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AS/1/2011 13/ 13 JUDGMENT
IN
THE HIGH COURT OF GUJARAT AT AHMEDABAD
ADMIRALITY
SUIT No. 1 of 2011
with
OJ
Civil Application No. 49 of 2011
with
OJ
Civil Application No. 92 of 2011
with
OJ
Civil Application No. 101 of 2011
For
Approval and Signature:
HONOURABLE
MR.JUSTICE ANANT S. DAVE
======================================
1
Whether
Reporters of Local Papers may be allowed to see the judgment ? yes
2
To
be referred to the Reporter or not ? yes
3
Whether
their Lordships wish to see the fair copy of the judgment ? no
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 ? no
5
Whether
it is to be circulated to the civil judge ? no
======================================
DESTEL
MARINE LIMITED - Plaintiff(s)
Versus
M
V STAR 7 - Defendant(s)
======================================
Appearance :
Ms.
Paurami B. Sheth for the plaintiff.
Mr.Mihir
Thakore, Senior Advocate with Mr. R.S. Sanjanwala for the
defendant.
======================================
CORAM
:
HONOURABLE
MR.JUSTICE ANANT S. DAVE
Date
: ___/05/2011
CAV
JUDGMENT
1 Plaintiff
is a Company registered in Liberia engaged in the business of supply
of bunkers. The defendant-vessel is a Tanzania flagged vessel
presently in port and harbour Alang. The plaintiff seeks security
from the defendant for a sum of USD 1 million towards security for
arbitration in New York arising out of unpaid supply of fuel and
bunkers as mentioned in paragraphs 2 to 4 of the plaint.
2 It
is not in dispute that the claim made in the present suit is about
supply of necessaries and no one disputes that it is not ‘maritime
claim’ and the defendant also accepts the same.
3 At
the outset, the learned counsel for the defendant has raised
preliminary objection that the suit is not maintainable in view of
the claim made only for security pending arbitration and no claim is
preferred for any money decree and reliance is placed on the
judgment dated 17th February 2011 passed by a Division
Bench of this Court in O.J. Appeal No.6 of 2011 confirming the
decision dated 24.1.2011 of this Court in Admiralty Suit No.10 of
2010. It is submitted that no arrest can be ordered on the
principles akin to Order 38 Rule 5 of the Code of Civil Procedure in
view of the aforesaid judgment of the Division Bench and the law laid
down by the Apex Court in paragraph
74 of M.V. Elisabeth and others vs. Harwan Investment & Trading
Private Limited, reported in (1993) Suppl. 2 SCC 433, that ‘these
principles of international law, as generally recognised by nations,
leave no doubt that, subject to the local laws regulating the
competence of courts, all foreign ships lying within the waters of a
State, including waters in ports, harbours, roadsteads, and the
territorial waters, subject themselves to the jurisdiction of the
local
authorities in respect of maritime claims and they are liable to be
arrested for the enforcement of such claims’.
3.1
It is further submitted that the vessel is imported in India on which
customs duty was paid, beaching permission and other clearance were
granted by the competent authorities. Therefore the vessel is no more
intended to be run as a vessel and it is not meant for navigation.
The vessel was beached at 4.30 a.m. on 5.1.2011 before the said
vessel was arrested by this Court and once the vessel is beached, it
is no more in the territorial waters and it is on the landmass of
India. Hence, no admiralty jurisdiction can be invoked.
3.2 On
merits, referring to the claims of Bunkers/fuel supplied, payment for
port dues, and payment for transportation of Crank Shaft, it is
submitted that all the aforesaid claims were not in respect of
‘necessaries’ supplied in USA. It is submitted that all the payments
were to be made in Africa or Europe. Maritime liens arise by
operation of law and they do not require any judicial or contractual
action for its creation. It is submitted that the Federal Statute of
USA creates a maritime lien in favour of a person providing
necessaries to a vessel on the order of the owner or a person
authorized by the owner. It is not impermissible for the plaintiff to
claim lien not on the basis of goods necessaries having been supplied
in USA, but on the basis of a subsequent contract having been entered
into on 20.1.2010 between the plaintiff and Michail Arhangelos S.A.
each having their office in Greece and by agreement declaring that
the said Agreement shall be governed by the Federal Maritime Law of
United States. The said law has no connection to the supplies made.
