TaxTMI 
TaxTMI 
2017 (9) TMI 1883
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....services were rendered to the vessel as acknowledged by the master. The Plaintiff raised invoices on 26.11.1999 for US$ 94,611.25 which have not yet been paid. 2. When the vessel docked in the port of Haldia, the Plaintiff filed admiralty suit No. 1 of 2000 in the Calcutta High Court praying for an arrest of the vessel because, according to the Plaintiff, the necessaries supplied to the vessel would not only amount to a maritime claim but would also be a maritime lien on the vessel. By an order dated 6.1.2000, the vessel was so arrested but nobody came forward for release of the vessel at that point of time. It is only on 25.1.2000 that learned Counsel appearing on behalf of the Plaintiff approached the learned admiralty Judge expressing the Plaintiff's intention not to proceed with the application for arrest as, according to him, the parties had reached an out of court settlement. The order passed on 25.1.2000 reads as follows: The Court by an order dated January 6, 2000 directed that the vessel known as M.V. Nikolaos - S was to be arrested. On the returnable date no one appeared on behalf of the Respondents. The directions for affidavits had been given on January ....
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.... THE PARTIES AGREE AS FOLLOWS 1. The shipowners hereby confirm that they owe to Chrisomar USD 104,688.60, analysed as follows: USD 94,611.25 for the invoice amount + USD 2,177.35 for interest accrued + USD 7,900.00 for legal costs. 2. The shipowners, through their President Mr. Sotirios Soukas, represent to Chrisomar that (a) their vessel is due to be chartered out for a voyage from Bangkok, Thailand to ports of West Africa as against a freight of about USD 35.00 per metric ton of cargo; (b) that if Chrisomar releases their vessel from the above arrest shall be able to proceed to Bangkok for loading and to perform the intended charter voyage; (c) that the shipowners as soon as their vessel is released from its arrest by Chrisomar shall include in their recap and charter party with the intended charterers of their vessel a Clause that part of the freight amounting to USD 104,668.60 shall be paid directly by the charterers to Chrisomar's bank account as follows: ANZ GRINDLAYS BANK 21, Akti Miaouli, 18535 Piraeus Swift: GRNDGRAA, A/C No. 815142 USD 40632 In favour of Chrisomar Corporation 3. The above....
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....reement was entered into between Fairsteel and Respondent No. 1 on 21.1.2000. The written statement filed by Respondent No. 1 alleged: The said vessel was originally owned by The Third Element Enterprises Shipping Ltd. Third Element Enterprises Shipping Ltd. sold and transferred the said vessel to Eastern Wealth Investment Ltd. Eastern Wealth Investment Ltd. sold and transferred the said vessel to Fairsteel Corporation. Fairsteel Corporation sold and transferred the said vessel to this Defendant. This Defendant acquired the right, title or interest in respect of the said vessel from the said Fairsteel Corporation. 6. The learned single Judge by his judgment and order dated 28.4.2005 listed as many as seven issues and adverted to the fact that three witnesses were called on behalf of the Plaintiffs, who not only deposed and were cross-examined, but also produced various documents. The Defendants, however, did not produce any witness but tendered as their evidence six exhibits which were produced only through the Plaintiff's witnesses. 7. According to the learned single Judge, the order of 25.1.2000 made it clear that suit No. 1 of 2000 was kept alive and remained ....
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....h reversed the single Judge's decision and held that the suit was liable to be dismissed on all these grounds. 9. Shri Shyam Divan, learned senior Counsel appearing on behalf of the Appellants, has argued before us that the agreement dated 18.1.2000 would not amount to a novatio of the original agreement. According to him, the original agreement continued and was in fact enforced by the second order of arrest dated 2.5.2000. According to him, the right that was vested in the Appellant on 5.1.2000, i.e. the date of the institution of the suit, is alone material, and it is on that date, and not the date of arrest on 2.5.2000, that the ownership of the vessel has to be seen. For this purpose, he cited certain English precedents. He also cited an American judgment to buttress his submission that the present was a case not merely of a maritime claim but also of a maritime lien in that necessaries supplied to the vessel would amount to a maritime lien. According to him, in any event, on facts, the Division Bench was completely wrong in arriving at a conclusion that there was a concluded sale in April, 2000 in favour of Respondent No. 1 inasmuch as several documents produced by the....
