Gujarat High Court
Croft vs M on 17 February, 2011
Author: Jayant Patel
Bench: Jayant Patel
Gujarat High Court Case Information System
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OJA/6/2011 32/ 32 JUDGMENT
IN
THE HIGH COURT OF GUJARAT AT AHMEDABAD
O.J.APPEAL
No. 6 of 2011
In
ADMIRALITY
SUIT No. 10 of 2010
With
CIVIL
APPLICATION No. 73 of 2011
In
O.J.APPEAL
No. 6 of 2011
For
Approval and Signature:
HONOURABLE
MR.JUSTICE JAYANT PATEL
HONOURABLE
MR.JUSTICE J.C.UPADHYAYA
=========================================================
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 ?
=========================================================
CROFT
SALES AND DISTRIBUTION LTD - Appellant(s)
Versus
M
V BASIL (IMO NO.7532650) & 17 - Opponent(s)
=========================================================
Appearance
:
MR
SN SOPARKAR, SR. COUNSEL WITH MR BHARAT T RAO
for
Appellant(s) : 1,
MR MIHIR JOSHI, SR COUNSEL WITH MR MAJMUDAR AND
MR RJ OZA for Opponent(s) : 1, 18,
None for Opponent(s) : 2 -
17.
=========================================================
CORAM
:
HONOURABLE
MR.JUSTICE JAYANT PATEL
and
HONOURABLE
MR.JUSTICE J.C.UPADHYAYA
Date
: 17/02/2011
CAV
JUDGMENT
(Per : HONOURABLE MR.JUSTICE JAYANT PATEL) The present appeal as well as the interim application therein arise against the order passed by the learned Single Judge in Admiralty Suit No.10 of 2010, whereby the learned Single Judge has dismissed the suit and has also vacated the interim order.
The parties in the present proceedings shall be referred to as their status in the suit as 'plaintiff-appellant herein' and the 'defendant - respondent herein' for the sake of convenience hereinafter.
The brief facts are as under:-
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 title 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.
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.
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".
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.
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 Supreme Court of Bangladesh, High Court Division and the vessel was arrested pursuant to an order passed by the Supreme Court of Bangladesh, High Court Division. 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 Supreme Court of Bangladesh, High Court Division, 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.
The learned Single Judge (Coram: Bankim Mehta, J.) when considered the suit for the first time on 1.11.2010 passed the interim order for arrest of the ship. The defendant No.1 ship and defendant No.18, Divya Maritime Company as well as defendant No.11, Assistant Custom Commissioner, defendant No.14 Gujarat Pollution Control Board and defendant No.17, M/s.Sheema Steel appeared in response to the suit and the arrest order. However, defendant Nos.1 and 18 mainly resisted the suit and opposed to the continuation of the arrest order and the confirmation of the arrest order contending, inter alia, that the plaintiff has no maritime claim to invoke the admiralty jurisdiction of this Court and prayed for dismissal of the suit as not being maintainable and also the vacation of the interim relief for arrest of the ship. The learned Single Judge thereafter heard the matter and as per the impugned order the learned Single Judge has dismissed the suit. Hence, the present appeal before us.
We have heard Mr.S.N.Soparkar, learned Sr. Counsel with Mr.Rao, learned Counsel for the appellant and Mr.Mihir Joshi, learned Sr. Counsel with Mr.Majmudar and Mr.Oza, learned Counsel for defendants No.1 and 18 appearing by caveat.
We have considered the judgement and the reasons recorded by the learned Single Judge and have also considered the record and proceedings of the present appeal, wherein the record and proceedings are also produced of the suit as they were before the learned Single Judge.
The ship M.V. AXIS, ex M.V. MAX (for the sake of convenience shall be referred to as 'particular ship/vessel' hereinafter) and the ship M.V. Basil (for the same of convenience shall be referred to as 'available ship' hereinafter).
In our view, the following aspects are required to be considered:-
(a) The applicability of International Convention of Arrest of Ship (Geneva 1999) (hereinafter referred to as 'Geneva Convention/1999 Convention) and if yes, the limits of the jurisdiction of this Court.
