-1- IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION APPEAL (LODGING) NO. 772 OF 2008 IN DRAFT NOTICE OF MOTION NO. ______ OF 2008 IN ADMIRALTY SUIT (I) NO. 3547 OF 2008 Polestar Maritime Limited ).. Appellant Versus M.V. QI LIN Men and others ).. Respondents Mr S Venkateshwaran, Senior Counsel, a/w Mr Ashwin Shankar i/b Mr R A Fernandes for the Appellant. Mr Prashant Pratap a/w Amitava Majumdar, Shivkumar Iyer and Siddharth Ranka i/bBose G Mitra & Co. for the Respondents. CORAM : SWATANTER KUMAR, C.J. & DR. D.Y. CHANDRACHUD, J. DATED : 6TH JANUARY 2009 P.C. With the consent of the learned Counsel appearing for the parties, this Appeal has been taken up for final hearing at the admission stage itself. -2- 2. The Appeal is directed against an order dated 22nd December 2008 passed by a learned Single Judge where the Court, after granting leave in terms of Rule 147 of the Original Side Rules on a draft Notice of Motion taken out by the Applicant in an Admiralty Suit, passed an order declining arrest of a ship stated to belong to Defendant No.3. 3. The Appellant-Plaintiff brought an Admiralty Suit on the basis that a Memorandum of Agreement dated 23rd July 2008 was concluded between the Plaintiff on the one hand and Defendant No.2 on the other hand for sale of a vessel, REWA. Defendant No.3 stood as a guarantor for the due performance of the contract. The terms and conditions of the original Memorandum were finalised and amended by a Memorandum dated 19th August 2008. Defendant No.2 was to pay and cause to pay 10 per cent of the consideration amount equivalent to U.S.$ 19 million which was deposited in escrow in Singapore. The balance was to be paid within three banking days from the date on which the vessel was made available for delivery by the Plaintiff. It is the case of by the Appellant in the Plaint that Defendant Nos.2 and 3 committed a breach of their contractual obligations and did not pay the balance as agreed between the parties. A series of meetings were -3- stated to have been held between the parties. Defendant No.2 is alleged to have failed to perform its part of the obligations while Defendant No.3 allegedly did not ensure due performance. After putting the parties to notice by an email dated 10th October 2008, the present Suit has been instituted. The claim in the present Suit is for the loss which the Appellant is likely to suffer as a result of the sale of the vessel because of a fall in the market price. Considering the agreed price between the parties of U.S. $ 19 million, and the estimated value as computed by the Appellant, it is alleged that the likely loss is U.S. $ 10 million. The Appellant has made out the following case in paragraph 10 of the Plaint : “10. As detailed above, the 2nd and 3rd defendants breached a contract for sale and/or purchase of a vessel, on account of which the plaintiffs have suffered losses/damages aggregating to atleast US$ 10 million as of date, of which US$ 8.1 million remains unsecured. Having regard to the provisions of the Geneva Convention of Arrest of Vessels, 1999 (which is to be treated part of the common law of India in view of the judgment of the Apex Court in the matter of SEA SUCCESS 1), the plaintiffs submit that they have a maritime claim exercisable in personam against the 2nd and 3rd defendants and in rem against the 1st defendant vessel (which is wholly owned and controlled by the 3rd defendant). The plaintiffs are thus entitled to approach this Hon'ble Court in its Admiralty and Vice Admiralty jurisdiction and file this suit against the 2nd and 3rd defendants in pesonam and against the -4- 1st defendant vessel in rem and seek the arrest and sale of the 1st defendant vessel.....” 4. As is evident from the above pleaded case, the Appellant founded its claim primarily on the Arrest Convention of 1999 and relied upon judgments of this Court and of the Supreme Court of India. The claim was denied by the Respondent-Defendants. The learned Single Judge, after noticing the contentions raised by the parties, observed that before the Admiralty Court would exercise jurisdiction in relation to a maritime claim to effect arrest, certain pre-requisites would have to be duly satisfied. Two findings were recorded by the learned Single Judge while referring to the Arrest Convention of 1999. Firstly, it was noticed that the Appellant itself conceded that its case was not covered under Clause 3.1 of the Arrest Convention of 1999 but it was argued that the case was squarely covered under Clause 3.2. Then the learned Single Judge proceeded to record that the claim of the Appellant was not covered under Clause 3.2 inasmuch as the arrested ship and the vessel in respect of which a maritime claim existed were not owned by one and the same person. The Court was not satisfied that the condition precedent to the invocation of Clause 3.2 was fulfilled, as the two ships in question were not owned by the same person. The Court also held -5- that Defendant No.1 vessel was not owned by Defendant No.2 against whom the Appellant had raised the principal claim. It will be useful to refer to the findings recorded by the learned Single Judge at this stage. The same read as under : “..... In my view, merely because the shareholders are common or their holding in two different companies duly registered under the Companies