricTonnes or equivalent 17428.15 Long Tons."
6. Accordingly, notice of readiness was given by the defendantNo.3- Agent on 23-04-2002, but the plaintiff purchaser vide letter dated 24-04-2002 disputedtheLDT weight asnotbeing17707MTbut16116MT.As per correspondence exchanged between the parties thesayof thedefendant was that the LDT weight was represented by them at the figure 17707 MT onthebasisofTrimand Stability approved byABS,U.S.A. on 30-03-1993.The case of the plaintiff is that the LDT weight 16116 MTis based on the original Trim and Stability booklet prepared bythebuilderin1981 and as thereafter no change or repair have been shown to haveoccurred,theplaintiff was givenshortweighttothesaidextent.Thus, according to the plaintiff the defendant must be directed to transfer ownership and possession in the vessel as per the contract i.e.LDT weight of 17707 MT.
7. Atthetimeofhearing,Mr.M.H.Thakore,Sr. Advocate appeared with Mr.Y.N.Ravanionbehalfofthe plaintiffandsoughtpermissiontoamendthe plaint seeking specific performance of the contractorinthe alternative Rs.2,15,58,000/- by way of damages.
8. Mr.P.C.Kavina appeared on behalf of defendants on Caveat andundertooktofilehis appearance.Various preliminary and other objections were raised by Mr.Kavina on behalf of defendants. 9. Having heard both the sidesatlengthforthe reasons that follow, it is not necessary for the Court to deal with various contentionsindetail.Inthe Memorandum of Agreement (MoA) dated 13-04-2002, Clause-19 which pertains to Arbitration reads as under :
"19.Ifanydisputearises in connection with the interpretation in fulfillmentofthis agreement, same shall bedecidedby arbitration in New York,U.S.A.Lawto applyandshallbereferred to a single arbitrator to be appointed bytheparties hereto.If the parties cannot agree on the appointmentofthe single arbitrator, the dispute,shall be settled by three arbitrators, eachpartyappointingone arbitrator, the thirdbeingappointedby the 2 so chosen.Ifeitherofthe appointed arbitrators refuses of is incapable of acting, the partywho appointedhim, shall appoint a new arbitrator in his place.
If one party fails to appoint an arbitrator either originally or by way of substitution for fivebusinessdaysaftertheother partyhaving appointed his arbitrator, has sent the partymakingdefaultnoticeby mail, cable or telex to makethe appointment,society of maritime arbitratorsshallafterapplication from the party having appointedhisarbitrator alsoappoint on behalf of the party making default.
The award rendered by the arbitrators shall befinaland binding upon the parties and may if necessary, be enforced by anycourt oranyothercompetentauthority in the same manner as a judgement in the courtof justice."
10. Mr.Thakore contended that thecontractwasfor purchaseofvessel which could not be treated generally as a movablepropertyandhencecanbeenforcedby seeking arrest ofthevessel.Insupportofhis contention, he relied upon Sections 10 and 14 ofthe Specific ReliefAct,1963.It was submitted that the plaintiff hadnotrepudiatedthecontract;thatthe plaintiff was ready and willing to pay the full price for the vessel,however,takingintoconsiderationthe provisions of Section 19 of [TheIndian]ContractAct, 1872read with Sections 17 and 18 of the Contract Act it was apparent that the contractwasvoidable,thesame havingbeenobtainedbyfraudormisrepresentation. Alternatively,theplaintiffwasentitledto claim damages / compensationinviewofthefraudulent statement of the defendants.
Hefurthercontendedthatthe International ConventiononArrestofShips, 1999 defines "Maritime Claim" and Clause 1(v) of the said definition stated that any dispute arising out of a contract for the sale of the ship would mean to be a Maritime Claim.That Clause-2 of thedefinitionpertainingto "Arrest" stated any detention or restriction on removal of a ship by order of a Court tosecurethemaritimeclaim.Thus,the plaintiff having sought relief as totheownershipand possessionofthe vessel was entitled to seek arrest of the vessel.
