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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.

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    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

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         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:

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    "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

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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

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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.