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....jurisdiction of the High Court of Admiralty in England. This was followed by the 1861 Admiralty Court Act and various subsequent enactments which were consolidated by the Supreme Court of Judicature (Consolidation) Act, 1925. By the Administration of Justice Act of 1956, the admiralty jurisdiction of the High Court was further widened and the Supreme Court Act of 1981 now defines what the admiralty jurisdiction of the High Court in England is. 12. Insofar as our law is concerned, the admiralty law of the chartered High Courts has historically been traced to the charters of 1774 and 1798 as subsequently extended and clarified by the Letters Patents of 1823, 1862 and 1865. The Admiralty Court Act, 1840 and 1861, and the Colonial Courts of Admiralty Act, 1890 and 1891 essentially stated what the admiralty law in this country is, and these enactments continued as existing laws Under Article 372 of the Constitution of India. Some of the relevant provisions of these Acts are set out hereinbelow: Admiralty Court Act, 1840 6. The court in certain cases may adjudicate, etc.- The High Court of Admiralty shall have jurisdiction to decide all claims and demands whatsoever ....
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....tment of Colonial Courts of Admiralty.- The following courts of unlimited civil jurisdiction are hereby declared to be Colonial Courts of Admiralty, namely: (1) the High Court of Judicature at Fort William in Bengal, (2) the High Court of Judicature at Madras, and (3) the High Court of Judicature at Bombay. 13. The Republic of India has finally woken up to the need for updating its admiralty law. The Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017 has been made by Parliament and has received the assent of the President on 9.8.2017, though it has not yet been brought into force. In this Act, "maritime claim" is defined in Section 2(1)(f) as being a claim referred to in Section 4 and a "maritime lien" is defined in Sub-section (g) of 2(1) as follows: 2. Definitions (1) In this Act,- (g) "maritime lien" means a maritime claim against the owner, demise charterer, manager or operator of the vessel referred to in Clauses (a) to (e) of Sub-section (1) of Section 9, which shall continue to exist Under Sub-section (2) of that section; Section 4 reads as follows: 4. Maritime Claim (1) The High ....
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....Merchant Shipping Act, 1958; (p) disbursements incurred on behalf of the vessel or its owners; (q) particular average or general average; (r) dispute arising out of a contract for the sale of the vessel; (s) insurance premium (including mutual insurance calls) in respect of the vessel, payable by or on behalf of the vessel owners or demise charterers; (t) commission, brokerage or agency fees payable in respect of the vessel by or on behalf of the vessel owner or demise charterer; (u) damage or threat of damage caused by the vessel to the environment, coastline or related interests; measures taken to prevent, minimise, or remove such damage; compensation for such damage; costs of reasonable measures for the restoration of the environment actually undertaken or to be undertaken; loss incurred or likely to be incurred by third parties in connection with such damage; or any other damage, costs, or loss of a similar nature to those identified in this clause; (v) costs or expenses relating to raising, removal, recovery, destruction or the rendering harmless of a vessel which is sunk, wrecked, stranded or abandoned, including ....
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....her statutory dues related to the vessel; (e) claims based on tort arising out of loss or damage caused by the operation of the vessel other than loss or damage to cargo and containers carried on the vessel. (2) The maritime lien specified in Sub-section (1) shall continue to exist on the vessel notwithstanding any change of ownership or of registration or of flag and shall be extinguished after expiry of a period of one year unless, prior to the expiry of such period, the vessel has been arrested or seized and such arrest or seizure has led to a forced sale by the High Court: Provided that for a claim under Clause (a) of Sub-section (1), the period shall be two years from the date on which the wage, sum, cost of repatriation or social insurance contribution, falls due or becomes payable. (3) The maritime lien referred to in this Section shall commence- (a) in relation to the maritime lien under Clause (a) of Sub-section (1), upon the claimant's discharge from the vessel; (b) in relation to the maritime liens under Clauses (b) to (e) of Sub-section (1), when the claim arises, and shall run continuously without any suspension....
