1. The notice of motion is taken out on behalf of defendant Nos.1 and 2 for return of security of Rs.65,71,141/- to the applicant together with interest accumulated thereon.
2. The applicant is seeking return of security on the basis that the suit was filed and security obtained for the plaintiff's claim in arbitration. It is the applicant's case that the defendant no.1 vessel and the vessel m.v. Eastern Light for which the plaintiff allegedly provided management services are not sister vessels and hence the first defendant vessel cannot be arrested. It is submitted that both these vessels are owned by different entities which are unconnected and assuming for the sake of argument both are part of the same group and have common beneficial ownership, still at best they could be considered as vessels owned by sister companies and not sister ships and for the Court to conclude that these are sister ships, the Court has to pierce the corporate veil. It is submitted that the plaintiff has not made out any case to pierce corporate veil.
3. Further the plaintiff has no cause of action against the defendant no.1 vessel and/or the applicant who is defendant no.2 as there is no arbitration agreement between the plaintiff and the applicant. It is submitted by the counsel for the applicant that the plaintiff can seek security against the applicant only if the plaintiff can show there exists a binding arbitration agreement between the plaintiff and the applicant relating to management services rendered to m.v. Eastern Light. The purported management agreement relying on which the plaintiff has instituted the present suit has not been entered into with the applicant but is an agreement between the plaintiff and the defendant no.3 and hence there is no arbitration agreement between the plaintiff and the applicant. Consequently, also the defendant no.1 vessel cannot be arrested.
4. Counsel for the applicant submitted that defendant no.1 and m.v. Eastern Light are not sister ships because both are owned by different legal entities. He further submitted that the identity of a company is distinct from its shareholders and assets of the company does not become asset of the shareholders and that the allegations of the plaintiff that the applicant, who is defendant no.2, and defendant no.3 are alter-egos of one another or enjoy same ownership or functional integrality are baseless. Hence, in these circumstances, the security furnished by the applicant has to be returned.
5. This court in a recent judgment in the matter of M/s. Universal Marine and Ramanand Padiyar Vs. M.T. Hartati and Anr. (Notice of Motion No. 1080 of 2013 in Admiralty Suit No.77 of 2012) [M.T. Hartati] has held that for two ships to be called sister ships, both the ships have to be registered under the same ownership. But if two ships are owned under two different owning companies, then, for them to be called sister ships corporate veil has to be pierced. For that not only common beneficial ownership has to be established but (a) fraud has to be alleged in the plaint, (b) mere bald allegation of fraud is not sufficient and (c) it has to be alleged with sufficient material to show that this allegation will be sustained at the time of trial. If the corporate veil is so pierced then even if the ships are registered in different names, then both the ships will be termed as sister ships.
6. Mr.Ramabhadran, counsel for the plaintiff fairly conceded that m.v. Eastern Light and defendant no.1 cannot straight away be called sister ships since they are not registered in the same name, but by piercing corporate veil both these ships can be called sister ships. Relying on the recent judgment of M.T. Hartati, the applicant submitted that the plaintiff has not even alleged anywhere that the companies that owned the 1st defendant and m.v. Eastern Light were formed to play a fraud on the plaintiff or the creditors.
7. Since the admitted position is both the ships are not owned by the same entity but by different entities, the only point that requires to be looked at is whether this is a case that merits piercing the corporate veil.
8. Let us rewind a bit. On 8th November 2011, the plaintiff had obtained an order of arrest against the 1st defendant vessel in respect of claims against defendant no.2 for management services rendered to defendant no.1. That order of arrest was vacated following the applicant securing the plaintiff's claim in that suit. By the time, the applicant furnished security in that suit the plaintiff herein had filed a caveat against release of the defendant no.1 vessel. The plaintiff wanted to obtain security for claims under a management agreement entered into with defendant no.3 for a ship m.v. Eastern Light. The applicant, since defendant no.1 was on her funeral voyage and had contractual obligations, without prejudice to its rights and contentions, secured the plaintiff's claim in this suit as well and hence the defendant no.1 vessel was not re-arrested.
