Shaw Wallace & Co. Ltd. Vs Nepal Food Corpn. .

Reportable IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.7100 OF 2001

Shaw Wallace & Co. Ltd. … Appellant (now United Spirits Ltd.)

Vs.

Nepal Food Corporation & Others … Respondents

and

CIVIL APPEAL NO.7099 OF 2001

Shaw Wallace & Co. Ltd. … Appellant (now United Spirits Ltd.)

Vs.

Nepal Food Corporation & Another … Respondents

J U D G M E N T

R.V.RAVEENDRAN, J.

Civil Appeal No.7100/2001

Shaw Wallace & Co. Ltd., the appellant herein, was the second

defendant in suit No. 922/1979 filed by Nepal Food Corporation (‘NFC’ for

short, plaintiff in the suit and first respondent herein) for recovery of

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`1,26,38,951/06. UPT Imports Exports Ltd., the second respondent herein,

was the first defendant in the said suit. The appellant filed this appeal by

special leave, aggrieved by the judgment dated 14.9.2001 of a division

bench of the Calcutta High Court dismissing its appeal (Ap.No.323 of 1988)

against judgment and decree dated 9.9.1987 passed by a learned single Judge

of that court decreeing the suit filed by the first respondent in part. For

convenience we will also refer to the parties by their ranks in the suit.

2. NFC entered into a contract dated 7.12.1977 with Ngoh Hong Hang

Pvt. Ltd., Singapore (for short ‘NHH’ or the ‘buyer’) for sale of 10000 MT

of parboiled rice-1978 crop, (as also other quantities of rice). As per the

contract, the payment was to be made by the buyer by establishing an

irrecoverable confirmed and transferable letter of credit confirmed by

Rashtriya Banijya Bank, Kathmandu in US dollars in favour of the seller

allowing part payment. The contract provided that the payment 100%

invoice value shall be made at sight at the seller’s bank on presentation of

‘on board Bills of Lading’ (or charterparty Bills of Lading) supported by

seller’s commercial invoice. In pursuance of it, Bangkok Bank Ltd., Hong

Kong who were the buyer’s bankers, issued an irrecoverable letter of credit

dated 25.4.1978 (amended/extended on 25.5.1978 and 31.8.1978) for US $

21,60,000, in regard to the price of 10000 MT of Nepal paraboiled rice. The

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validity period of the said letter of credit was originally upto 30.6.1978, the

last date for shipment being 20.6.1978. This was extended from time to time

and the validity period of the letter of credit was extended from time to time,

finally up to 15.1.1979, with the last date for shipment being extended to

31.12.1978.

3. UPT Imports Exports Ltd. was the owner of the vessel – ‘M.V. Pichit

Samut’. Shaw Wallace represented itself to be the agent of the owner of the

vessel. The said vessel ‘Pichit Samut’ was chartered by NHH (buyer of rice

from NFC) from the owner of the vessel under charterparty agreement dated

11.10.1978 for carrying 5000 MT of rice to be shipped by NFC to NHH,

from Calcutta to Penang, Malaysia. M/s Grand Fortune Singapore Private

Ltd., (for short ‘Grand Fortune’) was the general agent of the owner of the

vessel. In accordance with Charterer’s request to assign the said vessel under

the agency of appellant for the said fixture, the said general agent acting on

behalf of the owners, appointed Shaw Wallace (second defendant) as the

‘Owner’s Protective Agent’ on 16.10.1978. Shaw Wallace was also acting as

the charterer’s agent as per charterer’s request dated 3.1.1979. M/s Asian

Agency was the agent of the seller (NFC) who was the shipper of the goods.

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4. Shaw Wallace addressed a letter dated 6.11.1978 to Asian Agency

(NFC’s agent) informing that the vessel Pichit Samut was due to arrive at

Sandheads, Calcutta on 8.11.1978, that there was insufficient cargo at the

Port and that all expenses for delays, if any, would be to the shipper’s

(seller’s) account. Shaw Wallace informed Asian Agency by letter dated

8.11.1978 that the vessel Pichit Samut had arrived at Sandheads, Calcutta

and served a notice of readiness (that the vessel was ready to receive cargo).

The said notice of readiness was accepted by Asian Agency on 28.11.1978

when the vessel arrived at berth (23 K P D) after it was certified to be fit for

loading by the surveyor. The loading of rice in the ship was commenced on

29.11.1978 and completed on 4.12.1978. Several mate’s receipts were issued

between 29.11.1978 to 4.12.1978 to Asian Agency on behalf of the master

of the ship acknowledging the receipt of goods as and when received. The

ship sailed from the Port of Calcutta to Penang on 4.12.1978.

5. The general agent of the shipowner – Grand Fortune, advised Shaw

Wallace by telex message dated 5.12.1978, not to issue Bills of Lading to

NFC until advised, in view of the dispute between the charterer and the

shipper in regard to the “lay days”. At this juncture it is necessary to refer to

the background facts relating to the said dispute. When the vessel arrived at

Garden Reach Anchorage on 9.11.1978, the vessel was passed as fit for

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loading, by the surveyors. On 9.11.1978, NFC did not have sufficient goods

to load and therefore the vessel was birthed at 28 KPD. The vessel was

programmed to shift from 28 KPD to 23 KPD on 16.11.1978, but could not

be shifted on account of Port Workers strike. After the strike was called off,

the vessel moved from 28 KPD to 23 KPD on 28.11.1978. Asian Agency

therefore accepted the notice of readiness dated 8.11.1978, only on

28.11.1978. According to Shaw Wallace, Asian Agency ought to have

accepted the notice of readiness as soon as the ship berthed at the port on

9.11.1978. According to Asian Agency, the vessel could be said to be ready

only when it berthed at 23 KPD which was on 28.11.1978 and therefore

there was no delay on its part. The dispute was as to whether the shipper

should bear the demurrage charges if any for the lay days between 9.11.1978

to 28.11.1978. It is in this background the said telex dated 5.12.1978 was

issued by Grand Fortune. This was followed by another telex dated

12.12.1978 from Grand Fortune, forwarding a telex communication from

NHH requiring the ship-owner to advise its agent Shaw Wallace to obtain a

bank guarantee from NFC regarding demurrage before issuing the Bills of

Lading, to avoid disputes over payment of demurrage and stating that if it

was not done, it (NHH) will not be responsible for any demurrage incurred.

