Gujarat High Court
Croft vs M on 24 January, 2011
Author: Anant S. Dave
Bench: Anant S. Dave
Gujarat High Court Case Information System
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AS/10/2010 33/ 35 JUDGMENT
IN
THE HIGH COURT OF GUJARAT AT AHMEDABAD
ADMIRALITY
SUIT No. 10 of 2010
For
Approval and Signature:
HONOURABLE
MR.JUSTICE ANANT S. DAVE
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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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CROFT
SALES AND DISTRIBUTION LTD
Versus
M
V BASIL (IMO NO.7532650) & others
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Appearance :
Mr.
S.N. Soparkar, Senior Advocate with Mr. Bharat T. Rao for the
plaintiff.
Mr.
Mihir Joshi, Senior Advocate, with Mr. R.J. Oza, Mr. Amitav Majmudar
and Mr. Aditya Krishnamurthy for defendant Nos. 1 and 18
DS
AFF.NOT FILED (N) for Defendant(s) : 2 - 3,7 - 10.
MR YN RAVANI
for Defendant(s) : 11,
MS AMEE YAJNIK for Defendant(s) : 14,
MR
DIPEN A DESAI for Defendant
No.17
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CORAM
:
HONOURABLE
MR.JUSTICE ANANT S. DAVE
Date
: 24/01/2011
CAV
JUDGMENT
1 Plaintiff-company has filed the present suit claiming the following relief:
[A] That this Hon ble Court be pleased to, during the pendency of arbitration proceeding pending at London, to arrest and detention of M.V. BASIL with her hull, engines, gears, tackles, bunkers, machinery, apparel, plant, furnitures, fixtures, appurtenances and paraphernalia, at present lying at harbor at Alang Anchorage, Bhavnagar, in order to secure, the plaintiff claim as per the particulars of claim at Annexure-A. [B] That the defendant No.1 Vessel M.V. BASIL together with her hull, engines, gears, tackles, bunkers, machinery, apparel, plant, furnitures, fixtures, appurtenances and paraphernalia, at present lying at harbor at Alang Anchorage, Bhavnagar, be arrested by warrant of arrest of this Honourable Court and the same be condemned in respect of the claim herein and be ordered to be sold along with her hull, engines, gears, tackles, bunkers, machinery, apparel, plant, furnitures, fixtures, appurtenances and paraphernalia, at present lying at harbor at Alang Anchorage, Bhavnagar, and the net sale proceeds thereof be ordered to be applied to the satisfaction of the plaintiff s claim herein and the cost of this suit.
[C] That pending hearing and final disposal of the suit, this Honourable Court be pleased to order and direct arrest of M.V. BASIL with her hull, engines, gears, tackles, bunkers, machinery, apparel, plant, furnitures, fixtures, appurtenances and paraphernalia, at present lying at harbor at Alang Anchorage, Bhavnagar, or wherever she is within the territorial waters of India.
[D] For interim and ad-interim orders in terms of prayers (B) and (C) The present suit is valued at Rs.55,79,53,650/- [US $ 12,398,970].
2. Initially, an oral order dated 1st November 2010 was passed by the learned Single Judge [Coram: Hon ble Mr. Justice Bankim N. Mehta] directing the Port Officer and the Custom Authorities at Bhavnagar to arrest the vessel M.V. BASIL at present lying at Alang Anchorage at Bhavnagar within the territorial waters of India and to keep the vessel under arrest under further orders of this Court. The above order was passed upon the condition that the plaintiff should file an undertaking in writing and an affidavit to the Registrar of this Court to pay such sums by way of damages as this Court may award as compensation in the event of the defendants and/or any party sustaining prejudice by this Court and on further condition that the plaintiff shall deposit Rs.25 lakhs on or before 15.11.2010 in the Registry. At the same time, the defendants were granted liberty to approach this Court in case of any difficulty. It is further ordered that, in the event of the defendants and/or those interested in her depositing in this Court a sum of Rs.55 crore or equivalent U.S. Dollars with interest thereon @ 18% per annum from the date of institution of the suit till payment/realization towards the satisfaction of the plaintiff s claim in the suit and/or furnishing security to the satisfaction of the Registrar of this Court in the said sum of Rs.55 crore or equivalent U.S. Dollars with interest thereon @ 18% per annum from the date of institution of the suit till payment/realization, the said warrant of arrest shall not be executed against the defendant vessel M.V. BASIL.
3. From the proceedings of the suit, it appears that the matter was heard during Diwali vacation for about two hours but, due to paucity of time, the matter was adjourned and, on 23rd November 2010, an oral order came to be passed by the learned Single Judge that considering the fact that the matter is highly contested and is likely to occupy substantial time and the learned Single Judge was not available after 1st December 2010, liberty was given to the parties to mention the matter before the Hon ble Chief Justice. Upon filing a note by the learned counsel for the defendants and the submission made by the Registry, the Hon ble Chief Justice directed the Registry to list this matter before this Court and the matter was heard by this Court accordingly.
4. The plaintiff-Company is incorporated at British Virgin Islands in the name and style of M/s. Croft Sales & Distribution Limited and, inter-alia, is engaged in the business of sales and purchase of floating structures namely ships, motor tanker, vessel and the same are sold for demolition to China, Pakistan, Bangladesh and India.
5. The plaintiff has invoked admiralty jurisdiction of this Court by filing the present suit for the arrest of the vessel M.V. BASIL, defendant No.1, for securing guarantee or security for the amount reflected at Annexure A till the final disposal of the arbitration proceeding pending at London between the plaintiff and defendant No.3 herein.
6. Shri S.N. Soparkar, learned Senior Counsel for the plaintiff, has relied on the following facts and canvassed submissions accordingly.
6.1 Defendant No.1-Vessel is flying the flag of St. Vincent and Grenadines and the registered owner is Diva Maritime Company, defendant No.18 herein. It is the case of the plaintiff that, for all purposes, the vessel is owned, managed, controlled and operated by her beneficial owner M/s. Overseas Marine Enterprises [OME], defendant No.2 herein, situated at the address mentioned in the cause tile of the suit. Defendant No.2-OME is a company established and having its working and functional offices at 83, Posidonos Avenue in Flyfada, Greece. The Company is a Liberian Company with a fully functional office established in Greece and the registered Directors of the company are Mr. Georgios Tsakiroglou, President Director, Ms. Maria Koutri, Vice President/Director and Mr. Konstantions Drivas, Secretary/Director. According to the plaintiff, defendant No.2-company is the principal company which manages two vessels, namely, [i] ZAIRA from 13.4.2000 to 22.8.2007, renamed as MAX [owned by Bailey Shipping Limited] from 23.8.2007 to 31.12.2007 [the relevant letters to the Ministry were sent by the owners]; and [ii] M.V. BASIL owned by Diva Maritime Company, which is beneficially owned, controlled and operated by defendant No.2- OME.
6.2 It is the further case of the plaintiff that both the vessels are registered as single dollar companies in offshore jurisdictions and are flying the flags of convenience and have only one property i.e. ship and both these companies are the subsidiary companies of the main holding company being defendant No.2- OME and have common Directors including the President and other Directors of defendant No.2- OME.
