Case: MT Pamboor 2 (IMO 9914852) and Ors Vs. Shiny Shipping &amp; Logistics Private Limited and Ors

fraudulent activity. Though this was in the context of binding third parties to arbitration clauses, the principle remains. Similarly, in Vodafone International Holdings BV v Union of India, ((2012) 6 SCC 613 ; paragraph 74) the Supreme Court held (in the context of taxation) that to properly invoke the doctrines of beneficial ownership, lifting the corporate veil or concept of alter ego, it must be shown that the transaction was a colourable device. When this is successfully done, the separate corporate juristic entity principle will be ignored, being seen as a device or a conduit in the pejorative sense. 54. An instructive recent decision is that of the Supreme Court in Gemini Bay Transcription (P) Ltd v Integrated Sales Service Ltd. ((2022) 1 SCC 753) That was a case of enforcement of a foreign award. The arbitrator, seated in Delaware, USA, had to decide, among other things, whether the alter ego doctrine warranted piercing the corporate veil. (Gemini Bay, supra, paragraph 13) This was answered by the tribunal by saying that before it could pierce a corporate veil, the tribunal had to carefully review a complex set of factual, documentary and testimonial evidence. In other words, the corporate veil could not be pierced for the mere asking. A bundle of criteria must be considered, including control but also whether the corporate form was used as a façade to commit a fraud. (Gemini Bay, supra, paragraph 14) As the tribunal said, the devil is in the details. The Supreme Court considered the tribunals approach in paragraph 58 and said that the conclusion was arrived at after an appreciation of the oral and documentary evidence, and supported by reasons. 55. Therefore, to deploy the alter ego doctrine justifying a piercing of the corporate veil, the defendant or debtor must, to use a Dickensian phrase, be shown to be an Artful Dodger. Otherwise, the very essence of corporate/company law and its fundamental precept that every company is a distinct legal entity would get effaced. The mere commonality or common directorships or interlocking shareholding are by themselves not even prima facie evidence or one being the alter ego of the other. 56. Mr Kapadia says the alter ego argument is his fallback argument. The first is that Shiny Shipping is liable for the salvage services of provided to Tresta Trading, i.e., as a matter of contractual obligation. This is based on the documentation to which we have referred above and this is sufficient to show beneficial ownership even absent any case on fraud. (There is a reference to the concept of beneficial ownership in the decision of a learned single Judge of this Court in Lufeng Shipping Co Ltd v MV Rainbow Ace & Ors, [2013 SCC OnLine Bom 1790 : (2013) 7 Bom CR 762], but this was before the 2017 Act) According to Mr Kapadia, there are three or four distinct items that establish this so-called beneficial ownership. The first is Ms Noronhas 3rd February 2022 email. The second is Polygreens reply with the LOF Salvage Agreement of 3rd February 2012. Then there is the message from the insurance brokers of Tresta Trading which gave the names of both companies, and, finally, the so-called ushers report. 57. On a careful consideration, we are unable to accept that Polygreen had in fact made out any such case for an arrest. The entirety of its case comes down to a single insertion made by Polygreen itself in the LOF Salvage Form and the failure of Shiny Shippings employee to delete that endorsement. Whether this was to the mind of Shiny Shippings employee, whether it was an oversight, or whether it was deliberate, are matters for trial. On their own or even with the other documentation, these cannot lead to the conclusion of beneficial ownership, or of one company being the alter ego of the other. The fact that the director of a holding company is copied on an email does not even prima facie establish that two are a single entity. 58. Mr Kapadia insists that Polygreen was deceived, induced, misled — and other words of that stripe — into believing that the two companies were one. This argument just makes no sense at all. There is simply no logical reason why Tresta Trading would lead Polygreen to believe that it and Shiny Shipping were one, thereby opening the door or paving the road for Polygreen to move against Shiny Shippings asset exclusively in India, MT Pamboor 2. If Mr Kapadias case on this is to be accepted, it completely torpedoes any case on fraud or deceit in hiding assets, and that puts paid to any invocation of the alter ego doctrine. 