In view of it, Grand Fortune instructed Shaw Wallace to require NFC to

furnish a bank guarantee for issuing and releasing the bills of lading. On

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13.12.1978, Shaw Wallace sent a statement of facts pertaining to the arrival

and loading of Pichit Samut. As per the standard practice, Shaw Wallace

supplied the blank forms of bills of lading to NFC for being filled and

returned. NFC’s agent delivered the mate’s receipts and the duly filled forms

of bills of lading to Shaw Wallace on 17.12.1978 with a request to sign and

issue the bills of ladings as the agent of the owner of the vessel. Shaw

Wallace’s statement of facts was returned by NFC’s agents with remarks on

19.12.1978.

6. Pichit Samut arrived at Penang on 18.12.1978. NHH took delivery of

the goods from the vessel at Penang on 22.12.1978 without possessing any

document of title and apparently without the knowledge of the NFC. Asian

Agency - NFC’s agent, addressed a telex message dated 1.1.1979 to Shaw

Wallace regretting that bills of lading had not been delivered to them,

despite delivering the mate’s receipts and that therefore, Shaw Wallace

would be responsible for all delays and damages, as NFC was unable to

negotiate the letter of credit in the absence of bills of lading. NHH sent the

following telex dated 3.1.1979 to Shaw Wallace:

“As you are aware, we wish to counter claim demurrage from shipper…… Since the owner requires charterers/shippers to provide first class international prime bank guarantee to pay freight, dead freight and demurrage before issuing bills of lading, it is proper for us to request shipper to submit first class international prime Bank Guarantee to pay the demurrage prior to releasing of bills of lading and subject to our telex

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confirmation before. Kindly act as an agent on our behalf to do the needful and possible and we will be responsible for all possible legal action.”

It should be noted that by then NHH had taken delivery of the cargo from

Pichit Samut. Shaw Wallace sent a telex message dated 3.1.1979 informing

Asian Agency that the Carrier had advised not to issue the bills of lading

until NFC furnished a bank guarantee towards demurrage and that the ship-

owner would not be responsible for the delay in issuing bills of lading, in

view of delay on the part of NFC in furnishing a bank guarantee for the

demurrage. The validity period of the letter of credit issued at the instance of

NHH expired on 15.1.1979. Shaw Wallace by communication dated

15.1.1979 informed NFC’s agent that the demurrage due in respect of M.V.

Pichit Samut was US$ 30,000 and a bank guarantee for the said amount

should be furnished by the NFC or its agents so that the bills of lading could

be issued. On 19.1.1979, NFC issued a notice to Shaw Wallace calling upon

them to issue bills of lading and take steps to see that NHH extends the

validity of the letters of credit to enable NFC to negotiate the same and

realize the value of goods failing which Shaw Wallace would be held liable

for all consequences. On 25.1.1979, three signed bills of lading dated

4.12.1978 were delivered by Shaw Wallace to NFC’s agent (Asian Agency)

in regard to 1522.727 MT, 1022.860 MT and 1901.207 MT of rice entrusted

to the master of the vessel ‘Pichit Samut’ for transshipment to Penang. NFC

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issued its final invoice in regard to the consignments on 1.2.1979 and

2.2.1979.

7. NHH issued a notice dated 3.2.1979 to NFC alleging that NFC was

liable in damages in a sum of US$ 13,41,242.38 for several breaches, that is

short-supply of 1521.52 MT of parboiled rice and non-supply 11573 MT of

white rice and demurrage in regard to delaying three vessels. NFC issued a

notice dated 25.9.1979 to NHH claiming US$ 59,12,191.07 towards the

value of rice supplied. NFC also issued a legal notice dated 29.11.1979 to

UPT Imports Exports and Shaw Wallace claiming the value of the goods as

damages, by reason of the delay in issuing the bills of lading and the

wrongful delivery of the cargo to NHH without the production of bills of

lading. NFC filed Suit No.922/1979 in the Calcutta High Court against the

owner of the vessel (first defendant) and its agent Shaw Wallace (second

defendant) for recovery of ` 1,26,38,951/06 made up of the following

amounts :

(a) Damages equivalent to the value of ` 1,05,32,459/22 4446.794 MT of rice covered by the three Bills of Lading (1522.727 MT + 1022.860 MT + 1901.207 MT) loaded on the Vessel Pichit Samut.

(b) Interest thereon at the rate of 20% per annum ` 21,06,491/84 from 4.12.1978 (date of Bills of Lading) to 3.12.1979 (date of suit).

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8. During the pendency of the said suit, NFC also filed a suit against

NHH in the High Court of Singapore for recovery of US$ 28,57,009.75

being the value of the goods supplied, (including the rice shipped through

M.V.Pichit Samut and M.V.Eastern Grand). NHH raised a counter claim for

US $13,41,242/38. The said suit (Suit No.5809/1983) was decreed (by the

High Court of Singapore on 22.8.1984) on admission for US$ 11,54,575/37

for which there was no defence or dispute. NFC filed Civil Appeal

No.56/1984 before the appellate court at Singapore regarding non-grant of

decree on admission for the balance. However, NHH was wound up by the

Singapore High Court in the year 1985, on an application by a Malaysian

creditor and consequently, NFC could not recover any amount from its

buyer NHH.

9. In the suit filed by NFC against the owner of the vessel and the agent

(appellant), it was contended that as the bills of lading were not issued in

time, the valuable security was not available for negotiation and, in the

meanwhile, the validity period of the letter of credit having expired on

15.1.1979, loss was caused to NFC in respect of the value of the goods. The

basis of the claim was two-fold. The first was wrongful delivery by the ship-

owner (first defendant) to NHH without production of the necessary

documents (bills of lading). The second was wrongful failure on the part of

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the ship-owner and Shaw Wallace to furnish the bills of lading within the

validity period of letter of credit, thereby preventing the NFC from

negotiating and recovering the amount due. While the first was a cause of

action against the ship-owner, the second was a cause of action against both

the ship-owner and Shaw Wallace.