6.3 According to the plaintiff, on 21st August 2008 the plaintiff entered into Memorandum of Agreement for purchasing the vessel M.V. MAX, which was renamed as M.V. AXIS, and the total value of the vessel is 13624814 US dollars as per Annexure A to the MOA. On 29th August 2008, defendant No.3 executed Addendum No.1 whereby it was agreed that until 15 days after vessel beaches, the deposit of 20% amount as per clause 2 of the MOA dated 21.8.2008 will be kept in trust as a security against legal or any other costs in connection with possible arrest. Clause 8 of the MOA dated 21.8.2008 stipulates that the sellers warrant that the vessel, at the time of physical and legal delivery is free from all encumbrances and maritime liens or any other debts whatsoever. Should any claim, which have been incurred prior to the time of delivery, be made against the vessel, the sellers hereby undertake to unconditionally indemnify the buyers against all consequences of such claims . Clause 10 of the MOA dated 21.8.2008 specifies conditions of delivery According to the plaintiff, clause 12[c] of the MOA dated 21.8.2008 is material for the purpose of this suit, which reads as under:
[c] Letter of Undertaking from the Sellers signed by duly appointed Attorney-in-Fact of the sellers, certifying that the vessel at the time of delivery is free from all encumbrances, mortgages, maritime liens and any other debts and liabilities whatsoever and undertaking to indemnify the Buyers against consequences of any claims which have been incurred prior to the delivery of the vessel .
6.4 As per the above MOA, 20% amount of MOA i.e. 2724962.08 USD was to be kept with defendant No.7 [the brokers] and, as per Addendum No.1 dated 29th August 2008, to be held as trust and security and balance 80% was credited in the account of defendant No.7, with 80% amount of Euro 7147991.27 being released in favour of M/s. Bailey Shipping Limited, which was owned, controlled, operated and managed by defendant No.2- OME. The above 80% was released to defendant No.3 at the time of physical delivery of the vessel to the plaintiff.
However, defendant No.3 and defendant No.7 did not comply with the terms of Addendum No.1 dated 29th August 2008. The vessel was also registered in the name of MV AXIS at Tuvalu Ship Registry at Singapore, as the vessel was meant for demolition. On 1st September 2008, the plaintiff accepted the delivery on the basis of the documents supplied by defendant No.3 of non-encumbrance. The plaintiff signed MOA for sale of M.V. AXIS, ex M.V. MAX, to M/s. Sheema Steels of Bangladesh and delivered the vessel at the outer anchorage of Chittagong, Bangladesh. Formalities for beaching of the vessel were completed with the Customs Authority, Bangladesh, on the basis of the documents supplied by M/s. Sheema Steels and on 30th September 2008 the plaintiff had given physical delivery of M.V. AXIS, ex M.V. MAX.
6.5 On 1st October 2008, M/s. Intermare Transport GMBH of Hamburg, Germany who had outstanding charterer and other claim for necessaries over the vessel, brought Admiralty Suit No.18 of 2008 in the Bangladesh High Court and the vessel was arrested pursuant to an order passed by the Bangladesh High Court. Since the plaintiff had no knowledge about the above encumbrance of M/s. Intermare Transport GMBH of Hamburg, Germany and the certificate of non-encumbrance was given and M/s. Sheema Steels of Bangladesh has made all payments as per the MOA, on account of the order of arrest of M.V. AXIS, ex M.V. MAX, by the Bangladesh High Court, M/s. Sheema Steels of Bangladesh pressed hard for the return of the amount which was paid by it as per the MOA. It is the further case of the plaintiff that, the vessel M.V. AXIS, ex M.V. MAX, was sold and it was beached for breaking purpose and the registration was cancelled with Tuvalu Port Registry, Singapore. Since notice of arbitration was sent by defendant No.3 through their solicitors, the arbitrators were appointed on 29th October 2008. The solicitor of the plaintiff served statement of claim to the Arbitrators on 22nd September 2009. In the meanwhile, defendant No.3-Bailey Shipping Limited did not intend to serve any claim subject to the pending decision and outcome in Bangladesh. The plaintiff requested its law firm at Greece for carrying out search of the constitution of Bailey Shipping Limited, Overseas Marine Corporation and other associated companies and, accordingly, an e-mail was sent to the plaintiff by the above Greek law-firm on 8th December 2008. Defendant No.3 did not cooperate with the arbitration claim and no guarantee was given that if the plaintiff succeeds in the arbitration, then the award would be enforced. The plaintiff received claim from M/s. Sheema Steels and it was also incorporated in the arbitration claim by the plaintiff before the Arbitrator at London. The plaintiff moved an application in the Greek Court for withdrawal of 20% amount, which was kept with the International Ship Brokers pursuant to the addendum to MOA, but, before the hearing could take place, 20% amount was withdrawn from the Bank by defendant No.3 through its lawyer and, thus, the plaintiff s cause of action has arisen on the date when MOA was entered into and defendant No.3 had undertaken in writing two letters that the vessel is free from all encumbrances and if any charges, liabilities arose before selling of the vessel to the plaintiff, it would be borne by defendant No.3 and defendant No.3 had not fulfilled its obligation and acted contrary to the terms of the MOA and, hence, the present Admiralty Suit is filed by the plaintiff. It is the further case of the plaintiff that the cause of action has arisen also because defendant No.3 has fraudulently acted by making wrong declarations and managing with the Registry for non-encumbrance certificate whereby the plaintiff has been defrauded and third party liability had arisen, hence, the plaintiff is entitled to invoke the admiralty jurisdiction of this Court. Besides, according to the plaintiff, the dispute is pertaining to sale of the vessel and, therefore, it falls within the definition of Article 1(v) of International Convention on the Arrest of Ships, Geneva, dated March 12, 1999 and, therefore, it is a maritime claim and the plaintiff is entitled for the relief claimed in the present suit.
7. In the above back-drop of facts, Shri S.N. Soparkar, learned Senior Counsel appearing for the plaintiff, has submitted that the order of arrest dated 1st November 2010 passed by the learned Single Judge after considering various aspects including the facts and case-laws deserves to be continued unless the defendants are ready and willing to deposit a sum of Rs.55 crore or equivalent US dollars with interest as ordered by this Court.
7.1 Shri S.N. Soparkar, learned Senior Counsel, has vehemently submitted that the defendant-ship, which is registered with Marshall Islands, does not disclose the real owner and the registration is on-line and was done by an agent having the office at Greece. The share issued to the President, Secretary and Treasurer is one and Panagiotis Karapanagiotis does not hold any share which has no value. In fact, the real owners are Mr. Konstantinos Drivas, Mr. Spyridon Stivakts, Georgios Taskoroglou whereas defendant Nos. 2, 3 and 18 have not disclosed their shareholding pattern and remained silent, except some correspondence which took place between the law-firms. It is further submitted that the plaintiff has made all efforts to complete the arbitration proceeding at London but defendant No.3 has not cooperated and no security was paid about enforcement of the award if any made in favour of the plaintiff and defendant No.1 is a sister-ship of M.V. AXIS, ex M.V. MAX, and, therefore, considering clause 1, sub-clause (v) of Geneva Convention of 1999, clause 1, sub-clause (v) of Article I, sub-clause 2 of Article 3 of Geneva Convention 1999, the plaintiff is entitled to invoke admiralty jurisdiction of this Court.
