M V CAPE CLIMBER....Applicant Versus GLORY WEALTH SHIPPING PVT. LTD....Respondent ====================================== Appearance:
MR. BHADRISH S. RAJU, ADVOCATE, WITH MS. RUJUTA R. OZA, ADVOCATE , WITH MR. SHERBIR PANAG FOR M/S. MZM LEGAL for the Applicant MR.MIHIR THAKOR, SENIOR ADVOCATE WITH MR.S.N.SOPARKAR, SENIOR COUNSEL WITH MS. PAURAMI B. SHETH, ADVOCATE for the Respondent ====================================== CORAM: HONOURABLE MR.JUSTICE S.R.BRAHMBHATT Date : 2122/04/2015 ORAL ORDER
1. The applicant, who happens to be original defendant in the suit being Admiralty Suit No.30 of 2014, has takenout this application with following prayers.
a. This Hon'ble Court be pleased to direct the Plaintiff to submit Counter Security in the sum of US $ 1,114,215.45 and US $ 13,517.45 for every day of further day of detention from the 19th of March 2015 or such other sum at this Hon'ble Court may deem appropriate;
b. This Hon'ble Court be pleased to direct the Plaintiff to provide security in the sum of US $ 150,000/ or such other sum at this Hon'ble Court Page 1 of 34 O/OJCA/250/2015 ORDER may deem appropriate for the cost of the proceedings till date and for future costs;
c. This Hon'ble Court be pleased to order costs of the present application ; and d. This Hon'ble Court be pleased to pass such further and other reliefs that it may deem fit.
2. The facts in brief leading to filing of this application deserve to be setout hereinbelow in order to appreciate the controversy in question.
3. The plaintiff brought an action in form of Admiralty Suit No.30 of 2014, containing following prayers.
a. That it may be declared that ICI, VISTA, Freight Bulk and Viktor Baranskyi, Palmera Group are alter Egos of each other and ICI has fraudulently transferred its assets so as to defeat the claim of the Creditors including the Plaintiff;
b. That the Defendants be ordered and decreed to pay to the Plaintiff for the principal amount of US $ 47,092,790.74 plus GBP 4,750 together with interest as awarded from 19 November 2014 until payment /realisation as per Exhibit I.;
c. that the Defendant Vessel, M.V. CAPE CLIMBER, together with her hull, engines, gears, tackles, bunkers machinery, apparel, plant, Page 2 of 34 O/OJCA/250/2015 ORDER furnitures, fixtures, appurtenances and paraphernalia, at present lying at the Mundra Port, or wherever she is within the territorial waters of India, be arrested by a Warrant of Arrest of this Hon'ble Court and the same be condemned in respect of the claim herein and be ordered to be sold along with her hull, engine, gears, tackles, bunkers machinery, apparel, plant, furniture, fixtures, appurtenances and paraphernalia and the net sale proceeds thereof be ordered to be applied to the satisfaction of the Plaintiff's claim herein and the cost of this Suit.
d. that pending the hearing and final disposal of the suit this Hon'ble Court be pleased to order and direct the arrest of the Defendant vessel, M.V. CAPE CLIMBER alongwith her hull, engines, gears, tackles, bunkers machinery, apparel, plant, furnitures, fixtures, appurtenances and paraphernalia, at present lying at the Mundra Port, or wherever she is within the territorial waters of India and also restrain her from beaching and breaking ;
Judgment of the English Court dated 19 November 2014. and i. for such further and other reliefs as this Hon'ble Court may deem fit and proper in the nature and circumstances of the case.
Thus, the Admiralty Suit came to be filed against the defendant Vessal for realising its amount enforceable on account of the order passed in the arbitration proceedings, which become enforceable on account of the same being judgment of Queen's Bench Division Commercial Court on 19th November 2014.
4. On presentation of the Admiralty Suit in question i.e. No.30 of 2014, this Court (Coram : Vipul M. Pancholi, J.) on 29th December 2014 issued an arrest warrant, which resulted into the arrest of the Vessel when it was anchored at Mundra. On account of the difference in anchorage charges between Mundra and Kandla, it appears that there was a prayer made on behalf of the defendant vessel for permitting the Vessel to be brought from Mundra to Kandla and accordingly it appears that the defendant Vessel is anchored in the water of Kandla Port.
5. The defendant filed two applications being O.J.C.A. No.96 of 2015 for vacation of the interim relief and ending the arrest and O.J.C.A. No.250 of 2015 for calling upon the plaintiff to secure the cost on account of their pleadings in respect of the arrest respectively.
6. Learned counsel for the defendant urged the Court for takingup O.J.C.A. No.250 of 2015 and submitted that defendant would invite order therein, as the defendant has a good case on which the Page 4 of 34 O/OJCA/250/2015 ORDER plaintiff shall be calledupon to furnish appropriate security, as the O.J.C.A. No.96 of 2015 is likely to take little more time. In that view of the matter, and at the request of learned counsels, the Court heard the parties so far as O.J.C.A. No.250 of 2015 is concerned and during the course of the hearing as there was a requirement of appreciate the submissions, both the sides touched upon the aspects on merits also. But, it was constantly urged that the touching upon the merits is only with a view to substantiate their respective stand qua the defendant's prayer for asking appropriate security, if any, during pendency of the proceedings for the reasons stated in the application i.e. O.J.C.A. No.250 of 2015.
