REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 1930 OF 2008   

CHRISOMAR CORPORATION          …APPELLANT

VERSUS

MJR STEELS PRIVATE LIMITED & ANR. ...RESPONDENT

J U D G M E N T  

R.F. Nariman, J.

1. The present appeal raises several  interesting questions

which arise in admiralty law. The vessel, M.V. Nikolaos-S, was

owned by one Third Element Enterprises, a Cyprus company,

and was flying the flag of the Republic of Cyprus.  The plaintiff

in the admiralty suit, who is the appellant before us, supplied

bunkers and other necessaries to the said vessel at the port of

Durban on terms and conditions agreed between the parties in

November, 1999.  According to the plaintiff, the bunkers were 1

received  by  the  master  of  the  vessel  and  services  were

rendered to the vessel  as acknowledged by the master.  The

plaintiff raised invoices on 26.11.1999 for US$ 94,611.25 which

have not yet been paid.  

2. When the vessel docked in the port of Haldia, the plaintiff

filed  admiralty  suit  No.1  of  2000 in  the  Calcutta  High  Court

praying for an arrest of the vessel because, according to the

plaintiff, the necessaries supplied to the vessel would not only

amount to a maritime claim but would also be a maritime lien on

the vessel.   By an order  dated 6.1.2000,  the vessel  was so

arrested but nobody came forward for release of the vessel at

that point of time.  It is only on 25.1.2000 that learned counsel

appearing  on  behalf  of  the  plaintiff  approached  the  learned

admiralty  Judge  expressing  the  plaintiff’s  intention  not  to

proceed with the application for arrest as, according to him, the

parties  had  reached  an  out  of  court  settlement.   The  order

passed on 25.1.2000 reads as follows:-

“The  Court  by  an  order  dated  January  6,  2000 directed that the vessel known as M.V.Nikolaos – S was to be arrested.  On the returnable date no one appeared  on  behalf  of  the  respondents.  The

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directions for affidavits had been given on January 10, 2000.  Today when the matter was called on for hearing,  counsel  appearing  for  the  petitioner submitted that an out of court settlement has been reached between the parties and the petitioner was not inclined to proceed with the matter any further. For these reasons, this application is dismissed for non prosecution.  

All interim orders are vacated.  

The  vessel  shall  cease  to  be  under  arrest  as  of now.”  

3. It is important at this stage to advert to the agreement that

was entered into on 18.1.2000.  Since both sides have argued

extensively on the aforesaid agreement, it is necessary to set it

out completely. The said agreement reads as follows:-

“AGREEMENT GUARANTEE

In  Piraeus  and  at  the  offices  of  “LALLIS OUTSINOS  ANAGNOSTOPOULOS”  Lawyers Maritime  Consultants  of  100,  Kololotroni  Street, Piraeus, this Tuesday the 18th January 2000, by and between:

A. CHRISOMAR CORPORATION, a company duly established  and  operating  under  the  laws  of Liberia,  maintaining  an  office  in  Greece  (5 Solomou  Str.  Kifissia)  (hereinafter  called Chrisomar), duly represented, for the purpose of this  agreement  by  its  authorized  lawyer  Mr. Dimitrios Voutsinos,

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B. THIRD  ELEMENT  ENTERPRISES  LTD,  a company duly established and operating under the  laws  of  Cyprus  (hereinafter  called  “THE SHIPOWNERS”),  duly  represented  for  the purpose of this agreement by the President of the Board of Directors, Mr. Sotirios Soulkas, who also  declared  that  he  has  the  necessary authorization and capacity to bind the company to this agreement by his sole signature.  

C. Sotirios Soukas, of 145 Filonos Str, Piraeus, the following were stated and agreed.

WHEREAS

1. The shipowners are the legal owners of the Cyprus flag vessel  Nikolaos  S,  Int.  Sign:  P  3  KT  6  (“the  vessel”) managed in Greece by Suter Shipping and Trading Ltd.

2. Chrisomar has sold and delivered to the vessel in the port of Durban a certain quantity of bunkers, on or about 26th

November,  1999,  Chrisomar  has  issued  its  invoice  no. 99232/15.12.1999  for  the  amount  of  USD  94,611.25, payable on 26th November, 1999 (Copy of the invoice is attached herewith as app. I).  

3. The owners have failed to pay the amount of the above invoice  by  the  26th November  1999  and  consequently, Chrisomar arrested the vessel in the port of Haldia, India for security of the above claim.

THE PARTIES AGREE AS FOLLOWS

1. The  shipowners  hereby  confirm  that  they  owe  to Chrisomar  USD 104,688.60,  analysed  as  follows:  USD 94,611.25  for  the  invoice  amount  +  USD  2,177.35  for interest accrued + USD 7,900.00 for legal costs.

2. The  shipowners,  through  their  President  Mr.  Sotirios Soukas,  represent  to  Chrisomar  that  (a)  their  vessel  is

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due  to  be  chartered  out  for  a  voyage  from  Bangkok, Thailand to ports of  West Africa as against  a freight  of about  USD  35.00  per  metric  ton  of  cargo;  (b)  that  if Chrisomar  releases  their  vessel  from  the  above  arrest shall  be able to proceed to Bangkok for loading and to perform  the  intended  charter  voyage;  (c)  that  the shipowners as soon as their vessel is released from its arrest  by  Chrisomar  shall  include  in  their  recap  and charter party with the intended charterers of their vessel a clause  that  part  of  the  freight  amounting  to  USD 104,668.60  shall  be  paid  directly  by  the  charterers  to Chrisomar’s bank account as follows:

ANZ GRINDLAYS BANK

21, Akti Miaouli, 18535 Piraeus

Swift: GRNDGRAA,

A/C No. 815142 USD 40632

In favour of Chrisomar Corp.

3. The  above  recap  shall  be  faxed  by  the  shipowners  to Chrisomar one (1) working day after its conclusion.

4. The  shipowners  will  not  sell  their  vessel  prior  to  the satisfaction of Chrisomar’s above claim and shall provide Chrisomar with a report by fax of the movements of their vessel every five (5) days.  

5. The  above  payment  shall  be  made  in  full  and  final settlement  of  Chrisomar’s  above  claim  per  capital  and costs.

6. If,  for  any  reason  the  above  amount  is  not  paid  to Chrisomar  within  ten (10)  working days after  the ships sailing  from  the  port  of  loading  Bangkok  or,  the shipowners are in breach of  any of  the representations and obligations set out in paras 2, 3 and 4 above then Chrisomar will be entitled to take all the appropriate legal

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steps including the arrest of the vessel for recovering the above  amount  or  any  higher  one  which  they  may  be entitled to.

7. Sotirios Soukas hereby guarantees to Chrisomar and in favour of  the shipowner the due payment of  the above amount, working the right of division and exclusion i.e. he admits that he will pay amounts due to Chrisomar without the  latter  having  first  to  enforce  its  claim  against  the shipowners and their vessel.

8. If  the vessel is lost, for any reason or if  the mortgagee bank  or  any  other  claimant  arrests  the  vessel  before reaching Bangkok and as a  result,  the shipowners  are unable  to  proceed  for  loading  to  Bangkok,  and  thus execute  the  above  stated  charter  voyage,  the  above obligations  of  the  guarantor  shall  cease  to  exist  but Chrisomar will maintain its rights of recovery only against the  shipowners  and  the  vessel  but  not  against  the guarantor.

9. This agreement is subject to Greek law and the exclusive jurisdiction of the Piraeus Courts. ”

4. It appears that nothing in the meanwhile happened. At no

point  of  time did the vessel  sail  for  the port  of  Bangkok – it

remained continuously in Haldia.  It is only on 2.5.2000 that the

vessel was re-arrested.  The Court recorded that no payment

had yet been made and that the claim of the plaintiff continued

to remain unsatisfied.   It  is  this re-arrest  that  is  the bone of

contention between the parties in the present matter.  

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5. A written  statement  was  filed  on  behalf  of  respondent

no.1, MJR Steels, an Indian company who allegedly purchased

the  vessel  from  one  Fairsteel  Corporation,  Singapore.

Apparently, an agreement was entered into between Fairsteel

and respondent no.1 on 21.1.2000.  The written statement filed

by respondent no. 1 alleged:  

“The said vessel was originally owned by The Third Element  Enterprises Shipping Ltd.   Third Element Enterprises Shipping Ltd. sold and transferred the said  vessel  to  Eastern  Wealth  Investment  Ltd. Eastern Wealth Investment Ltd. sold and transferred the said vessel to Fairsteel Corporation.  Fairsteel Corporation sold and transferred the said vessel to this defendant.  This defendant acquired the right, title or interest in respect of the said vessel from the said Fairsteel Corporation.”

6. The  learned  single  Judge  by  his  judgment  and  order

dated 28.4.2005 listed as many as seven issues and adverted

to the fact  that  three witnesses were called on behalf  of  the

plaintiffs, who not only deposed and were cross-examined, but

also produced various documents.  The defendants, however,

did not produce any witness but tendered as their evidence six

exhibits  which  were  produced  only  through  the  plaintiff’s

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witnesses.  

7. According  to  the  learned  single  Judge,  the  order  of

25.1.2000 made it clear that suit No.1 of 2000 was kept alive

and  remained  alive  on  the  date  of  the  re-arrest,  namely,

2.5.2000. All that was done by the order dated 2.5.2000 was to

recall the order dated 25.1.2000, and when that was done, the

original order of arrest was automatically revived.  This being

the case, it is clear that the plaintiffs were entitled to recover

their dues.  The learned single Judge further went on to hold

that respondent no.1’s claim that ownership had changed and

that they had become owners of the vessel in April, 2000, was

not  conclusively  proved.   The  single  Judge  referred,  among

other  documents,  to  a  suit  filed  by  respondent  no.1  against

Fairsteel  Corporation  on  9.5.2000  in  which  respondent  no.1

prayed for  a decree for  rescission of  the agreement for  sale

dated 21.1.2000, as also for cancellation of the said agreement,

and perpetual injunction restraining Fairsteel from claiming any

money under the Letter of Credit furnished by respondent no.1.

It recorded that the said suit was dismissed for non-prosecution

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on 12.10.2004, and from the averments made in the said suit, it

was  clear  that  there  was  no  concluded  sale  in  favour  of

respondent no.1.