7.2 Shri S.N. Soparkar, learned Senior Counsel, has relied upon International Convention of Brussels of 1952 and another Convention of Geneva, 1999 and submitted that, for the maritime claim of the plaintiff with regard to the ship M.V. AXIS, ex M.V. MAX, defendant No.1-vessel which is beneficially owned, operated and managed by defendant No.2, is rightly ordered to be arrested by this Court. From the record, as available, it is submitted that defendant No.1 is sister-ship of M.V. AXIS, ex M.V. MAX, because of the shareholding in whose favour 500 shares have been issued, the value of ship is nil and, therefore, this shareholding does not have any financial stake and defendant No.2 who is contesting all the litigation in the name of defendant No.18 is the real owner. Shri S.N. Soparkar, learned Senior Counsel, has also relied upon the decisions of the Apex Court in the case of M.V. Elizabeth vs. Harman Investment & Trading Private Limited, reported in AIR 1993 SC 1014 [1993 Supplementary (2) SC 433] and in the case of Liverpool & London Steamship Protection and Indemnity Association vs. M.V. Sea Success, reported in (2004) 9 SCC 512 and other decisions including the decision of the Bombay High Court with regard to sister-ship.
7.3 As per the learned Senior Counsel for the plaintiff, cause of action had arisen as early as when the MOA was signed on 21.8.2008 and, as per clause 8, the sellers had warranted that the vessel was free from encumbrances and maritime liens or any other debts when the physical possession and legal delivery was handed over. It is further submitted that the cause of action has genesis in the above MOA and the events which have taken place pursuant to that and the clauses contained thereunder. That, since defendant No.3 has not cooperated in the arbitration proceeding and no amount will be available towards the claim made by the plaintiff to secure security of such amount, the interim relief granted by the learned Single Judge of arresting defendant No.1-vessel may be continued till final outcome of the suit.
8. Mr. Mihir Joshi, learned Senior Counsel appearing for defendant No.18, has also provided certain relevant dates with regard to incorporation of defendant No.18, Diva Maritime Company, as recorded in the Certificate of Incumbency as on 4th July 2007 and also Certificate of Registry in respect of defendant No.1, M.V. BASIL, on 23rd October 2007, so as to indicate that defendant No.18 was the registered owner of the vessel since the above date. Even the Management Agreement between defendant No.18 and defendant No.2 for defendant No.1-M.V. BASIL, was entered into as on 24th October 2007. So far as other events which took place between the plaintiff and defendant No.3 about purchase of the vessel M.V. AXIS, ex M.V. MAX, as on 21st August 2008 onwards and filing of Admiralty Suit No.18 of 2008 in the Bangladesh High Court on 1st October 2008 are concerned, there appears to be no dispute.
8.1 Mr. Mihir Joshi, learned Senior Counsel appearing for defendant No.18, has vehemently opposed to continuing of arrest order and/or confirmation of the same on the ground that the plaintiff does not have maritime claim so as to invoke admiralty jurisdiction of this Court at all. It is submitted that the claim of the plaintiff is based on 1952 Convention which does not include any dispute arising out of a contract for the sale of a ship to be a maritime claim and the said category, which is included in Article I(1)(v) of the 1999 Convention, is not applicable to a non-signatory State like India. That, the decision of the Apex Court in the case of M.V. Sea Success [supra] is based on an incorrect factual premise that all the participants referred in the preamble of the Convention have consented to be bound by it. In fact, only 9 States had consented and, as par Article 14, consent of 10 States is required and, therefore, the Convention has not come into force. Alternatively, it is submitted that, as per Article I(1)(v), Article 2(2), Article 3(1) of 1999 Convention, a maritime claim means a claim or claims specified therein, which would permit the claimant to arrest any ship in respect of which a maritime claim is asserted to secure such a claim. Therefore, if the above Articles are seen, the plaintiff seeks indemnification from defendant No.3 in respect of a claim made by M/s. Sheema Steels in the arbitration against the plaintiff for breach of warranty regarding sale of M.V. AXIS, ex M.V. MAX, by the plaintiff to it and the breach is relatable to a breach of assurances given by defendant No.3 to the plaintiff at the time of sale of the said vessel.
8.2 The above submission is crystallized by the learned Senior Counsel for defendant No.18 that the plaintiff could not have sought arrest of the particular ship-M.V. MAX, regarding which, the dispute had arisen between the plaintiff and defendant No.3 out of a contract for the sale of M.V. MAX, since the said ship was of its own ownership and in fact, later on, sold to M/s. Sheema Steels when the purported cause of action for indemnification arose in favour of the plaintiff against defendant No.3 when M/s. Sheema Steels purportedly initiated arbitration proceedings against defendant No.3 on or after 1st October 2008. Therefore, the particular ship could not have been arrested to secure the claim against defendant No.3 since it was not an asset of defendant No.3 at all and, therefore, the plaintiff has no maritime claim of the nature contemplated under the Arrest Conventions. It is further submitted that no claim can at all arise since the plaintiff has not suffered any damage or loss for the claimed amount as alleged in the plaint. The claim is fanciful and hypothetical. So far as the claim made by M/s. Sheema Steels in the arbitration proceeding against the plaintiff is concerned, no damage is ascertained or quantified in favour of the plaintiff.
8.3 Mr. Mihir Joshi, learned Senior Counsel appearing for defendant No.18 has reemphasized, while reiterating, that a dispute arising out of a contract for the sale of the ship is a new head of maritime claim and such a dispute is not relatable to an existing head of maritime claim and is not necessary to be adopted in the process of interpreting any existing term/phrase under admiralty jurisdiction of this Court and further submitted that the decision of the Apex Court in the case of Liverpool, (2004) 9 SCC 512 that the Convention could be applied in the process of interpretive changes, was in the context of the term 'necessaries' as contained in the Admiralty Court Act, 1861, for interpreting inclusion of insurance premium by applying Article 1(1)(q) of the 1999 Convention. The above judgment applying 1999 Convention relates to only for enforcement of contract involving public law character; the present case involves a dispute between private parties and has no element of public law and, therefore also, this Court will not exercise power.
8.4 It is next contended by Mr. Mihir Joshi, learned Senior Counsel appearing for defendant No.18, that the plaintiff cannot seek arrest of M.V. BASIL as a sister vessel of the particular vessel M.V. MAX;
[i] Certain claims may be brought not only against the ship in connection with which the claim arises but also against other ships commonly referred to as sister ships , if the following conditions are satisfied [a] the claim must have arisen in connection with Ship A ; and [b] the person who would be liable on the claim in a claim in personam must have been the owner or the charterer or in possession or control of Ship A when the cause of action arose; and [c] at the time when the claim is brought, i.e. when the claim form is issued, the person who would be liable on the claim in a claim in personam must be the beneficial owner of all shares in the Ship B against which the claim is brought;
[ii] In the present case on the averments made in the plaint, when the cause of action arose in favour of the plaintiff to seek indemnification against Bailey Shipping when M/s. Sheema Steels purportedly initiated arbitration proceedings against it some time after 1.10.2008, Bailey Shipping was not the owner/charterer or in possession or control of the particular ship MAX [Ship A as referred to above] and the question of arresting any other ship as a sister ship does not arise at all.
