Madras High Court

Owners & Parties Interested In The vs Nila Logistics Llp on 3 March, 2025

Author: Senthilkumar Ramamoorthy

Bench: Senthilkumar Ramamoorthy

                                                                                               A.No.5196 of 2024 in
                                                                                       C.S(Comm Div)Nos.134 of 2024


                                  IN THE HIGH COURT OF JUDICATURE AT MADRAS

                                                  DATED: 03.03.2025

                                                           CORAM

                        THE HONOURABLE MR.JUSTICE SENTHILKUMAR RAMAMOORTHY


                                               A.No.5196 of 2024 and
                                           C.S(Comm.Div)No.134 of 2024

                     Owners & Parties interested in the
                     Motor Tug (MT) INTAN T 3501 (IMO
                     9424338) A Motor Tug flying the flag
                     of Singapore, presently lying at the
                     Port of Tuticorin and represented
                     by its Master.                                                         ... Applicant
                                                       -vs-

                     Nila Logistics LLP
                     Rep. By its Managing Director,
                     Mr.Shanmugaraj,
                     5/582/26B, Netaji Nagar,
                     Tuticorin-682 002.                                                     ... Respondent


                     Prayer : Judge's Summons filed under Order XIV Rule 8 of Madras
                     High Court Original Side Rules Read with Section 45 of the
                     Arbitration and Conciliation Act, 1996 read with Section 151 of the
                     Code of Civil Procedure to refer the dispute in the above suit to
                     Arbitration.


                     1/23


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                                                                                                     A.No.5196 of 2024 in
                                                                                             C.S(Comm Div)Nos.134 of 2024


                                   For Applicant        : Mr.S.Vasudevan

                                   For Respondent : Capt. V.J.Pushpakumar

                                                                 ORDER

The plaintiff entered into two time charter parties with the

defendant in respect of the vessel “ASL Courageous” 2900 HP (the

tug) and barge “ASLCO 3008” (the barge). Both the tug and the barge

were operating under Singapore flags. As the charterer under these

time charters, the plaintiff approached this Court by way of an action

in rem under the the Admiralty (Jurisdiction and Settlement of

Maritime Claims) Act, 2017 (the Admiralty Act) by asserting a

maritime claim. The suit claim is for recovery of a sum of

Rs.1,66,66,666/- with further interest thereon at 18% p.a. from the

date of suit till realization. The plaintiff had also prayed for the arrest

of the tug and barge and for the sale thereof so as to enable the suit

claim to be discharged from the sale proceeds.

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2. By order dated 30.07.2024, a warrant of arrest was issued.

Upon receipt of notice, the defendant came forward to provide

security for the suit claim. After noticing that the interest claim was

only from the date of plaint, by order dated 12.08.2024, a warrant of

release was directed to be issued upon receiving banker's cheque

dated 08.08.2024 for a sum of Rs.1,66,66,666/-, which represents the

principal suit claim. The Registrar General of this Court was directed

to invest the proceeds of the banker's cheque in an interest bearing

fixed deposit account with the Indian Bank, Madras High Court

Branch, to the credit of the suit. Such deposit was directed to be for

an initial period of one year with the obligation to renew the same

periodically until the disposal of the suit.

3. The defendant presented this application in the above facts

and circumstances under Section 45 of the Arbitration and

Conciliation Act, 1996 (the Arbitration Act) seeking reference of the

dispute to arbitration. The affidavit in support of the application was

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affirmed on 18.09.2024. Thereafter, the defendant filed an application

to condone the delay of 89 days in filling the written statement. The

said application is pending.

4. Learned counsel for the plaintiff submitted that the dispute is

liable to be referred to arbitration for the following reasons:

(i) Time charter party dated 02.03.2024 in respect of the tug

contains a dispute resolution clause, which provides for arbitration

before the Singapore Chamber of Maritime Arbitration. Likewise, the

charter party relating to the barge also provides for dispute

resolution through arbitration by the Singapore Chamber of

Maritime Arbitration.