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....ng Private Limited, 1993 Supp. (2) SCC 433, paragraph 56 and Epoch Enterrepots v. M.V. Won Fu (2003) 1 SCC 305 at 311, paragraph 13. In M.V. Al Quamar v. Tsavliris Salvage (International) Ltd. and Ors. (2000) 8 SCC 278 at 301, the Supreme Court observed as follows: 33. Be it noted that there are two attributes to maritime lien: (a) a right to a part of the property in the res; and (b) a privileged claim upon a ship, aircraft or other maritime property in respect of services rendered to, or injury caused by that property. Maritime lien thus attaches to the property in the event the cause of action arises and remains attached. It is, however, inchoate and very little positive in value unless it is enforced by an action. It is a right which springs from general maritime law and is based on the concept as if the ship itself has caused the harm, loss or damage to others or to their property and thus must itself make good that loss. (See in this context Maritime Law by Christopher Hill, 2nd Edn.). 18. Only a small number of claims give rise to maritime liens as was noted in M.V. Won Fu (supra). Paragraph 19 of the said judgment states as follows: 19. We have in this judgme....
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.... vessel and that the Plaintiff had a right to a maritime lien and that, therefore, in spite of the fact that the vessel had been transferred subsequent to the supply of necessaries, the ship was liable. Sir James Hannen who delivered the opinion of the Privy Council held that the phrase "the court shall have jurisdiction" simply gave the Court jurisdiction but did not create any lien. A distinction was drawn between a provision for proceedings by arrest of the ship and the express creation of a lien. The Court held: The Admiralty Court Act, 1861 (24 Vict. c. 10) and the decisions upon it must next be considered. By the 5th Section it is enacted that the High Court shall have jurisdiction over a claim for necessaries supplied to any ship elsewhere than in the port to which the ship belongs, unless it is shown to the satisfaction of the court that, at the time of the institution of the cause, any owner or part owner of the ship is domiciled in England or Wales. The words 'the High Court of Admiralty shall have jurisdiction', mean only what they purport to say, neither more nor less, that is, that the court shall take judicial cognizance of the cases provided....
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....r liens in one very important respect. Liens generally require possession of the 'res' before they can come into effect. As an example an innkeeper has a lien over his guest's luggage against the payment of the bill, but if the guest is smart enough to remove his luggage, the innkeeper is left without a lien. But a maritime lien does not require prior possession for its creation. In a fit and proper case a claimant on the strength of his maritime lien can secure the arrest of a ship which then comes under the possession of the court and she cannot be moved without the court's order. 22. 'No Indian Statute defines a maritime claim' is the clear finding of Supreme Court in M.V. Elisabeth (AIR 1993 SC 1014, para 85, page 1040). But our Supreme Court followed the provisions of the Supreme Court Act 1981 of England where maritime claims have been listed on the basis of Brussels Convention of 1952 on the Arrest of Sea Going Ships. Under Article 1 of the said Convention various maritime claims have been catalogued. Out of which 1(k) answers the description of the claims of the Plaintiff in this proceeding. Article 1(k) reads "goods or materials whether sup....
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....) Damage done by a ship (b) Salvage (c) Seamen's wages (d) Master's wages and disbursements (e) Bottomry and Respondentia". 26. The aforesaid passage from Thomas has been approved by the Division Bench of Calcutta High Court in Mohammed Saleh Behbehani & Company v. Bhoja Trader, reported in (1983) 2 Calcutta Law Journal 334. At 344 of the report, the learned Judges of the Division Bench referred to maritime liens as representing 'a small cluster of claims' and referred to the aforementioned passage from Thomas. (27) and (28) xxx xxx xxx 29. Counsel for the Respondent also relies on a passage from Roscoe on The Admiralty Jurisdiction and Practice, 5th Edition. While dealing with necessaries, the learned author has stated as follows: Persons who have supplied a ship, whether British or foreign, with necessaries have not a maritime lien upon her, and the vessel does not become chargeable with the debt till the suit is actually instituted; consequently there can be no claim against a ship which has been sold, even with notice of such a claim in respect of which an action has not been commenced, and ....
