Supreme Court Clarifies Ground Rent Charges For Uncleared Cargo

In a major relief for steamer agents the Supreme Court clarifies the position on ground rent charges for uncleared cargo.
Supreme Court Clarifies Ground Rent Charges For Uncleared Cargo
Image credit: Monica Volpin from Pixabay.

On 5th August 2020, the Supreme Court of India pronounced judgement in the case of The Chairman, Board of Trustees, Cochin v. M/s Arebee Star Maritime Agencies Private Ltd. & Ors., 2020 SCC OnLine SC 622 (“Arebee”), thereby holding that Ports could not fasten the liability for payment of port storage/ demurrage charges for uncleared cargo/containers lying in port premises upon the ship-owners/ vessel agents/steamer agents after the Port had taken charge of the goods and given a receipt for the same.

The 3-Judge bench of the Supreme Court in Arebee was called upon to resolve this long pending issue whilst answering a reference on the broad issue of interpretation of the provisions of the Major Port Trusts Act, 1963 (“the MPT Act”) which inter-alia included the question of the extent of liability (whether statutory or contractual) of the Port Trust (if any) to destuff containers that are entrusted to it and return the empty containers to the shipping agent.

Given the far-reaching effects and the practical consequences of this judgement, we set out below a short bulletin summarizing the observations of the Supreme Court in this case.

Background and the Conflicting Judicial Pronouncements before Arebee

The underlying dispute in the Arebee case concerned a containerized cargo of “old” synthetic woollen rags (“the Cargo”), which lay uncleared at the Cochin Port Trust premises since being imported in 1998. The Cargo was destuffed from the container to enable Customs examination. On inspection, the Customs alleged that the consignment actually contained “brand new clothes” (and not the rags declared by the consignee), which attracted heavy duty, penalty and other such charges. Whilst this dispute between the Consignee and Customs authorities was ongoing, the Cargo (and the container) lay uncleared at the Port premises. The Port accordingly levied ground rent charges on the Cargo and the container and looked to the steamer agents/owners of the containers for these dues for the entire period that the cargo remained on the Port’s premises.

The steamer agents/owners of the containers moved a writ petition before Kerala High Court wherein they contended that they were not required to pay for the ground rent charged beyond the period of 75 days from the date of the landing of the abandoned cargo in view of the MPT Act and the Tariff Authority of Major Ports (“TAMP”) Orders dated 10th November 1999, 19th July 2000 and 13th September 2005. This writ petition was tagged together with a batch of other similar matters on the issue of alleged misdeclaration to the Customs which caused significant delays in clearing the goods, with the consignees thereafter refusing to clear the cargo (largely due to the mounting ground rent and other charges). By the impugned judgement dated 27th September 2011 (“Impugned Judgement”) the Kerala High Court noted the repeated requests of the shipping agents’/steamer agents to the Port to destuff the containers lying at the Port. The Port however refused to do so, on the grounds of lack of space. The Impugned Judgement therefore observed that due to the lapse on the part of the consignee in its failure to lift the cargo and the Port Trust in not destuffing the containers, the shipping agents were being made to pay exorbitant sums. The Impugned Judgement interpreted Sections 61 and 62 of the MPT Act, and held that the word “may” therein was to be construed as “shall” making it an obligation on the Port to sell the goods as soon as possible where the consignee fails to lift the goods and that the Port Trust was entitled to demand ground rent for a maximum of 75 days as per the relevant TAMP Orders.

When the Impugned Judgement came up before a Division Bench of the Supreme Court on appeal, the Court in its order (reported as Chairman, Board of Trustees Cochin v. Arebee Star Maritime Agencies Private Ltd., (2018) 4 SCC 592), noted that judicial precedent on this issue was conflicting, especially as regards five previous decisions of the Supreme Court itself, namely:

(a) Port of Madras v. K.P.V. Sheik Mohamed Rowther & Co. 1963 Supp. (2) SCR 915 (“Rowther-I”) where the Court held that when the Port Trust takes charge of the goods from the shipowner, the shipowner is the bailor and the Port Trust is the bailee;

