Thakur Shipping Co. Ltd. vs Trustees of the Port of Bombay

By this Writ Petition under Article 226 of the Constitution, the petitioners seek to challenge the auction sale of the vessel M. V. "Varuna Kachhapi", held by the Bombay Port Trust on 13th May 1988, principally on three grounds which will be dealt with hereinafter.

It is common ground that the petitioners were the owners of the vessel M. V. "Varuna Kachhapi" (hereinafter referred to as "the vessel"). According to the petitioners the said vessel had been mortgaged to Shipping Development Funds Committee (hereinafter referred to as "SDFC"), and now the functions of SDFC are taken over by the Shipping Credit and Investment Limited (SCICI), the 3rd respondent. The 1st respondent is the Bombay Port Trust; the 2nd respondent is Union of India; the 3rd respondent is SCICI and the 4th respondent is the auction purchaser.

There is no dispute that the said vessel came to the port of Bombay in the month of May 1985 and was laid up at Anchorage in the said port. The vessel continued to remain in this position till date. The 1st respondents have been charging anchorage fees in respect of the said vessel at the rate of Rs. ......... which petitioners disputed being unreasonable and contrary to rules and regulations. It is also common ground that the 1st respondent served several bills in the aggregate sum of Rs. 1,47,250/-. Since the petitioners failed to pay the charges 1st respondents vide their public notice dated 14.8.1987 notified the auction sale. The petitioners challenged the quantum of charges in this court. The writ court rejected the writ petition summarily but appeal court on 19.9.1987 passed conditional order which petitioners could not comply. The auction sale consequently could not be held. The writ petition against the order of the said bills served upon the petitioners is pending for final disposal. The 1st respondent again on 11th December 1987 issued a public notice of auction sale of the said vessel to be held on 21st December 1987. This auction also could not be materialised since the tenderors withdraw their tenders. The petitioners challenged the auction sale to be held on 21st December 1987 by filing writ petition which came to be disposed of on certain conditions. According to the petitioners they have complied with the said conditions. According to the petitioners they were privately negotiating the sale of the vessel and accordingly they had made an application to SCICI vide their letter dated 9th December 1987 seeking permission to sell. Despite reminders according to the petitioners SCICI did not responds to their letters. It is alleged by the petitioners that on 28th December 1987 they entered into an agreement of sale of the said vessel with one M/s. Vishwanath Rupa and Co. for the lump sum price of Rs. 93,21,150/-. The petitioners on 11th January 1988 made an application to the 2nd respondent for sanction of the of the said vessel. There was no response from the 2nd respondent save and except that the 2nd respondent had forwarded the said application to the SCICI, the 3rd respondents. The dues recoverable by the Bombay Port Trust went on mounting. The 1st respondent therefore issued a public notice through newspapers in the last week of April 1988 notifying the auction sale to be held on 13th May 1988. Auction sale was accordingly held on 13th May 1988 and the 4th respondent being the highest bidder for Rs. 62,00,000/- the auction sale was knocked down in his favour. The Chairman sanctioned the same in favour of the 4th respondent on 13th May 1988 itself. On the very same day, the petitioners requested the Chairman of the 1st respondent not to confirm the sale, but it was of no consequence. It is this auction sale and the confirmation thereof are sought to be challenged in this writ petition.

It may also be mentioned that before holding public auction the 1st respondent had obtained the valuation certificate from Metcalfe & Hodgkinson (Pvt.) Ltd., who valued the said vessel for Rs. 40,00,000/- (Rs. forty lacs).

The petitioners challenges are three-fold in this petition. Mr. Seervai, learned counsel appearing in support of this petition firstly urged that the auction sale held on 13th May 1988 was contrary to the instructions of the Controller of Stores, Bombay Port Trust, contained in Exh M. Mr. Seervai drew my attention to the Important Note contained in these instructions which reads as under :-

"All the bidders will be provided the beaching sites by the Port Trust immediately on payment of the requisite charges therefore .The conditions required to be fulfilled by the bidders for registration as ship breakers are that they should have been registered with the Small Scale Industries and MSTC and have Income Tax clearance certificate and Banks reference."

Before I deal with this contention it would be necessary to trace the power of the 1st respondent to sell the said vessel. Section 64 of the Major Port Trust Act, 1963 deals with the provisions of recovery of rates and charges by distraint of vessel. Sub-section (2) thereof is relevant for our purpose and it reads as under :-

"(2) In case any part of the said rates or penalties, or of the cost of the distress or arrest, or 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."

In exercise of this power the 1st respondent auctioned the said vessel since the petitioners had failed to pay their dues. It is therefore an auction of the said vessel effected by the 1st respondent to realise their dues.