[iii] Moreover, since the claim, styled as a maritime claim by the plaintiff, would not have entitled the plaintiff to arrest the particular vessel-MAX, the issue of seeking arrest of a purported sister ship does not arise and the scheme of the Conventions clearly indicates an entitlement to the arrest of the particular ship as the foundation enabling the arrest of a sister ship.
[iv] That, in any case, Bailey Shipping and Diva Maritime are two independent legal entities and the Certificates of Registry indicate that the two vessels are registered in their individual names which registrations are not challenged as sham/bogus and, therefore, the requirement of arrest of a sister ship is not met with.
[v] For statutory or quasi 'in rem' claims, an in personam obligation must arise against the owner of the vessel as security for its claim. There would be no question of arrest of a vessel for securing the dues of a claimant when the vessel, at the time the 'maritime' claim arose, was of the ownership and in possession of the claimant itself. A claim which does not so entitle the plaintiff to seek arrest of the particular ship under the relevant provisions, is not a maritime claim contemplated under the Convention.
[vi] In any case, the plaintiff's contention regarding when the 'cause of action' arose in its favour is absolutely misconceived, both in the context of 'particular ship' and 'sister ship' and even on facts the plaintiff cannot seek arrest of either vessel since the pre-requisites are not complied with. In so far as the particular ship -MAX/AXIS is concerned, the maritime claim arose in favour of the plaintiff for breach of warranty of the MOA upon sale and delivery of the vessel and not before that. In other words, the plaintiff could not have filed a suit against Bailey Shipping claiming damages for breach of warranty even a day prior to the actual sale and delivery of the vessel. Once the vessel was of its own ownership, when the claim arose, the question of arresting the same would not arise. The contention of the plaintiff that the cause of action arose upon the execution of the MOA when Bailey Shipping was the owner is misconceived since what is required to be ascertained under the Conventions is when the maritime claim arose and 'cause of action' in this context would mean a right to sue accruing to the plaintiff, and not cause of action as understood in civil law as being a bundle of facts required to be proved by the plaintiff. In any case, the plaintiff has not suffered any damage upon sale of the vessel and therefore the aforesaid contention is not germane. The plaintiff claims indemnification and the right to sue/claim would arise only upon Sheema Steels raising a claim upon the plaintiff, which is much after September 2008 at which time Sheema Steels was the owner of MAX/AXIS and the plaintiff could not have arrested the said vessel. Similarly, for arrest of a sister ship even under the 1999 Convention it is necessary that the owner of the 'sister ship' at the time of its arrest was the owner/charterer of 'the particular ship' when the claim arose. As stated above, Sheema Steels was the owner of the particular ship when the claim/right to sue for indemnification arose in favour of the plaintiff. In any case even if it is presumed that such right arose on account of breach of warranty, it arose only upon and after sale of 'the particular ship' at which time also it is the plaintiff which was the owner of 'the particular ship' when the claim arose and, therefore, arrest of a sister ship of the purported ex-owner/vendor of the vessel is not permissible under the Arrest Conventions.
8.5 Mr. Mihir Joshi, learned Senior Counsel appearing for defendant No.18, has also opposed to lifting of corporate veil as submitted by the learned Senior Counsel appearing for the plaintiff, since no pleading or particulars have been given in the plaint regarding the alleged fraud and also on the ground that defendant No.18 was incorporated on 4th July 2007 and owned M.V. BASIL from 23rd October 2007, while the purported claim of the plaintiff arose against defendant No.3 after the Admiralty Suit was filed by M/s. Intermare Transport GMBH of Hamburg, Germany, in the Bangladesh High Court and M/s. Sheema Steels purportedly initiated arbitration proceeding against the plaintiff. It is also submitted that the plaintiff has failed to even prima-facie establish that defendant No.3 and defendant No.18 have the same shareholders or they are wholly owned subsidiaries of each other or that a third party, defendant No.2- OME. That, in the incorporation of Diva Maritime or its ownership of BASIL, there is no device or sham designed to defraud the plaintiff and, therefore, it is not entitled to seek lifting of the corporate veil. The contention that the vessel MAX/AXIS and the vessel BASIL are 'beneficially owned' by Overseas Marine Enterprises-defendant No.2 which can be ascertained by lifting the corporate veil of the registered owner thereof and therefore the requirement of sister ship stands complied with, is not tenable at law. The registered owner of MAX was Bailey Shipping and it has never been OME. OME is, therefore, neither owner or charterer of MAX/AXIS and in any case since even as per the plaintiff the dispute arises out of a contract for the sale of the ship, it necessarily arises only with its owner and not charterer, which in any case OME is not. The contention that the corporate veil be lifted cannot be accepted in the absence of any fraud being pleaded in the incorporation of Bailey Shipping or its ownership of MAX/AXIS as against the plaintiff. In any case OME is not the shareholder of Bailey Shipping. The onus is on the plaintiff to establish these facts, which it has failed to do and there is no question of adverse inference since the said parties are not subject to the jurisdiction of this Court. The registered owner of BASIL is Diva Maritime and any connection with OME or Bailey Shipping has been specifically denied by it. Once again no fraud is even pleaded, far being established by the plaintiff, warranting lifting of corporate veil. The contention that mere averment in the plaint is sufficient is misconceived since the observation was made in the case of Liverpool by the Supreme Court in the context of deciding the issue whether the plaint disclosed a cause of action at all and at the stage of interim relief the relative strength of the parties' case would have to be examined by the Court. The plaint is based purely on conjectures and surmises since the plaintiff seeks a fishing inquiry to find out the shareholders purportedly behind the registered shareholders of the respective companies and that too of both companies to prove identity of ownership, which is a procedure or claim unknown to law. In any case single ship companies is a legitimate means to do business and in the absence of fraud, the corporate veil cannot be lifted to extent liability. This is an accepted proposition under Indian law as also internationally under admiralty jurisdiction. The Supreme Court in Liverpool has also not stated anything to the contrary and mere observations made while leaving the issue open for decision by the Bombay High Court cannot be read out of context and even the judgment of Aventicum referred to therein regarding lifting the corporate veil was a case of fraud.
8.6 Inter-alia, with regard to concept of beneficial ownership, it is submitted that 1952 Convention contemplates legal ownership alone and 1999 Convention, presuming it is effective, contemplates owner, demise charterer, time charterer or voyage charterer and there is no other concept of beneficial ownership and it is to be considered in relation to shares in the ship and there is no evidence that defendant No.3 is owned, managed and controlled by defendant No.2- OME.
8.7 The learned Senior Counsel appearing for defendant No.18 also relied upon correspondence and letter of the Solicitors of the plaintiff dated 27th October 2010 and submitted that defendant No.2- OME is not the beneficial owner of defendant No.2-Bailey Shipping and disputed the contents of e-mail dated 8th December 2008.