(b) Whether the available ship can be arrested even if the Geneva Convention is to apply.
(c) Whether the available ship can be termed as sister-ship by lifting the corporate veil.
(d) If there is no right in rem qua available ship, whether suit can be maintained for invoking admiralty jurisdiction.
(e) The consequential order.
The learned Counsel appearing for the appellant has contended that in view of the decision of the Apex Court in the case of Liverpool and London S.P. & I Association Limited v. M.V. Sea Success I and Another, reported in (2004) 9 SCC, 512 read with the Full Bench decision of Bombay High Court in the case of O.J. Ocean Liner LLC v. M.V. Golden Progress & Anr., reported at 2007(2) Bombay C.R. 1, 1999 Convention is applicable and can be enforced in India, whereas the learned Counsel appearing for the respondents No.1 and 18 contended that 1999 Convention is not in force since the minimum number of countries i.e. 10, are not signatories to the Convention and it was submitted that as per the website of United Nations (U.N.), as on 8.2.2011 on the aspects of status of Geneva Convention, it has been mentioned as not yet in force by referring to Article 14 that the Convention shall enter into force in six months following the date on which 10 States have expressed their consent to be bound by it and the signatories in the status are shown as '6' and, in any case, our Country has not ratified the Convention of 1999. It was also submitted that the aforesaid factum appears was not brought to the notice of the Apex Court as well as to the Full Bench of Bombay High Court when the decisions were rendered in the case of Liverpool and London S.P. & I Association Limited v. M.V. Sea Success I and Another (supra) as well as in the case of O.J. Ocean Liner LLC v. M.V. Golden Progress & Anr. (supra). It was also submitted that the Apex Court in the case of Liverpool and London S.P. & I Association Limited v. M.V. Sea Success I and Another (supra) at para 43 did record that certain countries have ratified the convention of 1999 and in the submission of the learned Counsel for the respondents No.1 and 18, those countries were present, but they have not ratified.
It is undisputed position that the suit of the plaintiff has been filed based on 1999 Convention for arrest of the ship.
We may only record that in the case of Liverpool and London S.P. & I Association Limited v. M.V. Sea Success I and Another (supra), the Apex Court on the aspects of Convention has recorded at para 43 about the ratification of the Convention of 1999 by various countries and, therefore, it is not possible for us to entertain the contention that the Convention of 1999 is not in force or not ratified by the requisite number of countries as per Article 14 of the Convention of 1999. However, in the very decision, the Apex Court at paragraphs 59 and 60, has observed thus:-
"59. M.V. Elisabeth is an authority for the proposition that the changing global scenario should be kept in mind having regard to the fact that there does not exist any primary act touching the subject and in absence of any domestic legislation to the contrary; if the 1952 Arrest Convention had been applied, although India was not a signatory thereto, there is obviously no reason as to why the 1999 Arrest Convention should not be applied.
60. 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."
(Emphasis supplied) In view of the above, in the very decision, while observing that 1999 Convention may be applied, it is specifically also observed that the application of such Convention shall be subject to Domestic Law enacted by the Parliament and it should be applied only for the enforcement of contract involving public law character. This means that both the conditions are to be observed while applying the Convention of 1999.
The aforesaid leads us to examine the question as to whether the contract in question is involving public law character or not. The contract in question for sale of the particular ship is produced by the plaintiffs themselves with the plaint at Annexure-A and the same is entered into between the plaintiffs and defendant No.3 herein. It is purely a commercial transaction for sale of the ship and, in no way, connected with our nation directly or indirectly, nor is there any operation and/or involvement of the State or any instrumentality of the State as per Article 12 of the Constitution of India. The said contract dated 21.8.2008, upon which the reliance has been placed by the plaintiff, in our view would not attract any public law character, in any manner, whatsoever. In our view, the parameters of the contract involving public law character has to be read as per the legal provisions prevailing in our country. It is by now well settled that the contract may attract public law character, if the State or instrumentality of the State, is directly or indirectly connected therewith in enforcement of the contract or implementation thereof. Further, by virtue of the said contract, if there is any question arises for the sovereignty of the Nation, environment, pollution, dispute of sea water etc., where larger or huge or any public interest is involved, such contract may also attract public law character. We do not find any element of public law character in the present contract in question even if the terms and conditions of the contract agreement are considered as they were.
