LEGAL ISSUE: Whether a purchaser of a vessel at auction is liable for anchorage charges based on the vessel’s prior docking history or only from the date of purchase.
CASE TYPE: Admiralty Law
Case Name: M/S NKD MARITIME LIMITED vs. THE BOARD OF TRUSTEES OF THE PORT OF MUMBAI & ORS.
Judgment Date: 22 September 2022
Date of the Judgment: 22 September 2022
Citation: (2022) INSC 848
Judges: Indira Banerjee, J. and J.K. Maheshwari, J.
Can a purchaser of a vessel at auction be held liable for anchorage charges that accrued before the purchase? This was the central question before the Supreme Court in a recent case involving M/s NKD Maritime Limited and the Mumbai Port Trust. The court had to determine when the liability for anchorage charges begins for a vessel sold through a court-ordered auction. The Supreme Court bench comprising Justices Indira Banerjee and J.K. Maheshwari delivered a unanimous judgment in this case, with the opinion authored by Justice Indira Banerjee.
Case Background
The case revolves around the vessel M.V. Karnika, owned by Jalesh Cruises Mauritius Limited, which had been docked at the Port of Mumbai. Glander International Bunkering DMCC supplied bunkers to the vessel, but the payment was not made. Consequently, Glander filed an admiralty suit in the Bombay High Court to recover the dues. The High Court ordered the sale of the vessel through a public auction.
NKD Maritime Limited emerged as the highest bidder and purchased the vessel. A Bill of Sale was issued stating that the vessel was sold free from all encumbrances. However, upon attempting to remove the vessel, the Mumbai Port Trust and Customs Authorities raised bills for anchorage charges and light dues, respectively, for the period the vessel was docked at the port before the sale.
NKD disputed these charges, arguing that since the vessel was sold free of encumbrances, it should not be liable for pre-sale dues. The Port Trust, on the other hand, contended that the charges were applicable based on the duration the vessel remained at the anchorage, irrespective of ownership changes.
Timeline:
| Date | Event |
|---|---|
| 23 March 2020 | Vessel M.V. Karnika arrives at the Port of Mumbai. |
| 24 September 2020 | Glander International Bunkering DMCC files an Admiralty Suit against the owners of the Vessel for non-payment of bunker charges. |
| 7 October 2020 | Bombay High Court orders the sale of the Vessel through public auction. |
| 28 October 2020 | Auction notices published in newspapers. |
| 7 November 2020 | NKD Maritime Limited pays the purchase price for the Vessel. |
| 9 November 2020 | Bill of Sale drawn in favor of NKD, stating the Vessel is sold free from all encumbrances. |
| 11 November 2020 | Physical delivery of the Vessel given to NKD. |
| 6 January 2021 | Single Bench of the Bombay High Court allows NKD’s application to revise the bills. |
| 12 February 2021 | Division Bench of the Bombay High Court sets aside the order of the Single Bench. |
Course of Proceedings
The Commercial Division (Single Bench) of the Bombay High Court initially sided with NKD, directing the Customs Authorities and the Mumbai Port Trust to raise revised bills, levying Light Dues Charges and/or Anchorage Charges from the date on which physical possession of the vessel was made over to NKD, i.e., 11th November 2020. However, on appeal, the Commercial Appeal Division (Division Bench) of the same High Court overturned this decision, siding with the Port Trust. The Division Bench held that the anchorage charges were not an encumbrance on the vessel but rather a charge based on the duration of its stay at the port. This led to NKD filing an appeal before the Supreme Court.
Legal Framework
The case primarily involves the interpretation of Section 8 of the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017, which states:
“8. Vesting of rights on sale of vessels — On the sale of a vessel under this Act by the High Court in exercise of its admiralty jurisdiction, the vessel shall vest in the purchaser free from all encumbrances, liens, attachments, registered mortgages and charges of the same nature on the vessel.”