(b) Port of Madras v. K.P.V. Sheik Mohd. Rowther & Co. P. Ltd. (1997) 10 SCC 285 (“Rowther-II”) where it was held that once the goods are handed over to the Port Trust by the steamer and the steamer agents have duly endorsed the bill of lading or issued the delivery order, their obligation to deliver the goods personally to the owner or the endorsee comes to an end;

(c) Port of Bombay v. Sriyanesh Knitters (1999) 7 SCC 228 (“Sriyanesh Knitters”) where the Court held that there comes into existence the relationship of bailor and bailee between the consignee and the Port Trust. This decision was based on the interpretation of the term “owner” under Section 2(o) of the MPT Act;

(d) Forbes Forbes Campbell & Co. v. Port of Bombay (2015) 1 SCC 228 ("Forbes-II") which relied on the decision in Rowther-I but disagreed with the view taken in Sriyanesh Knitters. The Court in this judgement did not find the question of interpretation of the term “owner” to be relevant; and

(c) Rasiklal Kantilal & Co. v. Port of Bombay (2017) 11 SCC 1 (“Rasiklal”), where the Court opined that the enquiry into a relationship of bailor bailee is irrelevant in determining the right of a Port Trust to recover its dues. This judgement also did not delve into the interpretation of the term “owner”. Further, the Court did not find Rowther-I to be an authority for the proposition that until the title in goods is passed to the consignee, the liability to pay various charges payable to a Port Trust, for its services in respect of goods, falls exclusively on the steamer agent. The Court in this judgement also took a contrary view that in cases where the consignee does not come to take delivery of goods, the position of law laid down by Rowther-II would result in a situation that the Port Trust would incur expenses without any legal right to recover such amount from the consignor, with whom there was no contractual obligation.

In light of the above conflicting views on the position of law, the Division Bench of the Supreme Court referred the matter to the present larger bench to put the issue to rest once and for all.

Issues before the Bench in Arebee & What the Court Held

The Court in Arebee was asked to answer 5 broad issues. To provide a snapshot of the judgement, we have summarized the conclusion of the Court as against each of these issues as set out below :

Key Takeaways from the Court’s Analysis in Arebee

In order to answer the issues before it and reach the conclusions (as set out above), the Supreme Court in this case, has undertaken a detailed analysis of the various provisions of the MPT Act and the Customs Act, 1962 (“Customs Act”) and has provided much required clarification on various issues. We set out below a summary of the various other ancillary points clarified by the Court.

(a) Who is the Owner in relation to goods? Interpretation of Section 2(9) of the MPT Act

The Supreme Court considered the ambit of Section 2(o) of the MPT Act, and noticed that the MPT Act defines “owner” in relation to goods separately to the owner in relation to any vessel. Sections 49A, 49B, 50, 50A and 50B of the MPT Act make it clear that the services rendered to vessels for which dues have to be paid by vessels are entirely separate and distinct from services rendered insofar as goods that are landed are concerned.

The definition for “owner” in relation to goods is an inclusive definition and includes persons beneficially entitled to the goods such as the shipper, consignor, consignee and also agents for sale, custody or loading/unloading of such goods. The Court held that there was no lack of clarity in the expression “agent for the… loading or unloading of such goods”. It included persons who may be the vessel’s agents involved in the loading and unloading of goods The Court noticed that loading or unloading of goods can take place by the steamer’s agent (as held in

Rowther-I), and therefore such agents would also be covered under the definition of “owner” under the MPT Act. Therefore, the non-mention of the ship owner in the first part of Section 2(o) is irrelevant, as it would be incongruous to hold that the shipowner’s agent is included in the latter part of the definition, but not the shipowner itself.

The Court proceeded to look into Section 42(2) of the MPT Act, which provides that a Board/Port Trust may, if so requested by the “owner”, take charge of the goods for the purpose of performing services, and shall give a receipt in such form as the Board may specify. The Court held that it is therefore obvious that if the ship owner or its agent are not “owners”, the Board would not be able to take the charge of the goods from the ship-owner or its agent for the purpose of performing services, and if this were the interpretation to be given, it would lead to startling consequences.