7. Learned counsel for the applicant original defendant, contended that the Court infact while passing the order of arrest, took note of the undertaking accompanying by the plaintiff and therefore, the undertaking is to be substantiated and capable of being respected without any further requirement of proceedings at law. Learned counsel for the applicant - original defendant, submitted that the undertaking is required to be treated as one filed under Rule367 read with Rule52 of Bombay High Court Original Side Rules 1957. Learned counsel relying upon the decision of the Bombay High Court rendered by the Division Bench in case of Rainbow ACE Shipping S.A. Panama V/s. Lufeng Shipping Co. Ltd., Appeal (Lodg) No.375 of 2014 in Notice of Motion no.1646 of th 2013 in Admiralty Suit No.29 of 2013, decided on 5 November 2014 , submitted that the observation of the Bench recorded in Paragraph nos.18, 19 and 20 clearly indicate that the Rule, as they applicable in the instant case, would persuade this Court to hold that the undertaking, which has been made basis for rendering the order, and the arrest should be supported by appropriate security in a given case.
8. Learned counsel appearing for the applicant - original Page 5 of 34 O/OJCA/250/2015 ORDER defendant, urged that the present application was required to be moved on account of peculiar facts in which it is nobody's case that there exists some arrangement by the plaintiff with the creditors under Section210 of Singapore Companies Act, which speaks volumes about company's financial condition and in which the company, if calledupon to make good its undertaking, would find it difficult to do so. Hence, the undertaking, which is filed and which has been made basis for issuing the arrest order needs to be supported by appropriate security to the satisfaction of this Court.
9. Learned counsel appearing for the applicant - original defendant, further submitted that the plaintiff is admittedly not within the territorial jurisdiction of this Court, nor it is available for answer or obeying the orders of the Court, if made, as the plaintiff has no assets or property within the territorial jurisdiction of any Courts in India. In such a situation, the principle of Order25 Rule1 of C.P.C. will have applicability and under that also Court may call upon the plaintiff to support its undertaking by furnishing appropriate security so that in the eventuality when the arrest order is said to be wrongfully obtained, then the loss and damages suffered by the defendant to be recovered without there being any further requirement of legal proceedings. Heavy reliance was placed upon the decision rendered by the High Court of Culcutta and High Court of Bombay. The Culcutta High Court in case of Ravlon Inc. and Ors. V/s. Kemco Chemicals and Ors., reported in A.I.R. 1987 Cal 285, observed that in a given case, plaintiff is required to be called upon to furnish security, which could be either by way of bank guarantee or by depositing cash and on their failure to do so, the suit itself could be dismissed. In support of the submissions, one more citation was relied upon of the Bombay High Court in case of Alpha Oil International V/s. M.T. Chem Lily, reported in 2014 (5) Bom CR 521.
10. Learned counsel appearing for the applicant - original Page 6 of 34 O/OJCA/250/2015 ORDER defendant, invited this Court's attention to the claim and submitted that the applicant is assailing the very action of the plaintiff in bringing in an action in form of Admiralty Suit and obtaining order of arrest, as the claim of the plaintiff is not maintainable against the present defendant and the owner. The plaintiff has sought to infer an award rendered in the Arbitration Proceedings, which cannot be said to be a maritime claim at all. The claim arising on account of the Arbitration Agreement being an independent agreement is in itself required to be viewed as not falling under the claim arising out of the use of ship or Vessel, as it is sought to be madeout at the behest of the plaintiff. The counsel relied upon the decision rendered in case of The "Bumbesti" Queen's Bench Division, Admiralty Court, reported in 1999 Vol.2, Lloyd's Law Reports, page
481. Learned counsel invited this Court's attention to the observations of the Bench in paragraph nos.22 and 23, which read as under :
22. Conclusion on principal issue one : Is a claim on an arbitration award within par.(h) of s.20(2) of the Supreme Court Act, 1981 ?
I have come to the conclusion that the answer I must give to this question is "no". I think that it is not within the paragraph as a matter of construction. I also consider that I am bound by the decision of the Court of Appeal in The Beldis. My reasons are as follows :
(1) The "claim" in this case is the action on the award. That "claim" clearly "arises out of" the agreement to refer the disputes that had arisen under the bareboat charterparty. In the Antonis P Lemos the House of Lords held that the phrase "arises out of" in par. (h) should be given a broad Page 7 of 34 O/OJCA/250/2015 ORDER construction, so as to mean "in connection with" : see p.290, cols. 1 and 2; p.731F. Upon the analysis of the Court of Appeal in Bremer Oeltransport a claim on an award "arises out of" or is "in connection with", the agreement to refer the particular dispute to arbitration, or the agreement to refer further disputes generally to arbitration.
(2) However, that agreement to refer disputes is not, itself, an "agreement in relation to the use or hire of a ship". This is because the arbitration agreement, whether it is the individual reference or the general agreement to refer, is a contract that is distinct from the principal contract, i.e. the bareboat charterparty in this case. The distinction between the contracts is, as Mr.Garland submitted, made clear in cases such as Heyman V. Darwins Ltd., (1942) 72 L1L.Re.65; [1942] A.C. 356; and Harbour Assurance (U.K.) Ltd. v. Kansa General International Assurance Co. Ltd., [1993] 1 Lloyd's Rep. 455; [1993] Q.B. 701; and see s. 7 of the Arbitration Act, 1996.
(3) In The Antonis P Lemos, at p. 289, col. 2; p. 730 FG, the House of Lords accepted that the authorities par. (h) of the 1981 Act and its statutory predecessors made it clear that a narrow meaning must be given to the expression "in relation to" in that paragraph. The agreement to refer to arbitration individual disputes that have arisen out of a charterparty, or the agreement to Page 8 of 34 O/OJCA/250/2015 ORDER refer future disputes in general that arise out of a charterparty, must be agreements that are indirectly "in relation to the use or hire of a ship". But, in my view, they are not agreements that are sufficiently directly "in relation to the use or hire of a ship". The arbitration agreement is, at least, one step removed from the "use or hire" of a ship. The breach of contract relied upon to found the present claim has nothing to do with the use or hire of the ship; it concerns the implied term to fulfil any award made pursuant to the agreement to refer disputes. In my view the breach of the contract relied on when suing on an award does not have the "reasonably direct connection with" the use or hire of the ship that Lord Keith held in the Gatoil case was necessary to found jurisdiction under this paragraph : see p.188, col. 1; p. 271A B.