(ii) Upon the release of the tug and barge by providing security

for the suit claim, the suit is converted from an action in rem to an

action in personam. In support of this contention, learned counsel

referred to and relied upon the judgment of the Hon'ble Supreme

Court in M.V.Elisabeth and others v. Harwan Investment and Trading

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Pvt. Ltd., 1993 Supp (2) SCC 433 (M.V. Elisabeth), particularly

paragraph 83 thereof. Reliance was also placed on the judgment of a

Division Bench of the Bombay High Court in Angsley Investments

Limited v. Jupiter Denizcilik Tasimacilik Mumessillik San. Ve Ticaret

Limited Sirketi and Others, 2023 SCC OnLine Bom 559 (Angsley

Investments), especially paragraphs 11 and 12 thereof. By relying on

the judgment of the Division Bench of the Bombay High Court in

OSV Crest Mercury 1 (IMO 9724398) v. Vision Projects Technologies

Pvt. Ltd. (OSC Crest Mercury 1), order dated 07.05.2024 in Commercial

Appeal (L) No.30604 of 2022, he submits that the Bombay High Court

concluded that the action in rem gets converted into an action in

personam only upon the defendant providing security for the suit

claim and not merely upon the defendant entering appearance in the

suit (Paragraph 15). Since security was provided in this case and the

tug and barge were released, he contends that the suit is now an

action in personam.

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(iii) The dispute is an arbitrable dispute as per the judgment in

Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd. & others, 2011 (5)

SCC 532 (Booz Allen) and the subsequent judgment in Vidya Drolia

& Others v. Durga Trading Corporation, (2021) 2 SCC 1 (Vidya Drolia).

(iv) Article 7 of the International Convention on Arrest of Ships,

1999 (the Ship Arrest Convention) provides that the courts of the

state in which arrest was effected may direct parties to arbitration, if

parties have agreed thereto. By relying on the judgment of the Full

Bench of the Bombay High Court in J.S. Ocean Liner LLC v.

M.V.Golden Progress, 2007 (3) CTC 113 (J.S. Ocean Liner), learned

counsel submitted that the applicability of Article 7 of the Ship Arrest

Convention was recognised in the said case by the Full Bench. He

also pointed out that the Full Bench concluded that an action in rem

under the admiralty jurisdiction for recovery of a money claim and

for the arrest of the vessel may be proceeded with in accordance with

Article 7 of the Ship Arrest Convention after security is provided for

the release of the vessel.

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(v) By referring to the judgment of the Hon'ble Supreme Court

in Avitel Post Studioz Limited and Others v. HSBC Pi Holdings

(Mauritius) Limited and Others, (2021) 4 SCC 713 (Avitel Post), learned

counsel contended that mere allegations of fraud would not render

the dispute non-arbitrable and that the working tests formulated in

Rashid Raza v. Sadaf Akhtar , 2019 (8) SCC 710 (Rashid Raza), were cited

with approval in Avitel Post. Apart from making baseless allegations

of fraud, learned counsel submits that the plaintiff has not

established that fraud permeates the entire contract thereby

rendering it void or that it has implications in the public domain.

(vi) By referring to the judgment of the Supreme Court in Shin

-Etsu Chemical Co. Ltd. v. Aksh Optfibre Ltd. and Another, (2005) 7 SCC

234 (Shin-Etsu), learned counsel submitted that reference under

Section 45 is liable to be made unless the Court finds prima facie that

the contract is null and void, inoperative, or incapable of being

performed. If such prima facie view were to be taken, learned counsel

submits that no case is made out to decline to make such reference.

