1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY ADMIRALTY AND VICE ADMIRALTY JURISDICTION ADMIRALTY SUIT NO. 30 OF 2002 Dallah Albaraka Investment Co. Ltd., .. Plaintiffs. vs. MT "SYMPHONY 1" ex. MT "ARABIAN LADY & Anr. .. Defendants. Mr. D.C. Gomes with V.K. Rambhadran i/by A. D’Souza for plaintiffs. Mr. S. Aole i/by India Law Alliance for Defendant No. 1. Mr. V.V. Sheth with R.A. Fernandes for Defendant No. 2. Mr. R. Narichania with Nirav Shah i/by DSK Legal for Defendant No.3. Mr. A.M. Vernekar with M. Khatri for Defendant No. 4. CORAM : S.U.KAMDAR, J. CORAM : S.U.KAMDAR, J. CORAM : S.U.KAMDAR, J. DATE : DATE : DATE : 18th July, 2005. ORAL JUDGMENT : . The present suit has been filed by the plaintiffs inter alia for the relief of declaration that there is a due and payable a sum of US $ 2 7,806,188.77 to the plaintiffs by a company known as Gulf Oil in accordance with the particulars of claim annexed as Exhibit "E" to the plaint. The plaintiffs have also sought a declaration that the Gulf Oil had failed and neglected and/or refused to pay the said sum or any part thereof. A further declaration is sought that the repayment of the said sum is duly secured by a valid and subsisting mortgage of the defendant vessel in favour of the plaintiffs and that the plaintiffs are entitled to enforce and/or crystalize the said security of the defendant vessel mortgaged to them by the arrest, condemnation and sale. The plaintiffs have also sought a declaration that they are entitled to obtain possession of the said vessel and retain possession thereof. By prayer clauses (b) and (c) of the said suit the plaintiffs have sought a mandatory order of injunction for delivery and possession of the said vessel until the full mortgaged debt is repaid. There are various other reliefs which are sought for by the plaintiffs in the present suit. By prayer (f) of the said suit, the plaintiffs have sought that the defendant vessel together with engine, machinery, boats, tackles, outfit, fuels, spares, appurtenances and stores, etc., be condemned and sold by and pursuant to the orders and directions of this Court and the net sale proceeds realised therefrom be paid over to the plaintiffs towards the dues of their claim. The 3 aforesaid reliefs are sought in the background of the facts which are briefly enumerated as under :- 2. The plaintiffs originally filed their suit only against the defendant vessel known as m.t. "SYMPHONY I" which was formerly known as ARABIAN LADY. The said vessel is flying the flag of St. Vincent and Grenadines and is registered at the port of Kingstown. According to the plaintiffs one Gulf Oil Co. WLL, incorporated under the United Arab Emirates laws were the owners of the said vessel at all points of time. It is the case of the plaintiffs that some time in or about February 2000 the said Gulf Oil were desirous of purchasing the said vessel and thus sought from the plaintiffs a loan of the sum of US$ 1.5 million to finance the acquisition of the defendant vessel. The plaintiffs accepted the said request and advanced the said loan amount of the sum of US$ 1.5 million. According to the plaintiffs, the said loan was governed by the agreement called ’Murabaha Facility Agreement" dated 10.2.2000 which was executed by the said company Gulf Oil. Under the said Murabaha Facility Agreement Gulf Oil executed a First Preferred Mortgage dated 8.7.2000, inter alia mortgaging the defendant vessel to the plaintiffs. Under the terms and conditions of the said agreement, the said vessel would remain as a security for due repayment of the said amount covered by the said Murabaha 4 Facility Agreement dated 10.2.2000. The mortgage of the said defendant vessel has been registered with St. Vincent and the Grenadines Registry and they have confirmed and certified the same. It is the further case of the plaintiffs that the plaintiffs have also granted to Gulf Oil an unsecured trade finance facility under another Murabaha Facility Agreement dated 22.10.1999 and according to the plaintiffs since the Gulf Oil did not make the necessary payment of the amount lent and advanced, they are indebted to the plaintiffs for the sum of US$ 5,421,550.94 under the said finance facilities. Under the Murabaha Facility agreement the defendants were indebted for the sum of US$ 1,445,052 and thus aggregate claim of the plaintiffs under the aforesaid two agreements is around US$ 6,866,602.94. 