(4) Therefore, upon the proper construction of par.(h), an action on an award is not one on an agreement which is "in relation to the use or hire of a ship". This was the conclusion of the Court of Appeal in The Beldis. The current paragraph is the statutory successor to the wording that was considered in that case. Unless there is some material distinction in the wording, then I believe that I must follow the construction given by the Court of Appeal to the wording in that case. There is no significant distinction, as Mr.Justice Brandon pointed out in The Eschersheim : see p. 195, col.1; p.93 G.
Page 9 of 34 O/OJCA/250/2015 ORDER (5) With great respect to Mr.Justice Sheen I cannot accept his view that the decision in The Beldis was "inconsistent with" the Bremer Oeltransport case. The latter case was not dealing with the proper construction of this head of Admiralty jurisdiction. And the analysis in both cases of the constituents of an action on an arbitration award is remarkably similar. Both make it clear that the submission to arbitration must be pleaded and proved as well as the award itself.
(6) Even assuming that an action on an award is one "in connection with" the underlying submission to refer, there remains the question, critical to the present issue, of whether that submission is sufficiently directly related to the use or hire of a ship to make the matter fall within par. (h). That point was not at issue in Bremer Oeltransport, but it was in The Beldis, which decided the point against the claimants. I am satisfied that the decision was not "per incuriam" and that I must follow it.
23. Therefore, I have concluded that Mr.Galand is correct in his submission that the Admiralty court has no jurisdiction to consider this claim under par.(h) of s.20 (2) of the Supreme Court Act, 1981. Accordingly, the action and the claim form must be struck out and the service of the claim form in rem must be set aside. It must also Page 10 of 34 O/OJCA/250/2015 ORDER follow that the arrest of the vessel cannot be maintained in respect of this claim.
11. Learned counsel for the applicant - original defendant, invited this Court's attention to the two conventions and submitted that the definition of arrest in both i.e. 1952 and 1999 Conventions, the arrest of ship for execution or satisfaction of judgment is expressly ruled out. Learned counsel submitted that the plaintiff, who has been bringing in an action for satisfying decision/judgment, could not have successfully obtained the order of arrest and on that ground itself, the order of arrest could be said to be obtained wrongfully, which would make the plaintiff liable to make good the damages suffered on account thereof.
12. Learned counsel appearing for the applicant - original defendant, thereafter contended that the entire attempt for bringing in an action in the form of Admiralty Suit and obtaining arrest order is for circumventing the limitation as Article137 of the Limitation Act provides serious limitation for action in execution. Learned counsel relying upon the decision rendered by the Bombay High Court in case of Noy Vallesina Engineering Spa V/s. Jindal Drugs Limited, reported in 2006 (5) Bom CR 155, and invited this Court's attention to the following observations.
Now under the Act on the Court being satisfied that the Award is enforceable the Award itself operates as a decree. But it is clear from the provisions of Section 49 of the Act which are quoted above, the Award operates as a decree only on the Court recording its satisfaction that it is enforceable and it is only at that point of time that the Award becomes a decree of that Court Page 11 of 34 O/OJCA/250/2015 ORDER which has recorded its satisfaction that it is enforceable. As observed above Article 136 of the Schedule of the Limitation Act becomes applicable for execution of any decree or order of any Civil Court. Till the Court records satisfaction contemplated by Section 49 of the Arbitration Act the foreign Award is not deemed to be a decree of that Court. Therefore, when an application is filed before the Court, before the Court has recorded its satisfaction that the foreign Award is enforceable, it will not be an application for execution of any decree or order of any Civil Court. It will be an applicable for execution of an Award which is capable of being converted into a decree and obviously therefore, Article 136 of the Schedule of the Limitation Act would not apply to such an application. There is no period of limitatio provided by any of the Article in the Schedule of the Limitation Act specifically for making an application for execution of a foreign Award which is capable of being converted into a decree of the Civil Court, and therefore, such an application would be governed by the residuary Article 137 and therefore, an application for execution of a foreign Award which has not become a decree, has to be made within a period of a foreign Award which has not become a decree, has to be made within a period of three years from the date on which the right to make such an application Page 12 of 34 O/OJCA/250/2015 ORDER accrues. In my opinion, placing such interpretation would also be in favour of the persons who are holding foreign awards in their favour, because they can apply for recognition of the foreign award within a period of three years of the right to apply accruing to them and after the Court records satisfaction contemplated by Section 49 of the Act, the Award becomes a decree and they get further period of 12 years under Article 136 to apply to the Court for execution of that Award.
13. Learned counsel appearing for the applicant - original defendant, thereafter submitted that the judgment is not a decree in terms of Section2 (2) of C.P.C. and is outside the purview of Section44 A of C.P.C. as it explained in the explanation to the decision. Therefore, a judgment or an award of Arbitrator only though it has been made Rule on account of it being placed before the Court in U.K., the same would not partake any characteristic of judgment, so as to take it out of purview of explanation. The judgment or award remains award despite it being presented to the Court for decision enforcement, as it is in the present case. Learned counsel, therefore, heavily relied upon the observations of the Delhi High Court rendered in case of Marina World Shipping Corporation Limited V/s. Jindal Exports Private Limited, reported in 2007 (3) ARBLR page46 (Delhi). The reliance was placed upon the observations of the Court in para nos.27 & 28, which reads as under :
27. On consideration of the submissions of the learned Counsels for the parties, in my considered view, it is obvious that Section 44 A of the said Code was enacted to make the decrees of superior courts of reciprocating territories executable in the Page 13 of 34 O/OJCA/250/2015 ORDER same manner as decrees passed in the Courts in India. However, the legislature in its wisdom has deemed it appropriate to carve out exceptions. The exception is really contained in Explanation 2 which excludes from within its ambit an arbitration award. The object is clear that where an award is executable as a decree, the Court should not straightaway execute the award. This position also flows from the existing legal position in India as it then was or is even now. Under the 1940 Act the process of the Court had to be gone through to make the decree of the Court executable. Under the 1996 Act the award is executable as a decree but the parties have an option to file objections under Section 34 of the said Act.