It is the applicant's case that the test required to be applied is if the defendant no.1 vessel had not been arrested in the other suit and if the caveat had not been filed and the plaintiff in this suit had simplicitor filed for the arrest of defendant no.1 vessel, would the Court have passed an order of arrest on the basis of the facts and circumstances of the case as averred in the plaint. It is the applicant's case that the entire basis of the plaintiff's case is that defendant no.2 and defendant no.3 are alter-egos of one another, enjoy the same ownership and functional integrality and hence defendant no.2 and defendant no.3 enjoy identity and commonality of interest and functional integrality and are in law and effect, one entity. Therefore, defendant no.1 vessel admittedly owned by defendant no.2 required to be arrested for a claim of the plaintiff against defendant no.3, who is not the owner of defendant no.1. The basis for the plaintiff to state this is (a) the subscribers at the time of incorporation of defendant no.2 and defendant no.3 were the same, (b) the address of defendant no.2 and defendant no.3 are the same, (c) both the companies were formed on the same date, (d) both the companies appointed the same person as the constituted attorney to purchase the respective vessels sold pursuant to a French Court order, (e) the constituted attorney was appointed in two different board meetings of each company on the same date and held at the same address, (f) both the powers of attorney are of the same date, (g) there was no need to buy the two ships in two different names, (h) both companies had authorised capital of only US$ 10,000/- each, (i) both the companies had entered into management agreement with the plaintiff on the same day on almost identical terms and conditions, (j) both the vessels had a common agent based in Dubai and (k) both the vessels were sold around the same period for breaking and hence the person who would be liable in personam, when the cause of action arose against m.v. Eastern Light is also the beneficial owner of defendant no.1. Hence, both defendant no.1 and m.v. Eastern Light are sister ships. The plaintiff's counsel contended that though it may not have been specifically averred in the plaint, all these facts can lead to only one conclusion that the defendant no.1 vessel and the vessel m.v. Eastern Light were purchased in the names of defendant no.2 and defendant no.3, respectively, only with an intention to play a fraud and to mask the true owners and both companies were sham companies. Therefore, corporate veil has to be pierced and the Court should conclude defendant no.1 and m.v Eastern Light were sister ships.
9. For this, it is necessary to examine the pleadings in the plaint. The relevant paragraphs are as under:
1(b) Defendant No.1 is a foreign flag motor vessel (hereinafter œdefendant no.1?), which is flying the flat of Belize and is registered at the Port of Belize City. A statement setting out the particulars of defendant no.1 is annexed at Exhibit œA' hereto. Defendant no. 1 is presently lying in the port and harbor of Bhavnagar/Alang, within Indian territorial waters and is therefore, amenable to the admiralty jurisdiction of this Hon'ble Court.
1(e) It is the case of the plaintiff that defendant nos.2 and 3 are alter-egos of one another, enjoy same ownership and functional intergrality. Defendant Nos.2 and 3, therefore, enjoy identity and commonality of interest and functional integrity, and are in law and effect, one entity. This is for the following reasons: (i) defendant nos.2 and 3 enjoy the same shareholders and/or subscribers viz. Maria Del Rosario Rajoy Cerderia and Meguel Mihalisianos; and (ii) Defendant Nos.2 and 3 operate out of the same office and/or business establishment viz. 47 Street, Bella Vista and Aquillinode la Guardian Bldg./Ocean Business Plaza, Panama City. (iii) Furthermore, the decision to purchase defendant no.1 and the vessel by defendant nos.2 and 3 respectively appear to have been taken on the 21st April 2011, at the same, in the same premises and the board resolutions of both defendant nos.2 and 3 have appointed the same person, Mr.Christian Schulz, to as their power of attorney holder for the transactions. Copies of the relevant certifications issued by Public Registry of Panama are annexed at Exhibits B and C hereto. The accounting of payments for both vessels are together. Copy of the account statement dated 14th July 2011 is annexed at Exhibit D, which shows that the payments for both the vessel were made together. Copies of minutes of the boarding meeting and powers of attorney are annexed at Exhibit E. In the light of the above, it is clear that defendant no.2 and 3 (hereinafter referred to as œthe defendants?) are, as a matter of fact, one and the same. Thus, the person who would be liable in an action in personam when the cause of action arose against the vessel is also the owner/beneficial owner of defendant no.1. Hence, as a matter of law (both under the International Convention for Unification of Rules Relating to Arrest of Seagoing Vessels at Brussels, 1952 and/or otherwise), defendant no1 and the vessel are sister ships.