3. Sometime in or about March 2001, at the request of Gulf Oil the plaintiffs restructured the said loan facility of the sum of US$ 5 million. Subsequently the said Gulf Oil extended and/or enhanced the security of the said first preferred mortgage in respect of the defendant vessel for covering the said loan liability of the defendant payable to the plaintiffs. Thus, it is the claim of the plaintiffs that the said defendant vessel is duly mortgaged to the plaintiffs for repayment and discharge of the liabilities covered under the aforesaid two agreements. However, the said Gulf 5 Oil Company having failed to repay the said loan amount the plaintiffs become entitled to enforce the said mortgage. 4. It come to the knowledge of the plaintiffs that the defendant vessel was arrested by this Court on 21.6.2002 in an action preferred by Liverpool and London P&I Club for unpaid calls and even the crew of the said vessel arrested the ship for their unpaid wages and that Gulf Oil did not take any steps to release the said vessel. Accordingly, the said vessel was in the custody of this Court and the said Liverpool and London P&I Club took out an application for sale of the defendant vessel. The vessel was also arrested in the present suit and it is not in dispute before me that pursuant to the same, the said vessel has been sold by this Court and the sale proceeds thereof are deposited in this Court. The defendants nos. 2, 3 and 4 are other creditors who are also claiming the amounts due and payable against the said ship in their favour. Two of the defendants being defendant no. 2 and 3 are the decree holders whereas the defendant no. 4 has filed a suit for supply of necessaries and the said suit being Suit No. 35 of 2002 is also pending and has been tagged along with the present suit for hearing and final disposal. 6 5. In the written statement filed by the defendants excluding the defendant no.1 the two issues one pertaining to the jurisdiction of this Court to entertain and try the present suit as well as the maintainability of the present suit were raised and the said issues are accordingly framed. On merits according to the defendants there is no valid mortgage in favour of the plaintiffs and thus the plaintiffs are not entitled to the said sale proceeds. If the plaintiffs are able to establish a valid mortgage then of course they would have first right to the said sale proceeds over and above the rights of the defendant nos. 2, 3 and 4. Thus, the defendant nos. 2 to 4 had entered their appearance and they are added as parties to the present suit and they are seeking to defeat the claim of the plaintiffs herein. 6. On the aforesaid contentions of the parties, the following issues were framed.: 1. Whether the plaintiffs prove that Gulf Oil Co. WLL were/are the owners of the Defendant vessel at the material time? 2. Whether the plaintiffs prove that they advanced a sum of US$ 1.5 million or any part 7 thereof to Gulf Oil for acquisition of the Defendant vessel? 3. Whether the plaintiffs prove the execution, authenticity and the contents of the "Murabaha Facility Agreement", dated 10th February 2000? 4. Whether the plaintiffs prove the execution, authenticity and contents of the First Preferred Mortgage, dated 8th July 2000 and that the same was registered with the Registry of St. Vincent and The Granadines? 5. Whether the plaintiffs prove that they granted Gulf Oil an "Unsecured Trade Finance Facility" and that the terms thereof were recorded in a Murabaha Agreement, dated 22nd October 1999? 6. Whether the plaintiffs prove that they disbursed money to Gulf Oil from time to time, under the said Murabaha Agreement dated 22nd October 1999? 7. Whether the plaintiffs prove that Gulf Oil WLL were indebted to them in the sum of US$ 5,421,500.94, under the Term finance facility, as of 15th March 2001? 8 8. Whether the plaintiffs prove that Gulf Oil WLL were indebted to them in the sum of US$ 1,445,052.00 as of 15th March 2001, under the Murabaha Facility Agreement dated 10th February 2000? 9. Whether the plaintiffs prove that any portion of the sum of . US$ 6,866,602.94 was secured by the First Preferred Mortgage, dated 8th July 2002? 10. Whether the Plaintiffs prove that any part of the sum of US $ 6,866,602.94 related to the alleged Murahaba Agreement, dated 22nd October 1999? 11. Whether the Plaintiffs prove that Gulf Oil requested them to restructure the indebtedness to the extent of US$ 5 million? 12. Whether the Plaintiffs prove that Gulf Oil enhanced the security of the First Preferred Mortgage, over the Defendant vessel to cover an additional minimum sum of US$ 2.5 pursuant to such a request? 13. Whether the plaintiffs prove First and Second Preliminary Agreements, dated 30th March 2001 9 and 2nd April 2001 respectively? 