8. An  appeal  to  the  Division  Bench  by  respondent  no.1

however  succeeded.  By  the  impugned  judgment  dated

13.9.2006, it was held that the plaintiff’s first witness admitted

the fact that the vessel’s ownership changed hands and that on

the date of re-arrest, i.e. 2.5.2000, it was respondent no.1 who

was the owner.  It also examined various documents to arrive at

the  conclusion  that  the  vessel  physically  changed hands on

15.4.2000 and payments under the Letter of Credit were made

pursuant to the agreement dated 21.1.2000 on 26.4.2000.  The

Division  Bench  further  went  on  to  hold  that  though  the

allegation as regards the successive transfers of title had not

been proved by the defendant,  the said fact  would make no

difference.  It also went on to hold that there could be a good

title by estoppel. The Division Bench further went on to apply

Section 62 of the Indian Contract Act, 1872 to the out of court

settlement  dated  18.1.2000  and  stated  that  as  there  was  a

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novatio of the original agreement in law, the original cause of

action  pleaded  in  admiralty  Suit  No.  1  of  2000  no  longer

subsisted.  Therefore, the claim made in the suit  was held to

have been abandoned when the settlement  dated 18.1.2000

was acted upon.  In this view of the case, the Division Bench

reversed the single Judge’s decision and held that the suit was

liable to be dismissed on all these grounds.  

9. Shri Shyam Divan, learned senior counsel appearing on

behalf  of  the  appellants,  has  argued  before  us  that  the

agreement dated 18.1.2000 would not amount to a novatio of

the  original  agreement.  According  to  him,  the  original

agreement continued and was in fact enforced by the second

order of arrest dated 2.5.2000. According to him, the right that

was vested in the appellant on 5.1.2000, i.e. the date of the

institution of the suit, is alone material, and it is on that date,

and not the date of arrest on 2.5.2000, that the ownership of the

vessel  has  to  be  seen.   For  this  purpose,  he  cited  certain

English precedents.   He also cited an American judgment to

buttress his submission that the present was a case not merely

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of  a  maritime  claim  but  also  of  a  maritime  lien  in  that

necessaries supplied to the vessel would amount to a maritime

lien.  According  to  him,  in  any  event,  on  facts,  the  Division

Bench was completely wrong in arriving at  a conclusion that

there  was  a  concluded  sale  in  April,  2000  in  favour  of

respondent no.1 inasmuch as several documents produced by

the plaintiff’s witnesses would show that no such sale had, in

fact, taken place.

10. Shri  Banerjee,  learned  senior  counsel  appearing  on

behalf  of  the  respondents,  has  countered  each  of  these

submissions.  According to Shri Banerjee, the Division Bench is

absolutely correct.  The present is the case of enforcement of a

maritime  claim,  but  there  is  no  maritime  lien  in  law  for

necessaries supplied to the vessel.  This being the case, it is

important to know who the owner of the vessel is on the date of

arrest, i.e. on 2.5.2000.  If the owner is respondent no.1, then a

claim for necessaries against the original owner, Third Element,

on the date of institution of the suit would not lie against the

respondent on the date of arrest.  According to learned counsel,

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English authorities cited by Shri Divan would not apply to the

present  case  as  in  England  there  is  a  completely  different

procedure for arresting a vessel. A writ of summons is issued

under Order 53 of the U.K. Civil  Procedure Code for service

outside the jurisdiction of  the court  which is  kept  alive  for  a

period of six months.  Further, according to learned counsel,

Section 62 of the Contract Act is squarely attracted inasmuch

as  the  settlement  dated  18.1.2000  completely  replaced  the

original agreement as a result  of  which the original cause of

action pleaded in the suit has disappeared.  Learned counsel

also painstakingly took us through various documents to show

that the sale of the vessel to respondent no.1 had indeed taken

place in April, 2000 and that, therefore, on the date of arrest,

i.e. 2.5.2000, since his client was the owner of the vessel, the

amounts could not be recovered from respondent no.1.  

11. Admiralty law in England, as was held by Lord Halsbury in

Currie v.  M’Knight 1897 AC 97, is derived from the laws of

Oleron1 and other ancient maritime codes like the Rhodian Sea

1  The rolls of Oleron are associated with the island of Oleron, off the coast of  Western France, which was the site of an ancient maritime court associated with a seaman’s  guild of the Atlantic. In England, they were promulgated by Eleanor of Aquitaine, wife of  Henry II, as vice-regent for her son King Richard I, while the latter was fighting the Saracens  

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Law, the Basilika, the Assizes of Jerusalem, the Baltic Laws of

Wisbuy and the Hanseatic Code. In England, the common law

courts could not give effective redress to cases which arose in

admiralty,  which were then left  to the jurisdiction of specialist

admiralty Judges. By the 18th Century, the admiralty jurisdiction

had fallen into “a feeble and neglected condition, and for long

its proceedings excited no attention” 2. The Admiralty Court Act,

1840 was the first of a series of statutes extending and defining

the jurisdiction of the High Court of Admiralty in England.  This

was  followed  by  the  1861  Admiralty  Court  Act  and  various

subsequent  enactments  which  were  consolidated  by  the

Supreme Court of Judicature (Consolidation) Act, 1925.  By the

Administration of Justice Act of 1956, the admiralty jurisdiction

of the High Court was further widened and the Supreme Court

Act of 1981 now defines what the admiralty jurisdiction of the

High Court in England is.   

on the Third Crusade. King Henry VIII later published these rolls as, “The judgment of the  sea, of Masters, of Mariners and Merchants, and all their doings”. They are expressly  included in the compilation of English admiralty law, the “Black Book of the Admiralty”.

2  See, Roscoe’s Admiralty Practice, 5th edn. at Pg. 14. 13

12. Insofar as our law is concerned, the admiralty law of the

chartered  High  Courts  has  historically  been  traced  to  the

charters  of  1774  and  1798  as  subsequently  extended  and

clarified by the Letters Patents of 1823, 1862 and 1865. The

Admiralty Court Act, 1840 and 1861, and the Colonial Courts of

Admiralty  Act,  1890  and  1891  essentially  stated  what  the

admiralty  law  in  this  country  is,  and  these  enactments

continued as existing laws under Article 372 of the Constitution

of India. Some of the relevant provisions of these Acts are set

out hereinbelow:-

“Admiralty Court Act, 1840  

6. The court in certain cases may adjudicate, etc.— The High Court of Admiralty shall have jurisdiction to decide all claims and demands whatsoever in the nature  of  salvage  for  services  rendered  to  or damage received by any ship or seagoing vessel or in the nature of towage, or for necessaries supplied to  any  foreign  ship  or  seagoing  vessel,  and  to enforce the payment thereof, whether such ship or vessel may have been within the body of a country, or upon the high seas, at the time when the services were rendered or damage received, or necessaries furnished, in respect of which such claim is made.

Admiralty Court Act, 1861

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5. As to claims for necessaries.—The High Court of Admiralty shall have jurisdiction over any claim for necessaries supplied to any ship elsewhere than in the  port  to  which  the  ship  belongs,  unless  it  is shown to the satisfaction of the court that at the time of  the institution of  the cause any owner  or  part- owner of the ship is domiciled in England or Wales:

Provided  always,  that  if  in  any  such  cause  the plaintiff do not recover twenty pounds, he shall not be  entitled  to  any  costs,  charges,  or  expenses incurred  by  him  therein,  unless  the  judge  shall certify that the cause was a fit one to be tried in the said Court.

Colonial Courts of Admiralty Act, 1890

2. Colonial Courts of Admiralty.—(1) Every court of law in  a British possession,  which is  for  the time being  declared  in  pursuance  of  this  Act  to  be  a Court of Admiralty, or which, if no such declaration is  in  force in  the possession,  has therein  original unlimited  civil  jurisdiction,  shall  be  a  Court  of Admiralty, with the jurisdiction in this Act mentioned, and  may  for  the  purpose  of  that  jurisdiction, exercise all the powers which it possesses for the purpose of its other civil jurisdiction and such Court in reference to the jurisdiction conferred by this Act is  in  this  Act  referred  to  as  a  Colonial  Court  of Admiralty. …

(2) The jurisdiction of a Colonial Court of Admiralty shall, subject to the provisions of this Act, be over the like places, persons, matters, and things, as the admiralty jurisdiction of the High Court in England, whether  existing  by  virtue  of  any  statute  or otherwise and the Colonial Court of Admiralty may

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exercise such jurisdiction in like manner and to as full  an  extent  as  the  High  Court  in  England,  and shall  have  the  same  regard  as  that  Court  to international law and the comity of nations.

Colonial Courts of Admiralty (India) Act, 1891

2. Appointment  of  Colonial  Courts  of  Admiralty.— The following courts of unlimited civil jurisdiction are hereby declared to be Colonial Courts of Admiralty, namely:

(1) the High Court of Judicature at Fort William in Bengal,

(2) the High Court of Judicature at Madras, and

(3) the High Court of Judicature at Bombay.”

13. The Republic of India has finally woken up to the need for

updating  its  admiralty  law.  The  Admiralty  (Jurisdiction  and

Settlement of Maritime Claims) Act,  2017 has been made by

Parliament  and has received the assent  of  the President  on

9.8.2017, though it has not yet been brought into force.  In this

Act,  “maritime claim” is defined in Section 2(1)(f)  as being a

claim referred to in Section 4 and a “maritime lien” is defined in

sub-section (g) of 2(1) as follows:

“2. Definitions  

(1) In this Act,— 16

(g) “maritime lien” means a maritime claim against the owner, demise charterer, manager or operator of the vessel referred to in clauses (a) to (e) of sub- section (1) of section 9, which shall continue to exist under sub-section (2) of that section;”

Section 4 reads as follows:

“4. Maritime Claim  

(1) The High Court may exercise jurisdiction to hear and determine any question on a  maritime claim, against any vessel, arising out of any—  

(a) dispute regarding the possession or ownership of a vessel or the ownership of any share therein;  

(b) dispute between the co-owners of a vessel as to the employment or earnings of the vessel;  

(c) mortgage or a charge of the same nature on a vessel;  

(d)  loss or  damage caused by the operation of  a vessel;  

(e) loss of life or personal injury occurring whether on land or on water,  in direct  connection with the operation of a vessel;  

(f)  loss  or  damage  to  or  in  connection  with  any goods;  

(g) agreement relating to the carriage of goods or passengers on board a vessel, whether contained in a charter party or otherwise;  

(h)  agreement  relating  to  the  use  or  hire  of  the vessel,  whether  contained  in  a  charter  party  or otherwise;  

(i) salvage services, including, if applicable, special compensation  relating  to  salvage  services  in

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respect  of  a  vessel  which  by  itself  or  its  cargo threatens damage to the environment;  

(j) towage;  

(k) pilotage;  

(l)  goods,  materials,  perishable  or  non-perishable provisions,  bunker  fuel,  equipment  (including containers),  supplied  or  services  rendered  to  the vessel for its operation, management, preservation or  maintenance  including  any  fee  payable  or leviable;  

(m)  construction,  reconstruction,  repair,  converting or equipping of the vessel;  