Registration Act, is identical would not make the two companies one and the same entity. It is elementary principle of law when a company is incorporated it becomes a separate legal entity different from the persons constituting it. Therefore assuming for the sake of argument that the shareholders of the two companies are common, (presently there is no material on record that the shareholders of the two companies are identical) that would not make the defendant no.2 the owner of the defendant no.1 ship. As the defendant no.1 vessel is not owned by defendant nos.2 or 3, plaintiff cannot arrest the defendant no.1 vessel for the alleged maritime claim against defendant nos.2 or 3. The maritime claim is neither against defendant no.1 ship nor there is any maritime claim against the owner of the defendant no.1 ship.” 5. The learned Counsel appearing for the Appellant, while challenging the legality and correctness of the aforestated findings, contended that the claim of the Appellant was not founded entirely on Clause 3.2 of the Arrest Convention of 1999 but the jurisdiction of the -6- Admiralty Court in India is wide enough to do justice to an injured party and to direct arrest of a vessel which has entered Indian waters especially when Defendant No.1 was the property of Defendant No.2 and the transaction for transferring or selling the vessel to was a sham transaction intended to frustrate the claim of the appellant. In fact, the ship belonged to Defendant No.2 and Defendant No.3 being a guarantor under the Memorandum of Agreement for sale of the vessel between the parties was liable to make good the claim of loss of the Appellant and, therefore, the ship belonging to that company could be arrested by this Court in consonance with principles under the general law. 6. The agreement for sale of the vessel was entered into between the Appellant and Respondent No.2 on 18th September 2008. In terms of this agreement, the payments were to be made only after completing the formalities including execution of transfer documents. 7. In the judgment of this Court in Islamic Republic of Iran Shipping Lines vs m.v. MEHRAB and others, 2002 (4) Mh. L. J. 484, it has been held, following the judgment of the Supreme Court in m.v. Elizabeth vs Harwan Investment and Trading Pvt. Ltd., AIR 1993 SC -7- 1014, that Admiralty Courts in India have the jurisdiction to pass appropriate directions in order to do justice in relation to a maritime claim. It is not disputed before us that the claim of the Appellant constitutes a maritime claim after the coming into force of the Arrest Convention of 1999. Clause 1(v) of the Arrest Convention of 1999 provides that a maritime claim could be founded on a dispute arising out of a contract for the sale of a ship. The learned Single Judge laid emphasis on Clause 3.2 of the 1999 Arrest Convention and, in our opinion, rightly so. It was obligatory on the part of the Appellant to satisfy the pre-requisites for the applicability of Clause 3.2. Before the learned Single Judge, the Appellant relied on the Arrest Convention of 1999 and on Clause 3.2 thereof for seeking an order of arrest. The Appellant was hence required to establish that the conditions specified in Clause 3.2 were satisfied. 8. Clause 3.2 provides thus : “2. Arrest is also permissible of any other ship or ships which, when the arrest is effected, is or are owned by the person who is liable for the maritime claim and who was, when the claim arose : -8- (a) owner of the ship in respect of which the maritime claim arose; or (b) demise charterer, time charterer or voyage charterer of that ship. This provision does not apply to claims in respect of ownership or possession of a ship.” It cannot be disputed that both the ships were not owned by one and the same person. The Appellant opted to come to the Court with specific facts. As for subsequent information which probably the Appellant received, the Plaint was never amended so as to bring this transaction or the nature of the transaction before the Court. It is hardly permissible for the Court to hold at this stage of the proceedings, when the Court is called upon to take a prima facie view, that the transaction in question is sham. Two parties have agreed and have claimed that the vessel Defendant No.1 stands transferred in the name of the Applicant. At least at this stage it would be difficult to record any finding to that effect. 9. The argument that Defendant Nos.2 and 3 and the Applicant are integral parts of the NASCO group is not supported on record by pleadings. The findings recorded by the learned Single Judge are in the exercise of judicial discretion of the Court and the view taken by the -9- learned Single Judge is neither perverse nor contrary to settled principles of law. 10. In these circumstances, we do not see any reason to interfere with the view taken by the learned Single Judge and dismiss the Appeal. with no order as to costs. 11. On the oral request of the learned Counsel appearing for the Appellant, we continue the interim order granted by the Division Bench of this Court on 24th December 2008 till Monday, the 19th January 2009, subject to the Appellant furnishing a further security of Rupees Ten lakhs by way of a Bank Guarantee of a Nationalised Bank by Friday, 9th January 2009. CHIEF JUSTICE DR. D.Y. CHANDRACHUD, J. -10-