On the second aspect of domestic law enacted by the Parliament, if considered, provisions of CPC would be required to be followed, even if one has to enforce the Convention of 1999. The order of arrest of the ship may fall at par with the provisions of Order 38 Rule 5 of the CPC, providing for attachment before judgement or, in any case, the principles analogues thereto. Order 38 Rule 5 of CPC would be attracted only when the defendant is to defeat the realization of the decree that may be passed against him. It would presuppose the prayer in the suit for realization of any amount through a decree, whose execution is sought to be frustrated by the defendant. The Order 38 Rule 5 reads as under:-
"5(1) Where, at any stage of a suit, the Court is satisfied, by affidavit or otherwise, that the defendant, with intent to obstruct or delay the execution of any decree that may be passed against him. ..."
The prayers made in the suit at paragraph 52 is not for realization of any amount by way of decree or otherwise while invoking the admiralty jurisdiction. Therefore, the condition precedent for exercise of the power for attachment before the judgement or any other order for, the arrest of the ship as provided under Order 38 Rule 5 of CPC which is as per law made by Parliament is not satisfied. Such may equally apply for applicability of the provisions of Order 7 Rule 11 of CPC in a suit where , the plaint does not disclose a cause of action or the entertainment thereof is barred by any law.
In view of the aforesaid, even if the Convention of 1999 is to apply, but for the fact that the contract is not involving any public law character, the said condition as read by the Apex Court in the above referred decision of Liverpool and London S.P. & I Association Limited v. M.V. Sea Success I and Another (supra) is not satisfied. Further, the limitation as provided by the CPC for the order of arrest, which is akin to the power to be exercised by the Civil Court for arrest of the ship is not satisfied. As per the above referred decision of the Apex Court, if both the conditions are not satisfied 1999 Convention cannot be applied, nor the admiralty jurisdiction can be invoked based on the Convention of 1999.
In the decision of Bombay High Court in the case of O.J. Ocean Liner LLC v. M.V. Golden Progress & Anr. (supra), the Full Bench of High Court had no occasion to consider the restriction read by the Apex Court expressly at paragraph 60 of the aforesaid decision in the case of Liverpool and London S.P. & I Association Limited v. M.V. Sea Success I and Another (supra), nor the Full Bench of High Court had an occasion to consider the matter of limitation provided by Order 38 Rule 1 of CPC as per the law made by the Parliament for the purpose of passing the order of arrest of ship, which is akin to the power of the Civil Court under Order 38 Rule 5 of CPC. Hence, the decision of the Full Bench of the Bombay High Court in the case of O.J. Ocean Liner LLC v. M.V. Golden Progress & Anr.(supra), in our view would be of no help to the appellant.
Apart from the above, as observed earlier, the Apex Court read at paragraph 60, the limitation for applicability of Convention of 1999, if one of it is not satisfied, 1999 Convention cannot be applied. Even if it is considered for the sake of examination that one may invoke the admiralty jurisdiction for securing the arbitration as observed by the Full Bench of Bombay High Court in the case of O.J. Ocean Liner LLC v. M.V. Golden Progress & Anr. (supra), then also the requirement of contract involving public law character as per our Constitution and law prevailing in our country is not satisfied.
In view of the aforesaid, we find that as per the aforesaid decision of the Apex Court in the case of Liverpool and London S.P. & I Association Limited v. M.V. Sea Success I and Another (supra), as the conditions are not satisfied, no relief can be granted to the plaintiff based on 1999 Convention.
The aforesaid takes us to examine the next aspect of arrest of sister-ship by lifting the corporate veil. It is an undisputed position that as per the 1999 Convention, the language used under Article 3 Sub-Article (2) is as under:-
"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."
