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State Bank of India Vs. the Official Liquidator and Others - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtMumbai High Court
Decided On
Case NumberNotice of Motion No. 2630 of 1991 in Suit No. 1446 of 1986
Judge
Reported inAIR1995Bom219
ActsMerchant Shipping Act, 44 of 1958 - Sections 47, 50, 51(1), 52, 398 and 399; Major Port Trust Act, 38 of 1963 - Sections 120
AppellantState Bank of India
RespondentThe Official Liquidator and Others
Appellant AdvocateV.V.Tulzapurkar i/by ;Crawford Bayley and Co.
Respondent AdvocateUmesh Shetty and ;Mrs. K.V. Gautam, Official Liquidator
Excerpt:
- - on failure of the owner to do so within the aforestated period, the balance of the sale proceeds will become the property of the central government. hence, it would appear that the position of the mortgage under the merchant shipping act is placed in a better position than the mortgage under the insolvency laws. the claim of the plaintiff in the circumstances cannot be defeated on the ground of delay and laches......notice dated 26-10-1990 the plaintiff called upon the respondents to pay over the balance of the sale proceeds lying with it after deducting all its costs, charges and expenses.since there was no response, the plaintiff senta reminder on 2-12-1990. the plaintiff thereafter on 27-11-1991 has taken out the presentnotice of motion for various reliefs against therespondents. prayer clause (b) which has beenpressed by the plaintiff in the present notice ofmotion is as under: '(b). the respondents be ordered and directed to deposit the sale proceeds lying in their hands in this hon'ble court to the credit of the above suit for the plaintiff's benefit;' since the other prayers are not pressed into service, it is not necessary to refer to them.6. it is undisputed that the vessel m.v. unilaxmi.....
Judgment:
ORDER

1. The present notice of motion inter alia seeks orders and directions against the Respondents the Board of Trustees of the Port of Tuticorin to deposit balance of the sale proceeds in respect of the vessel M. V. Unilaxmi after defraying its charges towards the sale and other incidental expenses.

2. The plaintiffs is State Bank of India which has filed the present suit to recoverfrom the Defendants a sum of Rupees 2,78,35,092.57 on account of certain facilities offered by the plaintiff to the 1st defendant Universal Shipping Co. Pvt. Ltd. which has since gone in liquidation and Official Liquidator has been implead as defendant No. 1. The defendants Nos. 2 to 7 are the guarantors with whom we are not concerned with the reliefs claimed in the present notice of motion. The respondent is the Board of Trustees of the Port of Tuticorin who is the contesting party to the present claim.

3. Towards the facilities offered by the plaintiff-bank to the 1st defendant-company which is now in liquidation, the company had offered the vessel M. V. Unilaxmi as security. The vessel was mortgaged by the company in favour of the plaintiff.

4. On the 5th November, 1985, the said vessel M. V. Unilaxmi was abandoned. As a consequence, the said vessel on 18-11-1985 sank and was turned into a wreck. Since the vessel had been insured, the plaintiffs raised a claim against the Insurance company. The Insurance company denied its liability and hence the plaintiffs has filed a suit against the Insurance company and the suit is pending.

5. The plaintiff on the 7th April 1986 has filed the present suit for recovery of the aforestated amount against the 1st defendant company being the principal borrower and the other defendants being the guarantors. On the 2nd December, 1988, the respondents sold the wreck. The details of the sale are mentioned by the respondent in its affidavit in reply in the following terms.

'I say that the said wreck was sold for Rs.4.20 lacs against which the sums of Rs. 1,82,160.00 and Rs. 12,817/- and Rs. 42,000/...... have been appropriatedtowards the Marine department and Port charges, Mechanical Engineers Charges and sales tax dues aggregating to Rs. 2,36,977.00 leaving a balance of Rs. 1,83,023/-.......'

By notice dated 26-10-1990 the plaintiff called upon the respondents to pay over the balance of the sale proceeds lying with it after deducting all its costs, charges and expenses.Since there was no response, the plaintiff senta reminder on 2-12-1990. The plaintiff thereafter on 27-11-1991 has taken out the presentnotice of motion for various reliefs against therespondents. Prayer clause (b) which has beenpressed by the plaintiff in the present notice ofmotion is as under:

'(b). The respondents be ordered and directed to deposit the sale proceeds lying in their hands in this Hon'ble Court to the credit of the above suit for the plaintiff's benefit;'

Since the other prayers are not pressed into service, it is not necessary to refer to them.