59. Has Polygreen been able to establish its case under Section 5(2) of the Admiralty Act As we noted, to do that, Polygreen had to establish an in personam liability of Shiny Shipping, the registered owner of MT Pamboor 2. Polygreen may have an in personam liability against Tresta Trading. But to cross the bridge or divide between the Tresta Trading and Shiny Trading, Polygreen had to show with far more cogent and persuasive material than we have before us that the two were indeed the same, the Tresta Trading was set up to defraud creditors, that Tresta Trading is in fact nothing but a shell company with no business and no assets. Polygreen fails on every single one of these determinants. Its entire case is built on conjecture and surmise, 60. In conclusion we note that Polygreen has a pending arbitration claim in London against Tresta Trading. It might indeed be very peculiar that, while Polygreen believes it can move against Shiny Shipping here for an arrest of MT Pamboor 2, it does not, by the same token and the same logic, seek to include Shiny Shipping as part of arbitration agreement in London as well under the Group of Companies doctrine. We do not see how from the same cause of action, a plaintiff can make two such conflicting assertions.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]7. The Defendants came up in Appeal. The principal ground canvassed, and we think rightly, by Mr Dhond for the Appellants was that the impugned order could not have required both the furnishing of a full security and yet continued the arrest. We believe Mr Dhond is correct. It is much too well settled to admit of any repetition or need for an authority that when a vessel is arrested, that order of arrest can always be vacated upon furnishing full security. Indeed, that is the right of the arrested Defendant vessel, and of its owner. Indeed, the order of arrest itself says as much. Thus, after requiring furnishing a full security, MT Pamboor 2 could not possibly have been ordered to remain under arrest. That order was plainly contrary to settled law and would have had to be set aside.9. As it happens, we need not examine the Appeal itself or the impugned order in any detail. The reason is that both sides specifically accepted our suggestion that, with their consent, we would withdraw the Defendants Interim Application for vacating the order of arrest to ourselves and decide it here rather than requesting an already overburdened learned Single Judge to give the matter priority. That the matter needed priority was, to our minds not in doubt, because, as Mr Dhond pointed out, Shiny Shipping was incurring significant losses on account of the arrest. It had to pay EMI and bank dues. The arrest resulted in a complete stoppage of its earnings. Therefore, the urgency. We specifically pointed out to both sides that should they accept our suggestion, each side would undoubtedly loose the right of an intra-court Appeal. Both sides sought time to take instructions. They did so, and finally consented to our hearing the Interim Application (L) No. 11655 of 2022. We have noted some of this in our order of 20th July 2022. Five days later, on 25th July 2022, we noted specifically that both sides, having obtained instructions, consented to the main Interim Application (L) No. 11655 of 2022 being withdrawn to this Court for final disposal.10. It is in these circumstances that we have heard both sides on the Interim Application. Perhaps as a matter of formality and for good order, we allow the Appeal itself. The impugned ad-interim order of 6th June 2022 is, by consent, quashed and set aside. The result is that the order of arrest has continued until today when we are pronouncing judgment.11. We begin with some undisputed facts. We will then turn to the averments made in the Plaint and in the Interim Application. There is no doubt that Polygreen has no direct commercial/contractual relationship with Shiny Shipping and has rendered no service to MT Pamboor 2. This is central to the discussion that follows. It is Mr Kapadias case for Polygreen that a direct connection or relationship is not required in view of the averments made in the Plaint and on the basis of which the order of arrest was granted.12. What is also undisputed is that there exists another company Tresta Trading, incorporated in Mauritius. This company owns another vessel MT Tresta Star. Tresta Trading is a wholly-owned 100% subsidiary of Shiny Shipping. That there is a commonality of shareholders is also undisputed. The same family runs both entities. Shiny Shipping was established in 2000. Tresta Trading was incorporated in Mauritius in 2019. Tresta Trading through and with MT Tresta Star has contracts with Indian Oil (Mauritius) Limited