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..... No maritime lien shall attach to a vessel to secure claims as set out in subparagraphs (b) and (e) of paragraph 1 which arise out of or result from: (a) damage in connection with the carriage of oil or other hazardous or noxious substances by sea for which compensation is payable to the claimants pursuant to international conventions or national law providing for strict liability and compulsory insurance or other means of securing the claims; or (b) the radioactive properties or a combination of radioactive properties with toxic, explosive or other hazardous properties of nuclear fuel or of radioactive products or waste. 22. Article 8 then states that the characteristics of such liens are as follows: Article 8: Characteristics of maritime liens Subject to the provisions of Article 12, the maritime liens follow the vessel, notwithstanding any change of ownership or of registration or of flag. It is, thus, clear that a claim for necessaries supplied to a vessel does not become a maritime lien which attaches to the vessel. 23. Shri Divan, however, cited U.S. case law in support of his submission that a claim for necessaries raises a marit....
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....hich commits the aggression is treated as the offender, as the guilty instrument or thing to which the forfeiture attaches, without any reference whatsoever to the character or conduct of the owner ...." (Per Justice Story, The United States v. The Big Malek Adhel [43 US (2 How) 210, 233 (1844)]). xxx xxx xxx A ship may be arrested (i) to acquire jurisdiction; or (ii) to obtain security for satisfaction of the claim when decreed; or (iii) in execution of a decree. In the first two cases, the court has the discretion to insist upon security being furnished by the Plaintiff to compensate the Defendant in the event of it being found that the arrest was wrongful and was sought and obtained maliciously or in bad faith. The claimant is liable in damages for wrongful arrest. This practice of insisting upon security being furnished by the party seeking arrest of the ship is followed in the United States, Japan and other countries. The reason for the Rule is that a wrongful arrest can cause irreparable loss and damages to the shipowner; and he should in that event be compensated by the arresting party. (See Arrest of Ships by Hill, Soehring, Hosoi and Helmer, 1985). ....
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....t the owner or anyone interested in the proceedings may appear and defend. The writ is issued to "owners and parties interested in the property proceeded against". The proceedings can be started in England or in the United States in respect of a maritime lien, and in England in respect of a statutory right in rem. A maritime lien is a privileged claim against the ship or a right to a part of the property in the ship, and it "travels" with the ship. Because the ship has to "pay for the wrong it has done", it can be compelled to do so by a forced sale. [See Bold Buccleaugh (The) [Harmer v. Bell, (1851) 7 Moo PC 267: 13 ER 884]]. In addition to maritime liens, a ship is liable to be arrested in England in enforcement of statutory rights in rem (Supreme Court Act 1981). If the owner does not submit to the jurisdiction and appear before the court to put in bail and release the ship, it is liable to be condemned and sold to satisfy the claims against her. If, however, the owner submits to jurisdiction and obtains the release of the ship by depositing security, he becomes personally liable to be proceeded against in personam in execution of the judgment if the amount decreed exceeds the a....
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....Certain Rules relating to Penal Jurisdiction in Matters of Collision, Brussels, May 10, 1952 (IMC); and (d) International Conventions for the Unification of Certain Rules of Law relating to Maritime Liens and Mortgages, Brussels, April 10, 1926, and the Revised Convention on Maritime Lines and Mortgages, Brussels, May 29, 1967 (IMC).] India seems to be lagging behind many other countries in ratifying and adopting the beneficial provisions of various conventions intended to facilitate international trade. Although these conventions have not been adopted by legislation, the principles incorporated in the conventions are themselves derived from the common law of nations as embodying the felt necessities of international trade and are as such part of the common law of India and applicable for the enforcement of maritime claims against foreign ships." (at pages 469-470) A list of maritime claims was then referred to in paragraph 84 and the Brussels Convention relating to the Arrest of Sea-Going Ships, 1992 was referred to and followed. 26. The next important aspect that was argued was that the ownership of the vessel to enforce a maritime claim has to be seen at the stage....
