Supreme Court Clarifies Demurrage Liability for Port Authorities: Rasiklal Kantilal vs. Board of Trustee (2017)

Date of the Judgment: 28 February 2017

Citation: (2017) INSC 147

Judges: J. Chelameswar, J. Abhay Manohar Sapre

Can a port authority recover demurrage charges from a subsequent buyer of goods, even if the delay occurred before the buyer acquired title? The Supreme Court of India addressed this question in a case concerning the liability for demurrage charges at the Bombay Port. The court examined the legal framework governing port authorities and their rights to collect dues for services rendered. The judgment was delivered by a two-judge bench comprising Justice J. Chelameswar and Justice Abhay Manohar Sapre.

Case Background

Between November 1991 and January 1992, M/s Metal Distributors (UK) Ltd. shipped 78 consignments of zinc ingots and copper iron bars to five different consignees at Bombay Port. The goods were shipped on a “Cash Against Documents” (CAD) basis, meaning the exporter retained title until the importer made payment. The original consignees filed bills of entry for 37 of these consignments but failed to clear them, resulting in the goods being stored at the Bombay Port. M/s Metal Distributors (UK) Ltd., facing losses, offered the goods to the present appellant, M/s. Rasiklal Kantilal & Co., who was not related to the original consignees. On March 23, 1992, the appellant applied to Customs Authorities to substitute the bills of entry for the 37 consignments in their name and to file new bills of entry for the remaining 41 consignments. A formal agreement between M/s Metal Distributors (UK) Ltd. and the appellant was made in April 1992.

Timeline

Course of Proceedings

Aggrieved by the Port of Bombay’s decision to reject the remission of demurrage, the appellant filed Writ Petition No. 2012/1996 in the High Court. The appellant cleared the goods under protest after paying the demanded demurrage. The High Court dismissed the writ petition on April 12, 2010. Subsequently, the appellant appealed to the Supreme Court.

Legal Framework

The judgment discusses several key legal provisions:

• Section 29 of the Customs Act, 1962: Prohibits vessels from entering any place other than a customs port without permission.
• Section 2(12) of the Customs Act, 1962: Defines “customs port”.
• Section 7 of the Customs Act, 1962: Authorizes the Central Board of Excise and Customs to appoint customs ports.
• Major Port Trusts Act, 1963: Provides for the constitution of port authorities.
• Section 3 of the Major Port Trusts Act, 1963: Authorizes the Central Government to constitute a Board of Trustees for major ports.
• Section 2(b) of the Major Port Trusts Act, 1963: Defines “Board” as the Board of Trustees.
• Section 5 of the Major Port Trusts Act, 1963: Declares each Board to be a body corporate.
• Section 35(1) of the Major Port Trusts Act, 1963: Obligates Boards to execute works within or outside port limits.
• Section 41(1) of the Major Port Trusts Act, 1963: Allows Boards to declare docks ready for receiving goods.
• Section 42(2) of the Major Port Trusts Act, 1963: Authorizes Boards to take charge of goods.
• Section 42(7) of the Major Port Trusts Act, 1963: Discharges liability for damage to goods after a receipt is given.
• Section 2(v) of the Major Port Trusts Act, 1963: Defines “rate” to include tolls, dues, rent, fees, or charges.
• Section 48 of the Major Port Trusts Act, 1963 (pre-1997 Amendment): Authorizes Boards to frame scales of rates for services.
• Section 59(1) of the Major Port Trusts Act, 1963: Creates a lien on goods for unpaid rates and rents.
• Section 64 of the Major Port Trusts Act, 1963: Authorizes Boards to distrain or arrest vessels for unpaid dues.
• Section 61 and 62 of the Major Port Trusts Act, 1963: Authorizes the sale of detained goods.
• Section 158 of the Indian Contract Act, 1872: Stipulates the bailor’s obligation to repay necessary expenses.
• Section 148 of the Indian Contract Act, 1872: Defines ‘bailment’, ‘bailor’ and ‘bailee’.
• Section 1 of the Indian Bills of Lading Act, 1856: States that rights under bills of lading vest in consignee or endorsee.

Arguments

Appellant’s Submissions:

• The appellant argued that they acquired title to the goods long after they arrived at the port. Therefore, they should not be liable for demurrage incurred before they acquired title.
• Demurrage for the period before the appellant’s acquisition of title should be collected from the steamer agent, as the port authority provided no service to the appellant during that period.
• Alternatively, the appellant contended they were entitled to complete remission of demurrage due to delays caused by customs authorities.
• The appellant also argued that the port authority’s denial of remission was discriminatory, citing a similar case where remission was granted to M/s. Gilt Pack.