or IOML, a wholly owned subsidiary of Indian Oil Company Ltd, or IOCL. This is an Indian company, as we all know, but IOML is the third largest entity in its segment in Mauritius. Tresta Trading does the work of bunkering in Mauritius. Its vessel, MT Tresta Star, flies a foreign flag, i.e., the flag of Mauritius. There is no dispute that as a matter of record, Tresta Trading alone owns MT Tresta Star, and Shiny Shipping alone owns MT Pamboor 2.Matters were obviously proceeding with great urgency, and that was perfectly understandable. On that very day, 3rd February 2022, Polygreen forwarded what is called a Lloyds Standard Form Salvage Agreement (also dated 3rd February 2022 and referred as the LOF Salvage Agreement) by email to Ms Noronha and others copied on her originating mail. A copy of this of the LOF Salvage form is included in the compilation at page 265. It has several boxes with entries. This is two column tabular format.29. At no point is there an assertion that Polygreen ever provided services to MT Pamboor 2. There is also no assertion, other than the LOF Salvage Agreements and emails referred to above, that Polygreen and Shiny Shipping had any independent contractual relationship.30. Then there are averments regarding the emails and documents to which we have referred to above. These are set out from paragraphs 13 onward to mount the claim that Tresta Trading is a mere brass plate subsidiary of Shiny Shipping. Therefore, the assertion is, that which binds Tresta Trading will necessarily bind Shiny Shipping. The case is sought to be buttressed by saying that Polygreen was misled, deceived, deluded and hoodwinked into believing that the two corporates were one and the same and therefore the assets of the subsidiary were effectively the assets of the holding company. Averments are made about the family holdings in the two companies, and it is alleged that Shiny Shipping exercises overarching dominion and control over its so-called brass plate subsidiary Tresta Trading. The subsidiary, Tresta Trading, is said to be bound hand and foot to the dictates of Shiny Shipping. In paragraph 20 there is a specific assertion that Tresta Trading is a shell company with no significant asset other than Tresta Star, which is now a wreck. Paragraph 21 tells us that Polygreen is pursing its claim against Tresta Trading in arbitration in London and the claim in the present suit is only against the Shiny Shipping. Once again there is a repetition in some later paragraphs of so called false representations said to have been made by the Noronhas to Polygreen.31. What we have therefore is a case that is clearly positioned as there being a complete unity of identity between the 2nd Defendant, Shiny Shipping, and its Mauritian subsidiary, Tresta Trading. Commonality of directorships and shareholders are cited. We are asked therefore to effectively pierce the corporate veil and to hold that Shiny Shipping is the alter ego of Tresta Trading or vice versa. This, we are told, must be done because Tresta Trading is apparently a brass plate subsidiary. Reference is made to a ushers report which says that Tresta Trading was not found as its registered office in Mauritius. Importantly, there is no case other than on account of this alter ego/brass plate construct that Shiny Shipping is a debtor to Polygreen. Polygreen has no maritime lien or maritime claim over MT Pamboor 2 independently.32. The essence of the case is that Polygreen has an in personam claim against Tresta Trading, and since Tresta Trading is an alter ego of Shiny Shipping, or because the corporate veil must be pierced, therefore Polygreen can pursue its claim against Tresta Trading in India against Shiny Shipping and Shiny Shippings asset, MT Pamboor 2. On account of this alter ego construct, the asset of one company is the asset of the other, and therefore the two vessels are sister ships.33. More importantly we do not find, apart from the references to the emails, any case made out that Tresta Trading was set up as a fraud or device to defeat creditors or to move assets away from creditors reach. Tresta Trading was set up years ago as we have noted. It has independent contracts and pays tax in Mauritius. Its contracts are with IOML, said to be the third largest such company in Mauritius.34. More interestingly, we find that the entire edifice of this case is built on the failure by Tresta Trading or its employee to strike out the words and/or Shiny Shipping and Logistics Private. But in paragraph 14 at page 49 of the Plaint, the Plaintiffs say that they inserted this clause themselves deliberately. Now it is perfectly understandable that in the flurry of activity on 3rd February 