1(f) The Plaintiff is, therefore, filing this present action in rem for the arrest, sequestration, condemnation and sale of defendants No.1, which is a sister ship of the vessel, as security for the satisfaction of the plaintiff's claim against the defendants as it appears that the vessel, in respect of which services were rendered by the plaintiff, has been beached and has been sold for demolition.
1(g) At all material times, the defendants have acted and/or corresponded through their agent GMS, Dubai (œGMS?). A large part of the correspondence has been carried on by the defendants through GMS.
10. In paragraph 24 of the plaint also the plaintiff has proceeded on the basis that the plaintiff has a maritime claim and is entitled to proceed against defendant no.1 in rem for dues arising from m.v. Eastern Light which is a sister ship of defendant no.1 under the provisions of law generally under the Admiralty Jurisdiction of this Hon'ble Court and Article 3 of the International Convention for Arrest of Seagoing Vessels.
11. Let us now examine the documents annexed to the plaint. Exh. A gives the overview of the defendant no.1 vessel and states that the registered owner is œIndian Breakers?. Exh. B which is the certificate of registration issued by Panama registry for defendant No.3 shows: (a) the authorised capital of the company is US$ 10,000/-, (b) it was registered on 7th April 2011, (c) the subscribers are Maria Dell Rosario Rajoy Cerdeira and Miguel Mihalitsianos, (d) the Directors are Milciades Garcia, Yeneira Cedeno De Barahona, Luz Deli Suira and (e) the resident agents are Veleiro, Mihalitsianos and De La Esprielia.
Exh.'C' pertains to registration of defendant no.2. All the details are identical to that of defendant no.3 as mentioned Ex. B save the Directors are different.
Exh.'D' is a document in German language and I would not hazard a guess as to what it contains and no translation is provided.
Exh. 'E' contains the minutes of meeting of Directors held on 21st April 2011 for both defendant no.2 and defendant no.3 in which one Christian Schulz, a German national is appointed as constituted attorney. The minutes as well as well as the power of attorney for both the companies are identical except that (a) the name of the vessel is different, (b) the three persons attending the board meeting are different and (c) the signatories to the two powers of attorney are different.
Exh. 'F' is copy of the management agreement between the plaintiff and defendant no.3. The management agreement for the 1st defendant vessel is not annexed to the plaint but has been annexed to Admiralty Suit No.74/2011. I am told they are almost similar barring the name of ship and owners etc.
12 As regards, the stand of the applicant that the plaintiff has not proved fraud, Mr. Ramabhadran relied on order VI Rule 4 of the Code of Civil Procedure and submitted that he has put enough particulars in the 1st paragraph of the plaint and the omission to use the word 'fraud' cannot be held against him. He also relied upon the judgment of House of Lords reported in 1896 AC 146 œEx parte George Stapylton Barnes? in which Lord Halsbury L.C. as he then was, in internal page 4 has held that:
'I confess I am unable, looking at the whole of the legislation on the subject, to entertain the least doubt that that was what the Legislature intended, and I am a little surprised, I confess, that there should have been any doubt that fraud must be found; by which I do not mean that the particular word œfraud? must be used, but that such facts must be found by the official receiver as suggest fraud against the person incriminated; and that there must be an individual person incriminated.'
He submits that so long as facts to suggest fraud against the person interested in the two companies are found in the plaint, the Court should read the word fraud into it and lift the corporate veil. He also submitted that the plaintiff has merely denied the allegations without any explanation on the commonality. He submitted that for example, in response to the plaintiffs position that defendant no.2 and defendant no.3 are owned by Maria Dell Rosario Rajoy Cerdeira and Miguel Mihalitsianos, the reply of the applicant is that Maria Dell Rosario Rajoy Cerdeira and Miguel Mihalitsianos are not the owners of defendant no.2 but they are not mentioning who the actual owners are. Mr. Ramabhadran states that the documents at Exh.C to the plaint suggests otherwise and under Section 106 of the Evidence Act, the onus is on the applicant/defendant no.2 to show as to who is the owner and simplicitor denial is not sufficient. Likewise, he further submitted, the documents at Exh. C says that both defendant no.2 and defendant no.3 have same resident agents and the applicant-defendant no.2 simply state in its rejoinder that they are not aware of and hence denied, whereas such document at Exh.C speaks otherwise. Even for allegation of commonality of interest, there is only blanket denial and no explanation has come forth from defendant no.2.