28. A reading of the provisions of PartII of the said Act makes it clear that the mode and manner of enforcement of foreign award is specified therein. Section 48 itself specifies the nature of objections which can be raised by a party opposing the implementation and execution of an award which are to some extent similar to the provisions of Section 34 of the said Act. The enforceability of a foreign award is of course a prerequisite since without the same there can be no question of even an endeavor to enforce the said award. In my considered view, the ambit and scope of Explanation 2 of Section 44 of the said Act makes it clear that the exception is carved out in case of Page 14 of 34 O/OJCA/250/2015 ORDER an arbitration award "even if such an award is enforceable as a judgment or decree". A reading of the Queens Bench Division order itself makes it clear that the object of the said order was to make the award enforceable as a decree or judgment. It will not make the same equivalent to a decree of a superior court of a reciprocating territory when specifically an exception is carved out in Explanation 2.
14. Learned counsel for the applicant original defendant submitted that the reliance placed on the judgment rendered in the matter of M. V. Al Quamar V/s. Tsalvarias Salvage (International) Limited, reported in 2000 (8) SCC 278, by the other side is of no avail, as it would not help the opponent in this petition to defeat the submissions made based upon the aforesaid peculiar facts and position of law, as the judgment of M. V. Al Quamar (supra) was rendered in the proceedings arising at the Admiralty Case and was not one arising out of the Arbitration proceedings or what. On the strength of this distinguishibility, it was submitted that the reliance placed on the M. V. Al Quamar (supra), by the counsel of other side is of no avail to the opponent.
15. Learned counsel appearing for the respondent - original plaintiff submitted that the Court may appreciate the background in which the plaintiff was constrained to bring in an action in form of Admiralty Suit. The plaintiff had to file the suit for declaration that ICI Vista Vicktor Baranskiy Palmera Group and Frieight Bulk Pte. Ltd. (Freight Bulk) are alter egos of each other and ICI has fraudulently transferred its assets so as to defeat the claim of creditors that includes the plaintiff. The defendant Vessel is owned by Freight Bulk and Page 15 of 34 O/OJCA/250/2015 ORDER plaintiff has sought arrest and ultimate sale of defendant Vessel for realization of claim of the plaintiff based on the decree dated 19th November 2014 of High Court of Justice Queens Bench Division, Commercial Court, wherein the plaintiff is claimant and ICI is the defendant. The Court's attention was invited to Annexure - D, page nos.101 to 107 and Annexure - E, page nos.108 to 111 of Admiralty Suit No.30 of 2014.
16. Learned counsel appearing for the respondent - original plaintiff in order to meet with the allegation of vexatious claim, submitted that the Arbitrator rendered award on 29th October 2009 forming part of the proceedings of Admiralty Suit No.30 of 2014 being AnnexureB page nos.58 to 67 against one ICI in respect of plaintiff's claim as owner of the Vessel against ICI as charter under Charter party for outstanding higher charges in the sum of USD 3,715,482.18 and damages in the sum of USD 34,813.277 with interest thereon at 4.75% p.a. from 1st March 2009 on the damages claim and from 1st October 2008 on the claim for hire.
17. One party called Flame and the plaintiff filed consolidated proceedings before United State District Court, Virginia against ICI, Vista Shipping Ltd; Freight Bulk and Viktor Baranskiy in which the said Court attached Vessel M.V. Cape Viewer, which happened to be sister Vessel of M.V. Cape Climber the present defendant Vessel, both owned by Freight Bulk. The U.S. District Court, in its order dated 19th September 2014, concluded that ICI, Vista, Freight Bulk and Viktor Baranskiy are alter egos of each other and that ICI fraudulently transferred its assets as well as Charter of Harmony Falcon to Vista, ICI, Vista, Freight Bulk, therefore, they were jointly and severally liable upto the value of Cape Viewer to that Flame and Glory Wealth i.e. present plaintiff. The attention was invited to AnnexureC page no.68100 of original Page 16 of 34 O/OJCA/250/2015 ORDER Admiralty Suit No.30 of 2014 i.e. the original proceedings.
18. The plaintiff on account of sale of M.V. Cape Viewer to receive part of funds of USD 1,589,151.92, as ordered on 14 th January 2015 by the U.S. District Court, as could be seen from page no.97 of O.J.C.A. No.96 of 2015. Though the said judgment is under challenge at the behest of defendant in appeal filed on or around 20th December 2014, the findings of the District Court that ICI and the defendant are alter ego remains which would lend credence to the present case of plaintiff against the present defendant.
19. The said award of Arbitrator rendered on 29th October 2009. The High Court of Justice Queens Bench Division, Commercial Court passed an order on 8th September 2014 for entering the same in terms of award and entered judgment and thereupon passed decree vide subsequent order on 9th November 2014, as could be seen from page nos.101 to 111 of Admiralty Suit No.30 of 2014, in accordance with provisions of Sections - 66, 67 and 68 of English Arbitration Act. Thus, the plaintiff is seeking enforcement of decree under Section44 A of C.P.C. It is not disputed that India and U.K. are reciprocating territories and decree of English Court is enforceable in India. Learned counsel, invited Court's attention to the schedule of Reciprocating territories, produced at AnnexureI, submitted after the hearing.