(n) dues in connection with any port, harbour, canal, dock  or  light  tolls,  other  tolls,  waterway  or  any charges of similar kind chargeable under any law for the time being in force;  

(o) claim by a master or member of the crew of a vessel or their heirs and dependents for wages or any sum due out of wages or adjudged to be due which  may  be  recoverable  as  wages  or  cost  of repatriation or social insurance contribution payable on their behalf or any amount an employer is under an obligation to pay to a person as an employee, whether  the  obligation  arose  out  of  a  contract  of employment  or  by  operation  of  a  law  (including operation of a law of any country) for the time being in  force,  and  includes  any  claim  arising  under  a manning and crew agreement relating to a vessel, notwithstanding anything contained in the provisions of sections 150 and 151 of the Merchant Shipping Act, 1958;  

(p) disbursements incurred on behalf of the vessel or its owners;  

(q) particular average or general average;  18

(r) dispute arising out of a contract for the sale of the vessel;  

(s) insurance premium (including mutual insurance calls)  in  respect  of  the  vessel,  payable  by  or  on behalf of the vessel owners or demise charterers;

(t) commission, brokerage or agency fees payable in respect of the vessel by or on behalf of the vessel owner or demise charterer;  

(u)  damage  or  threat  of  damage  caused  by  the vessel  to  the  environment,  coastline  or  related interests; measures taken to prevent, minimise, or remove  such  damage;  compensation  for  such damage;  costs  of  reasonable  measures  for  the restoration of the environment actually undertaken or  to  be undertaken;  loss incurred or  likely  to  be incurred  by  third  parties  in  connection  with  such damage; or any other damage, costs, or loss of a similar nature to those identified in this clause;  

(v) costs or expenses relating to raising, removal, recovery, destruction or the rendering harmless of a vessel  which  is  sunk,  wrecked,  stranded  or abandoned, including anything that is or has been on  board  such  vessel,  and  costs  or  expenses relating to the preservation of an abandoned vessel and maintenance of its crew; and  

(w) maritime lien.  

Explanation.—For  the purposes of  clause (q),  the expressions  “particular  average”  and  “general average”  shall  have  the  same  meanings  as assigned to them in sub-section (1)  of  section 64 and sub-section (2) of section 66 respectively of the Marine Insurance Act, 1963.  

(2)  While  exercising jurisdiction under  sub-section (1),  the  High  Court  may  settle  any  account outstanding  and  unsettled  between  the  parties  in

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relation to a vessel,  and direct that the vessel,  or any share thereof, shall be sold, or make such other order as it may think fit.  

(3) Where the High Court orders any vessel to be sold,  it  may  hear  and  determine  any  question arising as to the title to the proceeds of the sale.  

(4)  Any  vessel  ordered  to  be  arrested  or  any proceeds of a vessel on sale under this Act shall be held  as  security  against  any  claim  pending  final outcome of the admiralty proceeding.”

14. Under Section 5 of the Act, the High Court may order for

the  arrest  of  a  vessel  which  is  within  its  jurisdiction  for  the

purpose of providing security against a maritime claim.  Under

Section 6 of  the said Act,  the High Court  may also exercise

admiralty jurisdiction by an order in personam in respect of the

maritime claims referred to in Section 4.  Section 9 of the Act

sets out the  inter se priority of maritime liens, but in so doing

also informs us that they are restricted to five subject matters

only. Section 9 reads as follows:

“Sec. 9 Inter se priority on maritime lien

(1)  Every  maritime  lien  shall  have  the  following order of inter se priority, namely:—  

(a)  claims for  wages and  other  sums due to  the master, officers and other members of the vessel’s complement in respect of their employment on the vessel,  including  costs  of  repatriation  and  social

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insurance contributions payable on their behalf;  

(b) claims in respect of loss of life or personal injury occurring,  whether  on  land  or  on  water,  in  direct connection with the operation of the vessel;  

(c) claims for reward for salvage services including special compensation relating thereto;

(d) claims for port, canal, and other waterway dues and  pilotage  dues  and  any  other  statutory  dues related to the vessel;  

(e)  claims  based  on  tort  arising  out  of  loss  or damage caused by the operation of the vessel other than loss or damage to cargo and containers carried on the vessel.  

(2)  The  maritime  lien  specified  in  sub-section  (1) shall continue to exist on the vessel notwithstanding any change of ownership or of registration or of flag and shall be extinguished after expiry of a period of one year unless, prior to the expiry of such period, the vessel  has been arrested or seized and such arrest  or  seizure has led to  a  forced sale  by the High Court:  

Provided that for a claim under clause (a) of sub- section (1), the period shall be two years from the date on which the wage, sum, cost of repatriation or social insurance contribution, falls due or becomes payable.  

(3) The maritime lien referred to in this section shall commence—  

(a) in relation to the maritime lien under clause (a) of  sub-section  (1),  upon  the  claimant’s  discharge from the vessel;  

(b) in relation to the maritime liens under clauses (b) to (e) of sub-section (1), when the claim arises,  

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and shall run continuously without any suspension or interruption:  

Provided  that  the  period  during  which  the  vessel was under arrest or seizure shall be excluded.  

(4)  No  maritime  lien  shall  attach  to  a  vessel  to secure a claim which arises out of or results from—  

(a) damage in connection with the carriage of oil or other hazardous or noxious substances by sea for which  compensation  is  payable  to  the  claimants pursuant to any law for the time being in force;  

(b)  the radioactive  properties  or  a  combination of radioactive properties with toxic, explosive or other hazardous  properties  of  nuclear  fuel  or  of radioactive products or waste.”

15. Section 12 states that the Code of Civil Procedure is to

apply in all proceedings before the High Court insofar as it is

not  inconsistent  or  contrary  to  the  provisions  of  the  Act.  By

Section 17, the Admiralty Court Acts of 1840 and 1861 and the

Colonial  Courts  of  Admiralty  Acts  of  1890  and  1891  stand

repealed.  Also, the Letters Patent of 1865, insofar as it applies

to the admiralty jurisdiction of the Bombay, Calcutta and Madras

High Courts, also stands repealed.  

16. An  admiralty  action  in  the  courts  of  India  commences

against a vessel to enforce what is called a “maritime claim”.

Though India is not a signatory to the Brussels Convention of

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1952, a long list of maritime claims is given in Article 1 thereof.

Suffice  it  to  say  that  sub-clause  (k)  of  Article  1  states  that

important  materials  wherever  supplied  to  a  ship  for  her

operation or  maintenance would fall  within the definition of a

maritime claim.  A maritime lien, on the other hand, attaches to

the property of the vessel whenever the cause of action arises,

and  travels  with  the  vessel  and  subsists  whenever  and

wherever  the  action  may  be  commenced.   In  The Bold

Buccleugh,  (1852) 7 Moo PCC 267, Sir  John Jervis defined

maritime lien as follows:- “[A] maritime lien is well defined … to mean a claim or  privilege  upon  a  thing  to  be  carried into effect by legal process … that process to be a proceeding in rem…. This claim or privilege travels with the thing into whosesoever possession it may come.  It is inchoate from the moment the claim or privilege attaches, and, when carried into effect by legal process by a proceeding in rem, relates back to the period when it first attached.”

17. This  judgment  was  referred  to  in  M.V.  Elisabeth and

others v.  Harwan Investment and Trading Private Limited,

1993 Supp.  (2)  SCC 433 at  462,  paragraph 56  and  Epoch

Enterrepots v.  M.V.  Won  Fu  (2003)  1  SCC  305  at  311,

paragraph  13.  In  M.V.  Al  Quamar  v.  Tsavliris  Salvage

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(International) Ltd. and others, (2000) 8 SCC 278 at 301, the

Supreme Court observed as follows:-

“33. Be  it  noted  that  there  are  two  attributes  to maritime lien: (a) a right to a part of the property in the  res;  and  (b)  a  privileged  claim  upon  a  ship, aircraft  or  other  maritime  property  in  respect  of services  rendered  to,  or  injury  caused  by  that property.  Maritime lien thus attaches to the property in the event the cause of action arises and remains attached.   It  is,  however,  inchoate  and  very  little positive in value unless it is enforced by an action. It is a right which springs from general maritime law and is based on the concept as if the ship itself has caused the harm, loss or damage to others or  to their property and thus must itself make good that loss.  (See  in  this  context  Maritime  Law by Christopher Hill, 2nd Edn.).”

18. Only a small number of claims give rise to maritime liens

as was noted in  M.V. Won Fu (supra).  Paragraph 19 of the

said judgment states as follows:-

“19. We have in this judgment hereinbefore dealt with  the  attributes  of  maritime  lien.  But  simply stated,  maritime  lien  can  be  said  to  exist  or restricted to in the event of (a) damage done by a ship; (b) salvage; (c) seamen’s and master’s wages; (d) master’s disbursement; and (e) bottomry; and in the event a maritime lien exists in the aforesaid five circumstances,  a  right  in  rem  is  said  to  exist. Otherwise, a right in personam exists for any claim that may arise out of a contract.”

(at pages 314-315)  

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19. In  an  illuminating  judgment  of  the  Calcutta  High  Court

Justice Mrs. Ruma Pal, as she then was, dealt with an action in

rem filed  in  the  admiralty  court  jurisdiction  in  Calcutta.  With

respect to the plaintiffs claim of the price of bunkers supplied to

the ship owners, the Court held that the supply of necessaries

to  a  vessel  does  not  create  a  maritime  lien.   In  Bailey

Petroleum Company v. Owners and parties interested in the

vessel M.V. Dignity, (1993) 2 CHN 208 at 213-214, the learned

Judge held:

“16. It  has  been  established  by  a  wealth  of decisions that the supply of  necessaries does not create  a  maritime  lien.  Indeed  the  point  was conceded  by  the  counsel  for  the  plaintiff  at  the hearing.  It  is  only  necessary  to  refer  to  two authorities on the point to emphasize the fact that this  Court  does  not  base  its  conclusion  on  the concession  of  the  plaintiff’s  counsel  but  on  the authorities cited.

17. It is not disputed that the jurisdiction of this court is governed by the Admiralty Court Act 1861 (Imp). Section 5 of the 1861 Act provides:

“5. The High Court of Admiralty shall have jurisdiction over any claim for necessaries supplied to any ship elsewhere than in the port to which the ship belongs, unless it is shown to the satisfaction of the court that

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at the time of the institution of the cause any  owner  or  part  owner  of  the  ship  is domiciled in  England or  Wales:  Provided always,  that  if  in  any  such  cause  the plaintiff do not recover twenty pounds, he shall not be entitled to any costs, charges, or  expenses  incurred  by  him  therein, unless  the  judge  shall  certify  that  the cause was a fit one to be tried in the said Court.”