2022, this detail may have been overlooked. What is unexplained is why on that date Polygreen included the name of Shiny Shipping. Much is sought to be made of the fact that Ms Noronha had copied her brother at his shinyshipping email address. But we ask ourselves, therefore what A person may have multiple email addresses. The fact that a particular email address is used does not per se establish the existence of a brass plate subsidiary or of there being an alter ego.35. Now the SCOPIC clause at page 103 in our reading has to be invoked by notice to the owners of the vessel. Clause 2 specifically says so. The only registered owner of MT Pamboor 2 is Shiny Shipping. No notice could ever have been properly given to Shiny Shipping.36. The Interim Application by MT Pamboor 2 and Shiny Shipping goes to considerable length to point out that the two entities are entirely distinct. Mr Dhond makes the point, and we think quite correctly, that merely because one corporate entity is wholly owned by another, this does not mean that the two are the same or that one is the alter ego of the other. Something more needs to be established before that conclusion can legitimately be drawn.44. We believe Mr Dhond is correct, and Mr Kapadias submission is as overbroad as Mr Dhonds regarding beneficial ownership. A more accurate interpretation perhaps would be that Section 5(1) requires that there be a maritime claim against the vessel sought to be arrested. Section 5(2) is the fallback position; if the vessel against which there is a maritime claim cannot be arrested, then any other vessel can be arrested, but this has to be lieu of the vessel against which there is a maritime claim. The maritime claim itself must exist in both cases. An action positioned under Section 5(2) is subject to its proviso. Arrest of a sister ship is thus also entirely within the frame of Section 5(2).45. Indeed, we believe this interpretation actually assists Mr Kapadia and is in his favour. For, if he can establish Polygreens case of (i) the two companies being alter egos, of piercing the corporate veil, and of beneficial ownership, and (ii) there existing an in personam claim against Tresta Trading (which is nothing but Shiny Shipping), then the arrest of MT Pamboor 2 might be justified. But the argument of beneficial ownership and the attaching of the in personam claim against Tresta Trading to Shiny Shipping are both dependent on Mr Kapadia being able to establish that the two companies are alter egos, not juridically distinct, and that the corporate veil can legitimately be lifted.46. There are possibly several ways Polygreen could go about fusing identities (to establish its case of beneficial ownership, alter ego, brass plate identity and so on). It could endeavour to show that Shiny Shipping is nothing but Tresta Trading and vice versa. Thus, it might contend that any in personam claim against Tresta Trading is a valid in personam claim against Shiny Shipping and any vessel owned by Shiny Shipping, such as MT Pamboor 2, could then be arrested. Polygreen may also assert a case on fraud, but that is problematic because the case on fraud would have to be established at trial, and no arrest could be maintained until then. The concept of a sister ship cannot be divorced from common ownership — by establishing beneficial ownership — and which, in turn, takes us back to Polygreen being able to make out a case of alter egos and unity of corporate identity.47. Shiny Shipping asserts that it was never a guarantor for the purchase of MT Tresta Star. The Equasis folder seems to show both companies as registered owners of Tresta Star. Prima facie that is an error; it is nobodys case that the two companies hold fractional shares in MT Tresta Star. But even that might not be sufficient to show that MT Pamboor 2 is a sister ship of MT Tresta Star, for there is no assertion anywhere that Tresta Trading has any stake in MT Pamboor 2 (independently of the alter ego theory).49. Then there is a reference to the decision of a learned Single Judge of this Court KR Shriram J in Universal Marine & Anr v MT Hartati. (2014 SCC OnLine Bom 223 : (2014) 3 AIR Bom R 311) Here, the learned single Judge said in paragraph 29:29. I am afraid, as regards his first submission that owner is to be read as beneficial owner and not registered owner, I cannot agree with the submissions of the learned Counsel for the Plaintiffs. As to how did the Plaintiffs and what is the basis on which the Plaintiffs obtained an order of arrest has to be seen. Arrest Convention 1999 is a legal instrument to establish international uniformity in a field of arrest of ships taking into account developments in related