10. The first defendant (owner of the vessel) did not defend the suit claim.

The second defendant (Shaw Wallace) in its written statement claimed that it

had merely acted as the agent of the ship-owner in regard to that particular

voyage undertaken by M.V. Pichit Samut; and that it could issue the bills of

lading only on the instructions of and under the authority of the first

defendant. Shaw Wallace contended that as it merely acted on the

instructions of the ship-owner (first defendant), as its agent, it could not be

held liable for the acts or omissions of the ship-owner. On the said

pleadings, the following issues were framed :

“1. Is the suit not maintainable as against the defendant No.2 on the grounds as stated in written statement?

2. Has there been any breach of contract on the part of defendant No.2?

3. Was there any negligence or breach of obligation on the part of defendant No.2, as alleged in paragraphs 15 and 16 of the plaint?

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4. To what relief, if any, is the plaintiff entitled as against defendant No.2? ”

Both parties (plaintiff and second defendant) led oral and documentary

evidence.

11. After considering the evidence, a learned Single Judge, by order dated

9.9.1987, decreed the suit for ` 1,05,32,459.22 with interest at 9% per annum

from the date of suit. He rejected the claim for interest from 4.12.1978 (date

of bill of lading) to 3.12.1979 (date of suit). The learned Single Judge held

that the suit was maintainable. He also held that Shaw Wallace was liable to

pay damages to NFC on three counts:

(i) Breach of statutory duty : The act of withholding the bills of lading by

Shaw Wallace was wrongful and in violation of the statutory duty imposed

by Article III, Rule 3 of the Carriage of Goods by Sea Act, 1925.

(ii) Breach of legal duty amounting to a wrongful act and negligence :

The second defendant wrongfully refused to make over to NFC, the bills of

lading (which were documents of title to goods), though NFC was entitled

to it on demand, in an attempt to assist the charterer (NHH) in realizing its

purported claim. As a result of this wrongful act of Shaw Wallace, NFC

suffered loss and damages to the extent of the value of the said goods.

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(iii) Conversion : Both ship-owner as well as Shaw Wallace acted

inconsistently with the rights of NFC, in respect of the said bills of lading

and such wrongful acts amounted to conversion of the said bills of lading

which were documents of title to the goods, and thereby caused damages and

injury to the plaintiff to the extent of the value of the said goods.

12. Feeling aggrieved, Shaw Wallace filed an intra-court appeal. A

Division Bench of the Calcutta High Court by impugned judgment dated

14.9.2001 dismissed the said appeal. The division bench affirmed the

finding that the appellant was guilty of breach of a statutory duty and breach

of a legal duty which amounted to negligence. It however clarified that Shaw

Wallace was guilty of conversion of bills of lading which constituted title to

the goods and not conversion of goods. The division bench rejected the

contention of the appellant that it was the duty of the master of the ship who

took charge of the goods to issue the bill of lading and not that of the agent.

It held that Shaw Wallace had an obligation to issue the bills of lading

within the validity period of the letter of credit. It also held that by the

appellant’s failure to issue the bills of lading, NFC was unable to negotiate

the letter of credit and consequently lost the value of the goods.

13. The said judgment and decree of the appellate bench of the High

Court is challenged in this appeal. At the outset, it should be noticed that in

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this appeal, we are neither concerned with the liability of the buyer/charterer

(NHH) nor with the liability of the owner of the vessel (UPT Imports

Exports). The decree against the owner of the vessel who remained ex parte

is not under challenge. We are only concerned with the role played by Shaw

Wallace as the carrier’s agent and the question whether it was liable for the

suit claim. The High Court has not made Shaw Wallace liable as an agent,

for any acts of omission or commission by its principal (the ship owner).

Nor has the High Court made the agent (Shaw Wallace) liable by binding it

to any contract made by the principal (ship owner). The High Court has

made Shaw Wallace liable in view of its breach of a statutory duty and

negligence to perform its legal duty in common law. Therefore, the limited

question that arises for our consideration in this appeal is whether there is

any ground for interference, in regard to the concurrent finding of the

learned Single Judge and the division bench holding that the appellant-

Shaw Wallace committed breach of its statutory duty and also breach of its

legal duty amounting to negligence and wrongful act and consequently liable

to pay to NFC the value of the goods by way of damages.

14. Section 2 of the Indian Carriage of Goods by Sea Act, 1925 (‘Act’ for

short) provides that subject to the provisions of the said Act, the rules set out

in the schedule shall have effect in relation to and in connection with the

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carriage of goods by sea, in ships carrying goods from any port in India to

any other port whether in or outside India. Section 4 provides that every bill

of lading issued in India shall contain an express statement that it is to have

effect subject to the provisions of the rules contained in the schedule to the

Act. The schedule to the said Act contains the rules relating to bills of

lading. Clause (a) of Article I of the Schedule defines the term ‘carrier’ as

including the owner of charterer who enters into a contract of carriage with a

shipper. “Contract of carriage” is defined in clause (b) of Article I thus :

“(b) “Contract of carriage” applies only to contracts of carriage covered by a bill of lading or any similar document of title, in so far such document relates to the carriage of goods by sea including any bill of lading or any similar document as aforesaid issued under or pursuant to a charter party from the moment at which such bill of lading or similar document of title regulates the relations between a carrier and a holder of the same :”

Article III deals with the Responsibilities and Liabilities of Carriers by Sea.

Rule 3 thereof which is relevant for our purpose, is extracted below :

“3. After receiving the goods into his charge, the carrier or the master or agent of the carrier, shall, on demand of the shipper issue to the shipper a bill of lading showing among other things—

(a) The leading marks necessary for identification of the goods as the same are furnished in writing by the shipper before the loading of such goods starts, provided such marks are stamped or otherwise shown clearly upon the goods if uncovered, or on the cases or coverings in which such goods are contained, in such a manner as should ordinarily remain legible until the end of the voyage;

(b) Either the number of packages or pieces, or the quantity, or weight, as the case may be, as furnished in writing by the shipper;

(c) The apparent order and condition of the goods:

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Provided that no carrier, master or agent of the carrier, shall be bound to state or show in the bill of lading any marks, number, quantity, or weight which he has reasonable ground for suspecting not accurately to represent the goods actually received, or which he has had no reasonable means of checking.”