18. In the case of Laws and others and Smith: the “Rio  Tinto”:  9  PD  356,  the  plaintiff  had  supplied necessaries to the vessel. The Trial Court held that the necessaries were supplied on the credit of the vessel and that the plaintiff had a right to a maritime lien and that, therefore, in spite of the fact that the vessel  had  been  transferred  subsequent  to  the supply  of  necessaries,  the  ship  was  liable.  Sir James  Hannen  who  delivered  the  opinion  of  the Privy Council held that the phrase “the court shall have jurisdiction” simply gave the Court jurisdiction but did not create any lien. A distinction was drawn between a provision for proceedings by arrest of the ship and the express creation of a lien. The Court held:

“The Admiralty Court Act, 1861 (24 Vict. c.  10)  and  the  decisions  upon it  must next be considered. By the 5th section it is  enacted  that  the  High  Court  shall have  jurisdiction  over  a  claim  for necessaries  supplied  to  any  ship elsewhere than in the port to which the ship belongs, unless it  is shown to the satisfaction of the court that, at the time of the institution of the cause, any owner or part owner of the ship is domiciled in

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England or Wales.

The words ‘the High Court of Admiralty shall have jurisdiction’, mean only what they  purport  to  say,  neither  more  nor less,  that  is,  that  the  court  shall  take judicial  cognizance  of  the  cases provided for.

The conclusion [is] that there is nothing from which it can be inferred that by the use of the words “the court shall  have jurisdiction”  the Legislature intended to create  a  maritime  lien  with  respect  to necessaries  supplied  within  the possession.”

19. In Shell  Oil  Co. v. The Ship “Lastrigoni”  3  ALR 399 the plaintiff had filed a suit for enforcement of the claim on the ground of bunkers provided by the plaintiff  under a contract between the plaintiff  and the  agents  of  the  time  charterer.  The  contract provided  that  the  sale  and  delivery  of inter alia necessaries  would  be  made on  the  faith  and credit of the vessel. The arguments before the Court were that the supply of fuel itself created maritime lien to which the ship was subject and which could be enforced by an action in  rem in  admiralty.  The second was that, in the circumstances, an action in rem lay  notwithstanding  the  absence  of  any contractual liability on the part of the owners to pay for  the bunkers  supplied and that  this  was so by virtue of section 6 of the Admiralty Court Act 1840 (Imp), and section 5 of the Admiralty Court Act 1861 (Imp), either with or without the aid of cl. 6.4 of the Bunker Fuel Oil Contract. Menzies, J. held:

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“The matter was, I think, put at rest by the decision of the Privy Council in the Rio  Tinto  (1884)  9  APP  Cas  356,  by which it  was decided that  no maritime lien  attaches  to  a  ship  in  respect  of coals  or  other  necessaries  supplied  to it.”

20. In Saba International Shipping and Project Investment

Private  Limited  v.  Owners  and  parties  interested  in  the

Vessel M.V. Brave Eagle, previously known as M.V. Lima-I

and  others,  (2002)  2  CHN  280  at  287-288  and  289-290,

another  single  Judge  of  the  same  High  Court  differentiated

between  a  maritime  claim  and  a  maritime  lien  and  held  as

follows:

“20. Now the issue is what is a maritime claim and what is a maritime lien. These questions are to be answered in this proceeding before continuation of the  interim  order  or  passing  any  further  interim order.

21. All cases of maritime lien are based on maritime claims but all maritime claims do not give rise to a maritime  lien  on  the  ship.  Normally  a  lien  in  the general law is a rather limited right over some one else’s property. It is a right to retain possession of that  property  usually  to  receive  a  claim.  But  a maritime  lien  differs  from other  liens  in  one  very important  respect.  Liens  generally  require possession of the ‘res’ before they can come into effect. As an example an innkeeper has a lien over

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his guest’s luggage against the payment of the bill, but  if  the  guest  is  smart  enough  to  remove  his luggage, the innkeeper is left without a lien. But a maritime lien does not require prior possession for its creation. In a fit and proper case a claimant on the  strength  of  his  maritime  lien  can  secure  the arrest  of  a  ship  which  then  comes  under  the possession of the court and she cannot be moved without the court’s order.

22. ‘No Indian Statute defines a maritime claim’ is the  clear  finding  of  Supreme  Court  in M.V. Elisabeth (AIR 1993 SC 1014, para 85, page 1040). But our Supreme Court  followed the provisions of the  Supreme  Court  Act  1981  of  England  where maritime claims have been listed on the basis  of Brussels Convention of 1952 on the Arrest of Sea Going Ships. Under Article 1 of the said Convention various maritime claims have been catalogued. Out of which 1(k) answers the description of the claims of the plaintiff in this proceeding. Article 1(k) reads “goods or materials whether supplied to a ship for her operation or maintenance”. Even though India is not a signatory to the Brussels Convention, but the Supreme  Court  held  that  the  provisions  of  these Conventions  should  be  regarded  as  part  of International  Common  Law  and  these  provisions ‘supplement’  and  ‘complement’  our  maritime  laws and fill  up the lacunae in The Merchant  Shipping Act.

23. But in Elisabeth, the Hon’ble Supreme Court did not  notice  any  convention  on  maritime  lien. However  the Hon’ble  Supreme Court  accepted  in para 57 of Elisabeth the judicial determination of the concept  of  ‘maritime  lien’  by  English  courts  and which I quote as follows:

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“A  maritime  lien  is  a  privileged  claim against the ship or a right to a part of the property in the ship, and it “travels” with the ship. Because the ship has to “pay for  the  wrong  it  has  done”,  it  can  be compelled  to  do  so  by  a  forced  sale. (See The Bold Buccleugh, (1852) 7 Moo PCC 267).”

24. A definition of maritime lien has also been given in  Stroud’s  Judicial  Dictionary,  5th  Edition  page 1466 to the following effect:

“A maritime  lien  may  be  defined  as  a right  specifically  binding  a  ship,  her furniture,  tackle,  cargo,  and  freight,  or any  of  them,  for  payment  of  a  claim founded  upon  the  maritime  law  and entitling  the  claimant  to  take  judicial proceedings against the property bound to enforce, or to ascertain and enforce, satisfaction  of  his  demand;  thus,  a salvor  has  a  maritime  lien  on  the property saved for such an amount as a court  exercising  admiralty  jurisdiction shall  award.  Maritime  lien  are distinguished  from  all  other  liens  in these two chief particulars: (i) they are in no  way  founded  on  possession  or property  in  the  claimant,  (ii)  they  are exercised by taking proceedings against the  property  itself  in  a  form  of  action styled  an  action in  rem  (The  Glasgow Packet, 2 Rob. W. 312; The Repulse, 4 Notes of Cas. 170), and, from this and their  secret  nature,  they  closely resemble the species of security known to  Roman  law  under  the  name  of

30

hypotheca  (Dig.  xiii).  Interest,  if  any allowed,  and  the  costs  of  enforcing  a claim  for  which  a  maritime lien  exists, will  be  included  in  such  lien  (The Margaret, 3 Hagg. Adm. 240).”

25. According to the well known treatise of Thomas on maritime lien, the following claims may give rise to maritime lien namely:

“(a) Damage done by a ship (b) Salvage (c) Seamen’s wages (d) Master’s wages and disbursements (e) Bottomry and respondentia”.

26. The aforesaid passage from Thomas has been approved by the Division  Bench of  Calcutta  High Court  in Mohammed  Saleh  Behbehani  & Company v. Bhoja  Trader,  reported  in  (1983)  2 Calcutta Law Journal 334. At 344 of the report, the learned Judges of  the  Division  Bench referred  to maritime  liens  as  representing  ‘a  small  cluster  of claims’ and referred to the aforementioned passage from Thomas.

(27) and (28) xxx xxx xxx

29. Counsel  for  the  respondent  also  relies  on  a passage from Roscoe on The Admiralty Jurisdiction and  Practice,  5th Edition.  While  dealing  with necessaries,  the  learned  author  has  stated  as follows:

“Persons  who  have  supplied  a  ship, whether  British  or  foreign,  with necessaries  have  not  a  maritime  lien upon  her,  and  the  vessel  does  not become chargeable with the debt till the

31

suit  is  actually  instituted;  consequently there  can  be  no  claim  against  a  ship which has been sold, even with notice of such  a  claim  in  respect  of  which  an action has not been commenced, and a want  of  caution  in  supplying  the necessaries may, it would seem, cause a  postponement  of  claims  to  others more carefully begun. The necessaries claimant is not  a secured creditor  until the moment of arrest.”

30. There is  a  direct  judgment  on this  point  by  a learned  Judge  of  this  court  in Bailey  Petroleum, referred to above.

31. Relying  on  the  judgment  of  the  Privy  Council in Rio Tinto, reported in 1884 (9) Appeal Cases 356 and  the  judgment  in Shell  Oil  Co. v. The  Ship Lastrigoni, reported in 1974 (3) All England Reports 399,  the  learned  single  Judge  held  in  Bailey Petroleum that a claim arising out of the supply of necessaries  may  give  rise  to  a  statutory  right  of action ‘in  rem’ under section 5 of  Admiralty  Court Act, 1861 but it does not give rise to maritime lien. Paragraphs  23  and  24  of  the  judgment  in  Bailey Petroleum  make  it  clear  and  I  quote  them  in extenso:

“23. Whereas a maritime lien attaches to the res and  travels  with  it  and may be enforced  against  a  subsequent purchaser of the res, a statutory right of action in rem is defeated by a change of ownership.  This  later  principle  follows from the nature of the right described in

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the preceding paragraph.

24. This view of the law is supported by a catena of decisions.”

21. In fact, the International Convention on Maritime Lien and

Mortgages, 1993 defines maritime liens in Article 4 as follows:-

“Article 4: Maritime liens  

I.  Each of  the following claims against  the owner, demise charterer, manager or operator of the vessel shall be secured by a maritime lien on the vessel:  

(a)  claims for  wages and  other  sums due to  the master, officers and other members of the vessel’s complement in respect of their employment on the vessel,  including  costs  of  repatriation  and  social insurance contributions payable on their behalf;

(b) claims in respect of loss of life or personal injury occurring,  whether  on  land  or  on  water,  in  direct connection with the operation of the vessel;  

(c) claims for reward for the salvage of the vessel;  

(d) claims for port, canal, and other waterway dues and pilotage dues;  

(e) claims based on tort arising out of physical loss or damage caused by the operation of the vessel other than loss of or damage to cargo, containers and passengers’ effects carried on the vessel.

2. No maritime lien shall attach to a vessel to secure claims as set out in subparagraphs (b) and (e) of

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paragraph 1 which arise out of or result from:  

(a) damage in connection with the carriage of oil or other hazardous or noxious substances by sea for which  compensation  is  payable  to  the  claimants pursuant to international conventions or national law providing for strict liability and compulsory insurance or other means of securing the claims; or  

(b)  the radioactive  properties  or  a  combination of radioactive properties with toxic, explosive or other hazardous  properties  of  nuclear  fuel  or  of radioactive products or waste.”