3.3
It
is submitted that, assuming without admitting that maritime lien is
created as per the Federal Law of USA, such lien cannot be enforced
in India as India does not recognize maritime lien in respect of
supply of necessaries as laid down by the Apex Court in Epoch
Enterrepots vs. M.V. Won Fu, (2003) 1 SCC 305 and the law which will
be applicable for the purposes of determining the lien would be Lex
Fori and not the law of the contract. Reliance is placed on Bankers
Trust International Ltd vs. Todd Shipyards Corporation reported in
(1981) 1 A.C. 221.
3.4
It is submitted that even if it is presumed that the claim of the
plaintiff is a maritime lien, it is not a maritime lien under Article
4 and the same shall stand extinguished at the expiry of six months
as per Article 6 of International Conventions of Maritime Liens and
Mortgages, 1993. Even otherwise, all maritime liens stand
extinguished after a period of one year under Article 9 of the said
convention. It is further submitted that as the ownership of the
vessel has changed from the original owner Michail Arhngelos to Star
matrix and finally to Kathiawar Steels, no maritime claim can lie
against the vessel and the plaintiff has no maritime lien and the
suit deserves to be dismissed.
4 It
is the case of the plaintiff that the plaintiff supplies necessaries
to vessels on Std. Sales Terms and Conditions dated 30.7.2007. That,
the plaintiff supplied necessaries to the defendant-vessel at
different Ports in 2008 for which the Master of vessel issued bunker
delivery receipts. That, the defendant-vessel defaulted in making
payments by due date and, thereafter, the plaintiff and the owner
Michail entered into Debt Acknowledgment Agreement (DAA) dated
20.1.2010 under which the owner accepted that the plaintiff had right
of maritime lien on the vessel of plaintiff covering all bunker
supplies and invoices. Under DAA, the owner agreed to make full
payment by 31.3.2010 but made no payment. Hence, the plaintiff
ultimately invoked clause C of DAA and commenced arbitration
proceedings in New York.
4.1 It
is submitted by the plaintiff that the vessel is registered with St.
Kitts Nevis and International Ship Registry and still continues to be
registered with them. Having come to know that the vessel has come to
Alang, the plaintiff hs filed the present suit for security pending
arbitration on 4.1.2011. By order dated 5.1.2011, this Court granted
arrest of the defendant-vessel and permitted her to beach without
prejudice to rights and contentions of the plaintiff.
4.2 The
learned counsel for the plaintiff has relied upon Article 7 of of
Brussels Convention of 1952, paragraph 74 of M.V. Elisabeth and
others vs. Harwan Investment & Trading Private Limited, reported
in (1993) Suppl. 2 SCC 433, about admiralty jurisdiction and the
decision of the Bombay High Court in the case of Islamic Republic of
Iran vs. M.V. Mehrab, reported in AIR 2002 Bombay 517, in support of
the contention that exercise of admiralty jurisdiction is permissible
even if arbitration is pending. It is also submitted that since there
is no change of ownership even after MOA dated 2.4.2010 between the
plaintiff of AS No.3 of 2011 of the defendant-vessel and the supply
of ‘necessaries’ are governed under Federal Maritime law as per sales
terms and conditions dated 30.7.2007 and also as per the Debt
Acknowledgment Agreement [DAA} dated 21.10.2010 it constitutes
maritime lien and, therefore, it is not necessary that all supplies
are to be made in the USA to claim maritime lien. The plaintiff has
also relied on Article 6 of Maritime Lien Convention 1993 and the
principles of ‘Lex Fori’ and also the order dated 8.11.2011
of this Court in the case of M.V. Sena vs. Galeheal Inc., Admiralty
Suit Nos. 8 of 2001 and 9 of 2001; the judgment of the Bombay High
Court in the case of Sigma Coatings [AIR 1995 Bombay 281], the
decision of the Apex Court in the case of National Thermal Power [AIR
1993 SC 998] and the decision in VSNL [(1997) 7 SCC 127] about grant
of relief and continuation of the same.