15. Halsbury’s Laws of England (4th Edition, Vol. 43(2) Shipping &

Navigation : Pages 1042 and 1043) deals with the ‘Right to receive bill of

lading’ and ‘effect of mate’s receipt’. We extract below the relevant portion

therefrom :

“1544. Right to receive bill of lading. The person who at the time of shipment is the owner of the goods is entitled to receive a bill of lading and to have it made out in accordance with his instructions. If he is refused a bill of lading, or if the terms of the bill of lading offered differ from those which he is entitled to require, or if his instructions are not complied with, he may demand the redelivery of his goods, and a refusal to redeliver them, when so demanded, amounts to a conversion of them by the shipowner. The shipowner is not discharged from his responsibility to the owner of the goods merely on the ground that a bill of lading has already been signed and handed over to a third person who was believed in good faith to be the owner.”

“1545. Effect of mate’s receipt. Possession of the mate’s receipt prima facie entitles the holder to receive a bill of lading. Therefore, on its production, in the absence of notice that the holder is not the owner, the master or other agent of the shipowner is justified in signing a bill of lading and delivering it to the holder in exchange for the mate’s receipt.”

The following observations relating to mate’s receipt in Scrutton on

Charterparties and Bills of Lading (Twentyfirst (2008) Edition] are relevant:

“On delivery of goods by a shipper to the shipowner or his agent, the shipper will, unless there is a custom of the port to the contrary, obtain a document known as a “mate’s receipt”…. As a general rule, the person in possession of the mate’s receipt, where one exists, is the person entitled to bills of lading, which should be given in exchange for that receipt and he an sue for wrongful dealing with the goods.” [ page 162]

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After the shipment of goods under a contract of affreightment, the bill of lading is signed by the carrier or his agent and delivered to the shipper, in exchange for the mate’s receipt.” [page 62]

The standard method of preparing bills of lading is stated in CARVER’s

Carriage by Sea (Thirteenth Edition, vol. 1, Page 41 Para 54) thus :

“The bills of lading are usually procured by the shipper, and filled by him with statements of the kinds and quantities of the goods, and the marks upon them. These are checked on behalf of the ship, and documents are signed on behalf of the master, by the ship’s agent, and delivered to the shipper.”

16. NFC did not engage the vessel Pichit Samut. It was chartered by the

buyer NHH to carry the goods purchased by it from NFC. The contract of

carriage was governed by the terms of the charterparty agreement dated

11.10.1978. As per the said charterparty agreement, if the ship was delayed,

the Charterer (NHH) was responsible to pay the demurrage and the

agreement provided that the demurrage should be settled at Singapore,

twenty days after discharge of the cargo at Penang. Thus NFC did not have

any obligation towards the owner of the vessel to pay either the freight or

any demurrage charges. If there was any delay for which NFC was liable,

that was a matter to be sorted out by NHH making a claim against NFC. As

per the sale contract dated 7.12.1977 between NFC as seller/shipper and

NHH as the buyer, the seller (NFC) was entitled to payment of the entire

invoice value, at sight at the seller’s bank, on presentation of the “on board

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Bills of Lading” supported by its commercial invoice. NFC had secured its

interest by ensuring that the buyer opens an irrevocable letter of credit and

by making the supply during the currency of the letter of credit. The shipper

(NFC) was certain of obtaining payment from the Bank under the buyer’s

letter of credit, by merely producing before the bank, the bills of lading and

the invoice. The shipper was entitled to the bills of lading from the agent of

the shipowner, immediately on production of the mate’s receipt. Therefore,

the mere fact that delivery was taken by the buyer (NHH) at Penang even

without the bills of lading would not have caused any loss to the seller, if it

had been issued the bills of lading to which it was entitled, without delay so

that it could have realized the amount against the letter of credit which was

valid and in force till 15.1.1979. NFC lost the value of goods on account of

Shaw Wallace not releasing the bills of lading before 15.1.1979, even

though it was liable to issue the bills of lading on 17.12.1978.

17. The delivery of the goods on board the ship was completed on

4.12.1978. On 17.12.1978, Asian Agency presented the mate’s receipt along

with the filled forms of bills of lading to Shaw Wallace and demanded the

issue of signed bills of lading. Issue of mate’s receipt on behalf of the master

of the ship was the authority and instruction to the agent of the ship-owner to

issue the bills of lading to the shipper. The likelihood of a dispute between

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the charterer/buyer and shipper/seller regarding demurrage for lay days was

not sufficient to suspend the authorization given by issue of the mate’s

receipt. But Shaw Wallace did not issue the bills of lading inspite of Asian

Agency furnishing the mate’s receipts and duly filled forms of bills of

lading. Thereafter, Asian Agency made a further demand by telex on

1.1.1979. Shaw Wallace replied that the ship-owner wanted a bank

guarantee towards payment of demurrage before the release of bills of

lading, without indicating the amount for which the bank guarantee was to

be given. By this process, issue of the bills of lading which was legitimately

due on 17.12.1978 was postponed beyond 15.1.1979, on which date the

letter of credit ceased to be operative. The bills of lading were ultimately

issued on 25.1.1979. Having regard to Rule 3 of Article III of the Schedule

to the Act, there was a statutory duty cast upon Shaw Wallace as agent of the

carrier, to issue the bills of lading, without delay. Shaw Wallace was aware

of the relevance and importance of bills of lading. By deliberately delaying

the issue of the bills of lading from 17.12.1978 to 25.1.1979, Shaw Wallace

committed a breach of statutory duty cast under Article III (3) of the

Schedule to the Act. It also acted negligently in performance of its legal duty

in common law to issue the bills of lading on delivery of the mate’s receipt,

as the agent of the ship-owner. Thus it became liable to pay damages to

make good the loss, namely the value of the goods covered by the bills of

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lading. For this purpose it is immaterial whether Shaw Wallace was aware or

unaware of the fact that the Letter of Credit was expiring on 15.1.1979. The

contention of Shaw Wallace that it was acting merely on the instructions of

the shipowner in refusing to issue the bills of lading till furnishing of a bank

guarantee and therefore not liable, is rejected.

