Companies Act Case Law Board Of Trustees, Port Of Mumbai Vs Indian Oil Corporation & Anr

PETITIONER:
BOARD OF TRUSTEES, PORT OF MUMBAI

Vs.

RESPONDENT:
INDIAN OIL CORPORATION & ANR.

DATE OF JUDGMENT: 16/04/1998

BENCH:
SUJATA V. MANOHAR, D.P. WADHWA

 
ACT:

 

HEADNOTE:

 

JUDGMENT:
J U D G M E N T
Mrs. Sujata V. Manohar, J.
Leave granted.
This appeal is filed by the Board of Trustees of the
Port of Mumbai in respect of an order passed by the Patna
High Court in Company Petition No.5 of 1990 for winding up
M/S Thakur Shipping Co.Ltd.
A vessel belonging to M/s Thakur Shipping co. Ltd. M.V.
Varuna Kachhapi arrived at the Port of Mumbai in May 1995
and was laid up at anchorage. It becomes liable under the
provisions of the Major Port Trusts Act, 1963 as amended by
the Major Port Trust (Amendment) act of 1974, and the Dock
Scale of Rates framed thereunder by the appellant. In view
of the Port Trust charges which remains unpaid, the
appellant-port Trust arrested the said vessel in exercise of
its rights under Section 64 of the Major Port Trust Act,
1963. It issued a public notice on 14th of August, 1987 for
the auction sale of the said vessel.
M/S. Thakur shipping Co.Ltd. challenged the proposed
auction sale by filing a writ petition in the Bombay High
Court which was summarily dismissed. In appeal, however, as
M/S. Thakur Shipping Co.Ltd. undertook to pay all the
charges due and payable to the appellant, the auction was
stayed. The charges, however, were not paid by M/s. Thakur
shipping Co. Ltd. Thereafter, further attempts were made by
the appellant to sell the vessel which were again held up on
account of the litigation initiated at the instance of M/s.
Thakur Shipping Co.Ltd. While the said ship remained under
arrest by the appellant, in 1990 a Company Petition No.5 of
1990 was filed by the 1st respondent, petitioning creditor,
in the Patna High Court against M/s. Thakur shipping Co.Ltd.
In the company petition, official Liquidator was appointed.
An order of winding up was passed in respect of M/s. Thakur
Shipping Co.Ltd. in the said company petition on 5th of
August, 1995.
In the meanwhile, the official Liquidator directed the
appellant to maintain status quo in respect of the said
vessel and further directed that if the vessel was proposed
to be sold, leave of the High Court under Section 446 of
the Companies Act should be taken.
On 11th of April, 1996, the appellant made an
application in the Patna High Court in the said company
petition setting out that up to 30.6.1995, Port Trust
charges amounting to Rs.1,2071,307 had become due and
payable and the amount continued to grow at the rate of
Rs.9,003 per day. The appellant, therefore, prayed, inter
alia, that it be permitted to recover its charges from the
sale proceeds of the said vessel and claimed that the
appellant had a right superior to that of others, in respect
of the said vessel. This was the purport of the application
though it was not clearly so worded. By an order dated 16th
of August, 1996, a learned single judge of the Patna High
Court held that an order had already been passed to permit
the sale of the said vessel. It would be just and proper to
permit the sale of the said vessel. It would be just and
proper that the vessel is sold jointly by the appellant and
the official Liquidator. He directed that the sale proceeds
be deposited with the Official Liquidator. Thereafter, the
appellant made an application for modification of the order
of 16th of August, 1996, praying that the appellant alone be
allowed to sell the vessel to sell the vessel and retain the
sale proceeds towards its dues. They would remit the balance
amount, if any, to the Official Liquidator. The High Court
has passed the impugned order of 26th of November, 1996
disallowing such modification. The High Court has directed
that the vessel be sold after issuing a global
advertisement. The High Court has further directed that
since M/s. Thakur shipping Co.Ltd. do not have any money
which could be utilised to meet the cost of advertisement or
sale, the appellant shall meet the costs of such
advertisement and sale and all incidental charges thereto
which amounts, the appellant would be entitled to recover as
a first charge on the sale proceeds. This order is being
challenged in the present appeal
Under Section 529 of the Companies Act, in the winding
up of an insolvent company, the same rules shall prevail and
be observed with regard, inter alia, to the debts provable
and the respective rights of secured and unsecured creditors
as are in force for the time being under the law of
insolvency with respect to the estates of persons adjudged
insolvent. The proviso to Section 529(1) sets out that the
security of every secured creditor shall be deemed to be
subject to a pari passu charge in favour of the workmen to
the extent of the workman’s portion therein, in the manner
set out in that section and section 529A. The position,
however, of the appellant-Port Trust is somewhat different
from the position of a secured creditor in winding up. The
vessel which is one of the properties of the company in
winding up, has been arrested by the appellant in the
exercise of its statutory right to arrest the vessel for
recovery of its rates and charges under the Major Port
Trusts Act, 1963 and the rules framed thereunder. Section 64
of the Major Port Trust Act, 1963 provides as follows:
“Section 64: Recovery of rates and
charges b y distraint of vessel.
(1) If the master of any vessel in
respect of which any rates or
penalties are payable under
