IN THE HIGH COURT OF DELHI AT NEW DELHI % Date of decision : December 5th , 2007 OMP No. 235 of 2003 # MMTC Ltd ......... Petitioner ! Through: Mr.Naveen Kumar, Advocates Vs. $ M/s.Irano Hind Shipping Co. .......... Defendant ^ Through : Mr.Siddharth Mridul,Sr.Advocate with Mr.Manoj Khanna, Advocate. CORAM :- * HON'BLE MR. JUSTICE ANIL KUMAR 1. Whether reporters of Local papers may be allowed YES to see the judgment? 2. To be referred to the reporter or not ? YES 3. Whether the judgment should be reported YES in the Digest? ANIL KUMAR, J. (Oral) 1. This is a petition under section 34 of the Arbitration and Conciliation Act, 1996 for setting aside the arbitral award dated 15 th November, 2002 passed by a majority of arbitrators, Mr. P.M. Abraham and Mr.N. Sukumaran, in the matter of disputes relating to M.V. Dehkhoda-Charter Party dated 17 th May, 1995. OMP No. 235 of 2003 Page 1 of 26 2. The petitioner is a Government Company engaged in the business of import and export of several commodities. The respondent is a company incorporated under the laws of Iran and is in the business as carriers by sea. 3. The brief facts of the case are that the petitioner entered into a contract no. 10/1995 with the Ministry of Food, Government of Bangladesh for export of 50,000 MT of non-Basmati Rice. With a view to fulfill its contractual obligations, the petitioner entered into a charter party agreement dated 17 th May, 1995 with the respondent who leased out MV vessel, Dehkhoda for carriage of 12,300 MT of bagged rice from ½ safe berths, safe Anchorages Madras to ½ safe berths, safe Anchorages Chittagong and /or Mongla. 4. As per the petitioner the MV Dehkhoda arrived at the Madras port on 20 th May 1995 and on completion of loading of the cargo at the Madras port on 7.6.1995 the vessel MV Dehkhoda proceeded to the first discharge port at Chittagong in Bangladesh where it arrived and after the cargo was discharged on 28.6.1995 the vessel proceeded to the last and final discharge port Mongla where the discharge was completed on 20.7.1995. OMP No. 235 of 2003 Page 2 of 26 5. As per the respondents since the vessel utilized 12 days, 19 hrs and 40 min in excess allowable lay time, the respondents had earned a demurrage of US$57,690/- and after giving credit to the petitioner herein for commission on freight, dispatch at the load port, brokerage on commission, the amount due and payable by the petitioner to the respondent was a sum of US $92,440.51 which was claimed by the respondent from the petitioner. 6. A certificate report dated 9 th August 1995 was issued by the SGS limited which inspected the cargo on board. Thereafter the ministry of Food, Government of Peoples Republic of Bangladesh, made a provisional claims of US$1,92,699.78 on account of shortage of consignment of 727.169 MT bagged rice including 12.822 MT damaged and 303.278 MT beyond specification. It was also contended that the final claim will be preferred by the Ministry of Food as per the contract. 7. Thereafter the respondents vide letter dated 25.10.1995 addressed to M/s J.M. Baxi and Co., respondents local agents, requested the petitioner to remit an amount of US $92,440.51. The respondents also sent along with the letter, the statement of account, OMP No. 235 of 2003 Page 3 of 26 lay time calculation and receipt of 90% freight. The petitioner intimated the respondents that the vessel had delivered 412.410 MT less cargo than the bills of lading quantity and intimated that 12.822 MT was received in a damaged conditions at Chittagong and the Mongal Ports. A fax message dated 20 th September, 1996 was sent to the respondents’ local agents conveying that a sum of US$49,022.20 was processed and sent to F&A department for release of payment, however the same was provisional in nature. 8. An explanation was thereafter sought by the respondents towards reduction in the amount claimed (US$92440.51) and the amount authorized for remittance (US$49022.20) to which the petitioner replied explaining that the main difference was because the lay time was calculated from 20 th June, 1996 in accordance with the remarks at port and not from 12.6.1995 as calculated by the owners and that the total over-age premium deducted was US$8594.86. Thereafter the respondents sent a notice dated 2.5.1998 claiming the principal amount of US$92400.51 along with interest accrued therein at the rate of 24% per annum amounting to US$55,554.96 which became due to the respondents 90 days from the date of completion of discharge of cargo i.e. 22 nd July 1995 to 31 st October 1995 . OMP No. 235 of 2003 Page 4 of 26 9. On account of failure on the part of the petitioner in remitting the payment in terms of the charter party agreement, a reference was made to arbitration under clause 37 of the Charter party and a claim of US$ 147995.47 being the principal amount and interest @ 24% per annum was submitted before the arbitrator. The petitioner denied the statement of claims filed by the respondent and relying upon clause 8 and 35 of the Charter party agreement stated that the respondents should have exercised lien on cargo in respect of its claim for demurrage, instead the respondents opted to keep quite. The petitioner further during the proceeding before the arbitrator filed a counter claim on 12.1.2000. 