8.8 The learned Senior Counsel appearing for defendant No.18 also disputed the merits of the claim and submitted that it is not open for the Court to go into merits of such claim which is vague and that too even during pendency of the arbitration. There are no particulars and pleadings about such huge claim and no details have been given about the claim made by M/s. Sheema Steels or any likelihood of suffering any damages.
8.9 The plaintiff's contention that its claim as made must be accepted for the purpose of securing the amount and it is not open for the Court to go into the merits of such claim which is pending in arbitration, is also misconceived and such a huge claim is made without any particulars or pleadings contained in the plaint at all. In law a claim made against a seller by a third party does not amount to an encumbrance at all and the entire claim of the plaintiff on this basis is wholly unjustified. Even, no documents with details have been produced by the plaintiff on record to establish such claim being made by Sheema Steels, the basis thereof and the documents produced in support. Further, the plaintiff has not established a real likelihood of suffering any damages pursuant to the claim of Sheema Steels. It is unfair for the plaintiff not to have disclosed that the claim of Sheema Steels was not being pursued at the time of filing the suit and in fact the vessel had been broken up as indicated in the extracts produced by the plaintiff itself, that the arbitration between the plaintiff and Bailey Shipping was abandoned at the time of filing the suit as is evident from the letter dated 4.10.2010 and the present suit is clearly an abuse of process. Moreover, the plaintiff has also not disclosed that an amount of 20% of the consideration was considered reasonable under its MOA with Bailey Shipping to cover arrest of the vessel MAX/AXIS in the hands of the purchaser.
In view of written statement and affidavit-in-reply filed by defendant No.18, it is submitted that the suit may be dismissed as being not maintainable and the interim relief to arrest defendant No.1 Vessel M.V. BASIL may be vacated.
9. The parties have almost completed and filed their pleadings.
10. Having heard the learned counsel appearing for the parties and on perusal of the relevant record, the following main issues arise for consideration of this Court in exercise of admiralty jurisdiction with regard to the maritime claim raised by the plaintiff:
[i] Whether the International Convention on the Arrest of Ships, Geneva, dated March 12, 1999 applies to the Courts in India having admiralty jurisdiction in view of the decision of the Apex Court in the case of Liverpool & London Steamship Protection and Indemnity Association vs. M.V. Sea Success, reported in (2004) 9 SCC 512 in the facts of this case ?
[ii] Whether the plaintiff has maritime claim so as to invoke admiralty jurisdiction of this Court for arrest of 'sister ship' viz. vessel M.V. BASIL, defendant No.1, for securing guarantee or security for the amount reflected in Annexure A till final disposal of the arbitration proceedings pending at London between the plaintiff and defendant No.3 herein and the plaintiff can seek arrest of vessel M.V. BASIL, defendant No.1, as a 'sister vessel' of 'particular vessel' - 'M.V. MAX/M.V. AXIS' and the 'cause of action' had arisen for filing the suit and invoking admiralty jurisdiction of this Court and the present suit is maintainable ?
[iii] Whether is it necessary for this Court to lift 'corporate veil', as submitted by the learned Senior Counsel for the plaintiff, so as to ascertain beneficial ownership of vessel 'M.V. MAX/M.V. AXIS' and vessel M.V. BASIL, by OME, defendant No.2 herein ?
11. Firstly, it is necessary to refer to International Convention Relating to the Arrest of Sea-Going Ships, Brussels, May 10, 1952 and Article 3 of Brussels Convention of 1952 reads as under:
(1) Subject to the provisions of para (4) of this article and of article 10, a claimant may arrest either the particular ship in respect of which the maritime claim arose, or any other ship which is owned by the person who was, at the time when the maritime claim arose, the owner of the particular ship, even though the ship arrested be ready to sail; but no ship, other than the particular ship in respect of which the claim arose, may be arrested in respect of any of the maritime claims enumerated in article 1, (o), (p) or (q).
(2) Ships shall be deemed to be in the same ownership when all the share therein are owned by the same person or persons.
(3) A ship shall not be arrested, nor shall bail or other security be given more than once in any one or more of the jurisdictions of any of the Contracting States in respect of the same maritime claim by the same claimant; and, if a ship has been arrested in any of such jurisdictions, or bail or other security has been given in such jurisdiction either to release the ship or to avoid a threatened arrest, any subsequent arrest of the ship or of any ship in the same ownership by the same claimant for the maritime claim shall be set aside, and the ship released by the Court or other appropriate judicial authority of that State, unless the claimant can satisfy the court or other appropriate judicial authority that the bail or other security had been finally released before the subsequent arrest or that there is other good cause for maintaining that arrest.
(4) When in the case of charter by demise of a ship the charterer and not the registered owner is liable in respect of a maritime claim relating to that ship, the claimant may arrest such ship or any other ship in the ownership of the charterer by demise, subject to the provisions of this Convention, but no other ship in the ownership of the registered owner shall be liable to arrest in respect of such maritime claim.
The provisions of this paragraph shall apply to any case in which a person other than the registered owner of a ship is liable in respect of a maritime claim relating to that ship.
11.1 There is no dispute that 1952 Convention has no reference to 'dispute arising out of contract for sale' in the definition clause of 'maritime claim' of the ship.
12. It is also necessary to refer to International Convention on the Arrest of Ships, Geneva, March 12, 1999, in which, Article 1 contains definitions and sub-article 1 defines 'maritime claim' and clause (v) of sub-article 1 of Article 1 reads as under:
any dispute arising out of a contract for the sale of the ship'.
Sub-Article 2 of Article 1 defines 'arrest', which reads as under:
Arrest means any detention or restriction on removal of a ship by order of a Court to secure a maritime claim, but does not include the seizure of a ship.
Article 2 defines powers of arrest and sub-article 2 of Article 2 provides that a ship may only be arrested in respect of a maritime claim but in respect of no other claim. Sub-article 3 of Article 2 provides that a ship may be arrested for the purpose of obtaining security.
Article 3 provides for exercise of right of arrest and reads as under:
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] the demise charterer of the ship at the time when the maritime claim arose is liable for the claim and is demise charterer or owner of the ship when the arrest is effected; or [c] the claim is based upon a mortgage or a 'hypotheque' or a change of the same nature on the ship; or [d] the claim relates to the ownership or possession of the ship; or [e] the claim is against the owner, demise charterer, manager or operator of the ship and is secured by a maritime lien which is granted or arises under the law of the State where the arrest is applied for.
2. Arrest is also permissible of any other ship or ships which, when the arrest is effected, is or are owned by the person who is liable for the maritime claim and who was, when the claim arose:
[a] owner of the ship in respect of which the maritime claim arose; or [b] demise charterer, time charterer or voyage charterer of that ship.
This provision does not apply to claims in respect of ownership or possession of a ship.