this Act, or under any
regulations or orders made in
pursuance thereof, refuses or
neglects to pay the same or
any part thereof on demand,
the Board may distrain or
arrest such vessel and the
tackle, apparel and furniture
belonging thereto, or any part
thereof, and detain the same
until the amount so due to the
Board, together with such
further amount as may accrue
for any period during which
the vessel is under distraint
or arrest, is paid.
(2) In case any part of the said
rates or penalties, or of the
cost of the keeping of the
same, remains unpaid for the
space of five days next after
any such distress or arrest
has been so made, the Board
may cause the vessel or other
thing so distrained or
arrested to be sold, and, with
the proceeds of such sale,
shall satisfy such rates or
penalties and costs, including
the costs of sale remaining
unpaid, rendering the surplus
(if any) to the master of
such vessel on demand.”
The Port authorities have a paramount right to arrest a
vessel an d detain the same until the amounts due to it in
respect of extending the port facilities and services to the
vessel are paid. Under sub-section (2), in case any part of
the said rates, charges, penalties or the cost of the
distress or arrest or of the keeping of the same remain
unpaid for a space of five days next after any such distress
or arrest has been made, the Board may cause the vessel so
distrained or arrested to be sold. The proceeds of such sale
shall satisfy such rates or penalties and costs including
the costs of sale remaining unpaid. The surplus, if any, is
to be rendered to the master of such vessel on demand.
The statutory right under Section 64 embodies this
overriding right of the harbour authority over the vessel
for the recovery of its dues. This right stands above the
rights of secured and unsecured creditors of a company in
winding – up in the present case, the shipping company
which owns the vessel. The harbour authorities allow ships –
national or foreign to another and avail of the services
provided by them. For payment they look to the vessel. The
owner may be foreign or even unknown to the harbour
authority. The latter’s right to recover its dues is not
affected by any pending proceedings against the owner in any
court – whether in winding up or otherwise. The harbour
authority can arrest the vessel while it is anchored in the
harbour and recover its dues in respect of that vessel by
sale of the vessel if the dues are not paid. This lien of
the harbour authority over the vessel is paramount. The lien
cannot be extinguished or the vessel sold by any other
authority under the directions of the court or otherwise,
unless the harbour authority consents to such sale. Thus, in
the case of Ashok Arya v. M.V. Kapitan Mitsos, (AIR 1988
Bom 329), the Bombay High Court relied upon the decision in
The Emilie Millon (infra) and held that the lien given by
statute to a dock or harbour authority cannot be
extinguished by court unless it be done with authority’s
express or implied consent.
In British Shipping Laws series Vol.14, on “Maritime
Liens” by Dr.D.R.Thomas, Paragraph 414 states:
“414: By a public or private Act of
Parliament an undertaking such as a
port, dock or harbour authority may
expressly be given a power to
detain and sell a ship and possibly
also her cargo. Such a power is
customarily created so as to
provide a security for damage done
by a vessel or necessary services
rendered to a vessel and her cargo.
It is now well established that
such a statutory right of detention
and sale stands in priority to all
other claims against the vessel
for, in creating the power, this is
presumed to have been the intention
of the legislature. Such is the
distinctiveness and superiority of
these statutory rights that they
cannot properly be considered as
falling within the province of
priorities. Questions of priority
only fall to be considered after
the statutory claim has been
satisfied.
The superiority of the
statutory right means that a dock
or similar body may, if it chooses,
exercise its statutory rights
notwithstanding that the vessel is
under the arrest of the Admiralty
Marshal, although it has no power
to interfere directly with the
Marshal’s custody; or
alternatively, it may apply to the
Court to seek the release of the
vessel from arrest. In the words of
Collins M.R. `…..nobody can
against the will of the board, undo
or annual the statutory provision.
Despite the clear recognition of
the primacy of the statutory rights
the Court may nonetheless in the
interest of other claims which may
be involved, make the dock or other
authority accountable to the Court
in the exercise of its statutory
powers or, when possible, direct
the available securities to be
marshalled.”
[underlining ours]
The Bombay High Court in the case of Forwarding
Pvt.Ltd. and Anr. v. Trustees, Port of Vizagapatnam and
Anr.(1987 [61] company cases 513) has held that the power of
arrest and sale of a vessel belonging to a company in
winding up, by the port authorities emanates from Section 64
of the Major Port Trusts Act, 1963, and there is no question
of the Port authorities resorting to a legal proceeding for
that purpose. Hence the question of their obtaining leave
under Section 446 of the Companies Act, 1957 does not arise
when exercising the statutory rights under Section 64.
In M.K. Ranganathan and Anr. v. Government of Madras
and Ors. (1955 [2] SCR 374 at 383, 387), this Court
considered the position of a secured creditor in a winding
up proceeding as also of a person entitled to attach and
