Case: Sunil B. Naik Vs. Geowave Commander

2. A maritime claim against the charterer of a ship, who is not the de jure owner of the ship, and the endeavor to recover that amount through a restraint order against the ship owned by a third party has given rise to the present appeal.3. Oil and Natural Gas Corporation Limited (for short `ONGC) awarded a contract to one Reflect Geophysical Pte. Ltd., Singapore (for short `Reflect Geophysical) for carrying out seismic survey operations off the coast of Gujarat near the Okha Port in the year 2012. In order to facilitate the carrying out of its obligations, Reflect Geophysical in turn entered into a Charter Party Agreement vide contract dated 29.6.2012 to charter the vessel `Geowave Commander, the registered owner being Master and Commander AS Norway,(for short `Geowave Commander) for a period of three years. The said vessel is stated to be a specialized ship equipped to carry out seismic survey operations. In terms of the said contract, it is defined as a `Bareboat Charter. The charterer also has the option to purchase the vessel and the owners seismic equipment provided the purchase option is declared by the charterers to the owners in writing latest on 18.1.2015 being six months prior to the end of the charter period.Reflect Geophysical entered into a Charter Hire Agreement on 30.10.2012 with M/s. Sunil B. Naik, the appellant in SLP(C) No.18845/2013, in terms whereof the said appellant agreed to supply 24 fishing trawlers being the chase vessels to assist in survey operations to be conducted by the charterers seismic vessel Geowave Commander. The charter was initially for 16 chase vehicles out of 24 fishing trawlers. The said agreement contained a dispute resolution clause 18 providing for arbitration, which reads asAll disputes arising out of or in connection with this Charter Hire Agreement shall be finally settled in Mumbai under the rules of India Arbitration Act before three arbitrators appointed in accordance with the said Rules. Each party shall appoint one such arbitrator and the two so appointed by the parties shall jointly appoint the third.It is the case of the appellant that the 16 vessels were made ready for Reflect Geophysical to ensure that fishing vessels were kept well clear of the towed in water seismic equipment so that their fishing equipment is not damaged. The daily hiring rate, as per the agreement, varies for the different nature of vehicles. The said appellant also claims that the vessels were mobilized at Okha port but the fact remains that the respondent ship never went to Okha and was at the Pipavav port from where it went to Mumbai.7. Similarly Yusuf Abdul Gani, appellant in SLP(C) No.18899/2013, agreed to give on hire the `Orion Laxmi to Reflect Geophysical to work in support with the survey vessel `Geowave Commander vide contract dated 1.10.2012. The purpose was to supply standby and emergency towing duties. The two appellants claim to have raised invoices on Reflect Geophysical from time to time, which are stated not to have been paid. Reflect Geophysical also failed to pay the owners of the respondent vessel and consequently the owners gave a notice of default dated 4.3.2013 to the charterers, Reflect Geophysical, forof charter hire aggregating to US$ 4,36,790 (approximately Rs. 2.23 crore). Reflect Geophysical, however, filed an application in the Singapore Court for placing the company under judicial management, which was published in a notification dated 15.3.2013 in the Singapore Gazette.8. Sunil B. Naik issued a demand notice to Reflect Geophysical for payment of outstanding dues on 16.3.2013. Yusuf Abdul Gani is also said to have raised various invoices to Reflect Geophysical in respect of the dues arising out of the contract, between 16.11.12 and 16.2.13.9. Yusuf Abdul Gani, moved the Bombay High Court by filing a suit against the respondent vessel as an admiralty suit and obtained an order on 15.3.2013 for arrest of the vessel. Similarly, on Reflect Geophysical expressing its inability to make payments on account of lack of funds, Sunil B. Naik, filed an admiralty suit and obtained an order of arrest of vessel on 12.4.2013. As noted, the vessel was already under arrest in pursuance of the order passed in Yusuf Abdul Ganis case.10. The owners of the respondent vessel, Master and Commander AS Norway, filed a notice of motion in the two proceedings for vacation of the ex parte arrest of vessel. On hearing being held, the learned single Judge on 17.4.2013 vacated the ex parte stay. The two appellants, as aggrieved parties, moved the Division Bench of the Bombay High Court, which dismissed the appeal on 10.5.2013. That is how the present appeals were filed.11. In the present appeals while issuing notice on 17.5.2013 an interim arrangement was made whereby the respondent was directed to deposit a sum of Rs. 1 crore in each case as security before the Bombay High Court and on such deposit the vessels were permitted to sail. The amounts were directed to be kept in fixed deposits. We were informed that these amounts were accordingly deposited and are lying in fixed deposits. The ship set sail.