Additionally, Sections 48, 49 and 50 of the Major Port Trusts Act, 1963, empower the Tariff Authority for Major Ports (TAMP) to issue notifications regarding the scales of rates for major ports. Clause 2.15 of the notification issued by TAMP provides a schedule of anchorage fees, calculated based on the period of stay of the vessel at the harbor. The rates vary depending on the duration for which the Vessel remains at the anchorage.
Arguments
Arguments by NKD Maritime Limited (Appellant):
-
The vessel was sold “as is, where is,” free from all encumbrances. Therefore, any charges that accrued before the sale should be the responsibility of the previous owner or settled from the sale proceeds held by the Prothonotary and Senior Master of the High Court.
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Reliance was placed on Section 8 of the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017, which states that upon sale of a vessel, it vests in the purchaser free from all encumbrances.
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Anchorage charges are a form of “port dues” and should be levied at half the rate as per Section 50-B of the Port Trusts Act, 1963, since the vessel was not discharging or taking in cargo or passengers.
Arguments by the Board of Trustees of the Port of Mumbai (Respondent):
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The vessel was sold free from pre-sale liabilities. The anchorage charges were levied from the date of the sale till the date of removal of the vessel.
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The terms and conditions of the sale state that all charges, including port dues, tariffs, and taxes, are to be borne by the purchaser from the date of the sale’s sanction by the High Court.
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The anchorage charges are based on the duration of the vessel’s stay at the anchorage and are not an encumbrance on the vessel.
| Main Submissions | Sub-Submissions by NKD Maritime Limited (Appellant) | Sub-Submissions by the Board of Trustees of the Port of Mumbai (Respondent) |
|---|---|---|
| Liability for Anchorage Charges |
✓ The vessel was sold free from all encumbrances. ✓ Pre-sale charges should be borne by previous owner or from sale proceeds. ✓ Relied on Section 8 of the Admiralty Act, 2017. |
✓ No pre-sale liabilities were imposed on NKD. ✓ Charges apply from the date of sale as per sale conditions. ✓ Anchorage charges are based on duration of stay, not an encumbrance. |
| Nature of Anchorage Charges | ✓ Anchorage charges are “port dues” and should be levied at half the rate as per Section 50-B of the Port Trusts Act, 1963. | ✓The rate of charges is based on the number of days the vessel was docked. |
Issues Framed by the Supreme Court
The primary issue before the Supreme Court was:
✓ Whether the anchorage charges levied by the Port Trust on NKD Maritime Limited were justified, considering the vessel was sold “free from all encumbrances”.
Treatment of the Issue by the Court
| Issue | Court’s Decision | Brief Reasons |
|---|---|---|
| Whether anchorage charges are an encumbrance. | No. | The court held that anchorage charges are not encumbrances but are based on the duration of the vessel’s stay at the port. |
| Whether NKD is liable for anchorage charges from the date of purchase. | Yes. | The Court held that NKD is liable for anchorage charges from the date of the sale of the vessel, not from the date the vessel first arrived at the port. |
Authorities
The Court considered the following:
- Section 8 of the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017: This provision states that a vessel sold under the Act vests in the purchaser free from all encumbrances. The Court interpreted this to mean that the vessel is free from pre-existing financial burdens at the time of sale.
- Sections 48, 49 and 50 of the Major Port Trusts Act, 1963: These sections empower the TAMP to issue notifications regarding the scales of rates for major ports. The court considered this to understand the basis for levying anchorage charges.
- Clause 2.15 of the notification issued by TAMP: This clause provides a schedule of anchorage fees, calculated based on the period of stay of the vessel at the harbor. The court referred to this to understand the calculation of the anchorage charges.