As stated earlier it is common ground that the petitioners did not pay the dues of the 1st respondent and consequently the 1st respondent had to notify the public auction of the said vessel. Mr. Makhija learned counsel appearing for the 1st respondent urged that the Bombay Port Trust - 1st respondent in exercise of the powers under S. 64(2) of the Act, had no other option but to sell the said vessel to realise their dues. Except Section 64 no other provision from the Act was brought to my notice on behalf of the petitioners. The plain reading of this section, in my opinion, does not require that the auction bidders must have a registration as ship-breaker and they should have been registered with the Small Scale Industries and MSTC etc. In the light of these provisions we will have to examine the contention raised by Mr. Seervai in regard to the Important Note which I have reproduced earlier.

It was contended on behalf of the petitioners that since the 4th respondents were not registered with the MSTC as ship-breakers the auction sale in their favour must be held void. This contention will have to be examined in the light of material produced before me. As far as public notice of auction sale is concerned, nowhere it was mentioned that the said vessel was meant for scrapping. In addition to this it would be very relevant to refer to the affidavit dated 24th June 1988 filed on behalf of the 4th respondent by one Harshad Navichandra Shah. Paragraph 15 of the said affidavit is relevant and it reads as under :

"I further say that the Respondent No. 4 is desirous of renovating and plying the said ship which will involve an additional expenditure of Rs. fifty lacs and above."

There is no material produced on record to suggest contrary. In view of this factual aspect I must proceed on the footing that the said vessel as per the public notice was notified for simpliciter sale and the 4th respondent purchased the same for the purpose set out in paragraph 15 referred to herein above. On these premises, in my opinion, the contention raised on behalf of the petitioners of Mr. Seervai relying upon the Important Note will have no application in the facts and circumstances of the case. In the case the 4th respondent intends to scrap the vessel probably they may have to follow the procedure prescribed by the Bombay Port Trust. Therefore the fact that the 4th respondent have not registered with the MSTC will have no bearing. Mr. Shah who has filed the affidavit on behalf of the 4th respondent has stated that he has applied in July 1987 for such registration with the MSTC as a ship-breaker and the said application is pending. Having regard to these facts, in my opinion, the first contention raised on behalf of the petitioners based on Important Note has no substance.

It was next contended by Mr. Seervai that u/s 42 of the Merchant Shipping Act, 1988 the sale is void. Section 42 prohibits the transfer or acquisition of any Indian ship or any share of interest therein without the previous approval of the Central Government. If any such transfer etc. is effected by the owner in contravention of this provision shall be void. Section 42 in my opinion, will come into operation only if it is a voluntary sale. If it is a sale of the said vessel by the 1st respondent in exercise of the powers u/s 64 of the Major Port Trust Act, then Section 42 of the Merchant Shipping Act will have no application. The second contention raised on behalf of the petitioners must also fail.

It was next contended by Mr. Seervai that the action of the 1st respondent in confirming the sale on the very same day i.e. on 13th May 1988 was mala fide. Except the bare word of the petitioners no material has been produced before me to support this allegation. As stated earlier the ship was anchored in 1985 and the charges recoverable by Bombay Port Trust were mounting everyday and by now it had reached to 23 lacs. Since the petitioners were unable to comply with the demand notices issued by the 1st respondent from time to time I do not see any malafides on the part of the Chairman of the 1st respondent, in confirming the sale on 13th May, 1988.

The second limb of the argument of Mr. Seervai was that the petitioners were negotiating with M/s. Vishwanath Rupa and Co. for the sale of the said vessel since December 1987 and the contract with the said company was almost finalised. M/s. Vishwanath Rupa and Co. had offered Rs. 93 lacs and they were ready to deposit the amount with the 1st respondent at any time. In support of this contention Mr. Seervai drew my attention to the letter addressed by the petition as to the Chairman of the 1st respondent on 13th May 1988. It is true that this letter does make a reference of sale of the said vessel to M/s. Vishwanath Rupa and Co. but if we peruse the earlier two letters dated 11th May 1988 and 12th May 1988 written by the petitioners to the 1st respondent it is clear that no such reference of any contract having been finalised with M/s. Vishwanath Rupa and Co. was ever made. All that was stated in these two letters was that the B.P.T. should take care to see that the consignment of granite cargo is delivered to the buyers and the amount recovered from the auction sale be utilised for the purpose of paying the dues of the master of the said vessel and its crew members. No material has been brought to my notice that at any time between December 1987 and 13th May 1988 the petitioners had informed the 1st respondent that M/s. Vishwanath Rupa and Co. were ready and willing to purchase the vessel for a sum of Rs. 93,00,000/- nor they had applied for any extension of time to enabled them to materialise the said sale. Having regard to the facts and circumstances of the case, in my opinion, the class of the petitioners that M/s. Vishwanath Rupa and Co. were prepared to purchase the said vessel is just a pretext and without any reality.