18. The appellant made a belated attempt to avoid liability by contending

that it was not responsible or liable for the issue of bills of lading, that only

the master of the ship who received the goods, had to issue the bills of

lading, and that NFC having permitted the ship to leave the port without

obtaining the bills of lading, could not require the agent to issue the bills of

lading. The well recognized practice relating to carriage of goods by sea is

that where a consignment is loaded/received on board on different dates, the

person in charge of the vessel issues mate’s receipts acknowledging the

quantity received, as and when the goods are received. On completion of

delivery of goods by the shipper, on production of the mate’s receipts, the

bills of lading would be issued to the shipper either by the master of the

vessel or by the agent of the shipowner. In this case, at the relevant time,

Shaw Wallace represented to NFC and its agent (Asian Agency) that it was

the agent of the carrier and did all acts expected to be carried out by the

carrier’s agents, that is informing the shipper’s agents about the arrival of the

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ship by issuing notice of readiness and by calling upon the shipper’s agent to

load the cargo. It issued to the master of the vessel, the mate’s receipt book,

bearing printed caption of ‘Shaw Wallace & Co. Ltd.,’ thereby making it

clear that it was acting as an agent of the carrier. The mate’s receipt forms

issued by Shaw Wallace for use by the master of the ship clearly contained a

printed provision that the bills of lading could be obtained at the agent’s

office. Shaw Wallace corresponded and dealt with the shipper’s agent in all

matters with reference to the shipment and furnished the blank forms of bills

of lading to the shipper’s agent. Shaw Wallace also received the mate’s

receipt and duly filled forms of bills of lading from Asian Agency on

17.12.1978 without any protest. Ultimately, the Shaw Wallace did issue the

bills of lading. Therefore, it is too late in the day for Shaw Wallace to

contend that it was not liable to issue the bills of lading. It is also significant

that Shaw Wallace never informed NFC or Asian Agency before the vessel

left Calcutta on 4.12.1978 or even thereafter, that it did not have the

authority to issue the bills of lading or that it would not issue bills of lading

in view of any default on the part of NFC. On the other hand, it held out till

the ship left the port that it was the carrier’s agent and it will issue the bills

of lading in lieu of the mate’s receipt. It did not express any reservation or

objection when it issued the blank forms of bills of lading to Asian Agency

for being filled or even when the mate’s receipts and filled forms of bills of

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lading were delivered to it on 17.12.1978. Even in the letter dated

28.12.1978 addressed to the Asian Agency, it merely stated that readiness of

the ship to receive goods would commence from 9.11.1978 and not

26.12.1978. More than 15 days after receiving the mate’s receipts and filled

form of bills of lading, on 3.1.1979, for the first time, Shaw Wallace raised

the issue of furnishing a bank guarantee for payment of demurrage amount

before releasing the bills of lading. Even in this letter, it did not mention the

amount of demurrage for which the bank guarantee was to be issued. The

demurrage amount was mentioned for the first time by letter dated

15.1.1979. Therefore, even if NFC wanted to give a bank guarantee, it could

not have given a bank guarantee before 15.1.1979 as the amount for which

bank guarantee was required, was not notified. On 15.1.1979, the letter of

credit expired. Therefore, it is clear that the Shaw Wallace alongwith the

ship-owner (first defendant) was jointly and severally responsible for the

loss caused to the NFC. The liability of Shaw Wallace arises by reason of

breach of a statutory duty and by reason of its negligence in performing its

legal duty to release the bills of lading when demanded. Whether the delay

on the part of the Shaw Wallace in issuing the bills of lading was on account

of negligence or on account of mala fides, makes no difference, in so far as

its liability is concerned.

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19. Once a mate’s receipt is issued to the shipper on delivery of the goods

to the ship, issue of bill of lading in respect of such goods cannot be

postponed on any ground except where the person claiming the bill of lading

is not the shipper. Once the mate’s receipt is issued to the shipper (or its

agent) and the demand for issue of a bill of lading in terms of the mate’s

receipts is made by the shipper (or its agent), the owner of the vessel is

bound to issue the bill of lading and cannot deny or delay the issue of the bill

of lading. If the arrangement was that the agent of the owner of the vessel

will issue the bill of lading, or if the owners’ agent had held out that it will

issue the bill of lading, the agent cannot withhold the bills of lading once the

mate’s receipt is issued, irrespective of any instructions to the contrary,

issued by the owner of the vessel subsequent to the issue of mate’s receipt

and departure of the vessel with the goods from the port. If the issue of bill

of lading is denied or delayed as a consequence of which the shipper suffers

loss, the owner of the vessel and its agent will jointly and severally be liable

to make good the loss by way of damages.

20. The appellant next contended that even if it is held liable in damages,

the amount claimed was erroneous. It is pointed that NFC has claimed in the

plaint (Annexure D to the plaint) that the value of 4446.794 MT of parboiled

rice was ` 1,05,32,459/22. The appellant further pointed out that as per the

22

contract rate of US$ 216 per MT, the value of 4446.794 MT would be US$

960,507. It is pointed out that in the plaint in its suit filed against NHH in the

High Court of Singapore, NFC had shown the value of 4446.794 MT as US$

960,507. According to the appellant, as per the prevailing exchange rate

when the loss occurred, the rupee equivalent of US$ 960,507 was `

77,80,110/- (at the rate of ` 8.10 per US Dollar) and therefore, the claim of `

1,05,32,459/22 was excessive, erroneous and even if the plaintiff should

succeed, the decree should be only for ` 77,80,110/-. We have carefully

considered the said contention. It is seen that the appellant in its written

statement did not raise the contention that the exchange rate was ` 8.10 per

US Dollars at the relevant time and the Indian rupee equivalent of the value

of the rice in US Dollar would be only ` 77,80,110/-. Significantly, even

when the learned Single Judge decreed the suit for ` 1,05,32,459.22, the

appellant did not raise this contention in the memorandum of appeal in the

intra-court appeal. Again, when the appeal by the appellant was dismissed

by a division bench of the High Court and the special leave petition was

filed before this Court, the appellant did not raise this contention in the

special leave petition. Apart from the absence of pleadings, there is no

material on record to show the date with reference to which the exchange

rate was calculated, (that is, whether it was 4.12.1978 or 15.1.1979 or

25.1.1979 or 3.12.1979) or to show the exchange rate on the relevant rate. In

23

the absence of any plea in the written statement and in the absence of any

ground in the memorandum of appeal or special leave petition, and the

absence of any material, the appellant cannot during arguments, raise this

issue which involves examination of disputed questions of fact. The said

contention is therefore liable to be rejected.