20. While responding to the submissions canvassed on behalf of the applicant - original defendant in respect of Section44A of C.P.C. and on the decision of the Supreme Court in case of GC Kanugo V/s. State of Orissa, reported in 1995 (5) SCC 96 and Delhi High Court in case of Marina World (Supra), it was submitted on behalf of the respondent - original plaintiff in this application that the plaintiff is seeking enforcement of decree of High Court of England and it cannot be said a Page 17 of 34 O/OJCA/250/2015 ORDER mere enforcement of the award. The present action is for enforcement of the decree as the award, as per say, is not sought to be enforceable. The ExplanationII of Section44 A of C.P.C. excludes award's enforceability as a decree. In the instant case, as the plaintiff is not seeking enforcement of award, the ExplanationII did not apply so as to oust the plaintiff in its claim. Section2 (2) of C.P.C. defines 'Decree', which means the formal expression of an adjudication which has effect of conclusively determining the rights of the parties. It was further submitted that the views taken by the Delhi High Court that in case of an arbitral award only award can be enforced u/S. 47, 48 and 49 of Indian Arbitration Act, 1996 and not under Section 44 A of C.P.C. may not be a view, which may be acceptable to this Court for the reason that there may be a mismatch between reciprocating countries and New York convention countries. Learned counsel for the original plaintiff - present opponent given illustration that Papua and New Guinea, Aden (Yemen) are reciprocating territories but not New York convention countries. Award in such country would not be enforceable under Arbitration Act. But, decree pursuant to award of these countries would be enforceable. The interpretation which amounts to rendering party remediless is not called for. It was further submitted that there is no provision in Arbitration Act or in C.P.C. prohibiting party from pursuing either remedy and such a prohibition therefore is not to be read into the provisions. Learned counsel placing reliance upon the decision rendered by the Supreme Court in case of M.V. Al Quamar V/s. Tsalvarias Salvage (International) Limited reported in 2000 (8) SCC 278, and submitted that the foreign decree is enforceable through the Admiralty Jurisdiction in the High Court and even in case of M. V. Elizabeth (1993 supp(2) SCC
433), the Supreme Court stated that arrest can be granted in case of execution of decree. Heavy reliance is placed upon the observations made by the Supreme Court in case of M.V. Al Quamar (Supra), and it was submitted that all the questions are answered in the judgment itself, Page 18 of 34 O/OJCA/250/2015 ORDER therefore, the defendants are not justified in seeking any security through Court, on account of their socalled claim of wrongful arrest, which is yet to be adjudicated as that eventuality is not arising. Learned counsel for the respondent - original plaintiff, relying upon the observations of the Supreme Court in paragraph nos.13 to 15 in case of VSNL reported in 1996 (7) SCC page 127, submitted that when there is an arguable case, the same cannot be said to be frivolous or vexatious to prevent parties form going to trial.
21. To support his contention, learned counsel has relied upon the observations made in paragraph nos.48 to 50 in case of M. V. Elizabeth (supra), wherein it is clearly stated that in a case for execution of decree, there is no discretion of Court to insist upon security to be furnished by the plaintiff to compensate the defendant. The only tactics followed is tendering undertaking which is submitted by the plaintiff.
22. Learned counsel appearing for the present respondent - original plaintiff, while making submission in respect of Order - 25 Rule 1, relied upon by the learned counsel of the original defendant - present applicant, submitted that Order25 Rule1 provides for security for cost and the same cannot be stretched to main security for claiming damages. The cost are defined and the same is therefore, required to be interpreted accordingly in context of Sec.35A of C.P.C. The entire claim of original defendant, therefore, as is based upon damage, is not supported by provision of Order25 Rule1 of C.P.C.
23. Learned counsel for the original plaintiff - respondent hereinabove, in respect of the undertaking, contended that Rule941 or other Rules of Bombay High Court amended in the year 1980 would have no applicability in Gujarat High Court. The undertaking, which is filed is based upon the standard formats provided in Regular Civil Suits.
Page 19 of 34 O/OJCA/250/2015 ORDER The undertakings are in context of Section 95 of C.P.C. read with Rule 367 and Admiralty Rules of Bombay High Court Original Side Rules, 1957 as applicable to the Gujarat High Court and as those rules provide for undertaking, nothing more is required to be done at the end of plaintiff for seeking an order of arrest.
24. It was further submitted that Section95 limits the claim to Rs.50,000/, as the claim for damage will have to be filed by way of substantive suit with pleadings and evidences and cannot be straight way awarded on account of principle of 'sustaining prejudice'. The claim would be required to be tried and in the eventuality therefore, has not yet been rippled, in alternative, it was submitted that if the same is not limited to Rs.50,000/, then also it has to be not lump sum figure determined by the Court and cannot be quantum equivalent to the damages claimed by the defendant as per the procedure.
25. Learned counsel, thereafter, made elaborate submission qua quantum of security and it was submitted that these submissions were without prejudice to the submission made hereinabove. The quantum of security cannot exceed the cost incurred by the defendant in furnishing security/bank guarantee incurred by the defendant.
26. Learned counsel placed heavy reliance upon the decision in case of Schwarz & Co. (Grain), Ltd., V/s. "St. Elefterio" (Owners), reported in 1957 Vol. 1, Lloyd's List Law Reports. A heavy reliance was led upon the observations of the Court on the following paragraphs.
