: 1 : USJ IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION NOTICE OF MOTION NO.1159 OF 2010 IN ADMIRALTY SUIT NO.8 OF 2010 Navios Corporation .. Plaintiffs v/s. m.v. Fu Jin and Anr. .. Defendants ......... Mr. P. S. Pratap with Manoj R. Khatri for the plaintiffs Mr. S.U. Kamdar, Sr. Counsel, Rahul Narichania, Mr. Kunal Shah i/by M/s. Bhatt & Saldanha for defendant no.1. ......... CORAM : R.Y.GANOO, J. DATE : 5th MAY, 2010. P.C. : 1. The plaintiffs herein instituted the suit against defendant no.1 i.e. Ship “m.v. Fu Jin” and against defendant no.2 i.e. “Pacific King Shipping Pvt. Ltd.” for recovery of US$ 67,165,014.17 along with interest @12% per annum from the date of filing of the suit till realization. Alternatively, it is prayed by the plaintiffs that defendant : 2 : no.2 be ordered and directed to secure the plaintiffs’ claim in arbitration by furnishing a Bank Guarantee of a nationalized bank to the satisfaction of Prothonotary and Senior Master, High Court, Bombay in the sum of rupees US$ 67,165,014.17 together with the interest @12% per annum from the date of filing of the suit till realization by prayer clauses (a) and (b). Orders regarding arrest of defendant no.1 more particularly stated in those prayer clauses have been sought. 2. The plaintiffs on 19th March, 2010 moved this Court for arrest of the ship on the grounds set out in the plaint and on 19th March, 2010 an order was passed directing arrest of defendant no.1. Defendant no.1 have taken out this notice of motion for two reliefs. By prayer clause (a), defendant no.1 wants that order dated 19th March 2010, by which defendant no.1 was arrested should be set aside. By prayer clause (b), defendants want that an order should be passed against the plaintiffs to pay to defendant no.1 a sum of US$ 70,800 as damages for wrongful arrest of defendant no.1 vessel. Parties herein have completed the pleadings. : 3 : 3. Few facts necessary for the disposal of the notice of motion on the basis of record are as follows. 4. It is the case of the plaintiffs that they had entered into a Charter Party Agreement dated 10th March, 2008 with defendant no.2. According to the plaintiffs, because of conduct on the part of defendant no.2, there occurred a repudiatory breach of the said agreement dated 10th March, 2008 and that is how plaintiffs instituted this suit in this Court for recovery of US$ 67,165,014.17 with interest as mentioned aforesaid. According to plaintiffs, defendant no.2 is the beneficial owner of defendant no.1 and that is how plaintiffs wanted that defendant no.1 should be arrested for recovery of dues in regard to the suit claim and that is how plaintiffs instituted the suit and applied for arrest of defendant no.1. According to the plaintiffs, the plaintiffs had the benefit of ship overview, which is at Exhibit “F” wherein plaintiffs came to know that defendant no.1 is owned by M/s. Fu Jin Shipping Ltd. (For short ‘Fu Jin’). According to the plaintiffs, plaintiffs investigated the matter and : 4 : as per company overview report (Exh.”E”) came to know that Fu Jin is 100% subsidiary company of defendant no.2. According to plaintiffs, defendant no.2 happens to be the wholly owned subsidiary of Pacific King Shipping Holding Pvt. Ltd. (For short ‘Pacific king’). The plaint at paragraph 16 onwards indicates as to how plaintiffs have averred necessary facts to submit that Fu Jin, who owns defendant no.1 happens to be a subsidiary company of defendant no. 2 and that is how according to the plaintiffs, defendant no.2 is the beneficial owner of defendant no.1 and hence, for the liability of defendant no.2, defendant no.1 can be arrested. 5. Defendant no.1 has taken out the notice of motion and have prayed for reliefs as mentioned aforesaid. It is the stand of defendant no.1 before this Court that the claim of the plaintiffs that defendant no.2 is the beneficial owner of defendant no.1 is not correct on the basis of facts as they stood on the date of filing of plaint. According to defendant no.1, on the date of filing of the suit, Fu Jin who owned defendant no.1 was 100% subsidiary of M/s. Huali Shipping Holding (H.K.) Co. Ltd. (For short ‘Huali’). According to defendant no.1, the : 5 : shipping overview report dated 30th March, 2010 would go to show that the registered owner of defendant no.1 is Fu Jin and the group owner is Hauli. Learned Senior Counsel appearing on behalf of defendant no.1 had submitted that plaintiffs’ case that defendant no. 1 is owned by Fu Jin and Fu Jin is 100% subsidiary of defendant no.2 is on the basis of ship overview of defendant no.1 as of 11th December, 2009 i.e. at page 33 of the plaint. According to Counsel for defendant no.1, if the plaintiffs would have looked into the ship overview of defendant no.1 as of 30th March, 2010 as has been done and relied upon by defendant no.1, it would have been abundantly clear to the plaintiffs that though defendant no.1 is owned by Fu Jin, Fu Jin has no connection with defendant no.2 and that the earlier factual situation has since changed and the defendant no.2 has lost its control over Fu Jin and, therefore, the stand of plaintiffs that defendant no.2 is the beneficial owner of the defendant