The aforesaid article provides for the arrest of any other ship, and it expressly provides that the other ship must be owned by the person, who is liable for the maritime claim. It is not the case of the plaintiff that the available ship is owned by the company, which owned the particular ship. Therefore, the language, if considered as it is, since the available ship is owned by respondent No.18, a different company, the arrest of available ship is not provided, even as per 1999 Convention.
The attempt to contend that the word 'owned' should be read and interpreted to mean including the subsidiary company and also other companies by lifting of the corporate veil, even if considered, it is not the case of the plaintiff that defendant No.18 is subsidiary of defendant No.3, which owned the particular ship. Concerning to the contention of lifting of the corporate veil, the learned Counsel for the appellant had relied upon the decision of the Apex Court in the case of State of U.P., and Ors. v. Ranusagar Power and Co., reported in 1988(4) SCC, 59 and contended that even in the case of liability to pay tax and the availability of the benefits, the corporate veil was permitted to be lifted by the Apex Court and, therefore, he contended that it is not a matter where the corporate veil is to be lifted only when there is a fraud.
We may record that the aforesaid decision of the Apex Court in the case of State of U.P., and Ors. v. Ranusagar Power and Co. (supra), once again came up for consideration before the Apex Court in the case of Kapila Hingorani v. State of Bihar, reported in (2003)6 SCC, 1 and the very decision of the Apex Court in the case of State of U.P. (supra) was pressed in service and the Apex Court, at paragraph 25, observed as under:-
"25.It is now well settled that the corporate veil can in certain situations be pierced or listed. The principle behind the doctrine is a changing concept and it is expanding its horizon as was held in State of U.P. v. Renusagar Power Co.
The ratio of the said decision clearly suggests that whenever a corporate entity is abused for an unjust and inequitable purpose, the court would not hesitate to lift the veil and look into the realities so as to identify the persons who are guilty and liable therefor." (Emphasis supplied) Further at paragraph 27, the Apex Court observed as under:-
"27. The corporate veil indisputably can be pierced when the corporate personality is found to be opposed to justice, convenience and interest of the revenue or workman or against public interest. (See CIT v Sri Meenakshi Mills Ltd., Workmen v. Associated Rubber Industry Ltd., New Horizons Ltd. v. Union of India, State of U.P. v. Renusagar Power Co., Hussainbhai v. Alath Factory Thezhilali Union and Secy. H.S.E.B. V Suresh)."(Emphasis supplied) Therefore, the corporate veil can be lifted when a personality is found to be opposed to justice, convenience and interest of revenue or workman or against public interest. It is undisputed position that when the contract was entered into for the particular ship by the plaintiff with respondent No.3, the available ship was already owned by another company respondent No.18 and, therefore, it cannot be said that with a view to defraud the plaintiff, the another company, defendant No.18 was formed or that it purchased the another available ship. It is hardly required to be stated that when there are two separate corporate or legal entities, generally they are to be accepted as separate legal entities for all purposes. It is only in case of exceptional circumstances, the Court may be required to examine the question of lifting of the corporate veil. If such an approach is not made, it may result into chaotic situation. The requirement of such exceptional circumstances as observed by the Apex Court in the above referred decision in the case of Kapila Hingorani v. State of Bihar (supra) is only when the corporate personality is found to be opposed to justice, convenience and interest of the revenue or workman or against the public interest. If the company was already formed and the available ship was already owned by respondent No.18, much prior to the date of which the contract was entered into, the basic element of fraud or defrauding to the appellant/plaintiff in capacity as the creditor or a person who may have any right to recover damages from respondent No.3 would not be satisfied. The contention that the defendant No.18 is a single dollar company registered as company in Marshal Island or it should be treated as a dummy company, in our view prima facie cannot be accepted, because there is no material produced on record to show that the holding of the share of defendant No.18 company is by defendant No.3 company. Further the identification of such company being entered into for taxing purpose or for other purpose by our country may also fall in the arena of International Treaties between two Nations. In absence of all such material, it cannot be said that defendant No.18 is a sister company or a subsidiary of defendant No.3.