13. Mr.Ramabhadran also relied on the apex courts judgment delivered in the matter of Delhi Development Authority Vs. Skipper Construction Co. (P) Ltd. and Anr. - (1996) 4 SCC 622, where the issue of lifting of corporate veil has been dealt with. He, in particular, relied upon paragraph 24, 26 and 27 which read as under:
œ24. Salomon v. Salomon and Company Limited (1897 Appeal Cases 22), the House of Lords had observed, "the company is at law a different person altogether from the subscriber...; and though it may be that after incorporation the business is precisely the same as it was before and the same persons are managers and the same hands received the profits, the company is not in law the agent of the subscribers or trustee for them. Nor are the subscribers as members liable, on any shape or form, except to the extent and in the manner provided by that Act".
Since then, however, the Courts have come to recognize several exceptions to the said rule. While it is not necessary to refer to all of them, the one relevant to us is "when the corporate personality is being blatantly used as a cloak for fraud or improper conduct". [Gower: Modern Company Law - 4th Edn. (1979) at P.137]. Pennington [Company Law - 5th Edn. 1985 at P.53] also states that "where the protection of public interests is of paramount importance or where the company has been formed to evade obligations imposed by the law", the court will disregard the corporate veil. A Professor of Law, S.Ottolenghi in his article "From Peeping Behind the Corporate Veil, to Ignoring it Completely" says,
"the concept of 'piercing the veil' in the United States is much more developed than in the UK. The motto, which was laid down by Sanborn, J. and cited since then as the law, is that 'when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons. The same can be seen in various European jurisdictions".
25 ....................
26. The law as stated by Palmer and Gower has been approved by this Court in Tata Engineering and Locomotive Company Limited v. State of Bihar [1964 (6) S.C.R. 885]. The following passage form the decision is apposite: "Gower has classified seven categories of cases where the veil of a corporate body has been lifted. But, it would not be possible to evolve a rational consistent and inflexible principle which can be invoked in determining the question as to whether the veil of the corporation should be lifted or not. Broadly, where fraud is intended to be prevented, or trading with enemy is sought to be defeated, the veil of corporation is lifted by judicial decisions and the shareholders are held to be 'persons who actually work for the corporation."
27. In DHN Food Distributors Ltd. and Ors. V. London Borough of Tower Hamlets [1976 (3) All.E.R. 462], the Court of Appeal dealt with a group of companies. Lord Denning quoted with approval the statement in Gower's Company Law that "there is evidence of a general tendency to ignore the separate legal entities of various companies within a group, and to look instead at the economic entity of the whole group". The learned Master of Rolls observed that "this group is virtually the same as a partnership in which all the three companies are partners". He called it a case of "three-in-one" - and, alternatively, as "one-in-three".
14. The counsel for the plaintiff also relied upon a judgment of the United States Court of Appeals, Second Circuit, in the matter of Eastman Kodak Company and Atex INC decided on October 5, 1995 to submit that in United States there is a theory of alter-ego liability and as mentioned in the earlier judgment of Delhi Development Authority, the concept of piercing the corporate veil in United States is much more developed than in the UK. Under this theory of alter-ego, there is no requirement to show fraud and the plaintiff has to only show that the parent and subsidiary operated as a single economic entity and that an overall element of injustice or unfairness is present. He relied on another judgment of the United States Court of Appeals for the Sixth Circuit in the matter of United States Vs. Best Foods, decided on June 8, 1998 to support the same theory.