Court's reasoning:
42. Insofar as the respondent vessel is concerned, there is no agreement entered into by either of the two appellants and, thus, it cannot be a maritime claim in respect of Article 1(1)(f) of the Arrest Convention. Consequently, there would be no occasion to arrest the vessel under Article 3(1)(b) of the Arrest Convention as no maritime claim has resulted in the hands of the demised charterer with regard to the demised vessel. The maritime claim by either of the appellants could, thus, be enforced only by arresting another vessel owned by Reflect Geophysical and the de facto ownership, could not be converted into a de jure ownership. In respect of Article 1(1)(l), it was, once again, held that there was no supply of goods to the vessel or of supply of services to the vessel in question, which was the respondent vessel. Insofar as the reasoning in Sunil B. Naiks case, so far as Article 1(1)(l) is concerned, it has been categorically found that it was not a case where goods had been given on hire or for use of the respondent vessel.On giving our thoughtful consideration to the issue at hand, we are in full agreement with the view taken by the Courts below and find no reason to interfere in appeal.44. We have referred to the various terms of the bareboat charter which make it quite clear that Reflect Geophysical had the status of a de facto owner. The charter agreement did contain a clause for conversion of the status into a de jure owner but the occasion for the same never arose. The option to purchase was to be exercised by an advance intimation of six months prior to the end of the charter period and the purchase price was also specified as US$ 3,01,50,000. The charterer could not make any structural changes in the vessel or in the machinery, boilers, appurtenances or space parts thereof without first securing the owners approval and the vessel had to be restored to its former condition before the termination of the charter, if so required by the owners. This was, thus, a deed between the owner of the respondent and Reflect Geophysical.45. The contracts entered into with the appellants by Reflect Geophysical are completely another set of charter hire agreements/contracts. The unpaid amounts under these contracts amount to claims against Reflect Geophysical. Thus, if there was another vessel owned by Reflect Geophysical, the appellants would have been well within their rights to seek detention of that vessel as they have a maritime claim but not in respect of the respondent vessel. The maritime claim is in respect of the vessels which are owned by the appellants and the party liable in personam is Reflect Geophysical. Were the respondent vessel put under the de jure ownership of Reflect Geophysical, the appellants would have been within their rights to seek a detention order against that vessel for recovery of their claims.46. In the facts of the present case the owners of the respondent vessel, in fact, also have a claim against Reflect Geophysical for unpaid charter amount. Thus, unfortunately it is both the owner of the respondent vessel on the one hand and the appellants on the other, who have a maritime claim against Reflect Geophysical, which has gone into liquidation. The appellants quite conscious of the limitations of any endeavour to recover the amount from Reflect Geophysical, have ventured into this litigation to somehow recover the amount from, in effect, the owners of the respondent vessel by detention of the respondent vessel. That may also be the reason why the appellants did not even think it worth their while to implead Reflect Geophysical against whom they have their claim in personam, possibly envisaged as a futile exercise.The aforesaid issue has also been discussed in Polestar Maritime Ltd.,while dealing with Article 3(2) of the Arrest Convention. The test of the ownership of both the ships as one and the same is not satisfied in the present case. The second situation envisaged is where another ship owned by the charterer is detained, i.e., he has taken `A ship on charter where he has only de facto ownership and his ship `B is detained where charterer has de jure ownership. It cannot be countenanced that where no in personam claim lies against an entity, still the ship of that entity taken on bareboat charter can be detained to recover the dues. The owner of the respondent vessel is as much a creditor of Reflect Geophysical as the appellants.49. Mr. Naphade, learned Senior Advocate while relying on the judgment in M.V. Elisabeth & Ors.,had referred to the expanding jurisdiction of a maritime claim. However, the observations made in