14. Whether the plaintiffs prove the Deed of Mortgage dated 11th July 2001 and that the same has been duly registered with the Registry of St. Vincent and the Grenadines? 15. Whether the plaintiffs prove that subsequent Mortgage superceded the prior mortgage? 16. Whether the plaintiffs prove that Gulf Oil has not repaid the mortgage debt/any part thereof? 17. Whether the plaintiffs prove that there has been an "Event of Default" on the part of Gulf Oil W.L.L.? 18. Whether the plaintiffs prove the notice dated 25th August 2002 and that Gulf Oil has received the same? 19. Whether the plaintiffs prove that there is a sum of . US$ 7,806,188.77 payable by Gulf Oil to the Plaintiffs? 20. If the answer to question No. 19 is in the affirmative then, whether the Plaintiffs prove that the said sum (or any part thereof) 10 is secured by the mortgage of the Defendant vessel in their favour? 21. Whether this Court has the jurisdiction to adjudicate the Plaintiffs suit? 22. Whether the 2nd Defendants prove that the Plaintiffs have acted without vigilance or displayed laches in pursuing the present suit claim? 23. What orders? 24. What reliefs? Additional Issues. 1. Do the 3rd defendants prove that the agreement dated 22nd October 1999 had expired due to efflux of time and was therefore invalid, as averred by them in paragraph 1 (b) of the written statement? 2. Do the 3rd defendants prove that for reasons stated in paragraph 1(a) to 1(h) of their written statement the alleged agreements dated 22nd October 1999 and / or alleged agreement dated 10th February 1999 and / or alleged 1st preferred mortgage of the 1st 11 defendant vessel under mortgage deed dated 8th July 2000 and /or the alleged 2nd preferred mortgage under mortgage deed dated 11th July 2001 and / or alleged preliminary agreement dated 30th March 2001 and / or alleged preliminary agreement dated 2nd April 2001 were collusive and / or sham and / or invalid documents as averred in the said paragraph ? 3. Whether the 3rd defendants prove that the plaintiffs have filed the suit in collusion with "Gulf Oil", the owners of the 1st defendant vessel? 4. Do the defendants prove that de-registration of the 1st defendant vessel from the registry of St. Vincent and Grenadines has rendered the mortgage dated 8th July 2000 and 11th July 2001 ineffective and / or infructuous and / or unenforceable as alleged by them in paragraph 8 of the written statement ? 5. Whether the plaintiffs are entitled to take possession of the vessel as alleged by them in paragraph 21 of the plaint and denied by these defendants in paragraph 15 of the written statement ? 12 7. The matter was referred to the Commissioner for recording evidence and the Commissioner has in detail recorded the evidence of the parties and both the parties have filed various documents before the Commissioner. The Commissioner Mr. K.R. Khata made his report dated 15.12.2004 and filed the same in this Court. Before the Commissioner the plaintiffs led the evidence of one Mr. Neel Hokings. The said witness has produced various documents as the documentary evidence which has also been filed in this Court. 8. I decided to try the issues of jurisdiction and maintainability as preliminary issues and accordingly I have heard the parties on the aforesaid two issues of jurisdiction and maintainability of the suit. 9. The learned counsel appearing for the defendants nos. 2 to 4 inter alia contended before me that this Court has no jurisdiction to entertain and try the present suit. In support of their contention they have relied upon the provisions of Section 11 of the Admiralty Court Act, 1961. The said Section 11 reads as under :- "11. 3 & 4 Vict c 65, in regard to mortgages extended to Court of Admiralty The 13 High Court of Admiralty shall have jurisdiction over any claim in respect of any mortgage duly registered according to the provisions of the Merchant Shipping Act, 1854, whether the ship or the proceeds thereof be under arrest of the said court or not." It has been contended that for the purpose of this Court having jurisdiction to try the claim of mortgage in respect of any vessel the said mortgage has to be duly registered according to the provisions of the Merchant Shipping Act, 1854 and now the said Merchant Shipping Act, 1854 has since been replaced by the provisions of the Merchant Shipping Act, 1958. It has been contended that unless mortgage of the said vessel is duly registered under the provisions of the Merchant Shipping Act, 1958, this Court cannot entertain any suit for enforcement of the mortgage of any vessel in