3. xx xx xx Thus, sub-article 2 of Article 3 of Geneva Convention of 1999 is important and relevant for deciding whether the plaintiff has maritime claim or not. A close look and careful reading of above sub-article 2 of Article 3 permits arrest also of any other ship or ships which, when the arrest is effected, is or are owned by the person who is liable for the maritime claim and who was, when the claim arose, owner of the ship in respect of which the maritime claim arose for which, in the facts of this case, no contention has been raised about demise charterer, time charterer or voyage charterer of that ship.
12.1 That applicability of Geneva Convention of 1999 qua the maritime claim made before the Indian Courts exercising admiralty jurisdiction was considered by the Apex Court in the case of Liverpool [supra] and it was finally held that the Convention could be applied in the process of interpretive changes. However, the contention of the learned Senior Counsel for defendant No.18 that the Apex Court was oblivious to the fact that the above Convention of 1999 had not come into force and effect since ten countries had not ratified and signed finally and, therefore, it is not operative and effective, cannot be gone into by this Court. Even otherwise, under Article 141 of the Constitution of India, the law laid down down by the Apex Court is binding to this Court. In the case of Liverpool [supra], the Supreme Court held that the 1999 Arrest Convention could be applied in the process of interpretive changes and though India being not a signatory country thereto, it is applicable to the Indian Courts exercising admiralty jurisdiction. In paragraph 60, it is held that the application of the 1999 Convention in the process of interpretive changes, however, would be subject to: (1) domestic law which may be enacted by Parliament; and (2) it should be applied only for enforcement of a contract involving public law character and, this being not a contract of public law character, the decision in the case of Liverpool [supra] is not applicable to the present case.
Further, in the case of Liverpool [supra[, the judgment and order of the Bombay High Court in Appeal No.226 of 2001 in Admiralty Suit No.32 of 2000, was upheld with regard to claim amount of insurance as 'necessaries' and that unpaid insurance premium being a maritime claim would be enforceable in India. It is further observed that the Letters Patent Appeal was maintainable, but, the question of beneficial ownership of a ship was not a question of fact alone and being a mixed question of fact and law, the approach of the High Court was found to be not correct, the matter was remanded to the Bombay High Court granting liberty to the parties to file application for vacating stay.
12.2 Admittedly, Brussels Convention of 1952 never included a claim arose out of a contract for sale of ship to be a maritime claim. Therefore, the maritime claim, as asserted by the plaintiff, is based on the definition contained in Article 1, sub-article 1, clause (v) of 1999 Convention.
13. If the issue about the maritime claim of the plaintiff is examined in the context of the facts narrated hereinabove, it arises, according to the plaintiff, out of an agreement, namely, Memorandum of Agreement [MOA] dated 21st August 2008 for purchasing vessel 'M.V. MAX', renamed as 'M.V. AXIS' and clause 8 of the said MOA stipulating that the sellers warrant that the vessel, at the time of physical and legal delivery is free from all encumbrances and maritime liens or any other debts whatsoever and further the sellers hereby undertake to unconditionally indemnify the buyers against all consequences of such claims in case if any debt was incurred prior to the time of delivery. After purchase of vessel 'M.V. MAX', it was renamed as 'M.V. AXIS' and was registered at Tuvalu Port Registry, Singapore and it was meant for demolition and delivery of the vessel was accepted by the plaintiff on 1.9.2008. Thereafter, as per the MOA signed by the plaintiff with M/s. Sheema Steels of Bangladesh, the vessel was delivered at the outer anchorage of Chittagong, Bangladesh and physical delivery was given along with documents to the said M/s. Sheema Steels of Bangladesh on 30.9.2008. That, Admiralty Suit No.18 of 2008 was brought in by M/s. Intermare Transport GMBH of Hamburg, Germany, on 1.10.2008 at the Supreme Court of Bangladesh, High Court Division, at Dhaka, for arrest of vessel 'M.V. AXIS', Ex-'M.V. MAX'. Thereafter, a notice of arbitration was sent by defendant No.3 through their solicitors on 22.9.2009 and it is pending for further adjudication. However, the claim made in the plaint clearly reveals that the suit is filed for securing guarantee or security for the amount reflected in Exhibit A till the final disposal of the arbitration proceedings pending at London between the plaintiff and defendant No.3. The above premise is the foundation and basis of filing the suit.
14. The plaintiff was the registered owner of the ship as per the MOA dated 21.8.2008 till it was sold to M/s. Sheema Steels of Bangladesh as per the MOA dated 14.9.2008. So, the plaintiff was the owner of 'M.V. AXIS', Ex-'M.V. MAX', - a 'particular ship', till it was sold to M/s. Sheema Steels of Bangladesh and was in total ownership, control and possession of the ship. It is necessary that in the nature of 'in rem' claims, either statutory or quasi 'in rem' claims, in order to enable such claimant to seek arrest of the vessel as security or for securing guarantee of the claim, an 'in personam' obligation ought to have arisen against the owner of the vessel in favour of the claimant. Therefore, sub-article 2 of Article 3 of 1999 Convention permits arrest of any other ship or ships namely 'sister ship' only if such ship is owned by the person who is liable for the maritime claim and when such claim had arisen such person was the owner of the ship in respect of which the maritime claim had arisen. The plaintiff himself was the registered owner and, therefore, till 30th September 2008, no claim could have arisen against the ownership of its own vessel 'M.V. AXIS', Ex-'M.V. MAX', when it was sold to M/s. Sheema Steels of Bangladesh. Subsequently, the said vessel was in ownership, control and possession of M/s. Sheema Steels of Bangladesh and, thus, as per Article 3 of Brussels Convention of 1952 as well as sub-article 2 of Article 3 of 1999 Geneva Convention, no maritime claim could have been made against vessel 'M.V. AXIS', Ex-'M.V. MAX' till 30.9.2008 or thereafter. The claim, which does not so entitle the plaintiff to seek arrest of 'particular ship' under the relevant provisions, is not a maritime claim contemplated under the Convention, because the plaintiff was the owner of the particular ship when the cause of action arose.