no.1, should not be accepted. Defendant no.1 have placed before the Court what may be referred to as Certificate of Incumbency of Fu Jin, which is at page 26 of affidavit in support of the motion dated 16th June, 2009 wherein the share holder of Fu Jin is shown as Huali to the extent of : 6 : 50,000 shares and the said Incumbency Certificate also menions that the company is authorized to issue maximum of 50,000 shares. Learned Counsel appearing on behalf of defendant no.1 had pointed out the said Incumbency Certificate dated 16th June, 2009 and, therefore, in any case on the date when the application for ad-interim relief was made i.e. on 19th Mach, 2010, defendant no.1 had no connection whatsoever with defendant no.2 and, therefore, the claim of the plaintiffs for recovery of damages against defendant no.2, plaintiffs would arrest defendant no.1, cannot be accepted. 6. Learned advocate appearing on behalf of the plaintiffs had submitted that the plaintiffs had upon appropriate investigation came to the conclusion that defendant no.2 is the beneficial owner. Learned Counsel appearing on behalf of plaintiffs had submitted that the Certificate of Incumbency was in exclusive possession of defendant no.1 and it would not have been known to the plaintiffs till such time the said document was filed in Court. Learned Counsel for the plaintiffs had further submitted that action on the part of the plaintiffs in instituting the suit against defendant no.1 and 2 was not : 7 : at all malafide, as alleged by the defendant no.1 and that the plaintiffs maintain that defendant no.2 is the beneficial owner of defendant no.1. Learned Counsel appearing on behalf of the plaintiffs had drawn my attention to the Annual Return of Huali and had submitted that Fu Jin, Hauli, defendant no.2, Pacific King have arrived at an arrangement so as to show on paper that Huali holds all the shares of Fu Jin. Learned advocate for the plaintiffs had drawn my attention to page 44 of the compilation, which was presented by him to the Court, where the name of Pacific King Shipping Group Ltd. appeared as shareholder at particular point of time and subsequently such shares came to be transferred to H.Y. I Shipping Ltd. Learned Counsel appearing on behalf of the plaintiffs had submitted that the various companies have joined together to make internal arrangement, ultimately to see that defendant no.1 though owned by Fu Jin, has nexus with defendant no.2 through Pacific King Shipping Group Ltd. and that is how this Court should hold that the defendant no.2 is the beneficial owner of the defendant no.1. : 8 : 7. Learned Counsel appearing on behalf of plaintiffs had submitted that the concept of beneficial owner is well accepted concept and, therefore, if the plaintiffs have been able to make out prima facie case that defendant no.2 is the beneficial owner of defendant no.1, no fault can be found on the part of the plaintiffs in joining defendant no.2 as the beneficial owner and attaching defendant no.1-vessel which is owned by defendant no.2 through Fu Jin. Learned Counsel appearing on behalf of the plaintiffs had in support of this submission relied upon the judgment in the case of Liver Pool & London S.P. & I. Association Ltd. Vs. Sea Success I and Anr. (2004) 9 SCC 512. He had drawn my attention to paragraph 153 of the said judgment and had submitted that the Court has to consider the facts appearing on record and has to record prima facie finding and once that is done, the Court will come to the conclusion that defendant no.2 is the beneficial owner of defendant no.1. 8. In reply to this, learned Counsel appearing on behalf of defendant no.1 had submitted that a company can be termed as beneficial owner who has a right to sell, dispose of or alienate all the : 9 : shares in that ship. He had further submitted that the Court would be slow in lifting the corporate veil. According to him corporate veil can be lifted in exceptional case only to understand the factual position. Learned Senior Counsel for defendant no.1 had submitted that if the plaintiffs would have taken the benefit of the shipping overview as of 30th March, 2010, surely, the plaintiffs would have arrived at different conclusion as regards to the owner and certainly plaintiffs would have come to the conclusion that defendant no.2 is not the beneficial owner. In substance, defendant no.1 contend that defendant no.2 is not the beneficial owner and, therefore, order of arrest of defendant no.1 cannot sustain and that the Court should order the release of the vessel. 9. It was indicated by learned Senior Counsel for defendant no.1 that so far as prayer clause (b) is concerned, defendant no.1 wish to institute a counter-claim or other appropriate proceedings to recover the amounts set out in prayer clause (b) and, therefore, this Court should not pass any observation in so far as prayer clause (b) is concerned. : 10 : 10. After having considered the rival submissions and the point in question, I am inclined to observe that defendant no.1 have been able to make out a case that defendant no.2 is not the beneficial owner of defendant no.1 and to that extent, the notice of motion taken out by the defendant no.1 so far as prayer clause (a) is concerned is required to be granted. Since defendant no.1 wish to institute a counter-claim so far as prayer clause (b) is concerned or other appropriate proceedings, a liberty to that extent will have to be granted. Reasons for the aforesaid findings are as follows. 