Hence, we may find that none of the conditions as observed by the Apex Court for lifting of the corporate veil has been satisfied, even if the record produced by the plaintiff is considered as it is for the formation of defendant No.18 company, the owner of the available ship. The transaction of contract by the plaintiff is with defendant No.3 and subsequent claim is made by M/s.Sheema Steels - defendant No.17 against the plaintiff. Hence, the contention of the appellant that the available ship is owned by the sister-company and, therefore, to be treated as owned by the company, which owned by the particular ship is meritless. Therefore, cannot be accepted.
The examination on the aspects of right in rem shows that it is undisputed position that at the time when M/s.Sheema Steels made the claim for the alleged loss suffered on account of proceedings initiated by Intermare Transport in the Supreme Court of Bangladesh, High Court Division, the right in rem qua particular ship was not be available to the plaintiff, since at that time particular ship was owned by the M/s.Sheema Steels, defendant No.17. At the most the plaintiff may have right in personam against defendant No.3 being the then owner of the particular ship. In respect of right in personam, the arbitration even as per the plaintiff is already invoked against defendant No.3 and is pending at London. Under the circumstances, we find that if there is no right in rem available to the plaintiff, the admiralty jurisdiction cannot be invoked.
Apart from the above, if one is to examine the claim in the suit, it is on the hypothesis that the liability may be fastened upon the plaintiff on account of the alleged claim of M/s.Sheema Steels, defendant No.17 and, therefore, the arbitration has been invoked and the liability may be fastened in the arbitration at London and pending the arbitration at London, by way security the available ship be sold and by interim measure the available ship be arrested. In our view, the whole suit is on hypothesis and not based on any liability, which can be identified under Indian Law on the date of the institution of the suit.
This Court had an occasion to consider the question for exercise of the power for rejection of the plaint under Order VII Rule 11 in the case of Chandrakant Kantilal Jhaveri & 1 v. Madhuriben Gautambhai & 1 (First Appeal No.4676 of 2008) and it was observed as under:-
"5. It is by now well settled that for the purpose of considering the case under Order VII Rule 11 of the Civil Procedure Code, averments made in the plaint are only required to be taken into consideration and the defence may not be taken into consideration. This Court had an occasion to consider the said aspects in the case of Maharaj Shri Manvendrasinhji R. Jadeja V. Rajmata Vijaykunverba Wd/o. Maharaja Mahendrasinhji reported at 1999(1) GLR 26 at paras 14, 15, and 16, which reads as under:
"14 Having noticed brief summary of the plaint and prayers earlier, it would be relevant to refer to the provisions of Order 7, R.11(a) of the CPC and the scope thereof. Order 7, R.11(a) of the CPC provides that the plaint shall be rejected in case where it does not disclose a cause of action. Order 7, R.11(a) of the CPC is mandatory and if it is found that the plaint does not disclose a cause of action, the Court has no option but to reject the plaint. To find out whether a plaint discloses a cause of action or not, the Court has to look only to the averments made in the plaint. When a plaint is based on a document filed along with the plaint, it can, however, be considered to ascertain if plaint discloses any cause of action. Cause of action means every fact which it would be necessary for the plaintiff to prove, if traversed, in order to support his right to judgment. The words "cause of action" mean the whole bundle of material facts which are necessary for the plaintiff to prove in order to entitle him to the reliefs claimed in the suit. What is to be done by the Court at the stage of deciding as to whether the plaint discloses any cause of action or not is to find out from the allegation of the plaint itself as to whether a bogus, wholly vexatious or frivolous litigation is sought to be initiated under the garb of ingenuous drafting of the plaint or not because it is the duty of the Court to guard against the mischief of a litigant misusing the process of court by entering into a false litigation merely for the purpose of harassing the other party and to nip in the bud the litigation which is sham and shabby in character. In order to find out whether the plaint discloses a cause of action or not, the averments made in the plaint and documents annexed thereto should be scrutinised meaningfully and if on such scrutiny it is found that the plaint does not disclose cause of action, it has got to be rejected in view of the provisions of Order 7, R.11(a) of the CPC. When it is said that the Court should take into consideration the averments made in the plaint for the purpose of deciding the question whether the averments made in the plaint disclose cause of action or not, it does not mean that the Court is precluded from applying the statutory provisions or case-law to the averments made in the plaint. If an assertion made in the plaint is contrary to statutory law or case-law, it cannot be considered as disclosing cause of action. In ITC Ltd. (supra), bank had filed suit against the appellant and others