(b) Discharge of liability once the goods are handed over to the Port

The Court noticed that under Section 42(7) of the MPT Act, once goods have been taken charge of and a receipt given for them, no liability for any loss or damage which may occur to them shall attach to any person to whom a receipt has been given (including persons mentioned under Section 2(o)(i) or the master or the owner of the vessel). This would also make it clear that the master or owner of the vessel and their agents, from this point on (i.e. once the receipt has been given by the Port), have been absolved from liability for loss or damage to the goods, inasmuch as the Port Trust has now taken them over.

As a corollary to this, under Section 43(1)(ii) of the MPT Act, the responsibility of the Port Trust for loss, destruction or deterioration of goods of which it has taken charge from this point of time onwards now becomes that of a bailee under the Indian Contract Act, 1872. This responsibility attaches only after a receipt is given by the Board, and notice of loss or damage has been given, after expiry of such period (as may be prescribed) from the crucial date on which the Port Trust takes charge of the goods.

(c) Analysis of Sections 60-63 of the MPT Act

Through an in-depth analysis and interpretation of Sections 60 to 63 of the MPT Act, the Court observed that:

(i) Under Section 60 of the MPT Act, godown or storage rent (on goods to be retained in the custody of the Board for discharge of a ship-owner's liens) is payable only by the party entitled to such goods, which can never be the ship- owner or the ship-owner’s agent after the goods have been landed, and the vessel has sailed away from the port.

(ii) The scheme of Sections 61 and 62 of the MPT Act clearly provides that notice (of the sale of the goods in the Board’s custody) is to be given only to the owner, or other persons who are beneficially entitled to the goods, who must then comply with the requisition given and remove the goods. The Court further noted that under Section 62 (2) of the MPT Act, where goods in the custody of the Port are proposed to be removed or sold, a notice may also be served on the “agents of the vessel by which such goods were landed”. It clarified that the notice issued to the agent of the vessel is only for the limited purpose that the vessel’s agents may have indicated that the ship-owner has a lien for freight and other charges, which must be satisfied out of the sale of such goods. Therefore, the ship-owner or its agents are not persons who have to comply with the requisition given by the Port, as they are neither persons who are the owner, or other persons entitled to the goods.

This analysis of the provisions of the MPT Act further affirmed the conclusion reached by the Court that once the goods are delivered into the custody of the Port (and a receipt is obtained from the Port), the Port cannot then look to the ship-owner/ vessel agent/steamer agent for any charges related to the goods. Thus, goods that are stored on the premises of the Board have a nexus only with the owner or other persons entitled to those goods, and not with the agent of the vessel or the vessel itself.

(d) Whether the Port is obligated to dispose of goods placed in its custody within a certain period of time?

In the Impugned Judgment (before the Court in the present case), the Kerala High Court had held that the word “may” occurring in Sections 61 and 62 of the MPT Act must be read as “shall”.

The Supreme Court however held that this is not the correct position in law, as a discretion is vested in the Board to sell the goods in the circumstances mentioned in Sections 61 and 62. However, such discretion cannot be exercised arbitrarily, as the Board is “State” within the meaning of Article 12 of the Constitution, and is therefore bound by the constraints of Article 14 of the Constitution of India. Therefore the Court clarified that while it may not be correct to say that “may” has to be read as “shall” in Sections 61 and 62 of the MPT Act, yet in all future cases the Board is under a constitutional duty to sell the goods in its custody within a reasonable time from which it takes custody of those goods. Ordinarily, the time of four months from the date of landing of the goods mentioned in Section 63(1)(c) of the MPT Act should be the outer-limit within which such goods should be put up for sale. If not put up for sale within such time, the Board must explain as to why, in its opinion, this could not be done, which explanation can then be tested by the Courts. If the explanation is found to be reasonable, and the owner or person entitled to the goods does not remove the goods thereafter, penal demurrage may then be levied and collected by the Board. However, the Court stressed that the hovering omnipresence of Article 14 over the Board must always be given effect to, and there must be a very good reason to continue detention of goods beyond the period of four months before they are sold.

(e) Whether Containers in which goods are imported also form part of the goods?