11. Referringtothe Arbitration Clause in the MoA, it was submitted that such a clause did notpreventthe Courtfromgrantingthe relief of arrest, atleast till thetimetheArbitralTribunaldecidedwhetherany interimorderwasrequiredto be made or not, because otherwisethepurposeofspecificperformanceofa contractoralternatively, claim of damages would stand frustrated in case the arbitration award was in favour of the plaintiff.Hence, it was submitted thattherelief of arrestmustbegrantedinaid of arbitration.He submitted that the additional documents (four innumber) whichweresubmittedduringthecourse of hearing on 29-04-2002 went to show that the defendant wasawareof the discrepancyintheweight i.e.LDT resulting in a right in favour of the plaintifftoclaimdifferential amount under the contract.
12. Mr.Thakore read extensively from paragraph3of the plaint, which is as under :
"3.Theplaintiffstates that the defendants intheMOAand even otherwise had guaranteedtothe plaintiff that the LDT of the vessel is 17707 MT.Theplaintiff statesthattheprice was negotiated on the basis of the said LDT and the MOAwas alsosignedonthe said guarantee being given by the defendants.Theplaintiff saysthatthe vessel was being purchased bytheplaintiffsforthepurposeof demolition and since the plaintiff carries onbusinessofdemolishingvessels and selling the metal scrap, theLDTofthe vesselwhichis indicative of the weight of ferrous and non-ferrous metal available in the vessel is a vital considerationin negotiating the price.Theplaintiff states thatthisapartthisparticular vesselwas a 1981 built vessel containing a main engine Suzler 5 RLA 90 of 17000 HP. This engine is not available in theolder vessels which are coming for scrapingand since such engines are presently installed in running vessels whichwouldnotcome forscrapingforsomeyearsmore, the engine was a uniqueengineinthesaid vessel. Theplaintiffstatesthat the uniquenessoftheenginewasavital considerationforthe plaintiff for such engine was intended to be used by himfor thepurpose of installing a captive power plant for the plaintiff's sisterconcerns consistingofonerollingmill and two oxygen plants.The plaintiffwas interestedininstalling a captive power plants in family owned sister concernsin viewof the consistent intermittent power shedding by GEB.The plaintiff saysthat itwouldbealmostimpossiblefor the plaintifftogetsuchapower plant installedataviable price but for the availability of this engine.
to emphasis that the plaintiff was not ready togiveup the contract because as stated in the aforesaid paragraph themainEngineofthis particular vessel had special value to the plaintiff thoughprimarilythepricewas negotiated onthebasisofLDT.Insupport of the various contentions, he relied upon various extracts from thebook"AdmiraltyJurisdictionPractice"byNigel Meeson.The following decisions were also cited :
(1) Videsh Sanchar Nigam Ltd.Vs.M.V.Kapitan Kud and Ors., AIR 1996 SC 516.
(2) M.V.Elisabeth and Ors.Vs.Harwan Investment & Trading Pvt.Ltd., AIR 1993 SC 1014.
(3) Schwarz & Co.(Grain)Ltd.Vs.St.Elefterio Arion (Owners), (1957) Probate Division 179.
(4) M.V."Sea Success I" Vs.LiverpoolandLondon SteamshipProtectionandIndemnity Association Ltd.and another, AIR 2002 Bombay 151.
(5) Unreported decision of the Bombay High Court, (Panji Bench) at Goa.
In thecaseofPrimoInternationalLtd.Vs. M.V.Mariner IV and others,CivilSuitNo.1of 1996 and CivilApplicationNo.175of1996 rendered on 8/11-11-1996.
13. Mr.Kavinaappearing on behalf of Defendant Nos.2 and 3 submitted that onaplainreadingofthesuit (plaint) and the accompanying annexures, no case was made outby the plaintiff entitling the plaintiff to seek any relief.Referring to the preliminary objection raised by Mr.Thakore that the defendants having not enteredcaveat in theproper form, had no right to be heard.Mr.Kavina pointed that he had undertakentofileappearanceand furthermoreonappearance,hecould,and was waiving service of notice and hence, he should be heard on behalf of the defendants.