21. In the view we have taken, it is wholly unnecessary to consider the

several decisions on unrelated issues relied upon by both sides. The decision

of the High Court that the appellant is jointly and severally liable along with

the owner of the vessel does not call for any interference. The appeal is

therefore, liable to be dismissed.

Civil Appeal No.7099/2001

22. Shaw Wallace, the appellant was the third defendant in a suit (Suit

No.1010 of 1979) filed by Nepal Food Corporation (plaintiff in the suit and

first respondent herein) for recovery of ` 95,67,537/31. Thye Shipping

Parma SA, the second respondent herein, was the first defendant in the said

suit. Eastern Steamship & Enterprises (S) Ltd., and Khemka & Co.

(Agencies) Pvt. Ltd., respondents 3 and 4 herein were the second and fourth

defendants respectively in the suit. The appellant has filed this appeal

24

aggrieved by the judgment dated 14.9.2001 of a division bench of the

Calcutta High Court dismissing its appeal (Appeal No.322 of 1988) against

judgment and decree dated 9.9.1987 passed by a learned single Judge of that

court decreeing the suit filed by the first respondent.

23. The plaintiff entered into a contract dated 7.12.1977 with Ngoh Hong

Hang Pvt. Ltd., Singapore (for short ‘NHH’ or the ‘buyer’) for sale of

certain quantities of Nepal parboiled rice. As per the contract, the payment

was to be made by the buyer by establishing an irrecoverable confirmed and

transferable letter of credit confirmed by Rashtriya Banijya Bank,

Kathmandu in US dollars in favour of the seller allowing part payment. The

contract provided that the payment 100% invoice value shall be made at

sight at the seller’s bank on presentation of ‘on board Bills of Lading’ (or

charter party Bills of Lading) supported by seller’s commercial invoice. In

pursuance of it, Bangkok Bank Ltd., Hong Kong who were the buyer’s

bankers, issued an irrecoverable letter of credit dated 25.4.1978 for US $

21,60,000, in regard to the price of 10000 MT of Nepal parboiled rice. The

validity period of the said letter of credit was originally upto 30.6.1978, the

date of shipment latest by 20.6.1978. This was extended from time to time

and the validity of the letter of credit was extended up to 15.1.1979 and the

25

date of shipment was extended to 31.12.1978. (vide communication dated

26.10.1978 of Rashtriya Banijya Bank).

24. Thye Shipping Parma SA, the first defendant was the disponent owner

(main charterer) of the vessel – ‘M.V. Eastern Grand under a charter

arrangement with the owner of the vessel -- M/s Eastern Steamship &

Enterprises (S) Ltd., the second defendant. The said vessel ‘Eastern Grand’

was sub-chartered by NHH (buyer of the rice) from Thye Shipping under a

charterparty agreement dated 14.11.1978 for carrying 4500 MT of rice

supplied by NFC, from Calcutta to Penang, Malaysia. Khemka & Co.

(Agencies) Pvt. Ltd., the fourth defendant was the Owner’s Protective

Agent. Shaw Wallace was the agent of the owner of the vessel, at Calcutta.

M/s Asian Agency was the agent of the seller (NFC) who was the shipper of

the goods.

25. Shaw Wallace addressed a letter dated 18.11.1978 to Asian Agency

(NFC’s agent) informing that the vessel Eastern Grand was due to arrive at

Calcutta on 22.11.1978, and NFC should be ready to load the rice on that

date. Shaw Wallace informed NFC’s agent by letter dated 22.11.1978 that

the vessel Eastern Grand had arrived at the port at Calcutta on 21.11.1978

and served a notice of readiness. The said notice of readiness was accepted

26

by NFC’s Agent on 4.12.1978. The loading of goods was commenced on

5.12.1978 and continued upto 12.12.1978. As loading could not be

completed for want of entire quantity of rice, the ship was shifted from its

berth on 12.12.1978. The ship was again re-berthed on 27.12.1978 and

loading was resumed and completed between 27.12.1978 to 29.12.1978.

Several mate’s receipts were issued between 5.12.1978 to 29.12.1978 to

Asian Agency on behalf of the ship acknowledging the receipt of goods (in

all 3434.291 MT) as and when received. The ship sailed from the Port of

Calcutta to Penang on 30.12.1978.

26. The disponent owner of the vessel (Thye Shipping) advised Shaw

Wallace by telex on 1.1.1979, not to issue bills of lading to NFC until a bank

guarantee was furnished by NFC in regard to demurrage charges and dead

freight charges (for the period of delay between 12.12.1978 and 27.12.1978).

On 1.1.1979, Khemka & Co. sent a statement of facts-cum-lay time sheet

relating to Eastern Grand to Asian Agency for signature and return. On

2.1.1979, Shaw Wallace informed Asian Agency that as per the instructions

of its Principal (owner of the vessel), through the protective agents, the bills

of lading could not be released until receipt of confirmation that

charterer/shipper had provided a bank guarantee acceptable to the ship

27

owner to pay the freight, dead freight and demurrage due to the ship owners.

27. Eastern Grand arrived at Penang on 16.1.1979 and NHH took

delivery of the goods from the vessel at Penang between 16.1.1979 and

19.1.1979 without having the authority of the bills of lading. In the

meanwhile, the validity period of the letter of credit issued by the buyer

expired on 15.1.1979. Shaw Wallace by communication dated 15.1.1979

informed Asian Agency that the total demurrage and dead freight due in

respect of M.V. Eastern Grand was US $77,000 and a bank guarantee for the

said amount should be furnished by the NFC or its agents so that the bills of

lading could be issued.