Respondent’s Submissions:

• The respondent argued that the appellant’s claim for remission implied an admission of liability to pay demurrage.
• The respondent contended that the issue of liability was not raised before the High Court, and therefore, the appellant should not be allowed to raise it before the Supreme Court.
• The respondent argued that the guidelines for remission were discretionary and that the port authority had the right to decide on a case-by-case basis.

Issues Framed by the Supreme Court

The Supreme Court framed the following issues:

1. Whether the appellant is liable to pay demurrage for the period before they acquired title to the goods.
2. Whether the appellant is entitled to complete remission of the demurrage charges.
3. Whether the port authority’s denial of remission to the appellant was discriminatory.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues:

Authorities

The Supreme Court considered the following authorities:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

✓ The Supreme Court relied on The Trustees of the Port of Madras v. K.P.V. Sheik Mohamed Rowther & Co. & Others [(1963) Supp. 2 SCR 915] to establish that the port authority acts as a sub-bailee of the goods.

✓ The court agreed with the conclusions in Trustees of the Port of Madras v. K.P.V. Sheikh Mohd. Rowther & Co. Pvt. Ltd. & Another [(1997) 10 SCC 285] and Forbes Forbes Campbell & Company Limited v. Board of Trustees, Port of Bombay [(2015) 1 SCC 228], that a Board could recover the rates due from either the steamer agent or the consignee.

✓ The court cited Trustees of the Port of Bombay Vs. Premier Automobiles Ltd. [(1981) 1 SCC 228] to emphasize that bailment is based on possession, not ownership.

✓ The court referred to The State of Gujarat Vs. Memon Mahomed Haji Hasam (Dead) by LRs [AIR 1967 SC 1885] to show that bailment can exist without a formal contract.

✓ The court discussed Board of Trustees of the Port of Bombay & Ors. v. Sriyanesh Knitters [(1999) 7 SCC 359] to highlight that a Board constituted under THE ACT is a wharfinger and that the Board has the power to sell the goods and realise its dues.

✓ The court referred to International Airports Authority of India v. Grand Slam International [(1995) 3 SCC 151] to highlight that pendency of some proceedings initiated by the customs authorities does not create a right of remission.

✓ The court used the provisions of the Customs Act, 1962 and the Major Port Trusts Act, 1963 to explain the regulatory framework for port operations and the legal basis for the port authority’s actions.

✓ The court also used the provisions of the Indian Contract Act, 1872 and the Indian Bills of Lading Act, 1856 to explain the legal basis for the bailment relationship and the consignee’s liability.

What weighed in the mind of the Court?

The Supreme Court’s decision was influenced by a combination of legal principles and factual considerations. The court emphasized the port authority’s role as a sub-bailee and its right to recover dues for services rendered, regardless of when the title to the goods passed to the consignee. The court also stressed the importance of rational and non-discriminatory decision-making by statutory bodies like port authorities. The court recognized that the port authority has discretion to grant remission but must exercise it rationally. The court also considered the factual background of the case, including the delays caused by customs authorities, and the fact that the appellant was not the original consignee. The court also considered the legal framework governing port authorities and their rights to collect dues for services rendered.

Fact:Law Ratio:

Key Takeaways

✓ Port authorities can recover demurrage charges from consignees, even if the delay occurred before the consignee acquired title to the goods.

✓ The liability for demurrage is based on the services rendered by the port authority and the bailment relationship, not on ownership of the goods.

✓ Port authorities have discretion to grant remission of demurrage charges, but this discretion must be exercised rationally and non-discriminatorily.

✓ The judgment clarifies the legal framework governing the relationship between port authorities, steamer agents, consignors, and consignees, particularly in the context of bailment and liability for port dues.

Directions

The Supreme Court set aside the decision of the port authority dated 16.09.1995, declining the remission and directed the port authority to reconsider the application for remission, duly recording the reasons for such decision.

Development of Law

The ratio decidendi of this case is that the liability to pay demurrage is not dependent on the title of the goods but on the services rendered by the port authority. This judgment clarifies that port authorities can recover dues from either the steamer agent or the consignee, regardless of when the title to the goods passes. This case also reinforces the principle that statutory bodies must exercise their discretion rationally and non-discriminatorily.

Conclusion

The Supreme Court’s judgment in M/S. Rasiklal Kantilal & Co. vs. Board of Trustee of Port of Bombay & Others clarifies the liability for demurrage charges at ports. The court held that a port authority can recover demurrage from a consignee, even if the delay occurred before the consignee acquired title to the goods. The court also emphasized that port authorities must exercise their discretion rationally when considering remission of charges. The case provides important guidance on the legal framework governing port authorities and their relationships with various parties involved in the import and export of goods.