22. Article 8 then states that the characteristics of such liens

are as follows:-

“Article 8: Characteristics of maritime liens  

Subject to the provisions of article 12, the maritime liens follow the vessel, notwithstanding any change of ownership or of registration or of flag.”

      It is, thus, clear that a claim for necessaries supplied to a

vessel does not become a maritime lien which attaches to the

vessel.

23. Shri Divan, however, cited U.S. case law in support of his

submission that a claim for necessaries raises a maritime lien.

We are afraid that given the Indian case law on the subject read

with  the various international  Conventions referred to  above,

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the U.S. seems to stand alone in considering that  claims for

necessaries would amount to maritime lien enforceable against

the vessel  as such wherever  it  goes.   It  is  clear  that  in  our

country at least claims for necessaries, though maritime claims,

do not raise a maritime lien.  

24. What arises next, therefore, is the manner of enforcement

of maritime claims in our Courts. In  M.V. Elisabeth (supra) at

459-462, this Court laid down, in some detail, the basic features

of the admiralty jurisdiction in this country, and how maritime

claims are to be enforced. The Court held:

“Admiralty Law confers upon the claimant a right in rem to  proceed  against  the  ship  or  cargo  as distinguished from a right in  personam to  proceed against the owner. The arrest of the ship is regarded as a mere procedure to obtained security to satisfy judgment.  A  successful  plaintiff  in  an  action in rem has  a  right  to  recover  damages  against  the property  of  the  defendant.  “The  liability  of  the shipowner  is  not  limited  to  the  value  of the res primarily proceeded against …. An action … though  originally  commenced in  rem,  becomes  a personal  action  against  a  defendant  upon appearance,  and  he  becomes  liable  for  the  full amount  of  a  judgment  unless  protected  by  the statutory  provisions  for  the  limitation  of  liability”.’ (Roscoe’s Admiralty Practice, 5th ed. p. 29)

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The  foundation  of  an  action in  rem,  which  is  a peculiarity of the Anglo-American law, arises from a maritime lien or claim imposing a personal liability upon the owner  of  the vessel.  A defendant  in  an admiralty  action in  personam is  liable  for  the  full amount of the plaintiff’s established claim. Likewise, a defendant acknowledging service in an action in rem is  liable  to  be  saddled  with  full  liability  even when  the  amount  of  the  judgment  exceeds  the value of the res or of the bail provided. An action in rem lies  in  the  English  High  Court  in  respect  of matters regulated by the Supreme Court Act 1981, and in relation to a number of claims the jurisdiction can be invoked not only against the offending ship in question but also against a ‘sistership’ i.e., a ship in  the  same  beneficial  ownership  as  the  ship  in regard to which the claim arose.  

“The  vessel  which  commits  the aggression is treated as the offender, as the  guilty  instrument  or  thing  to  which the  forfeiture  attaches,  without  any reference  whatsoever  to  the  character or conduct of the owner ….” (Per Justice Story, The  United  States v. The  Big Malek Adhel [43 US (2 How) 210, 233 (1844)]).”

xxx xxx xxx

A ship may be arrested (i) to acquire jurisdiction; or (ii)  to  obtain  security  for  satisfaction  of  the  claim when decreed; or (iii) in execution of a decree. In the first two cases, the court has the discretion to insist upon security being furnished by the plaintiff to compensate the defendant in the event of it being found that the arrest was wrongful and was sought and  obtained  maliciously  or  in  bad  faith.  The claimant  is  liable  in  damages  for  wrongful  arrest.

36

This  practice  of  insisting  upon  security  being furnished by the party seeking arrest of the ship is followed  in  the  United  States,  Japan  and  other countries. The reason for the rule is that a wrongful arrest can cause irreparable loss and damages to the  shipowner;  and  he  should  in  that  event  be compensated by the arresting party. (See Arrest of Ships by Hill, Soehring, Hosoi and Helmer, 1985).

The attachment by arrest is only provisional and its purpose is merely to detain the ship until the matter has been finally settled by a competent court. The attachment of the vessel brings it under the custody of the Marshal or any other authorized officer. Any interference  with  his  custody  is  treated  as  a contempt of the court which has ordered the arrest. But the Marshal’s right under the attachment order is  not  one  of  possession,  but  only  of  custody. Although the custody of the vessel has passed from the  defendant  to  the  Marshal,  all  the  possessory rights  which  previously  existed  continue  to  exist, including  all  the  remedies  which  are  based  on possession.  The  warrant  usually  contains  a monition to all persons interested to appear before the court on a particular day and show cause why the property should not be condemned and sold to satisfy the claim of the plaintiff.

The  attachment  being  only  a  method  of safeguarding the interest of the plaintiff by providing him with a security, it is not likely to be ordered if the defendant or his lawyer agrees to “accept service and to put in bail or to pay money into court in lieu of bail”. (See Halsbury’s Laws of England, 4th edn., Vol. 1, p. 375 etc.).

xxx xxx xxx

37

A  personal  action  may  be  brought  against  the defendant if  he is either present in the country or submits  to  jurisdiction.  If  the  foreign  owner  of  an arrested ship appears before the court and deposits security as bail  for the release of his ship against which proceedings in rem have been instituted, he submits himself to jurisdiction.

An action in rem is directed against the ship itself to satisfy the claim of the plaintiff out of the res. The ship is for this purpose treated as a person. Such an action may constitute an inducement to the owner to submit  to  the  jurisdiction  of  the  court,  thereby making himself  liable to be proceeded against  by the plaintiff in personam.  It is, however, imperative in an action in  rem that  the ship should be within jurisdiction at the time the proceedings are started. A decree of the court in such an action binds not merely the parties to the writ but everybody in the world who might dispute the plaintiff’s claim.

It is by means of an action in rem that the arrest of a particular ship is secured by the plaintiff.  He does not  sue the owner  directly  and by name;  but  the owner or any one interested in the proceedings may appear and defend. The writ  is issued to “owners and  parties  interested  in  the  property  proceeded against”.  The  proceedings  can  be  started  in England  or  in  the  United  States  in  respect  of  a maritime  lien,  and  in  England  in  respect  of  a statutory right in rem. A maritime lien is a privileged claim against  the ship  or  a right  to  a part  of  the property in the ship, and it  “travels” with the ship. Because the ship has to “pay for the wrong it has done”,  it  can  be compelled to  do so by  a  forced sale.  [See Bold  Buccleaugh  (The) [Harmer v. Bell, (1851) 7 Moo PC 267 : 13 ER 884]]. In addition to maritime  liens,  a  ship  is  liable  to  be  arrested  in England  in  enforcement  of  statutory  rights in

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rem (Supreme Court Act 1981). If  the owner does not submit to the jurisdiction and appear before the court to put in bail and release the ship, it is liable to be  condemned  and  sold  to  satisfy  the  claims against  her.  If,  however,  the  owner  submits  to jurisdiction and obtains the release of the ship by depositing security, he becomes personally liable to be proceeded against in  personam in execution of the  judgment  if  the  amount  decreed exceeds the amount of the bail. The arrest of the foreign ship by means  of  an  action in  rem is  thus  a  means  of assuming jurisdiction by the competent court.”

25. The Court went on to hold that though Indian statutes lag

behind international law in this context, the principles in these

Conventions derived from the common law of nations, will be

treated as a part of the common law of India.  Paragraph 76 in

this behalf reads as under:-

“76. It  is  true  that  Indian  statutes  lag  behind  the development of  international  law in comparison to contemporaneous  statutes  in  England  and  other maritime countries. Although the Hague Rules are embodied  in  the  Carriage  of  Goods  by  Sea  Act, 1925,  India  never  became  a  party  to  the International  Convention  laying  down  those  rules (International  Convention  for  the  Unification  of Certain  Rules  of  Law  relating  to  Bills  of  Lading, Brussels, 1924). The Carriage of Goods by Sea Act, 1925  merely  followed  the  (United  Kingdom) Carriage of  Goods by Sea Act,  1924. The United Kingdom repealed the Carriage of  Goods by Sea Act,  1924  with  a  view  of  incorporating  the  Visby Rules  adopted  by  the  Brussels  Protocol  of  1968.

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The Hague-Visby Rules were accordingly adopted by the Carriage of Goods by Sea Act 1971 (United Kingdom).  Indian  legislation  has  not,  however, progressed,  notwithstanding the Brussels  Protocol of  1968  adopting  the  Visby  Rules  or  the  United Nations Convention on the Carriage of  Goods by Sea,  1978  adopting  the  Hamburg  Rules.  The Hamburg Rules prescribe the minimum liabilities of the  carrier  far  more  justly  and  equitably  than  the Hague Rules so as to correct the tilt in the latter in favour  of  the  carriers.  The  Hamburg  Rules  are acclaimed to be a great improvement on the Hague Rules and far more beneficial from the point of view of the cargo owners. India has also not adopted the International  Convention  relating  to  the  Arrest  of Seagoing  Ships,  Brussels,  1952.  Nor  has  India adopted the Brussels Conventions of 1952 on civil and penal jurisdiction in matters of collision; nor the Brussels Conventions of 1926 and 1967 relating to maritime  liens  and  mortgages  [(a)  International Convention relating to the Arrest of Seagoing Ships, Brussels,  May  10,  1952  (IMC);  (b)  International Convention  on  Certain  Rules  concerning  Civil Jurisdiction  in  Matters  of  Collision,  Brussels,  May 10, 1952 (IMC); (c) International Convention for the Unification  of  Certain  Rules  relating  to  Penal Jurisdiction  in  Matters  of  Collision,  Brussels,  May 10, 1952 (IMC); and (d) International Conventions for the Unification of Certain Rules of Law relating to Maritime Liens and Mortgages, Brussels, April  10, 1926,  and  the  Revised  Convention  on  Maritime Lines  and  Mortgages,  Brussels,  May  29,  1967 (IMC).]  India  seems  to  be  lagging  behind  many other  countries  in  ratifying  and  adopting  the beneficial  provisions  of  various  conventions intended  to  facilitate  international  trade.  Although these  conventions  have  not  been  adopted  by legislation,  the  principles  incorporated  in  the conventions  are  themselves  derived  from  the

40

common  law  of  nations  as  embodying  the  felt necessities of  international  trade and are as such part of the common law of India and applicable for the enforcement of maritime claims against foreign ships.”

(at pages 469-470)

A list of maritime claims was then referred to in paragraph

84 and the Brussels Convention relating to the Arrest of Sea-

Going Ships, 1992 was referred to and followed.