6. It is undisputed that the vessel M.V. Unilaxmi formed a security on the basis of which the plaintiff advanced facilities to the 1st defendant company. It is further not disputed that the crew of the vessel had abandoned the vessel, that the vessel sank and was turned into a wreck. The respondents being the Port Trust being the receiver of the wreck has sold the wreck and is now in possession of Rs. 1,83,023/- being the surplus amount after meeting all costs, charges and expenses. The question which has been agitated before me is whether the plaintiff can lay its claim over the said amount towards the discharge of the suit claim. The claim of the plaintiff is opposed by the respondent on the ground that the said amount is held by it for the benefit and to the credit of the Central Government. Reliance is placed on the provisions of Section 399 (1) and (3) of the Merchant Shipping Act, 1958. It is further contended that the claim raised by the plaintiff is barred by the Law of Limitation. It is lastly contended that the plaintiff has been guilty of inaction, it is guilty raising its claim after an undue delay. Hence even on equitable grounds the plaintiff is not entitled to the relief claimed. Section 399(1) of the Merchant Shipping Act, 1958 provides as under:

'The owner of the wreck in the possession of the receiver upon establishing his claim to the same to the satisfaction of the receiver within one year from the time at which the wreck came into the possession of the receiver shall, upon paying the salvage and other charges, be entitled to have the wreck or theproceeds thereof delivered to him.' Sub-section 3 of Section 399 provides:

'Where the owner of the wreck does not appear and claim the balance of the proceeds of sale within one year from the date of sale, the said balance shall become the property of the Central Government.'

Placing reliance on the above provisions and more particularly the one contained in subsection 3 of Section 399 it is contended that the right to have the proceeds of wreck lies with the owner and such an owner has to apply for the proceeds within a period of one year. On failure of the owner to do so within the aforestated period, the balance of the sale proceeds will become the property of the Central Government. As far as the plaintiff is concerned, it is the mortgage. It cannot claim a right over and above the right bestowed upon the owner and hence the plaintiff also will not be entitled to claim the balance of the proceeds of the sale.

7. The above arguments in my view is misplaced as the same overlooks the provisions of Section 398. Section 398 in so far as it is relevant provides:

'A receiver of wreck may at any time sell any wreck in his custody if, in his opinion -

(a) it is under the value of five hundred rupees; or

(b) It is so much damaged or of so perishable a nature that it cannot with advantage bekept; or

(c) .....

and the proceeds of the sale shall, after defraying the expenses thereof, be held by the receiver for the same purposes and subject to the same claims, rights and liabilities as if the wreck had remained unsold'.

The above provision it would appear seeks to uphold the claims, rights and liabilities in respect of the wreck. The phrase 'as if the wreck has remained unsold' suggests that claims and rights of the third parties which existed in respect of the wreck would ensure in respect of the sale proceeds also. Section 399it would appear deals with the rights of the owner of the wreck whereas Section 398 deals with rights of persons who are not the owner of the wreck. In other words in so far as Section 399 deals with the rights of the owner Section 398 deals with the rights in respect of the third parties. Hence even though S. 399 provides for a period of limitation within which an owner can set up his claim and the vesting of the wreck with the Central Government in the event of the claim not being made within limitation the said provision is conspicuously absent in Section 398. Whereas Section 399 deals with the rights of the owner Section 398 does not make use of the word 'owner'. It would therefore be reasonable to infer that Section 398 is intended to cover rights of persons other than the owner i.e. 3rd parties. Since the limitation provided in S.399 is conspicuously absent in S. 398 it would not be reasonable to import the provision in Section 398.

8. As far as the plaintiffs are concerned, they are the mortgage in respect of the vessel. The rights of a mortgage in respect of a ship are dealt with by Section 47 and onwards. Section 50 provides:

'Except in so far as may be necessary for making a mortgaged ship or share available as a security for the mortgage debt, the mortgage shall not, by reason of his mortgage, be deemed to be the owner of the ship, or share, nor shall the mortgagor be deemed to have ceased to be owner thereof'.

Section 51(1) provides:

'A registered mortgage of a ship or share shall be entitled to recover the amount due under the mortgage in the High Court, and when passing a decree or thereafter the High Court may direct that the mortgaged ship or share be sold in execution of the decree'.