sell any property without the intervention of the court. It
said that a secured creditor stands outside the winding up
and can realise his security without the leave of the court;
though if he files a suit or takes legal proceedings he will
require the leave of the winding up court. Attachment or
distraint without the intervention of the court are not
under the purview of winding up proceedings (see also [1996]
4 SCC 165).
Therefore, the lien of a harbour authority over the
vessel is a paramount lien and realization of its dues by
the harbour authority by the sale of the vessel is above the
priorities of secured creditors. In other words, the
statutory lien of a harbour authority has paramountary
even over the claims of secured creditors in a winding up.
In exercise of its right under Section 64 the appellant is,
therefore, entitled to sell the vessel without the
intervention of the court. In exercise of that paramount
right which overrides the claims of all other creditors
including secured creditors, the appellant has a right to
arrest the vessel and sell it. Without the consent of the
appellant, this right can not be transferred to the sale
proceeds of the vessel.
In the case of The Emilie Million (1904-5 [2] K.B.817)
the Court of appeal in England considered a similar
provision under Section 253 of the Mersey Dock acts
Consolidation act, of 1858. It held that the right of the
Harbour Board to cause such vessel to be detained until all
such rates have been paid, gives the Board a paramount right
to detain a vessel until the dock tonnage and rates due in
respect of her are paid, notwithstanding that the master and
crew of the vessel have a maritime lien upon her for wages
due before she entered the dock. But the right will remain
so long as the vessel is arrested and sold by it.
In the Mersey Docks and Harbour v. Hay, Re the Countess
(1923 Appeal cases 345), the House of Lords extended the
right of the Harbour Board to recover its dues in priority
over all other claims to limitation fund. It held that the
exercise by the Harbour Board of the statutory power to
detain the ship conferred on them a possessory lien. This
lien was not affected by the provisions of Section 504 of
the Merchant Shipping Act relating to limitation of
liability of an owner of a vessel, either or by implication.
However, it said that the court, in distributing the
statutory amount of a ship-owner’s liability (limitation
fund) ought to have regard to the priorities as well as to
the amounts of the claims. The House of Lords directed that
the whole of the fund should be paid out to the Harbour
Board.
In a later decision in re the Queen of the South
(1968(1) AER 1163) the court held that where it would b e
beneficial for all concerned that the admiralty marshal
should sell the ship and pay the claim of the dock authority
out of the proceeds of the sale, the court may so authorise
the marshall to pay the Harbour Board’s dues provided the
Harbour Board gives a written undertaking to the court not
to exercise its rights of detention and sale. Therefore,
without the consent of the Harbour Board their right of
detention and sale cannot be transferred from the ship
itself to the fund in the court constituted from the proceed
of the sale of a ship.
In the present case the appellant is objecting to the
directions given by the court in winding up directing the
Official Liquidator to sell the vessel along with the
appellant and to bring the sale proceeds into court. The
appellant has a supervening priority in respect of its
claims against the vessel. It has a right to sell that
vessel and realise the sale proceeds. The appellant cannot
be divested of this statutory right without its consent or
be subjected to other priorities under the Companies Act.
The appellant has also objected to any global advertisement
being issued in respect of the said vessel since the vessel
is lying at anchorage since 1987 and is in a very
dilapidated condition. It is unlikely to attract
international bidding. The sale proceeds are not likely to
cover even the full statutory charges of the appellant. The
appellant has also objected to its being equated to other
secured creditors in winding up.
Looking to the overriding priority statutorily given to
the appellant, the impugned order passed by the High Court
is set aside. The appellant shall be entitled to sell the
vessel by auction in accordance with the procedure
prescribed by its rules and regulations. Since the appellant
has no objection to the Official Liquidator and/or a
representative of the first-respondent (petitioning
creditor) remaining present at the sale, it will be open to
the Official Liquidator to depute its representative to
remain present at the sale and the same right is given to
the first-respondent as well.
The appellant shall be entitled to realise its
statutory dues as per law from the sale proceeds of the
said vessel and the balance, if any, of the sale proceeds
shall be deposited by the appellant with the Official
Liquidator in winding up. The appellant shall also file an
account of its dues and the realisation of the same from the
sale proceeds of the vessel in the winding up proceeding s
before the Official Liquidator. The appellant has no
objection to doing so. In respect of any shortfall in the
realisation of dues, the appellant may file its claim for
the balance in winding up proceedings in accordance with
law.
The appeal is accordingly allowed. There will, however,
be no order as to costs.

 

 

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