15. The plaintiff has presumed that defendant No.1 is owned, operated and managed beneficially by defendant No.2 on the basis that the shareholders in whose favour 500 shares have been issued the value of share is 'nil'. Even according to the plaintiff, defendant No.1-ship is registered at Marshall Islands but does not disclose the real owner and such registration is on-line and it was done by the Agent of Marshall Islands having the office at Greece and the certificate issued shows the same address and that the agent had no share. It is contended by the learned Senior Counsel for the plaintiff that, since the shareholding pattern of defendant Nos. 2, 3 and 18 has not been disclosed and it is a single dollar company, this Court has to lift the veil bringing about the real character of defendant No.18 so that, the arrest of defendant No.1, being a 'sister ship' of 'M.V. AXIS', Ex-'M.V. MAX', can be considered in the correct perspective. The above contention of the learned Senior Counsel for the plaintiff is misconceived in as much as defendant No.18 was registered as early as on 4.7.2007 and certificate of registry was issued in respect of defendant No.1-BASIL on 23.10.2007 and on 24.10.2007, management agreement was entered into between defendant No.18 and defendant No.2-OME for defendant No.1-BASIL. Therefore, it cannot be presumed and believed that the above company, namely, defendant No.18-DMC, was incorporated to defraud the plaintiff, who entered into MOA at later stage on 21.8.2008 with defendant No.3. In absence of any fraud prima-facie established, no corporate veil can be lifted to extend liability since the registration of a single ship companies is a legitimate means to do business. Assuming that Bailey Shipping [defendant No.3] and Diva Maritime [defendant No.18] are sister companies, the admiralty jurisdiction does not contemplate giving the plaintiff a right of arresting a ship which is not the 'particular ship' or a 'sister ship', but the ship of a sister company of the owners of the 'particular ship'. Therefore, question of lifting of corporate veil, as canvassed by the learned Senior Counsel for the plaintiff, pales into absolute insignificance. The contention of Mr. S.N. Soparkar, learned Senior Counsel for the plaintiff that the address of defendant No.2-OME, defendant No.3-Bailey Shipping Limited and defendant No.18 Diva Maritime Company is one and same at Athens, Greece and, therefore, defendant No.18 is also owned and managed by defendant No.2 and, therefore, both the ships are held by one group only, has no merit or substance. The documents produced by the plaintiff on record [at Annexure M and N ] do not, prima-facie, reveal that the above companies have any relationship inter-se much less defendant No.1-M.V. BASIL being sister ship of particular ship 'M.V. AXIS', Ex-'M.V.MAX'. Xerox copies produced by the plaintiff on record at Annexure M , at the most, show that defendant No.2-OME is Manager, but the owner of 'M.V. AXIS', Ex-'M.V.MAX' was defendant No.3. Further, what is reflected at page 124 of compilation is that defendant No.1-M.V. BASIL is owned by registered owner defendant No.18 and ISM Manager is defendant No.2-OME, but, as stated earlier, defendant No.18 is registered owner of defendant No.1 since 15.10.2007 and again defendant No.2-OME is Ship Manager since 1.7.2002 and again as ISM Manager since 9.5.2008. Internet Ships Register produced at page 125 of compilation also confirms the above facts. Therefore, only because the address of the above companies is the one and same, as contended by the learned Senior Counsel for the plaintiff, it cannot be presumed that the above companies were constituted and registered to defraud the plaintiff.. That concept of ownership of ship is different and the ship can be said to be or deemed to be in the same ownership only when all the shares therein are owned by the same person or persons. Nothing is brought on record to indicate that all the shares were owned by the persons who are alleged to have beneficially control over the ship. Even the law firms engaged by the plaintiff who carried out search about the title of the defendant-ship and defendants-companies have also not adhered to their correspondence and the contents of the communication.
16. That 'sister ship' of a sister company and 'sister ship' of 'particular ship' on the basis of ownership both are different concepts. The person who would be liable on the claim in a claim in personam must have been owner or the charterer or in possession or control of 'particular ship' when the cause of action arose and, at the time when the claim is brought i.e. when the claim form is issued, the person who would be liable on the claim in a claim in personam must be the beneficial owner of all the shares in the ship against the the claim is brought [sister ship]. The person against whom the claim is lodged was not owner of 'particular ship' 'M.V. AXIS', Ex-'M.V. MAX' , that is the foundation of the claim against 'sister ship' defendant No.1-BASIL. Unless the particular person is liable for the claim towards 'particular ship', he cannot be made liable for the claim of 'sister ship'. Further, arrest of sister ship of Ex-owner of particular ship is not permissible under the Arrest Convention. Admittedly, the owner of the sister ship at the time of its arrest was not the owner of the particular ship when the claim arose.
17. Again, in the case of Liverpool [supra], the Apex Court considered the concept of 'beneficial ownership' by placing reliance on certain authorities in paragraph 144 onwards and, ultimately, in paragraph 156 held that the question as to whether the asset of a 100% subsidiary can be treated as an asset of the present company would again depend upon the fact situation of each case, by relying upon the case-law in 'Aventicum' and 'Andrea Ursula'. In the facts of the present case, from the documents on record, it is established, as discussed earlier, that defendant No.2-OME is 'Manager' of defendant No.18 and not in 'beneficial ownership'. Thus, vessel M.V. BASIL, defendant No.1, being 'sister ship' of vessel 'M.V. AXIS', Ex-'M.V. MAX' , is concerned, the plaintiff is unable to show any documentary evidence that it is owned, controlled and managed by defendant No.2-OME. Therefore, vessel M.V. BASIL, defendant No.1, alleged to have been a 'sister ship' of 'M.V. AXIS', Ex-'M.V. MAX', could not have been arrested towards security for the claim made in the arbitration proceedings as maritime claim.
18. As a result of foregoing discussion, this Court has come to the conclusion that the plaintiff has failed to establish and sustain and even prima-facie prove that the plaintiff has maritime claim to invoke admiralty jurisdiction of this Court.
19. Further, no 'cause of action' has arisen for filing the suit and invoking admiralty jurisdiction of this Court because the plaintiff himself was the registered owner and, therefore, till 30th September 2008, no claim could have been registered against the ownership of its own vessel 'M.V. AXIS', Ex-'M.V. MAX', when it was sold to M/s. Sheema Steels of Bangladesh. Subsequently, the said vessel was in ownership, control and possession of M/s. Sheema Steels of Bangladesh. So, the plaintiff could not have brought maritime claim against its own ship. Further, the plaintiff is not in a position to establish that defendant No.1-BASIL is a 'sister ship' of 'M.V. AXIS', Ex-'M.V. MAX'. In short, the damage which is likely to be suffered by the plaintiff is based on the damages claimed by M/s. Sheema Steels, Bangladesh, against the plaintiff. In the above context and in absence of any maritime claim, as held earlier, this Court has considered that the cause of action has not arisen.
19.1 Besides, since the maritime claim is based on a huge claim raised by defendant No.17-Sheema Steels against the plaintiff as stated in paragraphs 35 and 36 of the plaint and no particulars have been furnished except bald reference to various heads of loss/damages etc. In absence of details and particulars about the damage caused to the plaintiff and no pleadings in this regard, this Court cannot ascertain or determine the damage as claimed.
20. So far as exercise of admiralty jurisdiction by this Court when the arbitration is pending is concerned, this Court is in complete agreement with the decision of the Bombay High Court in the case of Islamic Republic of Iran vs. M.V. Mehrab, AIR 2002 Bombay 517, that when the dispute between the plaintiff and the defendant No.3 is pending for arbitration at London, admiralty jurisdiction of this Court can be invoked. However, in view of the findings recorded above, this issue does not require any further deliberation.
21. As regards admiralty jurisdiction of High Courts in India, in the case of M.V.Elisabeth and Ors. v. Harwan Investment & Trading Pvt. Ltd.,, Hanoekar House, Swatontapeth, Vasco-De, Gama, Goa [AIR 1993 SC 1014], the Apex Court has held that the High Courts in India being superior courts of record have original and appellate jurisdiction and they have inherent and plenary powers. Unless expressly or impliedly barred, and subject to the appellate or discretionary jurisdiction of this Court, the High Courts have unlimited jurisdiction, including the jurisdiction to determine their own powers and that courts admiralty jurisdiction is not limited to what was permitted by the Admiralty Court Act, 1861 and the Colonial Courts of Admiralty Act, 1890.