28. As per the standard practice, Shaw Wallace supplied the blank forms

of bills of lading to Asian Agency for being filled and returned. Asian

Agency delivered the mate’s receipts and the duly filled bills of lading to

Shaw Wallace on 18.1.1979 with a request to sign and issue the bills of

ladings as owner’s agent. Asian Agency sent a notice dated 19.1.1979 to

Shaw Wallace demanding the immediate release of the bills of lading and

requiring it to ensure extension of the letter of credit to enable NFC to

negotiate the same, failing which Shaw Wallace would be held liable for all

consequences. Shaw Wallace received a telex dated 24.1.1979 from the ship

28

owner, giving clearance to release the bills of lading. On 29.1.1979, Shaw

Wallace delivered three signed bills of lading dated 28.12.1978 and

29.12.1978 to NFC’s agent (Asian Agency) in regard to 3366.170 MT of

rice entrusted to the master of the vessel ‘Eastern Grand’ for transshipment

from Calcutta to Penang. NFC issued its final invoice in regard to the

consignments on 2.2.1979.

29. NHH issued a notice dated 3.2.1979 to NFC alleging that NFC was

liable in damages for short-supply of 1521.52 MT of parboiled rice and non-

supply 11573 MT of white rice, apart from being liable to demurrage for

three vessels, in all US$ 13,41,242.38. NFC issued a notice dated 24.9.1979

to NHH claiming US$ 59,12,191.07 in regard to the supplies made

(including quantities shipped in M. V. Eastern Grand and M. V. Pichit

Samut). As there was no response, NFC also issued a legal notice dated

10.12.1979 to Shaw Wallace and Khemka & Co. claiming ` 95,67,537/31

being the value of the goods covered by the three bills of lading as damages,

for the wrongful delivery of the cargo to NHH.

30. NFC filed Suit No.1010/1979, in the Calcutta High Court against the

disponent owner of the vessel (charterer), the owner of the vessel, Shaw

Wallace and Owner’s Protective Agent Khemka & Co. (Agencies) Pvt. Ltd.,

29

(fourth defendant) for recovery of ` 95,67,537/31 as damages for the loss

and damage suffered by it. In the suit filed by NFC, it was contended that as

the bills of lading were withheld, the valuable security was not available for

negotiation and, in the meanwhile, the validity period of the Letter of Credit

having expired on 15.1.1979, loss was caused in respect of the value of the

goods. The basis of the claim was two-fold. The first was wrongful delivery

by the first defendant to the buyers. Second was wrongful failure to furnish

the bills of lading thereby preventing the NFC from negotiating and

recovering the amount due. While the first was the cause of action against

the Thye Shipping (first defendant) the second was a cause of action against

both Thye Shipping and Shaw Wallace.

31. Defendants 1, 2 and 4 did not contest the suit. Shaw Wallace (third

defendant) in its written statement contended as follows : (a) it did not issue

the bills of lading to NFC because it was bound by the instructions of its

principal; (b) a suit against an agent of a disclosed principal was not

maintainable; (c) it was in no way concerned with the delivery of the cargo

since its role was limited to that of an agent with the responsibility of getting

the goods loaded; (d) it had no knowledge of the opening of the letter of

credit or the expiry date thereof; and (e) it was in no way concerned with the

main contract of sale of rice between NFC and NHH. Issues were framed

30

similar to those in the case of Pichit Samut. Both parties (plaintiffs and

second defendant) led evidence – both oral and documentary.

32. As already mentioned (vide para 8 above),during the pendency of the

said suit, NFC also filed a suit against NHH in the High Court of Singapore

for the value of the goods supplied, but could not recover any amount as

NHH was ordered to be wound up in the year 1985.

33. After considering the evidence, a learned Single Judge, by judgment

dated 9.9.1987, decreed the suit for ` 95,67,537/31 against Thye Shipping

(second respondent) and Shaw Wallace (appellant) with interest at 9% per

annum from the date of suit (24.12.1979). The learned Single Judge held that

the suit was maintainable. He also held that Shaw Wallace was liable to pay

damages to NFC as claimed. Feeling aggrieved, Shaw Wallace filed an intra

court appeal. The division bench of the Calcutta High Court, by impugned

order dated 14.9.2001 dismissed the said appeal. The reasonings of the

learned Single Judge and the Division Bench are broadly the same as the

reasoning in the case of ‘Pichit Samut’. The said judgment and decree of the

High Court is challenged in this appeal by special leave.

31

34. We have already noticed that the appeal is limited to the role of Shaw

Wallace as the carrier’s agent and its liability. The legal position has been

discussed while dealing with the case of Pichit Samut. The decision of the

High Court was upheld in the case of Pichit Samut solely on the ground that

in view of the delay on the part of Shaw Wallace in releasing the bills of

lading, NFC could not present the bills of ladings and invoices and receive

payment against the letter of credit before its expiry on 15.1.1979. In the

case of Pichit Samut’, the mate’s receipts were delivered and the demand for

bills of lading was made on 17.12.1978, the cargo were delivered to the

NHH on 22.12.1978 and bills of lading were issued on 25.1.1979, after the

expiry of the letter of credit on 15.1.1979. We therefore held that if Shaw

Wallace had delivered the bills of lading when demanded, NFC could have

realized the value of the goods long prior to 15.1.1979 when the letter of

credit expired and that on account of its failure to release the bills of lading

before 15.1.1979, NFC was prevented from realizing the value of the rice

supplied.

35. But the facts are completely different here. As noticed above, the

goods were loaded between 5.12.1978 and 29.12.1978. The vessels sailed on

30.12.1978. The letter of credit expired on 15.1.1979. The goods were

cleared at Penang between 16.1.1979 to 19.1.1979.It was only on 19.1.1979,

32

after the expiry of letter of credit and after the goods were delivered to NHH,

that the NFC tendered the mate’s receipts and requested for issue of bills of

lading from Shaw Wallace. Even if Shaw Wallace had delivered the bills of

lading on the day of demand namely on 19.1.1979 itself, NFC could not

have realized the amount against the letter of credit. Shaw Wallace could be

made liable only if it had committed breach of statutory duty or breach of

any other legal duty amounting to negligence causing loss to the NFC. In

this case, having regard to the fact, that the letter of credit had expired on

15.1.1979 long prior to the tendering of mate’s receipt and demand for bills

of lading, the delay of nine days in issuing the bills of lading had no

relevance. As noticed above, even if the bills of lading had been issued

forthwith on 19.1.1979, it would not have been of any assistance.