Itwassubmittedby Mr.Kavina that taking into considerationthefactthattherewas a specific arbitrationclausein the MoA and as could be seen from Clause-11 of the MoA, the plaintiff hadguaranteedthat the vessel was not being purchased for operation and that thevessel would be demolished as soon as possible after delivery, and will not be resold to any otherparty,it wasjustlikeanyother chattel for which an ordinary suit would lie andthisCourtlackedjurisdictionto order arrest of the vessel.On the basis of averments in paragraph8oftheplaint,it was contended that the plaintiff had categoricallystatedthattheplaintiff wouldneverhave purchased the vessel at the negotiated price in case the plaintiff was informed aboutthetrue LDT of thevesselascertifiedbythebuilders. Therefore, the plaintiff had not made outanycasefor specificperformanceofthecontractand no case for relief was made out by the plaintiff, atleastunderthe Admiralty Jurisdiction of this Court.
14. Itwasfurthersubmittedthat the case of the plaintiff as stated in paragraph 9oftheplaintread withvariousdocuments annexed to the plaint was at the highest to the effect that there was a discrepancy in the LDT weight which according to the plaintiff was 16116MT and whichaccording to the defendant was 17707 MT.That the plaintiff had not discharged the onus which was on it to establish that the consent oftheplaintifftothe contract had been obtained either byfraudor misrepresentation.In fact, Section 19 oftheContract Act itself provides for Exception and Explanation and the caseonhand was aptly governed by the Exception or the Explanationandtheplaintiffcouldnot make any grievance.
15. Elaborating onthissubmission,attentionwas invitedtoClause8.aof the MoA and it was submitted that the Proof of light weight whichthedefendantwas requiredtofurnish pertained to certificate confirming the LDT of thevesselaspercopyoftheTrimand StabilitybookletorCapacityPlan or Builders letter sighted on Board the vessel and such LDT had to be17707 MT. Thatthe defendant had specifically pointed out in reply to the plaintiff's letter dated 24-04-2002 that the MoA Clause 8.a did not mention Trim and Stability booklet of 1981 and as per various communicationsreceivedfrom ABS, Americasi.e.American Bureau of Shipping, the ABS approved Trim and Stability booklet and indicated inits approvalletter dated 30-03-1993 that the LDT weight was 17707 MT and the same wasavalidlightshipweight. Referringto the additional documents filed on behalf of the plaintiff it was submitted that ABS had categorically reiterated its stand andABShadnoplanstoreview originalstabilitytestsortore-evaluatethe 1992 deadweight survey. ThatfromtheFaxMessagedated 25-04-2002(Annexure-M),ABShadcategorically stated that "As of this point in time, the approvedlightship weight for each vessel is 17707 MT". 16. Mr.Kavinasubmittedthatthe plaintiff had not purchased the vessel as such i.e.as avesselandfor thispurpose, he invited attention to paragraph 3 of the plaint, wherein according to him, the plaintiff hadmade it clear that the plaintiff was interested in main Engine ofthevesselasthe same was a unique engine and the uniqueness of the engine was avitalconsiderationfor the plaintiff as the same was intended to be used for the purposeofinstallingacaptivepowerplant for the sister concerns of the plaintiff.
17. Havingconsideredthecontentionsraised on behalfof both the sides, I do not find this to be a fit case requiring exercise oftheAdmiraltyJurisdiction. Ascan be seen from the facts which have come on record, the MoA which was entered into on 13-04-2002 specifically states that if any dispute arises in connection withthe interpretation in fulfillment of this agreement, the same shall bedecidedby arbitration in New York, U.S.A.In fact, during thecourseofhearingboththeparties statedthattheyareagreeabletohavethe dispute settled by the arbitrator.The onlysurvivingquestion waswhetherinaidof arbitration it was necessary to order arrest of the vessel or seek any security(i)for fulfillmentof the contract or, (ii) for satisfaction of the claim of damages.