He also relied on AIR 1965 SC 40 in the matter of TATA Engineering and Locomotive Co. Ltd. and Ors. Vs. The State of Bihar and Ors. to submit that the Hon'ble Supreme Court, way back in 1965 itself, has held that in course of time these exceptions may grow in number and to meet the requirements of different economic problems, the theory about the personality of the corporation may be confined more and more and this Court should proceed on the alter-ego theory propounded by the US Courts. He submitted that then Hon'ble Chief Justice Shri P.B. Gajendragadkar who delivered the judgment, in paragraph 24 of the said judgment said as under:
œ24 .......However, in the course of time, the doctrine that the corporation or a company has a legal and separate entity of its own has been subjected to certain exceptions by the application of the fiction that the veil of the corporation can be lifted and its face examined in substance. The doctrine of the lifting of the veil thus marks a change in the attitude that law had originally adopted towards the concept of the separate entity or personality of the corporation. As a result of the impact of the complexity of economic factors, judicial decisions have sometimes recognised exceptions to the rule about the juristic personality of the corporation. It may be that in course of time these exceptions may grow in number and to meet the requirements of different economic problems, the theory about the personality of the corporation may be confined more and more.
He also submitted relying on paragraphs 26 and 27 of the said judgment that we cannot have an inflexible principle while considering whether a corporate veil has to be pierced or not. Paragraph 26 and 27 for ease of reference is reproduced here:
26. It is unnecessary to refer to the facts in these two cases and the principles enunciated by them, because it is not disputed by the respondents that some exceptions have been recognised to the rule that a corporation or a company has a juristic or legal separate entity. The doctrine of the lifting of the veil has been applied in the words of Palmer in five categories of cases : where companies are in the relationship of holding and subsidiary (or sub-subsidiary) companies; where a shareholder has lost the privilege of limited liability and has become directly liable to certain creditors of the company on the ground that, with his knowledge, the company continued to carry on business six months after the number of its members was reduced below the legal minimum; in certain matters pertaining to the law of taxes, death duties and stamps, particularly where the question of the "controlling interest" is in issue; in the law relating to exchange control; and in the law relating to trading with the enemy where the test of control is adopted(1). In some of these cases, judicial decisions have no doubt lifted the veil and considered the substance of the matter.
27. Gower has similarly summarised this position with the observation that in a number of important respects, the legislature has rent the veil woven by the Salomon case. Particularly is this so, 'says Gower, in the sphere of taxation and in the steps which have been taken towards the recognition of enterprise-entity rather than corporateentity. It is significant, however, that according to Gower, the courts have only construed statutes as "cracking open the corporate shell" when compelled to do so by the clear words of the statute; indeed they have gone' out of their way to avoid this construction whenever possible. Thus, at present, the judicial approach in cracking open the corporate shell is somewhat cautious and circumspect. It is only where the legislative provision justifies the adoption of such a course that the veil has been lifted. In exceptional cases where courts have felt "themselves able to ignore the corporate entity and to treat the individual shareholders as liable for its acts",(2) the same course has been adopted. Summarising his conclusions, Gower has classified seven categories of cases where the veil of a corporate body has been lifted. But it would not be possible to evolve a rational, consistent and inflexible principle which can be invoked in determining the question as to whether the veil of the corporation should be lifted or not. Broadly stated, where fraud is intended to be prevented, or trading with an enemy is sought to be defeated, the veil of a corporation is lifted by judicial decisions and the shareholders are held to be the persons who actually work for the corporation.
15. However, much Mr. Ramabhadran's submissions may be tempting to agree with, the underlying factor in all the judgments relied by him also suggest that lifting of corporate veil even on the basis of alter-ego theory can be made only where a fraud is intended to be prevented. In other words, there has to be an underlying element of dishonesty. Though in the TATA Engineering and Locomotive Co. Ltd. judgment, the Court has accepted that some exceptions have been recognized to the rule and has accepted the five categories of cases suggested by Palmer where lifting of corporate veil can be applied and also accepted the conclusion of Gower that corporate veil can be lifted in 7 categories of cases, the Apex Court held that it is not possible to evolve a rational, consistent and inflexible principle which can be invoked in determining the question as to whether the veil of the corporation should be lifted or not. The Apex Court further had gone on to say that broadly stated, where fraud is intended to be prevented, or trading with an enemy is sought to be defeated, the veil of a corporation is lifted by judicial decisions and the shareholders are held to be the persons who actually work for the corporation.