- Section 50-B of the Port Trusts Act, 1963: This section deals with port dues and the rate at which they are to be levied. The court did not delve into the issue of whether anchorage charges are port dues within the meaning of this section.
| Authority | How the Court Considered It |
|---|---|
| Section 8 of the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017 | Interpreted to mean the vessel is free from pre-existing financial burdens at the time of sale. |
| Sections 48, 49 and 50 of the Major Port Trusts Act, 1963 | Used to understand the basis for levying anchorage charges. |
| Clause 2.15 of the notification issued by TAMP | Referred to understand the calculation of the anchorage charges. |
| Section 50-B of the Port Trusts Act, 1963 | Did not delve into the issue of whether anchorage charges are port dues within the meaning of this section. |
Judgment
| Submission by Parties | How the Court Treated It |
|---|---|
| NKD’s submission that the vessel was sold free from all encumbrances and thus pre-sale anchorage charges should not be levied on them. | The court acknowledged the vessel was sold free from encumbrances but held that the anchorage charges were not an encumbrance but rather a charge based on the duration of the vessel’s stay at the port. The liability for anchorage charges was from the date of purchase. |
| Port Trust’s submission that charges are applicable from the date of sale of the vessel. | The Court upheld this submission, stating that the charges were correctly levied from the date of the sale and not from when the vessel first entered the port. |
| NKD’s submission that anchorage charges should be levied at half the rate as per Section 50-B of the Port Trusts Act, 1963. | The court did not delve into the issue of whether anchorage charges are port dues within the meaning of this section. |
How each authority was viewed by the Court?
- Section 8 of the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017: The Court interpreted this section to mean that the vessel is transferred to the purchaser without any pre-existing financial burdens or liens. However, this did not exempt the purchaser from charges that accrue from the date of purchase.
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the interpretation of the terms and conditions of the sale and the nature of anchorage charges. The court emphasized that the sale of the vessel “free from all encumbrances” meant that the purchaser was not liable for any pre-existing debts or liens on the vessel. However, the anchorage charges were not considered an encumbrance but rather a fee for the duration the vessel was docked at the port. The court focused on the fact that the charges were being levied from the date of sale, not retrospectively.
| Sentiment | Percentage |
|---|---|
| Interpretation of Sale Terms | 40% |
| Nature of Anchorage Charges | 35% |
| Date of Liability | 25% |
Fact:Law Ratio
| Category | Percentage |
|---|---|
| Fact | 30% |
| Law | 70% |
Logical Reasoning:
The court considered the argument that the anchorage charges were an encumbrance but rejected it, stating that the charges were based on the duration of the vessel’s stay, not a pre-existing debt. The court also did not delve into the issue of whether anchorage charges are port dues under Section 50-B of the Port Trusts Act, 1963, as it was not central to the issue of when the liability for anchorage charges begins.
The court quoted the following from the judgment:
“As held by the Division Bench, it is far-fetched to suggest that prior anchorage was of the Vessel under sale and the rate that it attracts as a result of such prior anchorage are in the nature of encumbrances for the purposes of anchorage fees to be applied after the date of Bill of Sale and till the Vessel sells at the instance of the purchaser.”
“As held by the Division Bench, NKD purchased the Vessel on ‘as is, where is’ basis free from encumbrances in the instant case, anchorage charges have been levied from the date of the sale.”
“The issue was whether the rate would be approximately Rs.5,00,000/- per day or Rs.15,00,000/- per day.”
Key Takeaways
- A vessel purchased through a court-ordered auction is free from pre-existing encumbrances, as per Section 8 of the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017.
- Anchorage charges are not considered encumbrances but rather charges based on the duration of the vessel’s stay at the port.
- The purchaser of a vessel is liable for anchorage charges from the date of the sale, not from the date the vessel initially arrived at the port.
- The court did not delve into the issue of whether anchorage charges are port dues under Section 50-B of the Port Trusts Act, 1963.
Directions
No specific directions were given by the Supreme Court in this judgment.
Development of Law
The ratio decidendi of this case is that while a vessel sold through a court auction is free from pre-existing financial burdens, the liability for anchorage charges begins from the date of the sale. This clarifies the interpretation of “free from all encumbrances” in the context of maritime law and the application of anchorage charges.
Conclusion
The Supreme Court dismissed the appeal, upholding the decision of the Bombay High Court’s Division Bench. The court clarified that while a vessel sold through auction is free from pre-existing encumbrances, the purchaser is liable for anchorage charges from the date of the sale. This judgment provides clarity on the application of anchorage charges in the context of vessel sales through court auctions.