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5. In response to these contentions, learned counsel for the

plaintiff submitted as follows:

(i) The charter parties are incapable of being performed. By

drawing reference to the time specified for performance under the

charter parties, learned counsel submitted that the defendant entered

into these contracts without the intention of performing obligations

thereunder. Without abiding by the instructions of the charterer,

learned counsel submits that the tug and barge completely deviated

from course in spite of the plaintiff providing requisite bunkers.

(ii) The defendant's tug and barge entered and exited from the

territorial waters of India without obtaining requisite permission

from the customs authorities. Therefore, learned counsel contends

that the defendant violated the Customs Act, 1962 and rules and

regulations framed thereunder. He also submits that the plaintiff

received notices in this regard from the customs authorities.

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(iii) The charter parties are vitiated by fraud perpetrated by the

defendant, thereby causing huge losses to the plaintiff.

6. In the backdrop of the rival contentions, at the outset, it is

pertinent to set out Section 45 of the Arbitration Act. The provision

reads as follows:

“45. Power of judicial authority to refer parties to arbitration.

- Notwithstanding anything contained in Part I or in the Code of Civil Procedure, 1908 (5 of 1908), a judicial authority, when seized of an action in a matter in respect of which the parties have made an agreement referred to in section 44, shall, at the request of one of the parties or any person claiming through or under him, refer the parties to arbitration, [unless it prima facie finds] that the said agreement is null and void, inoperative or incapable of being performed.”

The text of Section 45 contains the following requirements or

conditions for exercise of power thereunder:

(i) A judicial authority should be seized of an action in a matter

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wherein the parties have entered into an agreement referred to in

Section 44.

(ii) A request should be made by one of the parties to such

agreement or any person claiming through or under him.

(iii) The Court shall make such reference unless it prima facie

finds that the agreement is null and void, inoperative or incapable of

being performed.

7. The arbitration clause in the time charter party in relation to

the tug is as under:

“37(c)* This Charter Party shall be governed by and construed in accordance with Singapore**/English law ** Any dispute arising out of or in connection with this Charter Party, including any question regarding its existence, validity or termination shall be referred to and finally resolved by arbitration in Singapore in accordance with the Singapore International Arbitration Act (Chapter

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143A) and any statutory modification or re-

enactment thereof save to the extent necessary to give effect to the provisions of this Clause.

The arbitration shall be conducted in accordance with the Arbitration Rules of the Singapore Chamber of Maritime Arbitration (SCMA) current at the time when the arbitration proceedings are commenced.

The arbitration clause in the time charter party in relation to the

barge is as under:

“32(d): Singapore law/Singapore arbitration – Single Arbitration by Singapore Chamber of Maritime Arbitration (SCMA).” It is pertinent to note that the governing law is Singapore law.

8. The defendant has placed on record the complete text of the

relevant time charter parties relating to both the tug and barge. The

plaintiff does not deny execution of these documents. The contention

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of the plaintiff, however, is that these agreements are incapable of

being performed. Consequently, it becomes necessary to consider

the scope of the expression "incapable of being performed”. In Shin-

Etsu, which was pronounced prior to the amendment of Section 45 by

Act 33 of 2019, by majority view, the Supreme Court concluded that

only a prima facie view should be recorded while making the

reference. After the amendment to Section 45, as noticed above,

Parliament has expressly stipulated that reference should be made

unless the Court finds prima facie that the agreement is null and void,

inoperative or incapable of being performed.

9. The contention of learned counsel for the plaintiff was that

the defendant did not intend to perform obligations under the charter

parties, and that such inference may be drawn from the conduct of

the defendant. The expression "incapable of being performed” is

used in juxtaposition with the expressions "null and void" and

"inoperative". If a contract is held to be null and void, either under

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the Indian Contract Act, 1872 or equivalent legislations in other

common law countries such as Singapore, the implication is that

parties should return to the position that they held before the

contract was executed to the extent possible. In other words, the

consequences are fundamentally different from a situation wherein

one party terminates the contract. In this situation, contractual

obligations would be binding up to the date of termination.