11. The plaintiffs have instituted the present suit contending that defendant no.2 is the beneficial owner purely on the basis of the ship overview of defendant no.1 at Exhibit “F” and company overview of defendant no.2 at Exhibit “E”. The company overview of defendant no.2 goes to indicate that Fu Jin is a 100% subsidiary company of defendant no.2. The registered owner Fleet appearing in the said report indicates that defendant no.1 is the ship concerned. The ship overview of defendant no.1 also indicates that the registered owner : 11 : of defendant no.1 is Fu Jin and the group owner is Pacific King and that defendant no.2 happens to be a subsidiary company of Pacific King. The said ship overview report is updated upto 11th December, 2009. On plain reading of this document, it is clear that defendant no.1 is owned by Fu Jin and because Fu Jin is a subsidiary company of defendant no.2, defendant no.2 is the beneficial owner. However, the situation which emerges on perusal of the ship overview of defendant no.1 as of 30th March, 2010 gives different picture. It clearly indicates that Fu Jin is the registered owner of defendant no.1 and the group owner is Huali. Learned Senior Counsel for defendant no.1 was right in pointing out to the Court that if the plaintiffs would have seen ship overview of defendant no.1 as of 30th March, 2010, surely, the plaintiffs could not have stated in the plaint that defendant no.1 is owned by defendant no.2 as the beneficial owner because defendant no.2 had lost its connection with defendant no.1 on account of transfer of Fu Jin from the hands of defendant no.2 in the hands of Huali. In the affidavit in reply, it is stated by the plaintiffs that defendant no.2 has transferred its share holding in Fu Jin to Huali between 5th December 2008 to 5th June, 2009. If this be so, a : 12 : joint reading of this averment in the affidavit in reply coupled with the ship overview of defendant no.1 which is annexed by defendant no.1 in the rejoinder, it is clear that on the date of institution of the suit i.e. on or about 19th March, 2008, defendant no.2 had lost its connection with defendant no.1. 12. In view of the aforesaid observation, I hold that on the date of institution of suit and on the date when the order of arrest came to be passed i.e. on 19th March, 2010, defendant no.2 cannot be termed as a beneficial owner. Once this finding is recorded, of course, prima facie the stand of the plaintiffs that for the purposes of recovering its dues against defendant no.2, it would seek arrest of defendant no.1, cannot sustain. It is in this circumstance, I am inclined to observe that defendant no.1 has been able to make out prima facie case in their favour for the purposes of setting aside the order which was passed on 19th March, 2010. 13. It must be mentioned that while arriving at the aforesaid observation, I have considered the submmission which came to be : 13 : advanced by Counsel for the plaintiffs as regards various arrangements between Fu Jin, defendant no.2, Pacific King and Huali. This argument advanced by the Counsel for the plaintiffs cannot be accepted because the Court will have to give weightage to the material, which is placed before the Court. The argument of the Counsel for the plaintiff that transfer of share holding of Fu Jin in favour of Huali was an arrangement by way of book arrangement can be decided at the time of giving evidence. An order of arrest is required to be made by the Court on the basis of material placed before it at the time of lodgment of the plaint. For the reasons aforesaid, following order is passed to dispose of the notice of motion. ORDER (i) Order arresting defendant no.1 dated 19th March, 2010 is set aside. Defendant no.1 is hereby released. Liberty is granted to defendant no.1 to take out appropriate proceedings in the nature of counter-claim or other proceedings to press their claim in terms of US$ as set out in prayer clause (b). In the facts and circumstances of the case, there shall be no order as : 14 : to costs. (ii) Learned Senior Counsel for defendant no.1 upon instructions makes a statement that search is taken in the caveat warrant book against release and no caveat is filed so far as defendant no.1 is concerned as of today. Statement made by the Senior Counsel is accepted. (iii) As per the request of learned Senior Counsel appearing on behalf of defendant no.1 the instrument of release as well as Prothonotary Certificate is dispensed with. (iv) All authorities to act on the basis of authenticated copy of this order duly authenticated by the Associate of this Court. (v) Liberty is given to defendant no.1 to communicate this order by fax or e-mail to all concerned authorities. (vi) The Stenographer to transcribe the operative part of order and and thereafter as early as possible transcribe the full order in the notice of motion. (R.Y.GANOO, J.)