the exercise of jurisdiction conferred on this Court under the provisions of the Admiralty Court Act, 1961. It has also been pointed out to me by the learned counsel for defendant nos. 2 to 4 that admittedly the vessel is not registered under the provisions of the Merchant Shipping Act, 1958 but the mortgage of the vessel is registered in the St. Vincent and The Grenadines Registry. Thus, it has been submitted that this Court has no jurisdiction 14 to entertain and try the present suit and thus the suit should be dismissed for want of jurisdiction. The learned counsel appearing for defendant nos. 2 to 4 relied upon a judgment of the learned Single Judge of this Court in the case of Dimitrios Paizis and others v. Motor Vessel "Nicos" and others, reported in AIR 1983 BOMBAY 178. By relying upon the aforesaid judgment, the learned counsel for defendant nos. 2 to 4 has contended that this Court would have jurisdiction only if either the said foreign vessel is registered under the provisions of the Merchant Shipping Act, 1958 or if the accredited representative of the foreign State has intervened and consented to the exercise of such jurisdiction or in an event if the parties consented to exercise of such jurisdiction. In the absence of any of the aforesaid conditions precedent having been complied with, this Court would not have jurisdiction in respect of the enforcement of a mortgage which mortgage is registered under the foreign law in the foreign State and not under the provisions of the Merchant Shipping Act, 1958. The learned counsel appearing for the defendant nos. 2 to 4 has drawn my attention to paragraphs 17, 18, 24, 25 and 26 of the said judgment which are reproduced hereinunder:- "17. Coming to the Admiralty Courts Act, 1861, which came into operation on June 1, 1861, S. 11 thereof provided that the "High 15 Court of Admiralty shall have jurisdiction over any claim in respect of any mortgage duly registered according to the provisions of "The Merchant Shipping Act, 1854,’ whether the Ship or the Proceeds thereof be under the Arrest of the said Court or not". As is manifest from the preamble of that Act, it was enacted to, "extend the Jurisdiction and improve the Practice of the High Court of admiralty". The underlining is mine in order to emphasise that the 1961 Act did not and was not intended to repeal, circumvent or circumscribe the provisions of the earlier 1840 Act, but rather to extend the jurisdiction conferred by that Act. This is unmistakably brought to the forefront in the "Tables Showing The Effect of Year’s Legislation" at the commencement of Law Reports Status 24 and 25 Vict, 1861, the relevant excerpt whereof is as under.-- ------------------------------------------- "24 Vict. Effect Act Subject to Act and 24 & Affected affected 25 Vict. ------------------------------------------ x x x x x x x x x x x x x x x x S.11 Extends 8 & 4 Vict. Admiralty C. 65 Court Jurisdiction x x x x x x x x x x x x" -------------------------------------------- 16 As also observed in Williams & Bruce Admiralty Practice, 1902, at page 45 -- "This jurisdiction is in addition to the jurisdiction already existing under the Act of 1840." Closer home, it was observed in Kamalakar v. Scindia Steam Navigation Co. (1961) 62 Bom LR 995, (1005): (AIR 1961 Bom 186 at pp. 192-93), that the 1961 Act is complementary to the 1840 Act. It is also not without its own significance that while S. 31 of the 1861 Act expressly repealed Act No. 2 HEN-4C-11, the Act of 1840 was not repealed but on the contrary extended and improved by the later 1861 Act. "18. The law administered by the Admiralty Court is not the ordinary municipal law of England but is the law which by Act of Parliament, or reiterated decisions, traditions and principles has become the English Maritime Law. (The Gaetano and Maria, (1882) 7 PD 137 and Scindia Steam Navigation Co. (AIR 1961 Bom 186) (supra). There can be no doubt that by virtue of the reiterated principles and decisions (to wit, "The See Reuter" (1811-165 ER 1219) and "The 17 Evangelistria" (1876-2 PD 241) (supra), English Maritime Law confers on the Admiralty Court jurisdiction in questions of mortgage of foreign ships arising between foreigners if the case had been referred to its jurisdiction either by consent of parties or by the intervention of the accredited representative of the foreign State concerned. There is also no doubt that the jurisdiction under the 1840 Act, was extended by the 1861 Act. "24. The reliance placed by Mr. Meghani on an observation in Neptune (1834) 3 Hag Adm. 129, (132), that the Admiralty