 26. The next important aspect that was argued was that the

ownership of the vessel to enforce a maritime claim has to be

seen at the stage of institution of the suit and not at the stage

of arrest.  The general rule that is contained in our country as to

what  crystallises  on  the  date  of  a  suit  is  reflected  in

Rameshwar and others v. Jot Ram and others, 1976 1 SCR

847 at 851-52.  This Court held:-

“In P.  Venkateswarlu v. Motor  &  General Traders [(1975)  1  SCC  770,  772  :  AIR  1975  SC 1409,  1410]  this  Court  dealt  with  the  adjectival activism  relating  to  post-institution  circumstances. Two propositions were laid down. Firstly, it was held that  [SCC  p.  772,  para  4]  ‘it  is  basic  to  our processual jurisprudence that the right to relief must be judged to exist as on the date a suitor institutes the legal proceeding.’ This is an emphatic statement that the right of a party is determined by the facts as they  exist on  the  date  the  action  is  instituted.

41

Granting  the  presence  of  such  facts,  then  he  is entitled  to  its  enforcement.  Later  developments cannot  defeat  his  right  because,  as  explained earlier, had the court found his facts to be true the day  he sued he would  have got  his  decree.  The Court’s  procedural  delays  cannot  deprive  him  of legal justice or rights crystallised in the initial cause of  action.  This  position  finds  support  in Bhajan Lal v. State of Punjab [(1971) 1 SCC 34].

The impact of subsequent happenings may now be spelt  out.  First,  its  bearing  on  the right of  action, second, on the nature of the relief and third, on its impotence to create or  destroy substantive rights. Where the nature of the relief, as originally sought, has  become  obsolete  or  unserviceable  or  a  new form of relief will be more efficacious on account of developments subsequent to the suit or even during the appellate  stage,  it  is  but  fair  that  the relief  is moulded, varied or reshaped in the light of updated facts. Patterson [Patterson v. State  of  Alabama, (1934) 294 US 600, 607] illustrates this position. It is important that the party claiming the relief or change of relief must have the same right from which either the  first  or  the  modified  remedy  may  flow. Subsequent events in the course of the case cannot be  constitutive  of substantive  rights enforceable  in that very litigation except in a narrow category (later spelt  out)  but  may  influence  the  equitable jurisdiction  to  mould reliefs.  Conversely,  where rights have already vested in a party, they cannot be nullified  or  negated  by  subsequent  events  save where there is a change in the law and it is made applicable  at  any  stage. Lachmeshwar  Prasad Shukul v. Keshwar  Lal  Chaudhuri [1940  FCR 84  : AIR  1941  FC  5]  falls  in  this  category.  Courts  of justice may, when the compelling equities of a case oblige them, shape reliefs — cannot deny rights — to  make  them  justly  relevant  in  the  updated

42

circumstances.  Where  the  relief  is  discretionary, courts  may  exercise  this  jurisdiction  to  avoid injustice.  Likewise,  where the right  to  the remedy depends, under the statute itself, on the presence or absence of certain basic facts at the time the relief is  to  be  ultimately  granted,  the  Court,  even  in appeal,  can  take  note  of  such  supervening  facts with fundamental impact. Venkateswarlu, read in its statutory setting, falls in this category.”  

27. However,  the  International  Convention  on  the  Arrest  of

Ships, 1999, in which India participated, states as follows:-

“Article 3: Exercise of right of arrest

1.  Arrest  is  permissible  of  any  ship  in  respect  of which a maritime claim is asserted if:

(a) the person who owned the ship at the time when the maritime claim arose is liable for the claim and is owner of the ship when the arrest is effected; or

(b) – (e) xxx xxx xxx

(2) xxx xxx xxx

3. Notwithstanding the provisions of paragraphs 1 and 2 of this article, the arrest of a ship which is not owned by the person liable for  the claim shall  be permissible only if, under the law of the State where the arrest  is applied for,  a judgment in respect of that  claim  can  be  enforced  against  that  ship  by judicial or forced sale of that ship.”

28. India is not a signatory to the aforesaid Convention, yet

following M.V. Elisabeth (supra), this Convention becomes part

43

of   our   national   law   and   must,   therefore,   be   followed

by this Court.    Article 3(1)(a) is in two parts. First, arrest is only

permissible  of  any  ship  if  a  maritime  claim  is

asserted against the person who owned the ship at a time when

the  maritime  claim  arose  for  which  the  owner  is  liable,  and

second, that the same ship owner should be the owner of the

ship when the arrest is effected. Thus, article 3(1)(a) sets the

controversy at rest because a maritime claim can be asserted

only at the time the arrest is effected and not at the time of the

institution of the suit.  This being so, Shri  Divan’s reliance on

English judgments to the contrary, namely Monica S. (1967) 2

Lloyd’s Rep. 113 as followed in Re, Aro Co Limited 1980 1 All

ER 1067, cannot be followed.  Both judgments were prior to the

1999  Convention  and  it  is  this  Convention  that  must  be

followed.  It is, therefore, clear that the relevant date on which

ownership of the vessel is to be determined is the date of arrest

and not the date of institution of the suit.   

29. At  this  stage  it  becomes  important  to  refer  to  the

agreement dated 18.1.2000 entered into between the petitioner

44

and the original owner of the vessel, Third Element Enterprises.

The agreement has been set out fully earlier in this judgment.  A

perusal  of  the  agreement  would  show  that  so  far  as  the

appellant is concerned, performance is over — namely that a

certain quantity of bunkers has in accordance with the original

agreement been supplied.  Indeed this is expressly recited in

the later agreement.  It is only performance under the original

agreement  that  is  lacking from the side of  the owner  of  the

vessel, namely Third Element Enterprises.  The very first clause

of the agreement shows that the ship owners confirm that they

owe to the appellant the original amount of the bunkers plus

interest  plus legal  costs,  which amounts are parasitic  on the

original  invoice  amount  of  US$  94,611.25,  and  need  to  be

recovered in order to put the appellant in the same position as if

the  original  contract  had  been  performed  by  Third  Element

Enterprises. The agreement then goes on to state that since the

vessel is being chartered for a voyage from Bangkok and will

earn freight,  the part  of  the freight  amounting to the original

invoice amount plus interest plus legal costs will be paid directly

by  the  charterers  of  the  vessel  to  the  bank  account  of  the 45

appellants.

30. Sections 62 and 63 of the Contract Act read as follows:-

“62. Effect of novation, rescission, and alteration of contract.—If the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed.  

63.  Promisee  may  dispense  with  or  remit performance of promise.— Every promisee may dispense  with  or  remit,  wholly  or  in  part,  the performance of the promise made to him, or may extend  the  time  for  such  performance,  or  may accept instead of it any satisfaction which he thinks fit.”  

31. It is the appellant’s case that Section 63 of the Contract

Act is attracted to the facts of the present case whereas it is the

respondent’s  case that  Section 62 is  so attracted,  the result

being  that  the  original  agreement  is  substituted  by  a  fresh

agreement.  

32. The respondent’s case is that Section 62 applies, since

the original contract has been “altered”.  This being the case,

the original contract need not be performed.  

33. It  is  clear  that  where  parties  to  a  contract  agree  to

substitute  a  completely  different  contract  for  the  first,  or  to

46

rescind a contract, the performance under the original contract

and/or rescinded contract comes to an end.  When parties to a

contract “alter” a contract, the question that has to be answered

is  as  to  whether  the  original  contract  is  altered  in  such  a

manner that performance under it is at an end.   

34. In Juggilal Kamlapat v. N.V. Internationale Crediet-En-

Handels  Vereeninging  ‘Rotter-dam’,  AIR  1955  Cal  65,  the

original  contract  dated  10.8.1950  contained  an  arbitration

clause.  In paragraph 11 of the judgment, it was found as a fact

that  the  original  contract  was  modified  in  certain  material

particulars.  Despite  this,  it  was  found  that  since  the

modifications do not go to the root of the original contract and

do not change its essential character, the facts do not warrant

the inference that the parties intended to rescind the original

contract.  The High Court held:-

“14. In the present case the modifications do not go to  the  very  root  of  the  first  contract  and  do  not change  its  essential  character.  The  facts  do  not warrant  the inference that  the parties  intended to rescind  the  contract,  dated  10-8-1950.  The  April arrangement  was  entered  into  in  response  to pressing demands for delivery under that contract and with a view to implement it. The arrangement

47

has no independent contractual force, no meaning and content separately from and independently of the original contract.

15. The effect of the alterations or modifications is that there is a new arrangement; in the language of Viscount Haldane in 1918 A. C. 1 at p. 17 (A),  

“a new contract containing as an entirety the old terms together with and as modified by the new terms incorporated.”

The modifications are  read into  and become part and  parcel  of  the  original  contract.  The  original terms also continue to be part of the contract and are not rescinded and/or superseded except in so far as they are inconsistent with the modifications. Those  of  the  original  terms  which  cannot  make sense  when  read  with  the  alterations  must  be rejected.  In  my view the arbitration clause in  this case is in no way inconsistent with the subsequent modifications and continues to subsist.”

(at page 67)

35. We  approve  of  the  said  judgment  as  laying  down  the

correct  law  on  the  expression  “alter”  in  Section  62  of  the

Contract Act.  In order that a contract that is altered in material

particulars  fall  under  Section  62,  it  must  be  clear  that  the

alteration must go to the very root of the original contract and

change its  essential  character,  so  that  the  modified  contract

must be read as doing away with the original contract.  If the 48

modified contract has no independent contractual force, in that

it  has  no  meaning  and  content  separately  from  and

independently of the original contract, it is clear that there is no

new  contract  which  comes  into  being.   The  original  terms

continue to be part of the modified contract except to the extent

that they are inconsistent with the modifications made.

36. On the other hand, Section 63 of the Contract Act would

clearly apply to the facts of the present case. Illustration “c” to

Section 63 is apposite, and reads as follows:- “(c) A owes B 5,000 rupees.  C pays to B 1,000 rupees  and  B  accepts  them,  in  satisfaction  of  his claim on A.  This payment is a discharge of the whole claim.”  

37. The aforesaid illustration makes it clear that a promisee

may  accept  satisfaction  from  a  third  party  which  then

discharges the promisor from further performance of the original

contract.  

38. In  Kapur Chand Godha v.  Mir Nawab Himayatalikhan

Azamjah, (1963) 2 SCR 168, one Baboo Mull and Company

sold  and  delivered to  the Prince  of  Berar  various articles  of

jewellery. The jewellery was, in fact, delivered by the appellants

49

to  the  Prince.   Several  payments  were  made  by  a  Princes

Debts Settlement Committee.  Ultimately, a payment for a sum

of  Rs.27,79,078/-  was  made  which  was  received  by  the

appellant stating that payment had been made in full.   