the said judgment reproduced hereinabove in para 21 would show that the arrest of the ship is regarded as a mere procedure to obtain security to satisfy the judgment. To that extent it is distinguished from a right in personam to proceed against the owner but there has to be a liability of the ship owner and in that eventuality the legal proceedings commenced in rem would become a personal action in personam against the defendant when he enters appearance. There cannot be a detention of a ship as a security and guarantee arising from its owner for a claim which is in respect of aor a charterer of the ship.50. On turning to the provisions of the Convention, a maritime claim is specified as relating to use or hire of a ship whether contained in a charter party or otherwise [clause (f)]. Insofar as clause (l) is concerned they relate inter alia to services rendered to the ship. The question, however, isAs an illustrative example if we consider the principles of a garnishee order where amounts held by a third party on behalf of a defendant can be injuncted or attached to satisfy the ultimate claim, which may arise against the defendant. It is not as if somebody elses money is attached in pursuance to a garnishees order. Similarly for a claim against the owner of the vessel, a vessel may be detained and not that somebody elses vessel would be detained for the said purpose. The crucial test would be of ownership, which in the present case clearly does not vest with Reflect Geophysical and the de facto ownership under their bareboat charter cannot be equated to a de jure owner, which is necessary for an action in personam.There is a clear distinction between a beneficial ownership of a ship and the charterer of a ship.66. In the aforesaid context, now turning to the Arrest Convention of 1999, Article 1 specifies that the maritime claim means a claim inter alia arising out of an agreement relating to use or hire of "the ship." The connotation of "the ship" would mean the 16 trawlers or the Orion Laxmi and not the respondent ship. Thus, there is no maritime claim against the respondent ship. Article 3 deals with the exercise of rights of arrest and the eventualities are specified thereunder. In terms of clause (2) of Article 3 (these Articles are reproduced in paras 25 to 27 above), the arrest is permissible of any other ship (which would connote the respondent ship), which, when the arrest is effected is owned by the person who is liable for the maritime claim. The liability of the maritime claim is Reflect Geophysical and not the owners of the respondent ship. In terms of(b) of clause (2) of Article 3, a demise charterer, time charterer or voyage charterer of that ship is liable. The ship in question, as noticed above, is not the respondent but the 16 trawlers or the Orion Laxmi. In view of the discussion aforesaid, really speaking Reflect Geophysical cannot be said to be the beneficial owner in the capacity of a demised charterer of the respondent ship. Reflect Geophysical is not the owner of the respondent ship and the owner cannot be made liable for a maritime claim, which is against the trawlers and Orion Laxmi.67. We may also note that in the 2017 Act in India clause 5(b) states asArrest of vessel inThe High Court may order arrest of any vessel which is within its jurisdiction for the purpose of providing security against a maritime claim which is the subject of an admiralty proceeding, where the court has reason to believexxxx xxxx xxxx xxxx(b) the demise charterer of the vessel at the time when the maritime claim arose is liable for the claim and is the demise charterer or the owner of the vessel when the arrest is effected;The aforesaid is in consonance with Article 3 of the 1999 Convention and, thus, must be read in that context (incidentally the Bill was introduced on 21.11.2016 and passed by the Lok Sabha and the Rajya Sabha on 10.3.2017 and 24.7.2017 respectively. It was published in the Gazette on 9.8.2017 but is still not notified). The incident in this question is, thus, prior to beginning of this exercise. The expression "the vessel", "owner" and "demise charterer", thus, must be read in the aforesaid context and the maritime claims in respect of 16 trawlers and Orion Laxmi cannot be converted into a maritime claim against the respondent ship not owned by Reflect Geophysical.69. The appellants have neither any agreement with the owners of the respondent vessel nor any claim against the respondent vessel but their claim is on account of their own vessels hired by the charterer of the respondent vessel. There is no claim against the owners of the respondent vessel.