10. The claims of the claimants/respondents and the counter claims of the petitioners were as under:- “A. Claims of the claimants/respondent:- US$ i) Balance 10% freight: 37,026.38 ii) Add Demmurage at the dispatch ports: 57,690.00 Less 3.75% commission on demurrage: 2,163.37 55,526.63 Less Despatch at the load port: 112.50 922,440.51 B. Counter Claims of the petitioner:- US$ i) Short delivery and delivery of damaged. 1,11,410.78 cargo to receivers OMP No. 235 of 2003 Page 5 of 26 ii) Dispatch at load port: 276.56 iii) Dispatch at discharge port: 7,945.83 v) Over Age Insurance Premium (OAP): 8,594.86 v) Gear hire charges: 793.55 1,29,021.58 11. The learned arbitrators after considering the Charter party agreement and other relevant factor passed an arbitral award on 15 th November, 2002 which is as under :- “To sum up the respondents shall pay the following claims to the claimants:- Balance 10% freight after adjustment of dispatch at load port and demurrage at discharge port. US$ 58,074.42 Less; 10% value of damaged cargo of 12.822MT US$ 1,679.68 US$ 56,394.74 12. The aforesaid award passed by the learned arbitrator is under challenge by means of a present petition on the grounds that the same is against public policy and is erroneous and that the same was based on assumptions and surmises. The petitioner contended that since the respondents did not make any attempt to exercise its lien, the same resulted in forfeiture of its right to claim demurrage from the petitioner thereby discharging the petitioner of any liability for demurrage. The petitioner further asserted that there was no bar on the exercise of lien by the respondent and that clause 35 of the OMP No. 235 of 2003 Page 6 of 26 charter party provided complete protection and that the petitioner cannot be saddled with any liability arising from the negligence of the respondents. 13. The Petitioner has mainly challenged the majority maritime award dated 15th November, 2002 made by Mr.P.M. Abraham and Mr.N. Sukumaran contending that the award is contrary to the public policy of India as contemplated in ONGC Vs. Saw Pipe Limited, Civil Appeal no.7419 of 2001 decided by the Apex Court by order dated 17th April, 2003 on the ground that the award is in violation of statutory provisions and cannot be said to be in public interest and consequently the award is likely to adversely affect the administration of justice. According to the petitioner, clause 38 of the Charter Party clearly required the Tribunal to confine itself to the Charter Party Contract entered into between the parties. The plea of the petitioner is that perusal of the relevant clauses 8, 35 and 41(b) of the Agreement, it is apparent that there was no bar on the exercise of lien by the respondent. In any case, it is contended that exercise of lien was not impossible and therefore as the respondent did not exercise its lien, it lost its right to claim the demurrage and the balance freight from the petitioner. Learned counsel for the petitioner has very emphatically contended that clause 35 fully protects the petitioner OMP No. 235 of 2003 Page 7 of 26 from liability as there was no local law or practice in Bangladesh by which lien could not be exercised by the respondent. The petitioner has contended that the majority award is liable to be set aside as it is contrary and in breach of Charter Party Contract and on account of breach committed by the respondent in not exercising its lien over the goods, the petitioner cannot be saddled with any liability arising from the negligence of the respondent in the facts and circumstances. 