16. Even the judgment in the matter of Eastman Kodak Company of the United States of Appeals, Second Circuit upon which Mr. Ramabhadran relied, suggests that for the development of alterego liability, there has to be an indication to defraud creditors or consumers. Moreover, the United States Court considered the theory of alter-ego liability only because the Delaware law permits a Court to pierce the corporate veil of a company œwhere there is a fraud or where it is in fact a mere instrumentality or alter-ego of its owner?. There the Delaware law permits the alter-ego theory and there is no requirement of showing of fraud. At the same time, to prevail on an alter-ego theory for piercing the corporate veil under Delaware Law, the plaintiff must show that the parent and the subsidiary operated as a single economic entity and that overall element of injustice or unfairness was present. The Court held that that the onus is upon the plaintiff to show that the two corporations operated as a single economic entity such that it would be inequitable to uphold a legal distinction between them and among the factors to be considered in determining whether a subsidiary and parent operated as a single economic entity are whether the corporation was adequately capitalized for the corporate undertaking or the dominant shareholders siphoned corporate funds or the corporation simply functioned as a facade for the dominant shareholder etc. In fact, even in that judgment the Court has held that a plaintiff seeking to persuade a Delaware Court to disregard the corporate structure faces a œdifficult task? because the courts have made it clear that the legal entity of a corporation will not be disturbed until sufficient reason appears. Moreover, the judgment also states that the Delaware Supreme Court has never explicitly adopted an alter-ego theory, though lower Delaware Courts have applied.
All the judgments relied upon by the plaintiff to propound that an alter-ego theory should be developed without having to prove fraud, on the contrary and in fact suggest that fraud or sham or that the company was formed to mask the true owner has to be established. All the judgments, on a holistic reading, show that an element of underlying dishonesty on the part of the shareholders or true owner is a necessity to pierce the corporate veil. Now let us see whether the plaintiff has succeeded in its effort.
17. In this case, I am afraid the plaintiff has not even made a test case in the plaint, to consider the theory of alter-ego to pierce the corporate veil. It is not even the case of the plaintiff that the subscribers to the shares of defendant no.2 and defendant no.3 created the separate companies and bought the two ships in different ownership with intent to cheat or defraud creditors and kept transferring ownership to play a fraud or there was an element of dishonesty in them.
18. Mr. Ramabhadran also tried to gain support from a Chapter on Arrest of Associated Ships in a book Berlingieri on Arrest of Ships (5th edition) by Francesco Berlingieri to show how the Court of different countries have addressed the question of piercing of corporate veil. The Chapter contains a short analysis of the position in a number of States parties to the 1952 Arrest Convention. In the various jurisdictions that Berliengeri has considered, the common factor is where there is fraud piercing of corporate veil is permitted. In few jurisdictions, other factors have been considered and the corporate form has been disregarded. But we have to look at what our corporate law provides and what is the law laid down by our Courts.
19. It is trite law that a company is a separate juristic entity distinct from the shareholders; its assets are separate and distinct from those of its members; it can sue and be sued exclusively for its own purpose; its creditors cannot obtain satisfaction from the assets of its members; the liability of the members or shareholders is limited to the capital invested by them; similarly, the creditors of the members have no right to the assets of the corporation and unless fraud is asserted or at least alleged in the plaint, as required under Order VI Rule 4 and in such a way that it will be sustained at the time of trial, the question of lifting a corporate veil does not arise. To accept the plaintiff's submissions that there need not be any fraud or underlying element of dishonesty in formation of corporate entities would amount to violating and shaking these fundamental tenets of corporate law.
20. In my opinion, simply because the shareholders, the Directors (in this case were not common) the addresses of the two companies that own the two ships are common or the constituted attorney who was appointed to buy the vessel is the same or that both the ships were purchased pursuant to the board meeting on the same day does not mean that the efforts of the subscribers were to conceal that fact and does not automatically mean that the intention to register the two ships in different names was to play a fraud. There is no bar in purchasing ships in different names if that is the way a person wants to do his business. There is of course an exception that the intention was to mask the true owners and the companies are a sham.
