1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY O. O. C. J. ARBITRATION PETITION NO.113 OF 2008 Kasturi Commodities Pvt. Ltd. ...Petitioner. Vs. MSTC Limited & Anr. ...Respondent. .... Mr.Virag Tulzapurkar, Senior Advocate for the Petitioner. Mr. S.U. Kamdar with Mr. for the Respondent No. Mr. Rajiv Chavan for Respondent No. ..... CORAM :DR.D.Y.CHANDRACHUD, J. March 5, 2008. P.C.: These proceedings have been instituted under Section 9 of the Arbitration and Conciliation Act, 1996. The relief that has been sought is that pending the hearing and final disposal of the arbitral reference: (i) The Court Receiver be appointed as Receiver of the Naval Vessel “Shakti”; (ii) An order of injunction be issued restraining the Respondents from conducting an auction of the vessel on 19th February 2008; and (iii) The Respondents be injuncted from shifting the vessel from the Naval Dock at Mumbai to any other place of anchorage. 2 2. An e-auction was notified by the First Respondent, which is a Government of India Undertaking, of the Naval Vessel, m.v. Shakti which was de-commissioned. On 30th November 2007, the Petitioner submitted a bid in the amount of Rs.15,00,11,101/-. On 30th November 2007, a sale intimation letter was issued by the First Respondent to the Petitioner to the effect that the auction has been approved by the seller and calling upon the Petitioner to deposit an amount approximately of Rs.3 crores within a period of seven days towards the Security Deposit. On 16th January 2008, the Petitioner was called upon to extend the validity of its offer on the ground that the bid was subject to approval, which was still to be finalised. On 19th February 2008, a second auction for the sale of the same vessel was scheduled to which the Petitioner objected on the ground that the sale in favour of the Petitioner had been concluded. By a letter dated 31st January 2008, the First Respondent forwarded a cheque refunding the amount paid by the Petitioner. The petition has been instituted accordingly under Section 9 of the Arbitration and Conciliation Act, 1996, there being a provision for arbitration in clause 3 18 of the conditions governing the auction. 3. The principal issue which has fallen for the determination of this Court in these proceedings is whether there was, as a matter of fact, a concluded sale in favour of the Petitioner. The case of the Petitioner is that its bid at the e-auction was the highest bid which was accepted under the sale intimation letter which was posted by e-mail on 30th November 2007 which was the date of the auction. In these circumstances, the contention of the Petitioner is that the Respondents are precluded from conducting a fresh auction of the vessel. 4. On 18th February 2008, this Court was informed, that the auction which was to take place afresh, was to be on a “subject to approval basis” and that consequently, pending further orders on the Petition, the auction sale would not be confirmed. The Petitioner, it was clarified, would be at liberty, without prejudice to its rights and contentions in the petition, to submit a bid at the auction. The Court has now been informed on affidavit that at the fresh auction that was 4 held by the First Respondent, the highest bid which has been realised is in the amount of Rs. 17.99 crores. The Petitioner participated in the fresh auction, albeit without prejudice to its rights and contentions in the petition. 5. The conditions which governed the auction inter alia consisted of: (i) Special Terms and Conditions; (ii) General Terms and Conditions; and (iii) Buyer Specific Terms and Conditions. The Special Terms and Conditions were to prevail in the event of inconsistencies between those terms and the General Conditions or, for that matter, over the Buyer Specific Terms and Conditions. Clause (B) of the Special Terms and Conditions provided as follows: “(B) The ship will not be declared “sold” on final bidding but declared “STA” During auction irrespective of RP comparison.” STA is an abbreviation for 'Subject to Approval'. The auction of the vessel was hence subject to approval. 6. The Petitioner has, however, sought to place reliance on 5 clause 6.1 of the Special Terms and Conditions which was to the following effect : “6.1 All sales will be subject to Reserve Price (RP) fixed by the PRINCIPAL. The PRINCIPAL also has the option to fix a lower limit of the RP for an individual Lot. After closing of eAuction, in case the Highest Bid is equal to or more than the RP, the respective Lot will be deemed to be “Sold” on CONFIRMED basis, whereas if the Highest Bid is less than the RP but equal to or more than the lower limit of the RP, then such Highest Bid will be deemed to be Provisionally Sold on “SUBJECT TO APPROVAL” (STA) basis for which final approval or otherwise will be intimated after receipt of the prescribed Post-Bid EMD/SD from such Bidder within the due time. 6.2) It will be the Bidder's responsibility to personally see the result of eAuction by seeing and downloading the “Auction Lot Status” from the Website immediately after Closing of eAuction which will be displayed upto 7 (seven) days from the date of Closing of eAuction (excluding the date of closing of eAuction). The “Auction Lot Status” will show whether any Lot has been won by the Bidder on Confirmed or STA Basis.” Before this Court, it is common ground that both Condition B, as well as clause 6.1 are part of the Special Terms and Conditions of Contract. Now, a comparison of Condition B on the one hand, and clause 6.1 on the other, would show that the former specifically deals with the sale of a shipping vessel. On the other hand, clause 6.1 though a part of the Special Conditions is to govern all sales in 6 general. Condition B was introduced as a part of the auction terms and conditions specifically on the directions of the Material Superintendent of the Material Organization at Mumbai. The communication of the Material Superintendent of the First Respondent expressly includes certain terms and conditions to govern the sale of the vessel m.v. Shakti and one of the conditions is that the ship will not be declared as sold on final bidding, but it would be declared as subject to approval during the auction irrespective of a comparison of the reserve price. 