14. The petition is contested by the respondent contending that in terms of clause 8 of Charter Party though respondent had a lien on the cargo for freight, dead freight, demurrage and the petitioner was responsible for the demurrage only to the extent, the claimant/respondent was unable to obtain the payment of demurrage from the foreign buyer by exercising lien over the cargo. Relying on clause 41 B of the Charter Party, it was contended that balance 10% freight together with demurrage had become payable by Charters/petitioner only within 90 days of completion of discharge. Therefore, the lien could be exercised by the respondent only when money became due, as the demurrage was not payable until the expiry of 90 days after discharge and in these circumstances the claimant/respondent could not lawfully and in accordance with Charter Party Terms exercise lien on the cargo at a discharge port. OMP No. 235 of 2003 Page 8 of 26 It is also contended that the Arbitrators were apprised of the legal and practical difficulties at the port of discharge due to which lien could not be legally and practically exercise as the lien clause was not incorporated in the bills of lading number 1/1 and 1/2 dated 31st May, 1995. Therefore, against the receiver of the goods, the claimant/respondent was never in position to assert the lien in order to recover the balance of freight and demurrage at the discharged ports. Relying on clause 41 (B) it is contended that since the respondents could not exercise lien on the cargo for balance freight and demurrage at the discharge port, therefore, the petitioner is liable for the same. Inability and impossibility to exercise the lien was also contended on the ground that the bills of lading had been marked as `freight pre paid’ and as per settled law once “freight pre paid” bills of lading were issued, no lien could be exercised for balance freight over the cargo of an innocent third party and even Bangladesh law does not provide for lien on the cargo of receiver nor such a lien could be exercised where the bills of lading were marked “freight pre paid”. Factually also, it is contended that there was no storage facility at the discharge port and therefore, it was impossible and impracticable to exercise lien at the discharge port and in the circumstances right of lien was not effective as the receiver was the Government of Bangladesh and the owner of cargo certainly would not have OMP No. 235 of 2003 Page 9 of 26 permitted the cargo to be liened. 15. Perusal of the majority award reflects that the arbitrator has considered the respective pleas of the parties specially clause 8, clause 26, clause 35 and clause 41 which are reproduced hereinafter: “Cl.8: Lien Clause Owners shall have a lien on the cargo for freight, deadfreight, dumrrage. Charters shall remain responsible for deadfreight and demurrage incurred at port of loading. Charterers shall also remain responsible for freight and demurrage incurred at port of discharge, but only to such extent as the Owners have been unable to obtain payment thereof by exercising the lien on the cargo”. Cl.26: At discharge Port(s) Notice of Readiness to be tendered and accepted after obtaining fee pratique, plant inspection, fumigation, if required, and after vessel's entrance into berth. If docking is prevented due to berth being occupied. Notice of Readiness to be tendered by cable after free pratique, plant inspection and fumigation, if required. Fumigation and plant inspection if required, to be to Charterers and Receivers time and expense. Notice of Readiness to be tendered and accepted at office of Receivers at or before 4 P.M. Or before 1200 noon if Thursday and lay time shall count 24 hours thereafter.” Cl.35: All liability of Charterers shall cease on completion of loading, owners having lien on cargo for freight, dead freight and demurrage.” Cl.41: OMP No. 235 of 2003 Page 10 of 26 (A) Freight is payable in U.S. Dollars at London (U.K) by telegraphic transfer to:- Freight payable to : Freight to be remitted to US$ A/C No. 105551-102, at State Bank of India, 1 Milk Street, London EC2P 2JP, Beneficiary: Irano-Hind Shipping Co., TEHRAN” (B) 90% of the freight payable within (7) working days of submission of freight bill, in triplicate, by the Indian broker on behalf of Owners to Charterers. The balance 10% of the freight together with demurrage (if any) or less despatch (if any) is payable by Charterers within 90 (Ninety) days of completion of discharge on production of (i) copy of Charter party (ii) copy of Bills of Lading (iii) receipt for payment of dispatchers fee at the loading port (s) (if applicable).” 