Under order VI Rule 4 of Code of Civil Procedure, it is provided that if party pleading relies on any fraud then particulars with dates and time and the nature of fraud has to be stated in the pleading, i.e., the plaint. There are no particulars as required under Order VI Rule 4 of CPC of fraud stated in the plaint. Moreover, all these factors were known to the plaintiff or the plaintiff is deemed to have known prior to entering into the management agreement with the plaintiff. It is not the plaintiff's case that they would not have entered into the management agreement otherwise.
21. Moreover the plaintiff entered into the two contracts of management on almost identical terms on the same day for both vessels. The plaintiff always knew or is deemed to have known when it entered into management agreement, all the allegations made by it in the plaint. All the while the owner of m.v. Eastern Light have been paying the plaintiff and what remains to be paid is US$ 129,500/- out of an estimated budget of US$ 1.581 million. Now, when this amount is not paid by the owners of m.v. Eastern Light, the plaintiff is alleging alter-ego, same ownership, functional integrality etc. against defendant no.2 and defendant no.3. This cannot be accepted. It is rather obvious the plaintiff always knew about the dual ownership, they accepted that, entered into a contract with eyes wide open and now cannot ask for piercing the corporate veil. Perhaps that is why the plaintiff has not even pleaded œfraud? or alleged that the owners of defendant no.2 and defendant no.3 formed these two companies and bought the ships in the names of the two companies to play fraud or there was an underlying element of dishonesty in forming the two companies.
22. It is quite obvious that the intention of the plaintiff was to arrest the defendant no.1 vessel for a claim for its services allegedly rendered to m.v. Eastern Light and to bring pressure on Defendant no.2 and /or Defendant no.3 to pay. This is evident from the fact that the plaintiff, though in paragraph 28 of the plaint, has given an undertaking to invoke the arbitration agreement and refer the dispute to arbitration within a period of one week from the date of institution of suit has not commenced arbitration. No extension has been even sought from this Court. Though the plaintiff made an attempt to show that they have commenced arbitration, in fact, in paragraph 5 of the affidavit in reply confessed œUnfortunately, this has meant that, as yet, no arbitration proceedings have been commenced?. In fact, in the affidavit in reply, the plaintiff has stated that the plaintiff and defendant no.3 were to appoint a sole arbitrator to commence arbitration proceedings, but could not reach an agreement on the identity of the sole arbitrator. The plaintiff has also filed an additional affidavit dated 7th February 2014 in which it is stated as under:
œ¦ I say that I have received instructions to state that on 15th November 2011, the plaintiff through its English Solicitors addressed a Notice to defendant No.3 to join in the appointment of a sole arbitrator. Vide such notice the plaintiff suggested names of three arbitrators, calling upon defendant no.3 to appoint one of three arbitrators so named as the sole arbitrator to constitute the arbitral tribunal. However, defendant no.3 has failed to reply to this email. They have thus defaulted and failed to participate in the constitution of the arbitral tribunal. Annexed hereto as Exhibit œA? is the email dated 15th November 2011 addressed to defendant no.3 by the plaintiff's English Solicitors.?
In Exhibit œA? of the said affidavit, i.e., the email dated 15th November 2011 of the English Solicitors, it is stated as under:
œ¦.....We look forward to receiving Owners' confirmation that we may now proceed to appoint one of the above mentioned persons as sole arbitrator as soon as possible and, in any event, within 28 days as set out in Section 16(3) of the Act.
Please note that, if Owners fail to respond to this message within the said timescale, the Managers will, in default, proceed to request the Court to appoint one of the above as a sole arbitrator to determine the dispute pursuant to Section 18(2)-(4) of the Act.?
23. However, no steps since November 2011 were taken to request the court to appoint a sole arbitrator to determine the dispute between the plaintiff and the defendant no.3. There is not even an attempt made to explain the plaintiff's breach of its solemn undertaking to this Court. Curiously, while the counsel of defendant no.2 was making his submissions in rejoinder, the plaintiff's counsel tendered a document purportedly an email dated 6th February 2014 from one Christian Schulz addressed to one Mr. Alan Oakley with copy to the plaintiffs attorney and the plaintiffs Managing Director to show that on 6th February 2014 a statement of claim has been filed with the arbitrator by the plaintiff.