The Court observed that both the Customs Act and the MPT Act contain parallel provisions for authorities under each respective Act to take charge of, store, and sell imported goods, in the circumstances mentioned therein and thus, must be harmoniously read together. On a conspectus of various judgments (and their treatment of the "original package doctrine" as developed by the US Courts), the Court held that under the Customs Act, a container, being a receptacle in which goods are imported, cannot be said to be “goods” that are imported as it does not become part of the mass of goods within the country on the facts of these cases. Thus, once destuffing takes place, the container has to be returned either to the ship-owner’s agent, or to the person who owns such container.

Upon reviewing various Rules, circulars etc. promulgated under the Customs Act (such as the Bill of Entry (Forms) Regulations, 1976; Customs Valuation (Determination of Value of Imported Goods) Rules, 2007; Customs Tariff Act, 1975; General Exemption No. 170; the clarification by the Central Board of Indirect Taxes and Customs dated 25th October, 2002) , the Court observed that irrespective of the type of goods being imported, whilst valuing the price of the imports, the price of the container never enters, as the only “goods” that are to be looked at are the goods that are “imported”, i.e. goods that are stuffed in the containers.

(f) Legal effect of endorsement of a Bill of Lading different from endorsement on bill of lading by a Steamer Agent.

The Court relied on a five Judge Bench of the Supreme Court in J.V. Gokal and Co. (Pvt.) Ltd. v. Asst. Collector of Sales-Tax (Inspection) and Ors. (1960) 2 SCR 852, which had set out the legal effect of a bill of lading, as follows:

A bill of lading is “a writing, signed on behalf of the owner of the ship in which goods are embarked, acknowledging the receipt of the goods, and undertaking to deliver them at the end of the voyage subject to such conditions as may be mentioned in the bill of lading”. It is well-settled in commercial world that a bill of lading represents the goods and the transfer of it operates as a transfer of the goods.

The Court observed that under Section 1 of the Indian Bills of Lading Act, 1856, the “endorsement” referred to is the endorsement made by the consignor or owner of the goods in favour of such endorsee on the bill of lading, so that title to property is then transferred to the endorsee and clarified (by relying on the judgement in Rowther-I), that such endorsement is very far removed from the endorsement on the bill of lading by a steamer agent indicating that the goods have been delivered.

Conclusion

The Court observed that under Section 1 of the Indian Bills of Lading Act, 1856, the “endorsement” referred to is the endorsement made by the consignor or owner of the goods in favour of such endorsee on the bill of lading, so that title to property is then transferred to the endorsee and clarified (by relying on the judgement in Rowther-I), that such endorsement is very far removed from the endorsement on the bill of lading by a steamer agent indicating that the goods have been delivered.

The judgement becomes even more relevant when we consider recent events in Beirut which have yet again brought to the limelight, the hazards of storing dangerous cargo for long periods of time. The situation is further exacerbated in the scenario of the present COVID-19 crisis, where businesses have come to a grinding halt globally and as a part of this domino effect, it has become common that cargo is not being claimed by parties (for various reasons) thereby leading to huge amounts of port demurrage charges accruing on the same.

The judgement is definitely a step in the right direction and will bring much relief to ship-owners/streamer agents/ vessel agents who were earlier often foisted with onerous liability through no fault of their own, with no party to pass the liability on to. It is also important, inasmuch as, it specifically places a strict burden upon Ports to dispose of abandoned/unclaimed cargo within a timeline and also to destuff the containers and return the empty containers in a time-bound manner. This is especially important, since in many instances the Ports often take years to dispose of cargo lying in their premises and then attempt to levy port demurrage charges for the entire period.

It is however important to clarify that the judgement (having been rendered in the context of the MPT Act), would squarely apply to the 13 major ports in India. Insofar as cargo being discharged in the minor ports and the private ports on the vast Indian coastline, parties may wish to review the terms of their specific contracts with such ports to fully understand the extent of their liability. Needless to say, the conclusion reached by the judgement would apply in principle to such ports, however, given that they are not governed by the MPT Act, the terms of the contract between the parties, would take precedence.

Given the few questions which have been left open by the Supreme Court, it will be interesting to see how this law is further developed in subsequent judgments as also how this judgement is practically given effect to by various stakeholders.

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BMC - Supreme Court on ground rent charges for uncleared cargo pages 12 - 99.pdf
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