16. The majority award has interpreted the implication of clauses, 8, 26, 35 and 41. The plea of the petitioner that clauses 8, 26 and 35 exonerates them from paying the demurrage at the discharged port was considered as also the plea of the respondent that it was impracticable and impossible to exercise lien on the cargo giving the environment in which they were placed. The relevant clause of majority award in respect of impracticability and impossibility of exercise of the lien by the respondent being paras 10.2 to 10.7 are reproduced hereinafter: OMP No. 235 of 2003 Page 11 of 26 “10.2 We have carefully considered the arguments advanced by both parties and the various documents including court decisions cited by the parties in support of their respective stands. The CP/P terms have to be viewed and interpreted as a single cohesive document and any seeming inconsistency between specific Clauses have to be viewed in the above context. Apparently Clause 8 gives a lien for the claimant on the cargo for demurrage at the discharge port with the Charters remaining responsible only to such extent, as the owners have been unable to obtain payment thereof by exercising lien on cargo. According to Clause 35, all liability of Charters shall cease on completion of loading; owners having lien on cargo for freight, deadfreight and demurrage. At the same time as per Clause 41B, 10% balance freight together with demurrage, if any, is payable by Charterers within 90 days of completion of discharge on production of certain specified documents. This naturally raises a question as to the point of time at which the Claimant would have to exercise their right of lien under Clause 8. It seems quite obvious from Clause 41B that the 10% balance freight and demurrage is payable within 90 days of completion of discharge and that too on production of certain specified documents. When the Respondents in this case under the charter party have upto 90 days from completion of discharge to pay the 10% balance freight and demurrage, it would seem to be an impossibility for Claimants to exercise his right of lien which can best be done when the cargo was still in his possession and control. It is obviously not realistic to expect the Claimants or anyone similarly placed to anticipate a default on the part of Respondents to pay the 10% balance freight and demurrage and exercise lien and withhold the release of the cargo either prior to or during or even immediately on completion discharge. 10.3 We have also considered the question whether the Claimants could have reasonably exercised OMP No. 235 of 2003 Page 12 of 26 his lien on the cargo under the facts and circumstances of this case. The lien Clause has been the object of scrutiny and analysis in a number of judicial pronouncements and what stands out from these is that it is not sufficient to merely give a right of lien to Claimants but that right has to be an effective one. In the “SINOE” (Lloyd's Law Reports, 1972 Volume I) Lord Denning pronounced that “It seems to me that once it is accepted that the two parts of the Clause are coextensive, then it is sensible to require that the lien should be an effective lien. It is no use for the shipowner to be given a right of lien unless he can exercise it so as to get the money due to him ........ So I would hold the lien for demurrage must be effective at the time of discharge of cargo-unless it is so, the Charterers are not relieved of their liability” (Page 204-205). If the case of Respondents is, as in this case, that the Claimant had a practicable and effective right to exercise lien on the cargo then it is for the Respondents to establish that it is in fact so. After analysing various judgments having bearing on this subject, M/s.Julian Coke, John Kimball, Timuthy Young, David Martowski, Andrew Young and Leray Lambert in their book “Voyage Charters” (Lloyd's of London Press, 1993) have concluded as follows “As the law is clearly that the cessation of liability is coextensive with the creation of an effective lien, the charterers ought to establish that there is a lien and that it is effective in order for their liability to cease.” (Page 342). In this case the Respondent has not even attempted to establish that the Claimants have an effective lien under the facts and circumstances of this case. 10.4: It is also clear that it would have been impracticable for the Claimants to exercise the lien. It may be recalled that the Claimants' cause of action is in respect of 10% balance freight and demurrage at the two discharge ports. The partial discharge was completed at Chittagong on 28.06.1995 and the balance at Mongla on OMP No. 235 of 2003 Page 13 of 26 20.7.1995, where the demurrage claims had arisen. Under Clause 41 B of C/P the Respondents are required to settle the balance freight and demurrage claim within 90 days from the date of completion of discharge i.e within 90 days after 20th July, 1995. The Respondents have been claiming till their revised laytime statement was given to the Arbitration Tribunal on 16.11.2001 that