5 Having
heard the learned counsel for the parties and considering the rival
submissions of the parties, the preliminary issue ‘whether
beaching of vessel before the arrest order came to be passed would
bar admiralty jurisdiction’
deserves to be considered in view of the
following decisions of the Bombay High Court [i] in Appeal No.635 of
2001 in the case of Communications and Commerce International Pvt Ltd
vs. M.V. Saba decided by the Division Bench on 10.7.2001 [ii] in the
case M.V. Saba decided by the Single Judge; and [iii] in the case of
New Era Shipping Ltd vs. M.V. Express & others, reported in
2007(6) Bom.C.R.138.
6 In
the judgment dated 10th July 2001 in Appeal (L) NO.835 of
2001 in Admiralty Suit No.14 of 2001, the Division Bench of the
Bombay High Court, upholding the view of the learned Single Judge,
held that once the vessel is beached, no maritime claim can be
entertained while exercising admiralty jurisdiction. The Division
Bench has reproduced paragraph 7 of the judgment dated 28.6.2011 of
the learned Single Judge and ultimately found that the vessel was
beached for the purpose of demolition or breaking, and it could not
have been described as ‘ship’ or ‘vessel’ and the claim for an action
in rem was not sustainable.
6.1 In
the judgment dated 7th July 2006 in Civil Application No.6
of 2006 in Admiralty Suit No.1 of 2006, reported in
Manu/GJ/8251/2006, this Court held in paragraphs 21 and 23 as under:
“21.
The question for consideration, still would be that after partial
demolition of the ship, can the same be held to be navigable? In my
considered opinion, report of the Commissioner makes it clear that
the ship, as on today, is no more navigable. The argument of the
learned counsel for the plaintiff that even if the wrecks of a ship
are repaired, it can be made navigable, then, the wrecks would be
taken to be a ship or a vessel, is too tall an argument. Navigability
is the first requirement for a ship. If an article as it is, cannot
be navigated in the deep waters, then, such article cannot be called
a ship or a vessel fit for navigation. Because of the demolition
of a ship into small pieces, there does not exist a ship or a
vessel, the argument of the learned counsel for the plaintiff is
applied, there would be chaotic results. Debris and small pieces
cannot be said to be a ship or a vessel. In the modern times, Radio
equipments are must. In the present matter, the Radio equipment has
already been demolished. It is also to be seen that the vessel is
lying beached on Plot No. 80 of the applicant-firm. It has not been
beached for repairs or allied purpose, but it has been imported
into Indian territory as goods for home consumption after payment of
the customs duty. The intention of the importer would be material
and would be decisive to some extent. It is undisputed that middle
portion of the vessel’s nose has been found to be cut. Cuting of the
middle portion of the vessel’s nose would make it clear that the
vessel is not to be re-used, but the same is to be consumed as
goods.
23.
The dictionary meaning of “ship” is “vessel
employed in navigation”. Navigability of a vessel is dominant
factor in deciding whether it is a ship or not. Navigability of a
vessel would not depend only on its mechanical navigability, but
would also depend on its legal navigability. From the facts, it
would clearly appear that that the Intervener declared their
intention to authorities in India that they were importing goods in
India and they wanted to discontinue its use as a ship for carrying
cargo or passengers and they accordingly paid the customs duty on
the vessel as goods, the owners became disentitled to navigate the
vessel, and therefore, the vessel ceased to be a ship on its import
after payment of the custom duty for its home consumption. I would
respectfully agree with the observations made by the learned Single
Judge in the above-referred matter that the moment, vessel was
beached for the purpose of demolition or breaking up, it ceased to be
a ship or a vessel.”