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....ve where there is a change in the law and it is made applicable at any stage. Lachmeshwar Prasad Shukul v. Keshwar Lal Chaudhuri [FCR 84 : AIR 1941 FC 5] falls in this category. Courts of justice may, when the compelling equities of a case oblige them, shape reliefs - cannot deny rights - to make them justly relevant in the updated circumstances. Where the relief is discretionary, courts may exercise this jurisdiction to avoid injustice. Likewise, where the right to the remedy depends, under the statute itself, on the presence or absence of certain basic facts at the time the relief is to be ultimately granted, the Court, even in appeal, can take note of such supervening facts with fundamental impact. Venkateswarlu, read in its statutory setting, falls in this category. 27. However, the International Convention on the Arrest of Ships, 1999, in which India participated, states as follows: Article 3: Exercise of right of arrest 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....
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....rest plus legal costs, which amounts are parasitic on the original invoice amount of US$ 94,611.25, and need to be recovered in order to put the Appellant in the same position as if the original contract had been performed by Third Element Enterprises. The agreement then goes on to state that since the vessel is being chartered for a voyage from Bangkok and will earn freight, the part of the freight amounting to the original invoice amount plus interest plus legal costs will be paid directly by the charterers of the vessel to the bank account of the Appellants. 30. Sections 62 and 63 of the Contract Act read as follows: 62. Effect of novation, rescission, and alteration of contract.-If the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed. 63. Promisee may dispense with or remit performance of promise.- Every promisee may dispense with or remit, wholly or in part, the performance of the promise made to him, or may extend the time for such performance, or may accept instead of it any satisfaction which he thinks fit. 31. It is the Appellant's case that Section 63 of the ....
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....ed except in so far as they are inconsistent with the modifications. Those of the original terms which cannot make sense when read with the alterations must be rejected. In my view the arbitration Clause in this case is in no way inconsistent with the subsequent modifications and continues to subsist. (at page 67) 35. We approve of the said judgment as laying down the correct law on the expression "alter" in Section 62 of the Contract Act. In order that a contract that is altered in material particulars fall Under Section 62, it must be clear that the alteration must go to the very root of the original contract and change its essential character, so that the modified contract must be read as doing away with the original contract. If the modified contract has no independent contractual force, in that it has no meaning and content separately from and independently of the original contract, it is clear that there is no new contract which comes into being. The original terms continue to be part of the modified contract except to the extent that they are inconsistent with the modifications made. 36. On the other hand, Section 63 of the Contract Act would clearly apply to ....
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.... Every promisee may dispense with or remit, wholly or in part, the performance of the promise made to him, or may extend the time for such performance or may accept instead of it any satisfaction which he thinks fit. Illustration (c) to the Section says A owes B 5000 rupees. C pays to B 1000 rupees, and B accepts them in satisfaction of his claim on A. This payment is a discharge of the whole claim. It seems to us that this case is completely covered by Section 63 and illustration (c) thereof. The Appellants having accepted payment in full satisfaction of their claim, are not now entitled to sue the Respondent for the balance. (at pages 178-179) This Court further went on to hold that the niceties of English Law in the matter of accord and satisfaction do not concern Indian Courts in view of Section 63 of the Act. 40. It is clear that on the facts in the present case as the original contract has been performed only by one party to the contract and not by the other, the second agreement is entered into so that the promisee (i.e. the Appellant herein) may accept, instead of the original performance of the agreement, any satisfaction ....
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....ed: Business men often record the most important agreements in crude and summary fashion; modes of expression sufficient and clear to them in the course of their business may appear to those unfamiliar with the business far from complete or precise. It is, accordingly, the duty of the court to construe such documents fairly and broadly, without being too astute or subtle in finding defects; but, on the contrary, the court should seek to apply the old maxim of English law, verba ita sunt intelligenda ut res magis valeat quam pereat. That maxim, however, does not mean that the court is to make a contract for the parties, or to go outside the words they have used, except insofar as there are appropriate implications of law, as, for instance, the implication of what is just and reasonable to be ascertained by the court as matter of machinery where the contractual intention is clear but the contract is silent on some detail. Thus in contracts for future performance over a period, the parties may not be able nor may they desire to specify many matters of detail, but leave them to be adjusted in the working out of the contract. 41. Equally in Satya Jain and Ors. v. Anis Ahmed ....