There is one more fact which also goes against the petitioners in this behalf. On 5th May 1988 the 1st respondent by their letter informed the petitioners of the auction sale of the said vessel being fixed on 13th May 1988. On the date of the auction sale the petitioners representative was very much present outside the auction hall and watching the proceedings quietly. If there was any concluded contract between the petitioners and M/s. Vishwanath Rupa and Co., the petitioner would not have missed the opportunity of informing M/s. Vishwanath Rupa and Co. to participate in the auction sale. This conduct itself negatives the claim set up by the petitioners that they had agreed to sell the said vessel to M/s. Vishwanath Rupa and Co.

Lastly it was urged by Mr. Seervai that the said vessel was sold for a song and in fact there were ready buyers to purchase the same for Rs. 93 lacs i.e. M/s. Vishwanath Rupa and Co. This argument again does not appeal to me because the 1st respondent before holding public auction had called for the valuation certificate from Metcalfe & Hodgkinson (Pvt.) Ltd., and the expert had valued the said vessel for Rs. 40 lacs (Rs. forty lacs), of course on the footing that the said vessel was a scrap. In view of this valuation certificate it cannot be said that the said vessel was sold for ridiculously low price. The contention of the petitioners that the said vessel was sold for song has no substance and must be negatived.

These were the only contentions raised on behalf of the petitioners and I see no substance in any of these contentions.

Mr. Chinoy appearing for the 3rd respondent supported the claim of the petitioners and urged that the said vessel was sold for ridiculously low price. According to the learned counsel the 3rd respondent as mortgagees were very much interested to protect their securities and were also very much interested to have maximum price. If the contract in favour of M/s. Vishwanath Rupa and Co. were to be materialised the 3rd respondents would have been able to recover their substantial amount of debt. For the reasons indicated above, this contention raised on behalf of the 3rd respondents as regards under valuation must fail. As far as their claim to recover the debt is concerned the 3rd respondents if so advised may take such steps as permissible in law.

M/s. Vishwanath Rupa and Co. have taken out Chamber Summons No. 543 of 1988 for impleading them as party respondents to the above writ petition. This Chamber Summons has been strongly opposed on behalf of respondents 1 and 4. Mr. Kanuga in support of this Chamber Summons urged that the applicant would be necessary party to the present writ petition inasmuch as their rights are vitally affected. He, therefore, prayed that the Chamber Summons be made absolute in terms of prayer (a). Having regard to the controversy raised in this petition, in my opinion, the applicant in the Chambers Summons have no say whatsoever and their alleged concluded contract with the petitioners cannot be investigated in this writ petition. The Chamber Summons is therefore, devoid of any merits and the same stands rejected with costs.

The petitioners have also taken out Notice of Motion No. 1848 of 1988 in this writ petition seeking direction from this Court to the 1st respondent to beach the said vessel to safe place of Port of Bombay. On 1st of July 1988 I passed ad-interim order directing the 1st respondent to permit the petitioners to beach the said vessel at their costs. Certain other directions were also issued. The petitioners have incurred the costs to beach the said vessel. This direction is in the interest of the successful party and would undoubtedly benefit the 4th respondent. In the facts and circumstances of the case I quantify the costs and direct the 4th respondent to pay 50% of the costs incurred by the petitioners under my order dated 1st July 1988. The 4th respondent shall accordingly reimburse the petitioners to the extent of 50% costs. Mr. Makhija appearing for the 1st respondent informs me that the total costs incurred for beaching the vessel came to Rs. 77,615/-. Out of that the petitioners have deposited Rs. 40,000/-. The remaining amount comes to Rs. 37,615/-. Since under this order the 4th respondent is directed to pay 50% costs, Rs. 37,615/- would almost come to 50% of the total costs. The 4th respondent is accordingly directed to pay this amount to the Bombay Port Trust. On payment of this amount to the Bombay Port Trust, the petitioners are directed to hand over the possession of the said vessel within 24 hours to the 4th respondent. Save and except the above order no other order is called for on this motion. Motion accordingly disposed of with no order as to costs.

Chamber Summons No. 538 of 1988 is made absolute in terms of prayer (a). Parties are directed to bear their own costs.

Writ petition to stand summarily rejected.

Mr. Seervai applies for stay of this order for two weeks. Application granted. Operation of this order is accordingly stayed upto 3rd August 1988.

Since the writ petition has been dismissed, the 4th respondent would be entitled to keep his watchman or security guard to protect the said vessel. The 4th respondent is accordingly permitted to put his own guard or watchman on the said vessel. The petitioners will withdraw their watchman or guard but, however, they are permitted to keep them outside the said vessel.

Time to carry out the amendment is extended by one week.