6.2 In
the case of New Era Shipping Limited vs. m.v. P. Express, reported in
2007 (6) Bom.C.r. 138, the learned Single Judge of the Bombay High
Court [Coram: Dharmadhikari S.C., J.], in paragraph 46, has relied
upon the decision in the case of North End Oil Limited vs. m.v. Kim
An and another, 1992 (2) Bom.C.R. 448, and the paragraph 66 of the
said judgment was reproduced by Justice Dharmadhikari about the
burden cast upon the plaintiff when the suit is filed for action in
rem and arrest of vessel to prima-facie prove that the res was in
existence on the date of its arrest. If the defendant denies the
existence of res and contends that res was demolished, the burden is
still on the plaintiff to prove that on the date of arrest the res
was intact in existence and not demolished to such an extent so as to
get converted in to goods. Thereafter, while considering the judgment
in the case of Saaba [supra], Justice Dharmadhikari held in paragraph
47 as under:
“47.
The third decision is of another learned Single Judge of this Court,
(D.K.Deshmukh, J). in Notice of Motion No.1302 of 2001 in Admiralty
Suit No.14 of 2001 dated 28th June 2001. After considering the rival
contentions in paras 7 and 8 this is what is observed by the learned
Single Judge:-
“7.
Now if in the light of these rival submissions the record of the case
is perused, it is clear that when the plaint that is filed in the
present suit was drafted, the plaintiffs were aware that the
defendant No.1 vessel is at present lying at the port and harbour at
Mumbai. The plaintiffs were also aware that she is scheduled to be
beached on 19th May, 2001. The plaintiffs have stated in the plaint
that they are carrying on business of managers of merchant vessels.
If the plaintiffs on 19th May, 2001 were aware that the vessel is in
Mumbai and that it is to be beached on 19th May, 2001 for the purpose
of demolition, then in my opinion, considering the business which the
plaintiffs carry on, the plaintiffs must have made enquiries with the
port authorities. In my opinion, therefore, it would be safe to
assume that the 46 plaintiffs were aware of the purpose for which the
vessel has been brought to Mumbai. It is clear from the bill of entry
produced by the defendants that the defendant No.1 vessel was
imported into India for the purpose of demolishing and that because
the vessel was brought in India for the purpose of demolition, the
Importer was held liable for payment of customs duty on the vessel
and it became goods which were being imported in India. In fact, the
caption of the bill of entry is “Bill of Entry for Home
Consumption”. The bill of entry further shows that by 10th May,
2001, customs duty had already been paid for importing the vessel,
but the plaintiffs chose not to disclose this in the plaint. It is
difficult to believe that a plaintiff who know even the exact date on
which the vessel is to be beached for demolition, was not in a
position on enquiry to find out the purpose for which the vessel has
been imported and as to whether any payment have been made for that
purpose. Considering that the plaintiffs are in the business of
managing the vessels, it would be safe to assume that, it knew that,
for demolition of a vessel, the owners have to take a plot on lease,
have to pay customs duty on the vessel, therefore it cannot be
believed that the plaintiffs, who knew that the vessel is scheduled
to be beached for demolition on 19th May, 2001, did not know that
customs duty has been paid on 8th May, 2001, that a plot has been
taken on lease for the purpose of beaching the vessel. But the
plaintiffs have chosen not to disclose these facts in the plaint. It
is further pertinent to note, according to the agreement between the
plaintiffs and the owners of the vessel, the crew of the vessel was
to be engaged by the plaintiffs and the defendants have stated in the
affidavit, that when the vessel reached Mumbai, the crew of the
vessel was Pakistani and the plaintiffs are also a Pakistani Company.