21.1 No doubt, the Apex Court in the case of A.B.C. Laminart Pvt. Ltd. and Anr. v. A.P. Agencies, Salem [(1989) 2 SCC 163] has defined meaning of cause of action in the context of Section 20(c) of Civil Procedure Code, 1908 but such cause of action is to be seen in the context of admiralty jurisdiction of this court with regard to maritime claim permitted under Convention of 1952 and Convention of 1999.
21.2 So far as lifting or piercing the corporate veil and submissions canvassed by learned counsel for the plaintiff is concerned, it can be undertaken by Court to see the real persons behind the veil who are involved in defrauding other by corporate and illegal means and the Court in India as a Court of equity has certain powers. In the case of Delhi Development Authority vs. Skipper Construction Company (P) Ltd, reported in (1996) 4 SCC 622, the Apex Court referred to the case of Salomon v. Salomon & Co. Ltd. [1897 AC 22] and found that when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons and where such device of incorporation is used for some illegal or improper purpose and the Company is a mere 'sham', the Court can exercise powers to lift the corporate veil but only in the circumstances where fraud is intended to be prevented, or trading with an enemy is sought to be defeated, the veil of a corporation is lifted by judicial decisions. In the facts of this case, no such exercise is necessary in view of legal and valid incorporation of Company registered with the countries as per the documents produced as early as in 2007.
21.3 So far as decision of the Bombay High Court in the case of Islamic Republic of Iran v. M.V. Mehrab and Ors. [AIR 2002 Bombay 517], this Court has no difficulty to agree with the proposition that admiralty jurisdiction of High Court can be exercised to arrest ship to secure claim in future or pending arbitration. However, when the Court has already come to the conclusion that no maritime claim is established to arrest a sister ship, defendant No.1 herein, no further discussion on the issue is necessary.
21.4 However in a decision of Queen's Bench Division (Admiralty Court) in the case of the Maritime Trader [1981 (2) 153] Mr. Justice Sheen while considering the provisions of Administration of Justice Act, 1956 and Section 3(4) with regard to arrest of a sister ship of a chartered vessel, considered the concept of beneficial ownership of the ship, relied on Lord Diplock's observation that to be liable to arrest a ship must not only be the property of the defendant to the action, but also be identifiable as the ship in connection with which the claim made in the action arose ( or a sister ship of that ship). After considering other decisions, it was also observed that according to the legal meaning of the words a company is not the beneficial owner of the assets of its own subsidiary. The legal meaning of the words takes account of the Company structure and the fact that each Company is a separate legal person. The Onus is upon the plaintiff to show that the person against whom it is sought to invoke the admiralty jurisdiction by arresting his ship is the person who is beneficial owner of the shares in that ship and that he is the person who is liable in an action in personam. In the facts of this case, no such fact of 'beneficial owning of the shares in the ship' is established by the plaintiff.
21.5 In the case of the I congreso Del Partido [1980 (1) 23], while considering the action in rem and admiralty jurisdiction under Section 3(4) Administration of Justice Act, 1956, in appeal though Lord Denning M.R. disagreed to the view of absolute sovereign immunity to the State as held by Justice Robert Goff, Lord Justice Waller found that the Court will not grant immunity where a commercial vessel involved in a private law activity is subject to a private law claim, but, considering many international authorities and affidavits filed by the foreign lawyers, it was held that, if the claim for sovereign immunity is founded on an act said to be 'jure imperii', then the nature of the act must be examined; however, the appeal bench agreed with the following finding of Justice Robert Goff that the natural and ordinary meaning of the words 'beneficially owned as respects all the share therein' in section 3(4) of the Administration of Justice Act, 1956, was that they referred only to such ownership as was vested in a person who, whether or not he was the legal owner of the vessel, was in any case the equitable owner, and were not applicable to the case of a demise charterer or indeed any other person who had only possession of the vessel however full and complete such possession might be and however much control over the vessel he might have. The ratio of the decision as above supports the case of the defendants and the concept of 'beneficial ownership' is not to be applied to the case of a demise charterer or indeed any other person who had only possession of the vessel however full and complete such possession might be.
21.6 In a case of the EVPO Agnic [1988(2) 411], in an appeal preferred against the decision of Mr. Justice Sheen adjourning their application to set aside the writ and warrant of arrest issued and obtained by the plaintiffs, and considering Section 21(4) of Supreme Court Act, 1981 along with Section 21 (1) to (4), the Court of Appeal examined the concept of right of arrest in respect of 'the particular ship', ships in the same ownership and ships which had been transferred into different legal ownership but where the owners of the particular ship retained the beneficial ownership of the shares in that ship, and held that the section did not confer the plaintiffs the right to arrest a ship which was a ship of a sister Company of the owners of 'the particular ship' and the appeal was allowed and warrant of arrest was set aside.
21.7 In the case of Polestar Maritime Limited vs. M.V.QI LIN Men and others, Appeal (Lodging) No.772 of 2008, the Division Bench of the Bombay High Court, vide judgment and order dated 6th January 2009, confirmed the finding of the learned Single Judge as recorded in paragraph 4, as under:
In my view, merely because the shareholders are common or their holding in two different companies duly registered under the Companies Registration Act, is identical would not make the two companies one and the same entity. It is elementary principle of law when a company is incorporated it becomes a separate legal entity different from the persons constituting it. Therefore, assuming for the sake of argument that the shareholders of the two companies are common, [presently there is no material on record that the shareholders of the two companies are identical] that would not make the defendant No.2 the owner of the defendant No.1 ship. As the defendant No.1 vessel is not owned by defendant Nos. 2 or 3, plaintiff cannot arrest the defendant No.1 vessel for the alleged maritime claim against defendant Nos. 2 or 3. the maritime claim is neither against defendant No.1 ship nor there is any maritime claim against the owner of the defendant No.1 ship.
21.8 Therefore, the above case law is applicable to the facts of the present case and when the plaintiff has failed to establish its maritime claim either against defendant No.1-ship or against its owner, the arrest order is to be vacated.
22. In view of the above discussion, issue no.(i) is answered in the affirmative, but the ratio of decision in the case of Liverpool [supra] cannot be made applicable to the facts of the present case as the contract between the plaintiff and defendant No.3 does not involve enforcement of a contract of public law character; and issue Nos. (ii) and (iii) are answered in the negative and, consequently, it is held that the suit is not maintainable.
23 In the result, the admiralty suit is dismissed. The interim order dated 1.11.2010 for the arrest and detention of M.V. BASIL, defendant No.1, is vacated. Notice is discharged with no order as to costs. The amount of deposit, if any, made by the plaintiff shall be returned.
24 After the judgment and order is pronounced, the learned counsel for the plaintiff requests that the above judgment and order may be suspended so as to enable the plaintiff to avail remedy of appeal, to which, learned counsel for defendant No.18 has objection.
25 However, considering the facts and circumstances of the case, so as to enable the plaintiff to approach the higher forum, operation of this judgment and order shall remain stayed upto 2.2.2011.
No order as to costs.
Direct service is permitted.
(ANANT S. DAVE, J.) (swamy) Top