Section 52 provides as under:

'A registered mortgage of a ship or share shall not be affected by any act of insolvency committed by the mortgagor after the date of the record of such mortgage, notwithstanding that the mortgagor, at the commencement of his insolvency, had the ship or share in hispossession, order or disposition, or was the reputed owner thereof, and the mortgage shall be preferred to any right, claim or interest therein of the other creditors of the insolvent or any trustee or assignee on their behalf.

It would thus appear that as far as the mortgage is concerned he continues to be a mortgage and does not become an owner and the mortgage is entitled to recover the amount due under the mortgage and his claim is to be preferred to the claim of other creditors. Hence, it is clear that the provision of Section 399 which apply to the owner of a ship or a wreck cannot be made applicable to a mortgage. Further the provision of Section 52 safeguards the rights of a mortgage even in the event of the insolvency of the mortgagor. Hence, it would appear that the position of the mortgage under the Merchant Shipping Act is placed in a better position than the mortgage under the Insolvency Laws. In the circumstances I am constrained to hold that the provisions of Section 399 will not affect the rights of the plaintiff-mortgage over the mortgaged vessel which later has been turned into a wreck and which after sale is now to be found in the form of sale proceeds of the wreck in the hands of the respondent. The same will be available by virtue of Section 398 for satisfying the mortgaged debt. The balance of the sale proceeds would form the substituted security of the plaintiff bank and the same cannot vest in the Central Government by overriding the claim of the mortgage-bank.

9. On the point of limitation reliance is placed on Section 120 of the Major Port Trust Act, 1963 which provides:

'No suit or other proceeding shall be commenced against a Board or any member or employee thereof for anything done, or purporting to have been done, in pursuance of this Act until the expiration of one month after notice in writing has been given to the Board or him stating the cause of action, or after six months after the accrual of the cause of action'.

10. In my view, the above provision will not and cannot be made applicable to the present claim. The present suit has not been filed and the present claim has not been set up for anything done or purported to have been done either by the board or by any member or employee of the Board. Nothing has been done in pursuance of the Major Port Trust Act which has given rise to the present claim. What the respondent has done is in pursuance of provisions contained in the Merchant Shipping Act i.e. it has sold the wreck and has recovered the sale proceeds. It is now holding an amount of Rs. 1,83,023/- being the balance after deducting its costs, charges and expenses. As far as the claim of the plaintiff is concerned, there is no provision and there indeed cannot be one which would extinguish the mortgage's rights over the proceeds of the mortgaged property. Such a provision would amount to expropriation of rights of third parties. The rights in my view have been safeguarded by the provision contained in Section 398 of the Merchant Shipping Act, 1958. The rights of the mortgage cannot by implication be deemed to have been extinguished by virtue of Section 399. The right also cannot be said to be barred by the Law of Limitation. The right to recover its dues cannot be denied on the ground that no steps were taken by the plaintiff to salvage the ship when it was informed that the crew had abandoned, the ship as no such obligation rested on the plaintiff. As far as the present suit is concerned, it has been filed on 7th April 1986 which is much prior to the sale of the wreck by the respondents on 2-12-1988. The plaintiffs have raised their claim against the Insurance company and when the claim was denied it has filed a suit. As far as the present notice of motion is concerned, the same has been taken out on 28-10-1991 and the respondents have been impleaded in the notice of motion. Moreover a chamber summons has been taken out in December 1991 to implead the respondents in the suit and orders have since been passed making the chamber summons absolute. The respondents have thereafter been impleaded in the suit also. The claim of the plaintiff in the circumstances cannot be defeated on the ground of delay and laches. The dues of the workmen I am informed have still remained unpaid. Theirclaim under the provision of Section 529A will rank pari passu with the secured creditors such as the plaintiffs. In the circumstances, the order that will be passed in the notice or motion will enure for the benefit of the workmen also. Hence even on equity, the plaintiff identified to the reliefs claimed.

11. For the foregoing reasons, the notice of motion is made absolute in terms of prayer clause (b). The respondents are directed to deposit the sum of Rs. 1,83,023/- in this Court within a period of eight weeks. On the amount being deposited, the Prothonotary and Senior Master to invest the amount in a nationalised bank for a period of three years and will continue to deposit the same for a further period of three years each time till the disposal of the suit. The costs of the notice of motion will abide by the costs of the suit.

12. Prothonotary and Senior Master toact on a copy of this order to be authenticatedby my Associate.

Notice of motion made absolute


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