In any case, from the bill of entry and documents produced by the
defendants, it is clear that the vessel was imported in India for the
purpose of breaking it. Perusal of provisions of clause 2 of
Admiralty Act, 1861 shows that a ship includes any description of
vessel used in navigation. Thus, the Admiralty Act does not define
the word “Ship”. In the admiralty jurisdiction of this
Court, this Court can entertain an action in rem against a ship. The
General Clauses Act also defines the term “Ship” but it
also gives inclusive definition. Therefore, so far as the meaning of
the term “Ship” is concerned, we will have to go back to
the meaning attached to the term in common parlance. Dictionary
meaning of the term “Ship” is a vessel employed in
navigation. Thus navigability of the vessel is a dominant factor in
deciding whether it is a ship or not. The navigability of a vessel
will depend not only on its mechanical navigability but also on its
legal navigability. It appears, that once the defendants, declared
their intention to the authorities in India, that they are importing
the vessel as goods in India and they want to discontinue its use as
a ship for carrying cargo and paid customs duty on the vessel as
goods. Legally, the owners became disentitled to navigate the vessel,
and therefore, from that moment the vessel ceased to be a ship. The
defendant No.1 vessel when it was imported into India was definitely
a ship but the moment the owners declared their intention to
discontinue its use as ship or a vessel and not only declared their
intention but acted pursuant to that intention and made declarations
before the authorities and paid amounts and took further actions like
taking a patch on lease for breaking of the ship, their intention was
manifest that they want to discontinue the use of the defendant No.1
vessel as a ship. A ship like any other thing remains entitled to its
description until facts are established to show that it has become
disentitled to its ordinary name or description. On import of the
defendant No.1 vessel into India as goods and payment of customs duty
pursuant to that, disentitled the owners to use the defendant No.1 as
a ship or a vessel. In any case, when at 9.45 a.m. on 19th May, 2001,
the vessel was beached for the purpose of demolition or breaking up,
it could not have been described as a ship or a vessel. In my
opinion, therefore, the defendant No.1 was not amenable to an action
in rem on 19th May, 2001 and therefore, obviously it could not have
been arrested.
8.
In so far as the judgements referred to above relied on by the
learned counsel for the plaintiffs are concerned, I have gone through
the judgements. Those judgements cannot be said to be authority for
the proposition that a ship continues to be treated as a ship either
till its registration continues or till it looks like a ship. On the
other hand, in my opinion, the judgement relied on by the learned
counsel for the plaintiffs go to show that in determining whether a
ship can be continued to be treated as a ship or not, the intention
of the persons in control of the ship is material inasmuch as though
a vessel or a ship may be incapable of being used as a ship or vessel
temporarily either because it has met with an accident or because
extensive repairs are necessary to it, but if the owners of the
vessel intend to continue to use it as a ship; or a vessel and for
that purpose, takes actions, then, the vessel can still be treated as
a vessel. The judgements referred to above do not support
the case of the plaintiffs.”
6.3 In
paragraph 60, the Court considered the judgment of the Apex Court in
the case of m.v. Elisabeth [supra] and in paragraph 63 held as under:
“In
my view, the pleadings in the present cases are on par with the
decisions which have been rendered by learned Single Judges of this
Court [D.G. Deshpande, J. and D.K. Deshmukh, J.]. These decisions are
squarely applicable to the facts of this case. The law laid down
therein, therefore, applies with full force. In such circumstances,
the request made by Ms. Sett to accept the ratio of these cases
deserves to be accepted.”
7 Keeping
in mind the above law laid down by the Bombay High Court and this
Court, in the facts of the present case, as per the MOA dated
2.4.2010, it was agreed between the parties, namely, the original
seller and the buyer Star Matrix that the vessel was making a final
voyage for ship breaking and the vessel was to be demolished.