39. Since  a  balance  of  Rs.9,99,940/-  still  remained,  the

appellants filed a suit against the respondent-Prince.  The suit

was  allowed  by  the  trial  court  but  dismissed  by  the  first

Appellate  Court  which  came  to  a  contrary  conclusion.   The

Supreme Court agreed with the Appellate Court in dismissing

the suit.  It was, therefore, held:  

“There  was  some  difference  of  evidence  as  to whether  Ex.  C bore  the  signature  of  Kapurchand when  it  was  first  presented  to  Madhava  Rao  or whether the signature was later put on it. With that difference we are not now concerned. Nor are we concerned  with  certain  minor  discrepancies between the evidence of the two witnesses referred to above. The substantial result of the evidence of the two witnesses to whom we have referred is that whatever reluctance Kapurchand might have had in accepting Rs. 20 lacs in full satisfaction of the claim of the appellants, he ultimately agreed to do so. Not only  did  he  agree,  but  he  actually  endorsed  full satisfaction  and  payment  on  all  the  promissory notes  and  thereafter  he  received  payment  of  the second instalment of Rs. 8,75,000/ which along with the first instalment of Rs.11,25,000/- made up the sum  of  Rs.  20  lacs.  On  these  facts  which  are

50

established by the evidence given on behalf of the appellants themselves,  the only conclusion is  that there  was  full  satisfaction  of  the  claim  of  the appellants.

The legal position is clear enough. Section 63 of the Indian Contract Act reads:

“Every promisee may dispense with or remit, wholly or in part, the performance of  the  promise  made  to  him,  or  may extend the time for such performance or may accept instead of it any satisfaction which he thinks fit.”

Illustration (c) to the section says  

“A owes B 5000 rupees.  C pays to  B 1000  rupees,  and  B  accepts  them  in satisfaction  of  his  claim  on  A.  This payment  is  a  discharge  of  the  whole claim.”  

It seems to us that this case is completely covered by s. 63 and illustration (c) thereof. The appellants having accepted payment in full satisfaction of their claim, are not now entitled to sue the respondent for the balance.”  

(at pages 178-179)

This Court further went on to hold that the niceties of English

Law in the matter  of  accord and satisfaction do not  concern

Indian Courts in view of Section 63 of the Act.  

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40. It  is  clear  that  on the facts in  the present  case as the

original contract has been performed only by one party to the

contract and not by the other, the second agreement is entered

into so that the promisee (i.e. the appellant herein) may accept,

instead  of  the  original  performance  of  the  agreement,  any

satisfaction which it thinks fit. Thus, the agreement deals with

one leg of the original transaction, the leg of payment which has

not yet been made while keeping the original transaction alive.

The other clauses of  the agreement buttress this conclusion.

Under clause 4, the ship owner will not sell the vessel prior to

the satisfaction of the aforesaid claim.  And, above all, under

clause (6), if for any reason the said payment is not made, the

appellant  will  be  entitled  to  take  all  appropriate  legal  steps,

which  include  arrest  of  the  vessel,  for  recovery  of  the  said

amount.  Even  by  clause  (8),  the  original  agreement  is  kept

alive.   In  the  event  that  the  ship  is  unable  to  proceed  to

Bangkok, the appellant maintains its rights of recovery against

the shipowner  and the vessel.  If  the original  agreement  had

disappeared  by  novatio,  there  is  no  question  of  taking

appropriate steps to arrest the vessel which is owned by the 52

ship owner who is the promisee and who has not yet performed

his  part  of  the  contract.  A  guarantee  clause  contained  in

clauses 7 and 8 is again only an additional string to the bow of

payment.   The fact  that  exclusive jurisdiction is  given to the

courts at Piraeus, Greece has to be read with clause 6 of the

agreement.  Obviously, arrest of the vessel for recovering the

aforesaid amount in case payment is not made can be at any

port, and not merely at Piraeus.  For all these reasons, we are

of the view that the aforesaid agreement read as a whole does

not amount to a novatio of the original agreement, but was in

fact entered into keeping the original agreement alive in order

to ensure that payment under the original agreement is made to

the appellants. In fact, the agreement dated 18.1.2000 is not a

settlement  of  the original  claim at  a lesser  amount.   As has

been held by us, it is only a means of enforcing the payment leg

of  the  original  transaction  through  a  third  party  charterer.

Consequent upon the vessel not sailing to Bangkok or the third

party charterer failing to make payment, the original obligation

of the appellant continued, and was enforceable by the arrest of

the vessel.   It  is  settled law that  an agreement  such as the 53

agreement dated 18.1.2000 is not to be construed legalistically

but is to be construed as ordinary businessmen would construe

it.  In words which have become classic, Lord Wright in Hillas v.

Arcos, [1932] All ER 494 at 503-504, has stated:-

“Business  men  often  record  the  most  important agreements in crude and summary fashion; modes of  expression  sufficient  and  clear  to  them  in  the course  of  their  business  may  appear  to  those unfamiliar  with  the business far  from complete  or precise. It  is,  accordingly,  the duty of the court  to construe such documents fairly and broadly, without being too astute or subtle in finding defects; but, on the contrary, the court should seek to apply the old maxim of English law, verba ita sunt intelligenda ut res  magis  valeat  quam  pereat.  That  maxim, however, does not mean that the court is to make a contract for the parties, or to go outside the words they  have  used,  except  insofar  as  there  are appropriate implications of law, as, for instance, the implication  of  what  is  just  and  reasonable  to  be ascertained  by  the  court  as  matter  of  machinery where  the  contractual  intention  is  clear  but  the contract is silent on some detail. Thus in contracts for  future  performance  over  a  period,  the  parties may  not  be  able  nor  may  they  desire  to  specify many  matters  of  detail,  but  leave  them  to  be adjusted in the working out of the contract.”

41. Equally  in  Satya  Jain and  others v.  Anis  Ahmed

Rushdie and others (2013) 8 SCC 131 at 143, this Court has

held:-

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“The  principle  of  business  efficacy  is  normally invoked to read a term in an agreement or contract so  as  to  achieve  the  result  or  the  consequence intended  by  the  parties  acting  as  prudent businessmen.  Business efficacy means the power to  produce  intended  results.  The  classic  test  of business  efficacy  was  proposed  by  Bowen,  L.J. in Moorcock  [(1889) LR 14 PD 64 (CA)]. This test requires  that  a  term  can  only  be  implied  if  it  is necessary to give business efficacy to the contract to  avoid  such  a  failure  of  consideration  that  the parties  cannot  as  reasonable  businessmen  have intended. But only the most limited term should then be implied—the bare minimum to achieve this goal. If  the contract  makes business sense without  the term,  the  courts  will  not  imply  the  same.  The following passage from the opinion of Bowen, L.J. in Moorcock [(1889)  LR 14 PD 64 (CA)]  sums up the position: (PD p. 68)

“…  In  business  transactions  such  as this, what the law desires to effect by the implication  is  to  give  such  business efficacy to the transaction as must have been  intended  at  all  events  by  both parties  who  are  businessmen;  not  to impose on one side all the perils of the transaction,  or  to  emancipate one side from all  the  chances  of  failure,  but  to make  each  party  promise  in  law  as much,  at  all  events,  as  it  must  have been  in  the  contemplation  of  both parties that he should be responsible for in respect of those perils or chances.”

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42. Reading  the  agreement  through  the  prism  of  a

businessman’s eye, it is clear that all that the agreement does

is  to  reinforce  the  original  agreement  by  seeing  that  the

payment under the said agreement is made.  We,  therefore,

disagree with the view taken by the Division Bench that there is

a novatio of the original agreement in the fact circumstance of

the present case.  

43. However, Mr. Banerjee cited a passage from Halsbury’s

Laws of  England and strongly relied upon a Singapore High

Court  judgment  to  argue  otherwise.   The  passage  from

Halsbury (Vol. 37, 4th ed., p. 287) reads as follows:-

“391. Effect of settlement or compromise.  Where the  parties  settle  or  compromise  pending proceedings, whether before, at or during the trial, the settlement or compromise constitutes a new and independent  agreement  between  them  made  for good consideration.  Its effects are (1) to put an end to the proceedings, for they are thereby spent and exhausted; (2) to preclude the parties from taking any further steps in the action, except where they have  provided  for  liberty  to  apply  to  enforce  the agreed  terms;  and  (3)  to  supersede  the  original cause  of  action  altogether.  A  judgment  or  order made by consent is binding unless and until it has been  set  aside  in  proceedings  instituted  for  that purpose and it  acts, moreover, as an estoppel by record.”

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44. It is important to remember that when Section 63 of the

Contract  Act  is  to  be applied,  the High Courts in  India have

cautioned that,  being a wide departure from English law, the

Section alone should be enforced according to its terms and not

in accordance with English law.  Thus, in New Standard Bank,

Ltd. v.  Probodh Chandra Chakravarty,  AIR 1942 Cal 87 at

90-91, the Calcutta High Court held:-

“By  s.  63,  Contract  Act,  every  promisor  may dispense  with  or  remit  wholly  or  in  part  the performance of  the promise made to  him or  may accept instead of it any satisfaction which he thinks fit.  This section makes a wide departure from the English law, inasmuch as it  does not  refer  to any agreement and valuable consideration. It should not therefore, be enlarged by any implication of English doctrine: Chunna  Mal  Ram  Nath  v. Mool  Chand- Ram Bhagat [(1928) I.L.R. 9 Lah. 510 (518) : L.R. 55 I.A. 154 (160)].”

45. To similar effect is a judgment of the Bombay High Court

reported  as  Anandram  Mangturam v.  Bholaram  Tanumal,

AIR 1946 Bom 1 at 6, in which Chagla, J. stated:-

“But the learned Judge expresses his opinion that time can  be  extended even though the  promisee may not bind himself to do so. With great respect to the learned Judge, I cannot accept that part of the statement of the law. The learned Judge’s judgment

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is  based  on  English  decisions  to  which  he  has referred  in  his  judgment.  The  Privy  Council  has repeatedly  warned  Courts  in  India  not  to  import doctrines of common law when construing the plain sections  of  the  Contract  Act  and  the  danger  of relying  on  principles  of  Common  Law  is  all  the greater in this case when one remembers that s. 63, Contract Act constitutes a wide departure from the principles of the English common law.”