and claimed relief for a sum of Rs.52,59,639-66 ps. After the suit was filed, it was transferred to the Debt Recovery Tribunal. Before the Tribunal, an application was filed by the appellant under Order 7, R.11 of the CPC for rejecting the plaint, so far as appellant was concerned, on the ground that no valid cause of action had been shown against the appellant. That application was rejected by the Tribunal. Against the said order, an appeal was filed before the Debts Recovery Appellate Tribunal. The appeal was dismissed in limine. Thereupon a writ petition was filed by the appellant, which was dismissed holding that the question should be decided at the trial. Against that judgment, the appellant had filed an appeal before the Division Bench of the High Court, which was also dismissed. The matter was thereafter carried before the Supreme Court. After taking into consideration the decided cases on the point whether there was fraudulent movement of goods under which letter of credit was obtained which in turn entitled the bank to file the suit, the Supreme Court held that that point was already decided by decision of the Supreme Court in U.P. Co-operative Federation's case and therefore the allegation of non-supply of goods by the sellers to the buyers did not by itself amount, in law, to a plea of "fraud" as understood in this branch of the law and hence by merely characterising alleged non-movement of goods as "fraud", the bank was not entitled to claim that there was a cause of action based on fraud or misrepresentation. While allowing the appeal, what is emphasised by the Supreme Court is that the question whether a real cause of action has been set out in the plaint or something purely illusory has been stated with a view to get out of Order 7, R.11 of the CPC has to be decided with reference to averments made in the plaint and clever drafting creating illusions of cause of action are not permitted in law and a clear right to sue should be shown in the plaint. In view of this decision of the Supreme Court, it is evident that if something purely illusory has been stated with a view to get out of Order 7, R.11 of the CPC by resorting to clever drafting, it cannot be said that the plaint discloses a cause of action and if a clear right to sue is not shown in the plaint, it is liable to be rejected.
15 In the light of scope of Order 7, R.11(a) of the CPC, we would now proceed to examine different submissions made on behalf of the appellant.The submission that the plaint was presented on December 26,1978 , whereas issues for determination were framed by the learned Judge on July 21, 1981 and therefore the application filed by the respondent under Order 7, R.11(a) of the CPC on June 26, 1996 should not have been entertained at such a long distance of time, has no substance. As noted earlier, the provisions of Order 7, R.11(a) of the Code of Civil Procedure are mandatory in nature. It is the duty of the Court to reject the plaint which does not disclose cause of action. If a plaint can be rejected at threshod of the proceedings, we do not see any reason as to why it cannot be rejected at any subsequent stage of the proceedings. Even if after framing of issues, the basic defect in the plaint persists, namely, absence of cause of action, it is always open to the contesting defendants to insist that the plaint be rejected under Order 7, R.11 of the CPC and the Court would be acting within its jurisdiction in considering such a plea. Order 7, R.11 of the CPC does not place any restriction or limitation on the exercise of the court's power. It does not either expressly or by necessary implication provide that power under Order 7, R.11 of the CPC should be exercised at a particular stage only. In the view we are taking, we are fortified by the judgment of the Supreme Court rendered in the case of ITC Ltd. (supra). Therein, the suit was filed by the Bank in the year 1985. In 1995, it was transferred to Debt Recovery Tribunal and thereafter an application was filed by the appellant under the provisions of Order 7, R.11 of the CPC for rejection of the plaint as not disclosing any cause of action against the appellant. The application filed by the appellant was rejected not only by the Tribunal and Appellate Tribunal, but also by the High Court. When the matter reached before the Supreme Court in the year 1997, it was contended that the power under Order 7, R.11 of the CPC should not be exercised after such a long lapse of time, more particularly when issues were framed. That plea has been negatived by the Supreme Court in following terms:-
"13. We may state that in the context of Order 7 Rule 11 CPC, a contention that once issues have been framed, the matter has necessarily to go to trial has been clearly rejected by this Court in Azhar Hussain v. Rajiv Gandhi (SCC p.324) as follows: (SCC para 12) "In substance, the argument is that the court must proceed with the trial, record the evidence, and only after the trial... is concluded that the powers under the Code of Civil Procedure for dealing appropriately with the defective petition which does not disclose cause of action should be exercised. With respect to the learned counsel, it is an argument which is difficult to comprehend. The whole purpose of conferment of such powers is to ensure that a litigation which is meaningless and bound to prove abortive should not be permitted to occupy the time of the court..."