Court has no jurisdiction on questions of mortgage, is misplaced. The observation must be read in context with the facts of that case and the circumstances in which it was made and not in its isolation. That was not a case of a mortgagee enforcing anything but was a case where a merchantman claimed priority in lien over the sale proceeds of a ship as against a person who claimed to be a mortgagee in possession; and the Court actually considered the priorities between the mortgagee and the merchantman. Similarly misplaced is the reliance placed by Mr. Meghani on the decision in Sebra M Bogat v. 18 The Steamboat John Jay, (1854-57) 15 Law ed 2d 95, where it was held that the Court of Admiralty has no jurisdiction to decree the sale of a ship for unpaid mortgage. That decision was based upon the Neptune decision (supra) which in turn had no relevance to the facts of the present case. 25. Reliance was also placed by Mr. Meghani on State of Kerala v. Cochin Chemical Refineries, AIR 1968 SC 1361, where it was held that failure of a mortgagee to advance money undertaken by him does not invalidate the mortgage transaction. Mr. Meghani also relied on a passage from Salmond on Jurisprudence, 12th Edn. at page 115 that -- "The right vested in a mortgagee has an independent existence. It will, or may, remain outstanding in the mortgagee even after the extinction of the debt. When thus left outstanding it must be re-transferred or surrendered to the mortgagor and the right of the mortgagor to this re-assignment or surrender is called his right or equity of redemption. The existence of such an equity of redemption is therefore the test of a mortgage." I have alluded to these references for what they are worth. Further comment is unnecessary. 19 "26. Thus the position that emerges is that the jurisdiction of this Court is stabilised as it existed at the time of the passing of the 1890 Act and that this Court exercises the same jurisdiction in Admiralty as was done by the High Court of Admiralty in England in 1890 either "under any statute or otherwise". Thus the non-ratification by India of the Brussels conventions relied on by Mr. Meghani is of no consequence. There can be no doubt that having regard to the Colonial Courts of Admiralty Act 1890 and the India Admiralty Act 1891, the High Court of Judicature at Bombay will have jurisdiction to entertain claims, questions or suits relating to a mortgage of a foreign ship and arising between foreigners, either if the accredited representative of the foreign State has intervened and consented to the exercise of such jurisdiction or if the parties consented to such exercise of jurisdiction, as done in the present case by Cl. 16B of the Mortgage Deed." By relying upon the aforesaid paragraphs it has been contended that the Admiralty Court will have jurisdiction only upto the Admiralty Act of 1890 and by the said Act has stabilised the jurisdiction of 20 this Court as it existed in England of the Supreme Court of Judicature in England as prevailing in 1890 and subsequent statutes which have been introduced in England cannot be taken into consideration. According to the learned counsel for the defendant nos. 2 to 4 under section 11 of the Admiralty Court Act, 1861 there has to be a registration of the mortgage of the ship under the Merchant Shipping Act, 1958. The provisions of the Merchant Shipping Act, 1958 apply only to the Indian vessels and have no application to the mortgages registered abroad or to foreign vessels and thus according to the learned counsel for defendant nos. 2 to 4 this Court would have no jurisdiction to entertain and try the present suit. It has been thus contended that this Court ought not to exercise jurisdiction and pass any decree in the present suit and the suit should be dismissed. 10. The learned counsel for the plaintiffs has on the other hand invited my attention to the judgment of the Apex Court in the case of M.V. Elisabeth and others. v. Harwan Investment & Trading Co. and another, reported in AIR 1993 SC 1014 and it has been contended that the view taken by the learned Single Judge of this Court is no more a good law. It has been contended that the Apex Court in the aforesaid judgment has held that such a narrow construction ought not to be granted to the 21 provisions of Section 11 of the Admiralty Court Act, 1861. It has been further contended that the Apex Court has held that even subsequent enactments right upto the Supreme Court of Judicature (Consolidation) Act, 1925 are applicable and the jurisdiction of the High Court under the Admiralty Court Act, 1861