fields. Article 3(1) relates to arrest of a ship in respect of which a maritime claim is asserted. Article 3(2) relates to arrest of any other ship or ships other than ship in respect of which a maritime claim is asserted. Which any other ship or ships can be is clearly mentioned in Article 3(2) (a). Those are 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 maritime claim arose a owner of the ship in respect of which a maritime claim arose. Though the Arrest Convention has not defined who the owner is, it certainly means a registered owner. The reason why it has to be meant a registered owner is because the only person who could held be liable for a claim against the ship, is the person who owns all the shares in the ship and who would be liable on the claim in an action in personam. The only person who can be liable for action in personam is the registered owner of the vessel and no one else. If the owner should be meant to be beneficial owner, the convention would have said beneficial owner. This is because beneficial owner need not 21 NMS - 1080 - 2013 mean he is the registered owner. On the contrary registered owner or the owner in whose name the ship is registered would also be the beneficial owner unless otherwise proved. S. 25 (b) and (c) of the Merchant Shipping Act, 1958 makes it very clear. It reads as under: …50. Then in paragraph 34, KR Shriram J correctly held that Indian company law views each company as a separate and distinct legal entity, different and distinct from its shareholders and other companies. Commonality of shareholders or directors will not convert two companies into one. Shareholders are also not the owners of the assets of the company. Therefore, it is not possible to arrest a ship not owned by a person not liable for the claim, unless fraud is established. In some cases, Courts may indeed look behind the registered owner, but it can do this (and do it more than once) only if the necessary ingredient is satisfied that the independent company is nothing but a sham, an attempt to defraud creditors. Otherwise, an in personam claim lies only against the registered owner.51. We do not see how it can possibly be said of Tresta Trading today that it is a sham, a camouflage or anything of the kind. It was set up many years ago. It has independent contracts. It pays tax overseas. There is no question of an asset being moved by Tresta Trading to defeat a creditor and no such case is pleaded. Even in MT Hartati, all the ships were owned by companies that were subsidiaries; and Shriram J asked himself this question: what is so very wrong in that Alarmist cries of holding company and subsidiary do not serve the purpose.52. Then there is the reference to the decision of Shriram J again in Condor Maritime Dienstleistung GmbH & Co. KG v mv Western Light & Ors (2014 SCC Online Bom 257 : (2014) 7 Bom CR 39) on an application made by the 2nd defendant there, Kimiya Shipping Inc. Both ships in that question were not owned by the same entity but by different entities. Shriram J was asked to pierce the corporate veil. He then, like we are today, was faced with the alter ego argument based on commonality of shareholding and directors. It was alleged there that there was indeed a fraud. In paragraph 15, Shriram J correctly held that lifting of the corporate veil even on the basis of alter ego theory can be done only where a fraud is intended to be prevented. There has to be an underlying element of dishonesty. In that matter, no such case was made out. Shriram J specifically held that merely because shareholders, directors, addresses were the same, and even constituted attorneys were common, this would not automatically mean that the intention of registering two ships in different names was fraudulent.53. Can this alter ego / pierced corporate veil jurisprudence be invoked willy-nilly every time it is found that one company is the holding company or parent of another There is enough law to indicate that there is nothing so very wrong in one family setting up with common shareholding multiple companies, each holding different assets. A different consideration may arise when a company is a debtor, and it deliberately incorporates another company to move assets away to put them beyond the reach of the creditors. There, courts have frowned upon these attempts and have always allowed a creditor to follow the assets into the hands of the so-called separate company. But what is required is that there must be an element of deceit, an attempt at fraud, something colourable. In Cox & Kings Ltd v SAP India Pvt Ltd & Anr, (2022 SCC OnLine SC 570; paragraph 90) the Supreme Court said that corporate law doctrines such as piercing