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.... are (1) to put an end to the proceedings, for they are thereby spent and exhausted; (2) to preclude the parties from taking any further steps in the action, except where they have provided for liberty to apply to enforce the agreed terms; and (3) to supersede the original cause of action altogether. A judgment or order made by consent is binding unless and until it has been set aside in proceedings instituted for that purpose and it acts, moreover, as an estoppel by record. 44. It is important to remember that when Section 63 of the Contract Act is to be applied, the High Courts in India have cautioned that, being a wide departure from English law, the Section alone should be enforced according to its terms and not in accordance with English law. Thus, in New Standard Bank, Ltd. v. Probodh Chandra Chakravarty AIR 1942 Cal 87 at 90-91, the Calcutta High Court held: By Section 63, Contract Act, every promisor may dispense with or remit wholly or in part the performance of the promise made to him or may accept instead of it any satisfaction which he thinks fit. This Section makes a wide departure from the English law, inasmuch as it does not refer to any agreement and val....
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..... The ship owner paid a sum of $650,000 for repairs, leaving an outstanding balance sum of $770,822.28 as at 8.5.2001. A subsequent settlement agreement was entered into in which the ship repairer agreed to accept a total sum of $310,000, inclusive of $25,000 interest and $25,000 as legal costs in full and final settlement of their claim in the admiralty suit, which was for a sum of $1,154,916.78. Paragraph 7 of the said judgment is important and reads as under: 7. The issue raised by this appeal touched on the true construction and effect of the Settlement Agreement. In coming to my decision to set aside the writ and warrant of arrest, I had to construe the accord. Generally, an agreement of compromise would discharge all original claims and counterclaims unless it expressly provides for their revival in the event of breach. The Settlement Agreement was worded in such a way that there was by its terms an immediate binding compromise of the claim amount of $1,154,916.78. By cl 1, the Plaintiff agreed to accept a sum of $310,000 inclusive of interest and legal costs in full and final settlement of a larger claim... 48. From this paragraph, it is clear that the Plaintiffs....
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....000 does not take the Respondent's case very far. 53. However, the High Court also relied upon a notarized bill of sale dated 14.4.2000, the notice of readiness of 15.4.2000, which was accepted by the Respondent at 11.00 A.M., and was followed by the delivery of possession of the vessel at 2.00 P.M. What is important to note is that the signatory to the physical delivery certificate was on behalf of Pennon Shipping Corporation, which was only an agent of Third Element Enterprises, and not an agent of Fairsteel. The High Court then went on to state that payment under the Letter of Credit was also made on 26.4.2000 and since this would show that the property in the vessel was transferred in April, 2000, no cause of action would survive against the new owner of the vessel namely Respondent No. 1. The High Court also went on to state that the transfers pleaded in the written statement of Respondent No. 1, namely from Third Element Enterprises to Eastern Wealth Investment Limited and thereafter to Fairsteel Corporation Limited after which Fairsteel sold and transferred the vessel to Respondent No. 1, had not been proved by Respondent No. 1, but that this did not affect the Respon....
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....he date of the filing of the said suit. The suit was for the relief of rescission of the agreement between Fairsteel and Respondent No. 1 dated 21.1.2000 on the ground of fraud. Para 27 of the suit is important and states as follows: 27. In the facts and circumstances aforestated, the Defendant No. 1 has fraudulently induced the Plaintiff to issue/open the said L/C through the Defendant No. 2 in favour of the Defendant No. 1. The Defendant No. 1 is not entitled to receive and should be restrained from receiving any payment under the said L/C and the Plaintiff claims a decree of perpetual injunction in that regard. 56. The relief claimed in the other suit is also important and prayers "C" and "D" are material and read as under: (c) Decree of perpetual injunction restraining the Defendant No. 1 whether by itself or through its servants or agents from receiving any money under the Letter of Credit No. CAL/24006 dated 8th April 2000, issued by the Defendant No. 2 in favour of the Defendant No. 1. (d) Decree of perpetual injunction restraining the Defendant No. 2 from making any payment under the Letter of Credit No. CAL/24006 dated 8th April 2000 issued/op....