instead of demurrage payable to the Claimants, despatch is owed to them by the Claimants. When the fact of demurrage, not to speak of its quantum, is repudiated by the Claimants, it becomes all the more difficult, if not impossible, for the Claimants to take any concrete step in pursuance of their right of lien even if the implications of Clause 41B are ignored for the sake of argument. The Claimants could have effectively exercised his lien only by stopping the delivery of cargo at some point of time when the ship was still at berth. No port will allow a ship to idle merely because the ship owner is in the process of exercising some right of his against the Charterer/Cargo receiver. Any such action on the part of shipowner would have resulted in the ship losing her discharging turn and in order to regain her turn the shipowner would have had to join the ships queing for discharge at the port. This is not a feasible option for any shipowner to take especially in Bangladesh ports where delays in getting berths and delays caused by cyclones etc are by no means unusual. The fact that in this very case the ship had to wait for 9 days to enter berth due to bad weather should not be lost sight of. 10.5 The vessel owner will have a lien on the charterer's cargo only so long as he retains possession of the cargo. In this case the Shipper/Charterer is MMTC, a Public Sector Undertaking and the Cargo Receivers are the Bangladesh Government. The original Bills of Lading issued to MMTC have been endorsed to the Bangladesh Government. Even though the Charter party does not mention that the Bills of Lading shall be deemed to contain all the conditions of the charter party, neither the OMP No. 235 of 2003 Page 14 of 26 Claimants nor the Respondents have produced before the Tribunal the original Bills of Lading and it is not, therefore, clear whether the endorsee as an innocent third party has been made aware of the charter party provisions and that the Claimants have a lien on the cargo. Further it is noted that the Bills of Lading have been endorsed “Freight Prepaid” and under these circumstances it is neither possible or legal for the vessel owner to deny delivery of the cargo to an endorsee especially if it is the Government of Bangladesh. It is therefore clear to us that it would have been impracticable to exercise lien in the Bangladesh port and any attempt to exercise lien while the ship was in Bangladesh waters would have invited serious consequences for the ship perhaps including seizure of the vessel. We hold that under the facts and circumstances of this case, the lien given by Clause 8 was not an effective or practical one and therefore failure to exercise the lien does not weaken much less invalidate the right of Claimants to recover demurrage at discharge port from the Respondents. Similar ineffectiveness of the lien is applicable to recovery of freight also and therefore clause 35 which exonerates the Charterer of all liability for freight also and demurrage cannot have any effect. So far as freight is concerned Charterer has not disputed his liability to pay 10% balance freight despite the working of cesser value 35. In other words, in our view either clause 35 is applicable in toto or not applicable at all against the Claimants and cannot be truncated and invoked to suit respondent's convenience. 10.6 As regards Clause 41 B it clearly provides that the balance 10% freight together with demurrage is payable by Charterers within 90 days of completion of discharge. It may be noted that this a typed Clause in its entirety; whereas Clause 8 (lien clause) is a printed clause with some minor deletions concerning damages for detention to vessel which is irrelevant to the subject case. It has OMP No. 235 of 2003 Page 15 of 26 been held by the Queens Bench in the UK (Justice J. Mocatta) in the ATHINOULA case that “It is well established, where there was a conflict between a typed Clause and printed Clause, the typed Clause should prevail” and hence Clause 41B being the typed clause prevails over the printed lien clause 8. Apart from this in the same typed clause prevails over the printed lien clause 8. Apart from this in the same ATHINOULA case similar situation prevailed with regard to Lien Clause and Freight/Demurrage payment Clause viz. Demurrage would be paid by charterers within one week after presentation of the Statement of Facts and time Sheet for the voyage and since these things cannot take place until after the cargo has been discharged and by then the possibility of exercise of lien would have vanished and in the circumstances Justice Mocatta Held that the Charterers were liable to