36. After referring to the oral evidence, the High Court inferred that it

would be highly improbable that the holder of the mate’s receipts would

delay the making of a demand for blank bills of lading forms. The learned

Single Judge recorded a finding that Asian Agency was demanding the blank

bills of lading forms from Shaw Wallace from 30.12.1978 and that Shaw

Wallace did not supply the blank forms to Asian Agency until 17.1.1979.

Consequently the learned single Judge reasoned that the demand for bills of

lading was being prior to 15.1.1979 and therefore, for the reasons stated in

33

the case of Pichit Samut, Shaw Wallace was liable to pay damages equal to

the value of the goods. The division bench affirmed the said findings.

37. There is no reference in the plaint, to the demand for the blank forms

of lading on and from 30.12.1978 by Asian Agency. Asian Agency did not

send either any letter or telex to Shaw Wallace demanding the issue of bills

of lading or the blank forms of bill of lading for purposes of filling up at any

time prior to 17.1.1979. Asian Agency did not tender the mate’s receipts

prior to 17.1.1979. The first communication in writing from Asian Agency

to Shaw Wallace after the ship left on 30.12.1978 was when it sent the

mate’s receipts and the filled forms of bill of lading to Shaw Wallace for

issuing bills of lading, under cover of letter dated 19.1.1979, which is

extracted below:

“We enclose under notes MR’s & B/L’s with 3 original copy for issuing B/L. M/R No.4,5,6,7,8,9,10,11,12,13,14,15,16,17, 18,19,20,21,22,23,24, 25,26,27,28,29,30,31,32,33,34,35, 37,38,39,40, 41,42,43,44,45, 46 for 26680 bags Nepal Parboiled medium rice for Malayasa. MR No. 38,47,48,49,50,51,52, 53,54,55,59 for 25 409 bags LPN Malayasia Nepal Parboiled Medium rice. M.R.No. 1,2,3,56,57,58 for 15,791 bags Nepal Parboiled Medium rice 1978 for Port Penanag.”

38. On the same day, that is on 19.1.1979, Asian Agency also sent a

notice through counsel to Shaw Wallace demanding that immediate steps be

taken for release of bills of lading relating to Pichit Samut and Eastern

34

Grand and for extension of validity of the letters of credit from the buyers so

as to enable NFC to negotiate the same and realise the proceeds. We extract

below the relevant portions of the said notice :

“We have been instructed that the above m.v. Pichit Samut was loaded with 4539 gross tones Nepal Rice and the loading was completed on the 4th December, 1978. The other vessel m.v. Eastern Grand was also loaded by our clients with 3434 gross tones of Nepal Ribel and such loading was completed on the 29th December, 1978. on completion of the loading the Mate Receipts were duly issued by the respective Steamers to our said clients.

Our clients in their turn forwarded to you the forms of the Bills of Lading duly filled in together with the Original Mate Receiepts and such documents were submitted for m.v. Pichit Samut on the 17th December, 1978 and for m.v. Eastern Grand on the 18th January 1979.

You are aware that as per the normal practice the bills of lading are exchangeable against the original Mate receipts which you as steamer agents were obliged to issue in favour of our clients.

It is regretted that although the formalities as aforesaid were duly complied with by our clients you did not release the necessary Bills of Lading to our clients and although you knew fully well that without such bills of lading and other documents our clients could not be negotiate the letter of credit in connection with the said shipments.”

Significantly, the above notice refers to forwarding of the duly filled forms

of bill of lading in regard to Eastern Grand on 18.1.1979 (the date should be

19.1.1979). It does not refer to any earlier demand by Asian Agency for

issue of blank forms of bills of lading from 30.12.1978 or any other date. It

does not refer to any earlier demand for issue of bills of lading. Similarly in

the notice dated 10.12.1979 issued by NFC through counsel to Shaw

Wallace, there is no reference to any demand earlier to 19.1.1979. If really

35

NFC and Asian Agency were seriously pursuing the matter, we fail to

understand why no letter or telex was sent either by NFC or by Asian

Agency making a demand for issue of blank bill of lading forms or insisting

upon the issue of bills of lading by tendering the mate’s receipts. Even

assuming that there was any oral demand for bill of lading forms on

30.12.1978 as found by the High Court, it was evident NFC and its agent

had taken the matter in a casual manner presumably expecting a further

extension of letter of credit. In the circumstances, it cannot be said that there

was any default, negligence or delay on the part of Shaw Wallace in issuing

the bills of lading prior to 17.1.1979. The learned Single Judge and division

bench have found that there was a demand for blank forms of bill of lading

from 30.12.1978. Accepting the said finding will not help NFC as there is no

finding that the mate’s receipts were tendered or delivered with a demand

for issue of bills of lading prior to 19.1.1979. The High Court has failed to

consider this important aspect and wrongly assumed that breach, default,

delay could be attributed to Shaw Wallace, in issuing the bills of lading,

even before the mate’s receipts were tendered on 19.1.1979. The decisions

of the learned Single Judge and division bench of the High Court can not

therefore be sustained.

36

Conclusion

39. In view the above, the appeals are disposed of as follows:

(i) CA No. 7099/2001 (Re: Eastern Grand) is allowed and the

judgment and decree of the High Court in so far as it decrees the

suit against the appellant is set aside. The decree against the second

respondent herein (first defendant in the suit) is not disturbed.

(ii) CA No. 7100/2001 (Re: Pichit Samut) is dismissed and the

judgment and decree of the High Court is affirmed.

(iii) Parties to bear their respective costs.

…………………………J. (R.V.Raveendran)

New Delhi; ………………………….J. October 13, 2011. (H.L. Gokhale)

37

SHAW WALLACE & CO. LTD. Vs NEPAL FOOD CORPN. .

SHAW WALLACE & CO. LTD. Vs NEPAL FOOD CORPN. .