The abovesaid judgment which related to an election petition is clearly applicable to suits also and was followed in Samar Singh v. Kedar Nath. We therefore hold that the fact that issues have been framed in the suit cannot come in the way of consideration of this application filed by the appellant under Order 7 Rule 11 CPC."
17. In view of settled legal position, plea that powers under Order 7, R.11(a) of the CPC should not have been exercised after framing of issue cannot be upheld and is hereby rejected." (Emphasis supplied)
6. The aforesaid shows that if it is found that the plaint does not disclose the cause of action, the Court has no option but to reject the plaint. But for deciding such aspects of cause of action, the Court should take into consideration the averments made in the plaint for the purpose of deciding the question as to whether the averment made in the plaint discloses the cause of action or not and while doing so, it cannot be said that the Court is precluded from applying the statutory provisions or case law to the averments made in the plaint. If the assertion made in the plaint is contrary to the statutory law or case law, it cannot be considered as the valid cause of action."
If the matter is considered in light of the aforesaid parameters read with the decision of the Apex Court in the case of Liverpool and London S.P. & I Association Limited v. M. V. Sea Success I and Another (supra), and more particularly the observations made at paragraph 60, since the contract is not involving the public law character, the suit can be said as barred or non-maintainable. Under these circumstances, it can be said that the requirement of Order 7 Rule 11 Clause (A) and (D) are satisfied.
In view of the aforesaid observations and discussions for the purpose of consequential order the matter can be classified into two parts; one for vacation of the interim order and the another is for the dismissal of the suit.
It is by now sell settled that even for the purpose of interim order, the requirement of prima facie case is to be satisfied coupled with the aspects of the balance of convenience and irreparable injury. As observed earlier, there is no prima facie case in law in favour of the plaintiff. The principles of balance of convenience is more in favour of the defendant No.18, since it is owning the available ship and the available ship is in sea water of Indian territory. On the aspects of irreparable injury, the injury has to be in law. If there is no prima facie case of the plaintiff in law, including under the admiralty jurisdiction, merely because a ship may sail outside the Indian Territory or may be beached and broken at Alang Port, cannot be termed as any irreparable injury in law to the plaintiff. Therefore, the interim order does not deserve to be granted.
On the second aspect of dismissal of the suit, as observed earlier, the suit is barred and is lacking a valid cause of action for invoking admiralty jurisdiction of this Court.
In view of the aforesaid discussion and observations, the ultimate decision taken by the learned Single Judge does not call for interference in appellate jurisdiction.
Hence, the appeal fails and, therefore, dismissed. No order as to costs.
In view of the order passed in the appeal, the civil application would not survive and shall stand disposed of accordingly.
After the pronouncement of the order, Mr.Rao, learned Counsel for the appellant, states that the interim arrangement made at bar be continued for some time, so as to enable his client to approach before the higher forum.
Mr.Joshi, learned Counsel for the Respondent No.1 and 18, states that since the matter was being heard continuously by this Court the understanding prevailed and he states that he is not inclined to continue with the said arrangement as serious prejudice and loss are being suffered by his clients.
In the present matter, we have not passed any interim order. Further, we have dismissed the appeal at the admission stage. Under these circumstances, no order deserves to be passed. Therefore, the said request is declined.
(Jayant Patel, J.) (J. C. Upadhyaya, J.) vinod Top