10. If the expression “incapable of being performed” were to be

construed as applicable in every situation where the parties to the

contract are no longer capable of or in a position to fulfil obligations

thereunder, reference to arbitration would not be possible in

situations wherein the contract is terminated by one of the parties

thereto or even in a situation where the obligations were to be

performed at a specified time or place but were not so performed. By

way of illustration, if the cargo were to be discharged at a port, but

such discharge did not take place and the vessel has sailed out

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therefrom due to breach, contractual obligations are no longer

capable of being performed. The intention of Parliament in using the

expression “incapable of being performed” is clearly not to rule out

reference to arbitration in such situation. Therefore, in my view, both

the expressions, “inoperative" and “incapable of being performed"

would take colour from the expression "null and void" on application

of the principle of noscitur a sociis and be confined to contracts which

were incapable of being performed at the time of contract formation

or subsequently due to frustration as per Section 56 of the Contract

Act, thereby rendering the contract void. It is profitable to refer to the

judgment of this Court in Ramasamy Athappan and another v. The

Secretariat of the Court, International Chamber of Commerce and others,

2008 SCC OnLine Mad 789, in this regard. In this case, the plaintiff

admits to the execution of these charter parties and alleges blatant

breach in the performance of obligations thereunder by the

defendant. These contracts cannot be construed as incapable of being

performed under these circumstances.

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11. The question whether the dispute is non-arbitrable falls for

consideration next. In Booz Allen, the Supreme Court concluded that

certain categories of disputes such as those relating to infractions of

criminal law, matrimony, insolvency, guardianship, testamentary

and intestate succession are non-arbitrable. Such conclusion was

recorded in the context of a mortgage suit by holding that such

mortgage suit is also not arbitrable. Later, this issue fell for

consideration before the Supreme Court in Vidya Drolia. At para 76

of the lead judgment, the Court held as under:

"76.In view of the above discussion, we would like to propound a fourfold test for determining when the subject-matter of a dispute in an arbitration agreement is not arbitrable:

76.1. (1) when cause of action and subject-

matter of the dispute relates to actions in rem, that do not pertain to subordinate rights in personam that arise from rights in rem.

76.2. (2) when cause of action and subject-

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matter of the dispute affects third party rights; have erga omnes effect; require centralized adjudication, and mutual adjudication would not be appropriate and enforceable;

76.3. (3) when cause of action and subject-

matter of the dispute relates to inalienable sovereign and public interest functions of the State and hence mutual adjudication would be unenforceable;

76.4. (4) when the subject-matter of the dispute is expressly or by necessary implication non-arbitrable as per mandatory statute(s).

76.5. (5) These tests are not watertight compartments; they dovetail and overlap, albeit when applied holistically and pragmatically will help and assist in determining and ascertaining with great degree of certainty when as per law in India, a dispute or subject-matter is non-

arbitrable. Only when the answer is affirmative that the subject-matter of the dispute would be non-arbitrable.

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76.6. However, the aforesaid principles have to be applied with care and caution as observed in Olympus Superstructures Pvt. Ltd.:

“35...Reference is made there to certain disputes like criminal offences of a public nature, disputes arising out of illegal agreements and disputes relating to status, such as divorce, which cannot be referred to arbitration. It has, however, been held that if in respect of facts relating to a criminal matter, say, physical injury, if there is a right to damages for personal injury, then such a dispute can be referred to arbitration (Keir v. Leeman). Similarly, it has been held that a husband and a wife may refer to arbitration the terms on which they shall separate, because they can make a valid agreement between themselves on that matter (Soilleux v. Herbst, Wilson v. Wilson and Cahill v. Cahill).”

12. In the concurring judgment of Justice N.V.Ramana, the

Supreme Court considered Booz Allen and the judgments on fraud

and eventually held that the court's scrutiny and finding should be

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on prima facie basis. In fact, at Para 244.4, the Court concluded that

“when in doubt, do refer”.