the veil and alter ego are a means by which to identify fraudulent activity. Though this was in the context of binding third parties to arbitration clauses, the principle remains. Similarly, in Vodafone International Holdings BV v Union of India, ((2012) 6 SCC 613 ; paragraph 74) the Supreme Court held (in the context of taxation) that to properly invoke the doctrines of beneficial ownership, lifting the corporate veil or concept of alter ego, it must be shown that the transaction was a colourable device. When this is successfully done, the separate corporate juristic entity principle will be ignored, being seen as a device or a conduit in the pejorative sense.54. An instructive recent decision is that of the Supreme Court in Gemini Bay Transcription (P) Ltd v Integrated Sales Service Ltd. ((2022) 1 SCC 753)  That was a case of enforcement of a foreign award. The arbitrator, seated in Delaware, USA, had to decide, among other things, whether the alter ego doctrine warranted piercing the corporate veil. (Gemini Bay, supra, paragraph 13) This was answered by the tribunal by saying that before it could pierce a corporate veil, the tribunal had to carefully review a complex set of factual, documentary and testimonial evidence. In other words, the corporate veil could not be pierced for the mere asking. A bundle of criteria must be considered, including control but also whether the corporate form was used as a façade to commit a fraud. (Gemini Bay, supra, paragraph 14) As the tribunal said, the devil is in the details. The Supreme Court considered the tribunals approach in paragraph 58 and said that the conclusion was arrived at after an appreciation of the oral and documentary evidence, and supported by reasons.55. Therefore, to deploy the alter ego doctrine justifying a piercing of the corporate veil, the defendant or debtor must, to use a Dickensian phrase, be shown to be an Artful Dodger. Otherwise, the very essence of corporate/company law and its fundamental precept that every company is a distinct legal entity would get effaced. The mere commonality or common directorships or interlocking shareholding are by themselves not even prima facie evidence or one being the alter ego of the other.57. On a careful consideration, we are unable to accept that Polygreen had in fact made out any such case for an arrest. The entirety of its case comes down to a single insertion made by Polygreen itself in the LOF Salvage Form and the failure of Shiny Shippings employee to delete that endorsement. Whether this was to the mind of Shiny Shippings employee, whether it was an oversight, or whether it was deliberate, are matters for trial. On their own or even with the other documentation, these cannot lead to the conclusion of beneficial ownership, or of one company being the alter ego of the other. The fact that the director of a holding company is copied on an email does not even prima facie establish that two are a single entity.This argument just makes no sense at all. There is simply no logical reason why Tresta Trading would lead Polygreen to believe that it and Shiny Shipping were one, thereby opening the door or paving the road for Polygreen to move against Shiny Shippings asset exclusively in India, MT Pamboor 2. If Mr Kapadias case on this is to be accepted, it completely torpedoes any case on fraud or deceit in hiding assets, and that puts paid to any invocation of the alter ego doctrine.59. Has Polygreen been able to establish its case under Section 5(2) of the Admiralty Act As we noted, to do that, Polygreen had to establish an in personam liability of Shiny Shipping, the registered owner of MT Pamboor 2. Polygreen may have an in personam liability against Tresta Trading. But to cross the bridge or divide between the Tresta Trading and Shiny Trading, Polygreen had to show with far more cogent and persuasive material than we have before us that the two were indeed the same, the Tresta Trading was set up to defraud creditors, that Tresta Trading is in fact nothing but a shell company with no business and no assets. Polygreen fails on every single one of these determinants. Its entire case is built on conjecture and surmise,60. In conclusion we note that Polygreen has a pending arbitration claim in London against Tresta Trading. It might indeed be very peculiar that, while Polygreen believes it can move against Shiny Shipping here for an arrest of MT Pamboor 2, it does not, by the same token and the same logic, seek to include Shiny Shipping as part of arbitration agreement in London as well under the Group of Companies doctrine. We do not see how from the same cause of action, a plaintiff can make two such conflicting assertions.