7.1. In
the above context, the following events are worth-noting. Certificate
of non-encumbrance dated 27th
December 2010 was issued by Tanzania Zanzibar International Registry
of Shipping, letter of credit was opened on 29th
December 2010 by Kathiawar Steels, the vessel arrived at Alang
Anchorage at 11.50 p.m. [23.50 hrs.] on 31st
December 2010, amendment of letter of credit was issued on 3rd
January 2011 and the letter of credit was released on the same day
for 2105270 USD. On the very day, the vessel was registered by the
Officer of the Gujarat Pollution Control Board and upon submission of
the report the GPCB recommended for issuing beaching permission. On
4th
January 2011, the following events took place: Commercial invoice was
raised by Star Matrix Limited on Kathiawar Steels; bill of sale was
issued acknowledging receipt of purchase price of the vessel;
transfer of property, title and ownership in the vessel in favour of
Kathiawar Steels; notice of readiness was issued by the agent of Star
Matrix Limited in favour of Kathiawar Steels; physical delivery was
taken by Kathiawar Steels upon issuance of certificate of delivery by
the Master of the vessel; bill
of entry was made with the customs authorities and customs duty of
Rs.1,68,18,923/- was paid for import of the vessel in India for home
consumption by Kathiawar Steels; the Gujarat Maritime Board granted
permission to submit relevant documents for beaching the vessel; the
Superintendent of Customs addressed a letter that they have no
objection to grant clearance for beaching the vessel; the Gujarat
Maritime Board granted beaching permission to the vessel and in fact
the vessel was beached in the early morning at 4.30 a.m. on 5th
January 2011 as per the certificate issued by the Gujarat Maritime
Board on 10th
January 2011 even before the arrest order came to be passed on 5th
January 2011.
8. In
the admiralty jurisdiction of this Court, this Court can entertain an
action in rem against a ship. The General Clauses Act also defines
the term “Ship” but it also gives inclusive definition.
Therefore, so far as the meaning of the term “Ship” is
concerned, we will have to go back to the meaning attached to the
term in common parlance. Dictionary meaning of the term “Ship”
is a vessel employed in navigation. Thus navigability of the vessel
is a dominant factor in deciding whether it is a ship or not. The
navigability of a vessel will depend not only on its mechanical
navigability but also on its legal navigability. Once the Authorities
have undertaken and completed all the procedural formalities of
beaching of the vessel, including payment of customs duty, etc.,
legally, the owners became disentitled to navigate the vessel, and
therefore, from that moment the vessel ceased to be a ship. The
defendant-vessel was making final voyage for ship-breaking and when
it was imported into India it was definitely a ship but the moment
the buyers declared their intention to discontinue its use as ship or
a vessel and not only declared their intention but acted pursuant to
that intention and made declarations before
the authorities and paid amounts, customs duty, etc., the intention
was manifest to discontinue the use of the defendant-vessel as a
ship. In any case, when in the
early morning at 4.30 a.m. on 5th
January 2011 as per the certificate issued by the Gujarat Maritime
Board,
the vessel was beached for the purpose of demolition or breaking up,
it could not have been described as a ship or a vessel. In my
opinion, therefore, the defendant-vessel was not amenable to an
action in rem on 5.1.2011 and, therefore, obviously it could not have
been arrested.
Once the vessel was beached, it was no more in the territorial waters
and the jurisdiction would be only of Civil Court as per the local
law and no admiralty jurisdiction could have been invoked. Further,
once the vessel was beached, it was no more in the territorial waters
and the jurisdiction would be only of Civil Court as per the local
law and no admiralty jurisdiction could have been invoked. In view of
the law laid down by this Court in the case of Western Ship Breaking
Industry vs. Laiki Bank (Helias) S.A., Manu/GJ/8251, the present
suit deserves to be dismissed.
16. The
other issues raised by the learned counsel for the plaintiff need not
to be gone into. Since the suit is dismissed on the preliminary
contention raised about beaching of vessel before the arrest order
came to be passed, it is not necessary for this Court to discuss the
other issues on merits.
17. It
is mentioned that, against the judgments of the Bombay High Court, as
referred to in this judgment, Special Leave Petitions were filed in
the Apex Court wherein the stay was granted and the Special Leave
Petitions are pending. However, the law laid down in the judgments
of the Bombay High Court remains as it is.
17. In
the result, the suit is dismissed with no order as to costs. The
order of arrest is vacated. Notice is discharged. Deposit, if any, be
refunded. Civil Applications are disposed of.
18. At
this stage, the learned advocate for the plaintiff requests to extend
the stay granted earlier about the arrest of the vessel, which is
opposed by the learned advocate for the defendant. In view of the
specific finding about beaching of the vessel before the arrest order
was passed, the said request is rejected.
(ANANT
S. DAVE, J.)
(swamy)
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