46. Even if  the  passage in  Halsbury  is  to  be applied,  it  is

obvious that the settlement terms spoken of must be made for

good consideration, which is absent under Section 63.  Also, for

such  settlement  to  constitute  a  new  and  independent

agreement,  it  must  put  an  end  to  the  proceeding  which  is

thereby spent and exhausted; and it is for this reason that the

original  cause  of  action  is  superseded altogether.   We have

seen on the facts of the present case how, by the order dated

25.1.2000,  the  application  in  Suit  No.1  of  2000  alone  was

dismissed  for  non-prosecution,  only  interim  orders  were

vacated and it  was stated that  “the vessel  shall  cease to be

under  arrest  as  of  now.”   It  is  clear,  therefore,  that  in

accordance  with  the  agreement  dated  18.1.2000,  the

proceedings were not put an end to. Neither was the original

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cause of  action  superseded,  as  we have  stated  earlier.  The

moment  there  is  a  breach  of  the  settlement  agreement,  the

appellants  would  be  entitled  to  take  appropriate  legal  steps

against the ship owner, including the arrest of the vessel, which

can only be if the original contract still subsists.  

47. Mr.  Banerjee  laid  great  reliance  on  a  judgment  of  the

Singapore High Court  in  The Dilmun Fulmar,  (2003) SGHC

270.  On the facts of that case, the ship repairers repaired the

vessel  and supplied material  to the vessel.   The ship owner

paid  a  sum of  $650,000  for  repairs,  leaving  an  outstanding

balance  sum  of  $770,822.28  as  at  8.5.2001.  A subsequent

settlement  agreement  was  entered  into  in  which  the  ship

repairer agreed to accept a total sum of $310,000, inclusive of

$25,000 interest  and $25,000 as legal  costs in  full  and final

settlement of their claim in the admiralty suit, which was for a

sum of  $1,154,916.78.  Paragraph 7 of  the said judgment is

important and reads as under:

“7. The issue raised by this appeal touched on the true  construction  and  effect  of  the  Settlement Agreement.  In coming to my decision to set aside the writ and warrant of arrest, I had to construe the

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accord.   Generally,  an  agreement  of  compromise would  discharge  all  original  claims  and counterclaims unless it expressly provides for their revival  in  the  event  of  breach.   The  Settlement Agreement  was worded in  such a way that  there was by its terms an immediate binding compromise of the claim amount of $1,154,916.78.  By cl 1, the plaintiff  agreed  to  accept  a  sum  of  $310,000 inclusive of interest and legal costs in full and final settlement of a larger claim...”

48. From this paragraph, it is clear that the plaintiffs agreed to

accept a lesser sum in full and final settlement of a larger claim

and this was the amount stated in the settlement agreement.

Indeed, in paragraphs 11 and 13 of the judgment, it is stated:

“11…The plaintiffs’ solicitors in a fax dated 1 August 2002 wrote: “[T]he sum due is in fact S$170,000 as stated  in  the  Settlement  Agreement  together  with interest thereon up to 23rd January 2002 …”   

“13…There  was  no  explanation  as  to  where  the figure of $170,000 had come from if it was not from the Settlement Agreement...”

49. On the facts of that case it was, therefore, held that the

original  cause  of  action  had  been  superseded  and  that  the

Court had no jurisdiction in respect of the original claim.  

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50. This case is wholly distinguishable in that, on the facts of

the present case, the very sum due under the original contract

continued  to  be  due  and  payable  under  the  settlement

agreement.  The fact that interest and legal costs were added

would not amount in itself to superseding the original contract,

as these relate to payments under the original contract and put

the  promisee  in  the  same  position  as  if  the  contract  had

originally been performed.  We have also seen that the original

agreement  was  not  superseded  but  was  only  sought  to  be

enforced,  the  manner  of  performance  being  different.   This

being  the  case,  we  are  of  the  view  that  the  High  Court’s

conclusion that there was a novatio of the original agreement

on the facts of the present case is incorrect.  

51. It  only remains to be considered as to whether,  on the

date of arrest i.e. 2.5.2000, respondent no. 1 happened to be

the  owner  of  the  vessel,  as  was  found  by  the  impugned

judgment.

52. The High Court strongly relied upon an oral admission of

PW1 to the effect that respondent no.1 had become the owner

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of the vessel sometime in April  2000.  On going through the

deposition of Mr. Stephen Livanos, we are clearly of the view

that  no  such  admission  was  ever  made.   The  answers  to

questions  257  to  262  would  clearly  show that  the  witness’s

statement that respondent no.1 was the end buyer of the vessel

was  equivocal  at  best,  and  was  obviously  hearsay  as  the

answer to question 260 states that a lawyer in Greece had at

some point  of  time told Mr.  Livanos what happened with the

vessel. To therefore conclude from this oral evidence that the

vessel  had changed hands in  April,  2000 does not  take the

respondent’s case very far.  

53. However, the High Court also relied upon a notarized bill

of sale dated 14.4.2000,  the notice of readiness of 15.4.2000,

which was accepted by the respondent at 11.00 A.M, and was

followed by the delivery of possession of the vessel at 2.00 P.M.

What is important to note is that the signatory to the physical

delivery  certificate  was  on  behalf  of  Pennon  Shipping

Corporation,  which  was  only  an  agent  of  Third  Element

Enterprises, and not an agent of Fairsteel.  The High Court then

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went on to state that payment under the Letter of Credit was

also made on 26.4.2000 and since this  would show that  the

property in the vessel was transferred in April, 2000, no cause

of action would survive against  the new owner of  the vessel

namely respondent no.1.  The High Court also went on to state

that  the  transfers  pleaded  in  the  written  statement  of

respondent  no.  1,  namely from Third Element  Enterprises to

Eastern Wealth Investment Limited and thereafter to Fairsteel

Corporation Limited after which Fairsteel sold and transferred

the  vessel  to  respondent  no.1,  had  not  been  proved  by

respondent no.1, but that this did not affect the respondent’s

case.  

54. We have been shown a bill  of sale dated 27.4.2000 by

which Third Element Enterprises effected the first of these four

sales to Eastern Wealth Investment Limited, only on 27.4.2000.

This sale has for its consideration “one US Dollar and/or other

valuable consideration” casting grave doubts about its efficacy

in law. Be that as it may, since this sale is the first sale in the

chain of sales made ultimately to respondent no.1, it is obvious

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that the sale made by Fairsteel to respondent no.1 could only

have  been  after  this  date.   Shri  Banerjee  cited  before  us

authorities to the effect that it is well known that back to back

sales of this nature take place between different parties for the

same vessel. That may well be so, but it is still necessary to

prove  and  explain  each  back  to  back  sale  from  which

respondent no.1 ultimately derives its title, in accordance with

its pleading in the written statement filed by it.  As has correctly

been held by the High Court, there is no proof of any of these

back to back sales, and in point of fact the very first sale from

the original owner has taken place in favour of Eastern Wealth

after the High Court has found that the vessel has been sold by

Fairsteel  to  respondent  no.1,  which  goes  contrary  to  the

pleaded case of respondent no.1 itself. We were also referred

to a document dated 26.4.2000 by which a new clause 8 was to

be added to the Letter of Credit which read as follows:-

“COPY  OF  FREE  OF  ENCUMBRANCES CERTIFICATE  ISSUED  BY  EMBASSY  OF REPUBLIC  OF  CYPRUS,  MARITIME  SECTION, PIRAEUS,  CERTIFYING  THAT  THE  MOTOR VESSEL  “NIKOLAS  S”  PERMANENTLY REGISTERED  IN  THE  CYPRUS  REGISTER  OF

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SHIPS,  OWNED  BY  “THIRD  ELEMENT ENTERPRISES SHIPPING LTD.”  OF CYPRUS IS FREE  OF  MORTGAGE  AND  ANY  OTHER ENCUMBRANCES.”

Further,  as  per  clause  no.8  we  confirm  that  the Buyers  have  received  the  Notice  of  Readiness (NOR)  on  15.04.2000  from  the  Sellers  or  their Agents in Calcutta and authorize you to negotiate the L/C as per the terms.”

This  clause  would  again  go  to  show  that  even  on

26.4.2000  the  owner  of  the  vessel  was  Third  Element

Enterprises and not respondent no.1.

55. With regard to the High Court  finding that  full  payment

had been made under the Letter of Credit  on 26.4.2000, the

respondent’s own suit that was filed by it against Fairsteel on

9.5.2000 shows that no such payment had been made by the

date of the filing of the said suit.  The suit was for the relief of

rescission of the agreement between Fairsteel and respondent

no.1 dated 21.1.2000 on the ground of fraud.  Para 27 of the

suit is important and states as follows:-

“27. In  the  facts  and  circumstances  aforestated, the  defendant  no.1  has  fraudulently  induced  the plaintiff  to  issue/open  the  said  L/C  through  the defendant no.2 in favour of the defendant no.1.  The defendant no.1 is not entitled to receive and should

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be restrained from receiving any payment under the said  L/C  and  the  plaintiff  claims  a  decree  of perpetual injunction in that regard.”

56. The relief claimed in the other suit is also important and

prayers “C” and “D” are material and read as under:-

“(c) Decree of perpetual injunction restraining the defendant no.1 whether by itself or through its servants or agents from receiving any money under  the  Letter  of  Credit  No.CAL/24006 dated 8th April 2000, issued by the defendant no.2 in favour of the defendant no.1.

(d) Decree of perpetual injunction restraining the defendant  no.2  from  making  any  payment under  the  Letter  of  Credit  No.CAL/24006 dated  8th April  2000  issued/opened  by  it  in favour of the defendant no.1.”

57. This  would  show,  on  the  respondent’s  own  admission

made in the plaint  dated 9.5.2000, that  monies were not  yet

received under the Letter of Credit even on 9.5.2000 and that,

therefore, an injunction should be granted restraining defendant

no.1 from receiving this money and against the Bank of Baroda

– plaintiff’s bank – from making any such payment to defendant

no.1.  Thus, it is clear that the High Court was not correct in its

view that it was proved by respondent no.1 that sale had taken

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place in April, 2000 by Fairsteel Corporation to respondent no.1

by which respondent no.1 became the owner of the vessel.  It is

clear, therefore, that respondent no. 1 has failed to prove that

there was a change of ownership of the vessel in its favour on

the date of arrest i.e. on 2.5.2000.  This being the case, we set

aside the judgment of the High Court and restore the decree of

the trial court which reads as under:-

“In the result, the suit succeeds.  There would be a decree  as  against  the  vessel  M.V.  Nikolaos-S  of US$  94,611.25  equivalent  to  Rs.42,57,500.00  in Indian  currency.  The  plaintiff  would  be  entitled  to recover  the  said  sum  from  the  cash  security furnished to the Registrar, High Court, Original Side together  with  accrued  interest  thereon.  The Registrar,  Original  Side,  High  Court,  however,  is entitled to deduct necessary commission applicable thereto.”    

58. The appeal is, accordingly, allowed in the aforesaid terms.

…………………………......J. (R.F. Nariman)

…………………………......J. (Sanjay Kishan Kaul)

New Delhi; September 14, 2017.

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