13. In the case on hand, it was concluded earlier that it cannot

be said that the contract is incapable of being performed at the time

of contract formation or that it was frustrated in terms of Section 56

of the Contract Act or even as per common law. The plaintiff has

also failed to place on record any material to support a prima facie

finding that the agreement is either null and void or inoperative.

14. The suit was admittedly instituted as an action in rem. In

the specific context of an admiralty claim, the rem refers to the vessel.

As discussed earlier, upon the defendant providing security for the

suit claim, the tug and barge were directed to be released. On the

date when such release was directed, it is pertinent to notice that no

other maritime claim was lodged in respect of the vessel. Indeed, it is

no longer possible to do so because the vessel is not within the

jurisdiction of this Court. In multiple judgments cited by learned

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counsel for the defendant such as M.V. Elisabeth, Angsley Investments

and OSV Crest Mercury 1, it was concluded that the action in rem is

converted into an action in personam upon the defendant providing

security and obtaining release of a vessel. Thus, in this case, the

action in rem has been converted into an action in personam. Being an

action in personam, it clearly does not fall within any of the categories

of non-arbitrable disputes as per the judgments in Booz Allen and

Vidya Drolia.

15. One final issue remains to be considered, namely, whether

reference should not be made in light of the allegations of fraud. The

original position, as per the judgment of the Supreme Court in

Radhakrishnan v. Maestro Engineers, (2010) 1 SCC 72, was that a

dispute should not be referred for arbitration if allegations of fraud

are levelled by the party resisting such reference. This judgment was

expressly overruled in Vidya Drolia. In Avitel Post, the matter was re-

examined and the Court concluded that reference to arbitration

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under Section 8 of the Arbitration Act would be declined only if the

court is satisfied that the allegations of fraud are serious and

complicated in nature and that it would be more appropriate for the

court to deal with the subject matter rather than relegating the parties

for arbitration. In so holding, the Supreme Court cited with approval

the judgment in Rashid Raza.

16. The allegations of fraud in the case at hand pertain to the

alleged blatant breach of the terms of the charter parties. These

allegations are controverted by the defendant by referring to

documents indicating that performance of obligations was affected

by adverse weather conditions. From the nature of allegations, it is

evident that such allegations do not pertain to the execution of the

charter parties and are confined to performance of obligations

thereunder. Even otherwise, the arbitration laws in most

jurisdictions, including Singapore, recognize the competenz-competenz

principle by treating the arbitration clause in a contract as separate

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from the rest of the contract so as to enable the arbitral tribunal to

rule on all allegations with regard to execution and validity of such

contract. In the facts and circumstances outlined above, the

allegations of fraud by the plaintiff are insufficient to meet the

exacting standard for the Court to decline the reference on that basis.

17. Before concluding, one significant aspect should be taken

note of. The defendant agreed to provide security for the entire

principal suit claim as a condition for the release of the tug and

barge. Since this Court exercised jurisdiction upon recognizing that

the tug and barge were within the admiralty jurisdiction of this

Court, the warrant for release would not have been issued but for the

defendant providing such security. Therefore, it is just and necessary

that the defendant continues to maintain such security, as directed by

this Court in order dated 12.08.2024, until the conclusion of arbitral

proceedings. Thereafter, the security shall abide by the outcome of

such proceedings.

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18. For reasons aforesaid, this application is disposed of on the

following terms:

(i) The disputes between the parties is referred to arbitration in accordance with the dispute resolution clauses in the time charter parties pertaining to the Tug ASL Courageous and the Barge ASLCO 3008.

(ii) Such reference is subject to the condition that the defendant maintains the security by ensuring periodical renewal of the fixed deposit in the Indian Bank, Madras High Court Branch, until the arbitral proceedings are finally concluded.

(iii) The security shall abide by the outcome of the arbitral proceedings and the successful party shall be entitled to apply to this Court in terms of the arbitral award.