"In my judgment, that proposition rests upon a misconception of the purpose and meaning of Sect.3 (4). As it appears to me, that subsection, so far from being a restrictive provision, is a sub section introduced for the purpose of enlarging the Page 20 of 34 O/OJCA/250/2015 ORDER Admiralty jurisdiction of the Court. As I view it, its purpose is to confer, and to confer for the first time in England, the right to arrest either the ship in respect of which the cause of action is alleged to have arisen or any other ship in the same ownership. That is an entirely new right so far as the law of England is concerned, although it previously existed in other countries including Scotland; and the reason for conferring that right now is for the purpose of bringing this country into line with other countries as a result of an international convention. In my judgment, the purpose of the words relied on by Mr.Roskill, that is to say the words, "the person who would be liable on the claim in an action in personam," is to identify the person or persons whose ship or ships may be arrested in relation to this new right (if I may so express it) of arresting a sister ship. The words used, it will be observed, are "the person who is liable," and it seems to me, bearing in mind the purpose of the Act, that the natural construction of those quite simple words is, "the person who could be liable on the assumption that the action succeeds." This action might or might not succeed if it were brought in personam ; that would depend upon the view which the Court ultimately took of the various contentions raised by Mr.Roskill. But, clearly, if the action did succeed, the person or persons who would be liable would be the owner or owners of the steamship St.
Elefterio. In such circumstances, in the absence of Page 21 of 34 O/OJCA/250/2015 ORDER any suggestion that the action is a frivolous or vexatious action, I am satisfied that the plaintiffs are entitled to bring it and to have it tried, and that, whether or not their claim turns out to be a good one, they are entitled to assert that claim by proceeding in rem.
It is an odd circumstance, but it almost seems as if there must be some malignant fate which ordains that questions of this character always manage to arise on the last day of Term, i.e. in circumstances in which, if the Judge takes the wrong view, there is no practicable way of putting him right in the Court of Appeal without the possibility of inflicting irreparable damage on the party against whom the decision goes. I make that observation because I think it adds point to what I want to say on conclusion, namely, that any other construction of Sect. 3 (4) of the Act, other than the construction I have sought to put upon it, would, as it seems to me, lead to the most intolerable difficulties in practice. If Mr.Roskill is right in saying that the plaintiff has no right to arrest a ship at all, unless he can show in lilmine a cause of action sustainable in law, what is to happen in a case (and, having regard to the argument I have listened to, this may be just such a case) where the questions of law raised are highly debatable, and questions on which it may be desired to take the opinion of the Court of Appeal or even of the House of Lords ? Suppose, for instance, following Mr.Roskill's argument, that Page 22 of 34 O/OJCA/250/2015 ORDER this Court comes to the conclusion, on the preliminary argument held at this stage of the action, that the action is not one that is sustainable in law, it will presumably set aside the writ and the warrant of arrest. It is possible (these things have been known to happen) that a higher Court might take a different view ; but in the meantime the ship, which is a foreign ship, has been freed from arrest, has gone, and may never return to this country. It might be that in those circumstances the plaintiffs would have lost their right for ever to entertain proceedings in rem in this country.
The fact is, and this is the sanction against abuse, that the plaintiffs, if their alleged cause of action turns out not to be a good one, will be held liable for costs, and those costs will include the costs of furnishing bail in order to secure the release of the ship. The defendants can always secure the release of their ship by the simple expedient of furnishing bail. It is perfectly true that if, as they say it will, the action fails, they will probably not recover inter partes the whole of the costs of furnishing the bail ; but in that respect I do not know that they are in any different position from other defendants in other types of action. That observation applies especially in these days of legal aid. There is many a defendant who has been unsuccessfully sued, but who at the end of it all finds himself in the position that he cannot Page 23 of 34 O/OJCA/250/2015 ORDER recover the whole of his costs. That is one of the incidents of litigation which, as it seems to me, parties have to accept in modern conditions.
But, as I have said the simple remedy for the defendants, if they want their ship released, is to put in bail. The action will then be tried, and at the appropriate time--when all the facts have been ascertained--due consideration will be given to the arguments on law which the defendants desire to advance.
In my judgment, therefore, this motion is misconceived and I find myself unable to accede to it.
27. Learned counsel further submitted that the defendant has not chosen to provide security till date, which would have enabled the defendant for seeking release of the Vessel. In the eventuality, if the defendant choses to furnish security by way of bank guarantee for getting their Vessel released, then also the cost would have incurred was of procuring bank guarantee. It was rather incumbent upon the defendant to seek release of the Vessel by providing appropriate guarantee equivalent to the value of the Vessel, as there could not have been a greater claim so far as the Vessel is concerned. The counsel once again placed reliance upon the observations made in M.V.Elizabeth (Supra), wherein Supreme Court observed that the attachment is only method of safeguarding the interest of the plaintiff by providing him the security for its claim. Therefore, it was open to the defendant to furnish bank guarantee and got the Vessel released and if one looks at from this angle, that at the best, defendant cannot seek greater security than the Page 24 of 34 O/OJCA/250/2015 ORDER cost which they would have incurred for procuring the bank guarantee. The charges for securing bank guarantee is 1% p.a. Learned counsel further submitted that if the vessel's value is presumed to be USD 10 million equivalent to Rs.62 crore, the defendant might have been required to incur 1% p.a. thereof i.e. Rs.62,00,000/ approximately p.a. In such a case, the security, which is called upon to be furnished by the plaintiff cannot exceed bank guarantee for release of vessel, which comes to approximately Rs.5 Lacs per month. The Court passed arrest order on 29th December 2014. The application being O.J.C.A. No.96 of 2015 came to be filed for vacating the arrest order only on 30 th January 2015, which indicates that the defendant themselves are responsible for dragging their feet and not coming to Court for immediate vacating or the stay. It was further submitted on behalf of the respondent - original plaintiff that the claim, as enlisted by the defendant in application being O.J.C.A. No.250 of 2015, would indicate that the same would not be admissible at this stage, as the said claim would amount to seeking damages without proving the same. The claim in respect of wages for running the Vessel could not have been claimed, as if the defendant has chosen to seek release of Vessel by furnishing appropriate guarantee, the same would have been utilized for earning on the basis of voyage that would have been undertaken by the Vessel and on that basis, it was submitted that even though the plaintiff is not liable under the law to provide any further security other than undertaking, the plaintiff is willing to provide bank guarantee to the tune of Rs.25,00,000/ in any Nationalized Scheduled Bank in India without prejudice to its rights.