In view of what is mentioned in (a) the email dated 15th November 2011 from the plaintiffs advocate (b) the fact that even in the affidavit in reply, the plaintiff has stated that they have not commenced the arbitration and (c) in the additional affidavit dated 7th February 2014 of the plaintiff, there is no mention of this email or the statement of claim dated 6th February 2014, it is difficult to accept this email of 6th February 2014 as truthful and as commencing of arbitration between the plaintiff and defendant no.3. Perhaps that is the reason why the said email and its attachment were tendered across the bar filed without an affidavit. It looks more like a mask to cover the breach of undertaking. As per the English law, as it appears from the email dated 15th November 2011, if the defendant no.3 did not accept the name of the arbitrators suggested, the plaintiff had no choice but to get an order from the court to appoint someone as a sole arbitrator. Admittedly, no such order had been obtained. It is also necessary to note that the sender of the email dated 6th February 2014, is one Christian Schulz and this is the same name that appears as the constituted attorney allegedly appointed by defendant no.2 and defendant no.3 in exhibit E to the plaint. I am making this observation because the constituted attorney Christian Schulz is a German national and the plaintiff is also a German company. The forwarding email dated 6th February 2014 from Christian Schulz also curiously reads as under:
œDear Sir,
Please find attached the statement as executed by CONDOR on behalf of their Managing Director (Mr. Martens). I am just relaying this message to you as a matter of facilitating communications (and IT support).
For further communication please refer to the parties in concern.
With best regards
Christian Schulz?
The commonality in the name would purely be a coincidence or it could be the same person. If it is the latter it is all the more difficult to accept the documents produced by the plaintiff to show compliance with the undertaking.
24. Mr. Ramabhadran submitted that the applicant has merely denied the allegations in the plaint relating to common shareholders or common office or common resident agents and therefore adverse inference can be drawn against the applicant that they have not come up with any particulars. It is very difficult to accept Mr. Ramabhadrans submission because the primary onus is on the plaintiff to show materials and particulars that it was a fit case to lift the corporate veil which in my opinion they have failed to.
25. In my opinion and in view of the facts and circumstances of this case, the plaintiff has not made out a case for lifting or piercing the corporate veil and hence defendant no.1 cannot be a sister of m.v. Eastern Light. The foundation of the plaintiff's case that defendant no.1 and m.v. Eastern Light are sister ships itself is not sustainable, let alone security to be continued till the suit is heard and disposed.
26. The plaintiff has also failed to fulfill the undertaking given to this court in the plaint by not commencing the arbitration but created a sham of commencement of arbitration. It is immaterial that no formal order of arrest was passed or the court did not pass any order relying on the undertaking to commence arbitration. The indisputable fact is defendant no.2 furnished security to mitigate the loss that it would suffer by reserving its right to challenge the demand for security. The duty is on the plaintiff to show that it was sincere and its intentions were not dubious while giving the undertaking. That has to be demonstrated by its acts and if it has not been able to, then proactively come forward, explain and seek extension, which the plaintiff has not done. On the contrary the plaintiff has at the stage of counsel for defendant no.2 making his submissions in rejoinder and only when a query was put-forth by the Court, flashed an alleged email of 6th February 2014 and I have said earlier why it is not acceptable.
27. In the circumstances, this is a fit case to allow the notice of motion. The plaintiff has not made out a case for arrest of defendant no.1 in the plaint and hence not entitled to security furnished by defendant no.2.
28. The notice of motion is allowed in terms of prayer clauses (a) and (b). The cheque as mentioned in prayer clause (b) to be issued by the Prothonotary and Senior Master at the earliest and in any case not later than three weeks from the date of this order being uploaded. The plaintiff is also directed to pay defendant no.2 a sum of Rs.1,50,000/- (Rupees One Lakh fifty thousand only) as cost.
29. Counsel for the plaintiff seeks stay of the judgment. The judgment is stayed for a period of two weeks from today.