18. Theentirecaseoftheplaintiff is based on provisions of Section 19oftheContractActtothe effectthattheconsentoftheplaintiffhadbeen obtained by fraud or misrepresentation as regards the LDT weight of the vessel.There is no dispute and none could be raised on behalf of the plaintiff that thevesselis not being purchased for operation as a vessel and that it wasbeingpurchasedonlywitha view to demolish the same.The insistence on the fulfillment of thecontract bysupplying LDT weight at the figure of 17707 MT itself goes to show that what the plaintiffhadcontractedto purchaseisacondemnedvesselforthepurposeof obtaining iron and steel scrap therefrom.Furthermore, taking into consideration Clause 8.a of the MoA read with variousannexureswhichhave come on record, it is not possible to accept the averments oftheplaintiffthat theplaintiffwas lured into entering into the contract by any fraud or misrepresentation.
19. The principles under which theadmiralty jurisdiction can be exercised are well settled by various decisions and it does not bear repetition.Suffice it to state that a vessel could be arrested when itislikely thattheshipwhichis a foreign ship would leave the territorial waters of India and thereafteritwouldbe difficult to get hold of it as it may never return to the jurisdiction ofIndian Courts.The claim, thereby, even if successful,wouldremainunexecutableorlandin troublein private international law in its enforcement. Nosuchsituationispresent in the facts and circumstance of the case.
20. The Apex Court inthecaseofVideshSanchar Nigam Ltd.Vs. M.V.Kapitan Kud and Ors., AIR 1996 SC 516 has stated"thecrucialquestioniswhetherthe appellant has made out prima facie case." ..... "Thequestion,therefore,is whether the appellant has reasonably arguable best case in an admiralty action."
21. As can be seen from the facts of the case, at the cost of repetition, it requires tobestatedthatthe plaintiffhasfailedto make out any case, much less a prima facie case, to the effect that its consenttothe contract had been obtained by fraud or misrepresentation.
22. Whatismostimportantis that the dispute is liable toberesolvedbyavailingandinvokingthe arbitrationclauseandthe parties are directed to act accordingly.In light of what is stated, I donotfind this a fit case necessiating an order of arrest.
23. Thatthedispute arising in connection with the interpretationinfulfillmentoftheMoAshall be referredto an arbitrator to be appointed by the parties as provided in Clause 19 of the MoA.In the view thatI amadopting,I have taken note of provisions of Section 45 of the Arbitration andConciliationAct,1996,the said Section read as under :
"45.POWER OF JUDICIAL AUTHORITY TO REFER PARTIES TO ARBITRATION :-
Notwithstanding anything contained in Part I orinthe Code of Civil Procedure, 1908 (5 of 1908), a judicial authority, whenseized of an action in a matter in respect of which theparties have made an agreement referred to in Sec. 44, shall, at the requestofone of thepartiesoranypersonclaiming through or under him, refer thepartiesto arbitration,unlessif finds that the said agreement is null and void,inoperativeor incapable of being performed. "
24. Thus, on a request made byeitherparties,the Courtisunder an obligation to relegate the parties to arbitration proceedings, and in fact, duringthecourse ofhearing Mr.Kavina had specifically referred to Clause 19 i.e.ArbitrationClauseandrequestedthatthe partiesbedirectedto act in accordance with the said clause.Hence the direction to abide by the terms of the said clause and go in for arbitration.
25. Needlesstostatethat whatever has been expressed hereinbefore is only for the limited purpose of determining whether the plaintiff is entitled to an order of arrest.Anyobservations made during the course of the discussion shall not be taken asconclusivebythe arbitraltribunalthesame having been made at a stage when the suit has not been heard on merits.
26. The suit is adjourned sine die with the aforesaid directions.