28. Before adverting to the contentions of the counsels for the parties, it would be most appropriate to setout hereinbelow few indisputable aspects emerging therefrom.
(i) The Court is calledupon to decide the application being Page 25 of 34 O/OJCA/250/2015 ORDER O.J.C.A. No.250 of 2015 only, though the counsels did refer to and touched upon the controversy and merits, but for the purpose of supporting their rival contentions in respect of the prayers made in this application. Therefore, the Court while examining these submissions will have to borne in mind that the application being O.J.C.A. No.96 of 2015, as well as the original suit, which itself is pending and not being adjudicated. In other words, the reference to the aspects on merits therefore, interalia will have no bearing upon the adjudication of O.J.C.A. No.96 of 2015 and Admiralty Suit No.30 of 2014 in any manner.
(ii) The Admiralty Suit, as it is mentioned hereinabove, for realizing amount mentioned in the prayer clause on the ground that the defendant Vessel is owned by the alter ego of the judgment debtor and heavy reliance is placed upon the U.S. District Court's order of attachment in respect of sister Vessel in support of the contentions.
(iii) Learned counsel appearing for the applicant original defendant precisely on this ground, made submission at length indicating that on the face of it, the attempt to recover the amount from the owner of the Vessel by dubbing it to be an alter ego, would persuade this Court to atleast primafacie view that the claim of the plaintiff is very weak if not far fledged.
(iv) Learned counsel for the present applicantoriginal defendant has made reference to the proceedings in the form of arrangement with creditors under Section210 of Singapore Companies Act to lend support to his submission that in such a situation, the defendant Vessel, which is incurring huge expenditure for sustaining itself in the water of India on account of the arrest order obtained by the plaintiff, would be without remedy and in an eventuality, when the Page 26 of 34 O/OJCA/250/2015 ORDER Court comes to the conclusion that there exists a case for ordering damage and cost to the defendant in terms of undertaking, therefore, the plaintiff was said to be under obligation to furnish appropriate guarantee for continuing the arrest order obtained by them in the suit.
(v) This factor of arrangement with creditor under Section210 of Singapore Companies Act, has not been controverted by the original plaintiff.
(vi) The order of arrest clearly indicate that the same was based upon the undertaking rendered to this Court at the inception of the suit.
(vii) After bifurcation of State of Maharashtra and formation of State of Gujarat in 1960, no rules governing the proceedings under the Colonial Courts of Admiralty Act, 1890, have been promulgated and therefore, the rule applicable to such proceedings prior to the bifurcation were said to be applicable and therefore, The Bombay High Court Original Side Rules and Forms as framed in 1957, so far as the proceedings under the Admiralty Act, 1890 is concerned, the same would be governed thereunder. At this stage, it is required to be noted that though in State of Maharashtra, the prevalent rules are different, as the rules framed in 1980 are applicable being the Bombay High Court Original Side Rules, 1980. So far as the State of Gujarat is concerned, obviously on account of the State Reorganization Act and the provision made thereunder, the Rules of 1980 shall have no applicability.
(viii) The Rules of 1957 therefore, will have to be looked into and examined for the purpose of the present controversy. The Bombay High Court Original Side Rules of 1957 contains PartIII ChapterI under the head "For Regulating The Procedure and Practice In Cases Brought Page 27 of 34 O/OJCA/250/2015 ORDER Before The High Court Under The Colonial Courts of Admiralty Act, 1890". The following rules therefrom deserve to be setout as under :
4. Warrant for arrest in suit in rem. If the suit is in rem, the Attorney may, on the plaint being filed, on filing a praecipe and an affidavit, take out a warrant for the arrest of the property proceeded against.
5. Contents of affidavit. The affidavit shall set forth the name and description of the property to be arrested and that the claim has not been satisfied.
52. Where not provided for, rules and practice of O.O.C.J. to apply. The other proceedings in suits brought in the Court in the exercise of its Jurisdiction under the Colonial Courts of Admiralty Act, 1890 not provided for by these Rules shall be regulated by the rules and practice of the Court in suits brought in it in the exercise of its Ordinary Original Civil jurisdiction.
Thus, close reading of ChapterI in PartIII of 1957 Rules would indicate that in absence of any specific provision, the matter shall be regulated by Rules and practice of the Court, as it is in suit brought into the exercise of Original Side Civil Jurisdiction of the Court that should require the Court to take recourse on Original Side Rules, as it stood, wherein Rule367 provides as under :
367. Undertaking to pay damages to be given Page 28 of 34 O/OJCA/250/2015 ORDER by party applying for same. A party to whom interim relief has been granted shall, before the order is issued unless the Judge otherwise directs, give an undertaking in writing, or through his Advocate to pay such sum by way of damages as the Court may award as compensation in the event of a party affected sustaining prejudice by such order.
Thus, Rule367 provides for filing an undertaking ensuring that in the event of Court awarding compensation or damages, the same would be respected and honoured.
(ix) Learned Counsel appearing for the original defendant present applicant, therefore, placed heavy reliance upon the decision of this Court in case of M.V. Asean Jade V/s. Jaisu Shipping Com. Pvt. Ltd., and Ors., and placed reliance upon the observations of the Court that Rule367 cited hereinabove would come into play, which would justify the claim and insists for sufficient security to take care of eventuality envisaged thereunder.
(x) As it is stated hereinabove, the counsel for the opponent original plaintiff, submitted that thus the undertaking alone is sufficient to seek and maintain the arrest order, as the claim of damage or compensation would be only after the appropriate application and adjudication in this behalf. When such a claim or an eventuality would arise, there would be availability of submission that there were no steps taken to mitigate the damage and/or restrict the cost as in the instant case, it was always open to the defendant Vessel through its owners, agents and otherwise to brought this Court for seeking release thereof Page 29 of 34 O/OJCA/250/2015 ORDER by furnishing appropriate security only equivalent to the value of the Vessel and in that eventuality, the Vessel could not have been said to be saddled with any other liabilities as sought to be madeout in the application.