7. A harmonious reading of Condition B of the Special Conditions on the one hand, and clause 6.1 on the other, is necessary. So construed, Condition B was a condition which was specifically applicable to the auction of a shipping vessel which was to take place on the present occasion. The condition postulated that irrespective of a comparison with the reserve price, the ship would not be declared to be sold merely on the final bidding, but the sale would be declared as being subject to approval. Clause 6.1 is a general condition. Clause 6.1 on the other hand provides that all sales are 7 subject to a reserve price fixed by the principal. The principal would have an option to fix a lower limit of the reserve price for an individual lot. In the event that the highest bid was equal to or more than the reserve price, the lot would be deemed to be sold on a confirmation basis. On the other hand, if the highest bid is less than the reserve price, but equal to or more than the limit of the lower price, then such a bid would be deemed to be provisionally sold subject to approval. Clause 6.1 which is a general provision would have no application to the auction which took place in the present case. The terms and conditions governing the auction demonstrate that the specific provision which governs the auction of a shipping vessel is Condition B under which the sale was to be subject to approval. It may also be noted that reliance has been placed during the course of the hearing on clauses 4.0 and 4.1 of the Buyer Specific Terms and Conditions. However, Clauses 4 and 4.1 of the Buyer Specific Terms and Conditions must yield to the Special Terms and Conditions and Condition B of the Special Terms and Conditions as already noted above will prevail. 8 8. Before the approval could be granted, it came to light that contrary to the extant instructions issued by the Government of India in the Ministry of Defence, a representative from the Finance Wing, namely, the Controller of Defence Accounts was not a part of the Committee of Finance which was required to fix the reserve price for the disposal of the vessel. In the affidavit in reply filed by Commodore Sunil Thakur, Material Superintendent, it has been stated that the Financial Advisor of the Western Naval Command pointed out the procedural lapse following which it was decided to call off the earlier e-auction. The reserve price at the earlier auction which was held on 30th November 2007 was Rs.11 crores. The fresh reserve price was higher than the earlier reserve price fixed and a fresh auction thereupon took place on 19th February 2008. As already noted earlier, the fresh auction has resulted in a highest bid of Rs. 17.99 crores which was nearly Rs.3 crores higher than the bid submitted by the Petitioner at the earlier auction. 9. In this background of the matter, it cannot for the purposes of these proceedings, be held that there was a concluded contract in 9 favour of the Petitioner. An interim measure of protection appointing a Receiver, or restraining the Respondents from auctioning the vessel and injuncting the Respondents from moving the vessel from its presently berthed position cannot be granted. The Petitioner has participated in the fresh auction albeit without prejudice to the rights and contentions in the Petition. Prima facie there was no concluded contract in favour of the Petitioner that would justify the grant of an injunction or an interim measure of protection, restraining the Respondents from re-auctioning the vessel. 10. On behalf of the Respondents, it has been urged that the ship was purchased for the purposes of ship breaking, and the presumption under Explanation (ii) to Section 10 of the Specific Relief Act, 1963 must apply. Hence, it was urged that in the case of a contract of transfer of movable property, it would only be appropriate and proper that the Petitioner be relegated to the remedy of a claim for damages. On the other hand, on behalf of the Petitioner, reliance has been placed on the averments in paragraph 4(6) of the Arbitration Petition in which it has been asserted that the vessel, being a Naval 10 Vessel, had a high percentage of metallic content and a strong metallic exterior and it has been urged that such vessels are scarcely available in the Indian Market. On the view which I have taken on the merits of the entitlement of the Petitioner, I am of the view that it is not necessary to ender a finding on this aspect of the matter. Prima facie, in the absence of a concluded contract with the Petitioner, the Respondent cannot be injuncted from disposing of the vessel. The continuance of a de-commissioned vessel at its present anchorage would not subserve the interests of justice. There is no merit in the petition. The Petition shall accordingly stand dismissed. 11. Counsel appearing on behalf of the Petitioner has sought the extension of the ad-interim order, restraining the Respondents from confirming the sale for a further period of two weeks. It has been stated in paragraph 6 of the Affidavit of the Second Respondent that the daily cost of working, maintenance, security etc. of the vessel is approximately is Rs.7 to 8 lakhs. The Petitioner is not ready and willing to furnish security for the expenses that may be incurred by the extension of the order of stay. In the circumstances, no stay can 11 be granted. Stay refused. ......