(xi) Learned counsels for the parties, infact made elaborate submissions on the provision of Order25 & Section - 95 in support of their rival contentions. Learned counsel for the original plaintiff - opponent, infact laid greater emphasis upon the language of Section95 and submitted that the security is for the cost which may not perhaps include the claim of damages at all and on that basis, it was submitted (supra) that the decision cited at the bar including that of St. Elefterio may render greater help to the plaintiff in sustaining the order of arrest without even providing security, as they would not bound to provide security.
(xii) Learned counsel for the original defendant - present applicant, submitted that the Delhi High Court's decision in case of Marina World Shipping (supra) would indicate that the dispute could not have been entertained in the form of Admiralty Suit in the given facts and circumstances of the case, as the distinction attempted to show between the decree and judgment, is required to be viewed in the light of the observations made by the Court in Marina World Shipping Corporation (Supra).
(xiii) Learned counsel for the original plaintiff - respondent here in this application, submitted that the written statement also contains, without prejudice, offer of furnishing bank guarantee to the tune of 25 Lacs in Indian rupees to elevate the apprehension, if any, as that amount would be sufficient to meet with the cost, which would have required to be incurred on account of furnishing bank guarantee or any other Page 30 of 34 O/OJCA/250/2015 ORDER security of like nature for releasing the Vessel.
29. Against the aforesaid backdrop of rival contentions, this Court is to examine the prayer made in this application. As it is stated hereinabove, the Court is not to at this stage, adjudicate upon the contentions, which have been raised and answered so far as the O.J.C.A. No.96 of 2015 is concerned, therefore, the Court would not dwell upon those aspects at this stage.
30. The fact remains to be noted that under the existing Rules applicable to the Admiralty Proceedings under the Act are governed by the Rules of 1957 wherein though there is no specific requirement of furnishing security, the security, which is envisaged to be furnished, is therefore, required to be based upon the reading of Rule367 of the Bombay Original Side Rules, which would also indicate that there exists only obligation upon the plaintiff or its advocate to furnish undertaking so that in the eventuality of ordering the cost or compensation, the same could be respected. So far as the provision of law is concerned, the question is not in a gray area at all. The Court is of the considered view that absence of requirement of furnishing security in the Rule and requirement of furnishing undertaking is provided in the Rules and therefore, the learned counsels appearing for the plaintiff were not incorrect in their submission that the plaintiff is only under obligation to furnish the undertaking which they have furnished and therefore, there is a compliance with the rules for obtaining the arrest order.
31. The Court is of the considered view that furnishing of undertaking is not an empty formality and can never be an empty formality, as if it was only empty formality then, naturally the same would not have been there in the Rule book. The undertaking is Page 31 of 34 O/OJCA/250/2015 ORDER therefore, required to be capable of inspiring confidence of the Court for issuing appropriate orders. The party rendering undertaking therefore, is under obligation to convince the Court of its capacity to respect the undertaking in the eventuality without any further proceedings.
32. Therefore, this Court is of the considered view that when the Court is making order of arrest based upon the undertaking, the party furnishing undertaking is under obligation to satisfy the Court that in the eventuality of Court making an order of cost or compensation, as envisaged in the applicable Rule, the same would be met with without any further proceedings. Therefore, if one looks at it from that angle, then the Court is rather under duty to atleast satisfy itself qua the plaintiff's capacity or its earnestness in abiding by the undertaking and it may not render futile.
33. This brings the Court to consider the aspect of the security or the assurance that may be required to be furnished by such plaintiff. The Court hastened to add here that the Court's satisfaction is of paramount importance in a given case, as in all cases, Court may not have to insist upon the plaintiff to substantiate undertaking by way of any security at all. But, in a given case, when it is urged that there is a likelihood of an impediment in the way of the Court's compensation order being enforced, then the Court would not be precluded from insisting upon the plaintiff furnishing appropriate security in support of the undertaking.
34. This brings the Court to consider as to whether in a present case, the undertaking is required to be supported by any security as claimed. Before adverting to this aspect, it would be most appropriate to deal with the aspect in support of the quantum and the claim or likely Page 32 of 34 O/OJCA/250/2015 ORDER claim to be made on behalf of the defendant after establishing their case of wrongful arrest. The Court is of the considered view that the submission of learned counsel for the plaintiff at the initial stage qua what is required to be ensured, is the cost factor, as the observation made by the Court in case of Al Elefterio (supra) would amply indicate, which is required to be write along with the provision of Section95 and Order25. Therefore, at the initial stage, when the defendant has not even madeout a case for seeking any claim, the Court may not travel beyond the actual cost that would be required to be met in the eventuality of any order being passed on the plea of the defendant for wrongful arrest.
35. As against this, submission canvassed on behalf of the plaintiff that the defendants are never prevented from furnishing appropriate security equivalent to the value of the Vessel is also a ground deserving consideration and acceptance, as the defendant, in its ordinarily commercial prudence, was required to take all the steps for minimizing the losses and/or damages and/or expenses incurred. The Court is not inclined to examine the aspects of alter ego and other merits, as it would be argued and adjudicated upon in the proceedings of O.J.C.A. No.96 of 2015. Suffice it to say that the security offered to the tune of Rs.25,00,000/ is sufficient for the time being and hence, while disposing of this O.J.C.A., the Court is inclined to pass the following order.
36. The plaintiff is directed to furnish bank guarantee of Rs.25,00,000/, as per its own submission in the written statement, within 10 days from today i.e. on or before 30th April 2015, failing which the arrest order shall stand vacated without any reference to the Court.
In view of the above, the present application is disposed of.
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