JULY 2017

LEGALBRIEFINGSharing the Club’s legal expertise and experience

Cargo claimsin India

LEGAL BRIEFING

2 Legal Briefing July 2017

Sharing expertiseThe UK P&I Club has collaborated withAdvocate, Mr V. Subramanian, to issue thisLegal Briefing on ‘Cargo Claims in India’. Thisis the third Legal Briefing in this series,providing guidance to Members on thespecific issues relating to cargo claims in thejurisdictions covered. Other briefings in thisseries cover Cargo Claims in China and CargoClaims in the United States.

If Members have any questions on any part ofthe briefing, please get in touch with yourusual Club contact.

Our thanks to Mr V. Subramanian (Kumar),Advocate, Venky’s Chambers, 114, MakerChambers, 3, Nariman Point, Mumbai 400021,India, for his assistance with this briefing. �

Previous issuesCopies of previous briefings are available todownload as pdfs from our website. Visitwww.ukpandi.com/publications.

LEGAL BRIEFINGS TEAM

Jacqueline TanSenior Claims Executive

Jacqueline is a qualifiedbarrister and solicitor.She handles FDD andP&I cases and is theeditor of legalpublications for the

Club. Jacqueline speaks Malay, Frenchand Hokkien. She is also a member ofthe Club’s Legal and EnvironmentalTeam working with Dr Chao Wu.

Direct +44 20 7204 2118jacqueline.tan@thomasmiller.com

Dr Chao WuLegal Director

Chao leads theClubs’ Legal andEnvironmental team.She is responsible forthe legal aspects ofClub documentation

and cover for Members’ contractualarrangements, the Club’s Rules andBye-Laws and general legal advice.

Direct +44 20 7204 2157chao.wu@thomasmiller.com

Captain Sumit MadhuSyndicate Manager L4

Sumit joined ThomasMiller after a career atsea, primarily ontankers, LPG and LNGvessels. Sumit is also aQuality Management

Systems Lead Auditor with experiencein TMSA, terminal and vessel audits.Sumit speaks Hindi, Gujarati, Marathiand Malayalam. His team looks afterMembers from Eastern Europe toRussia, including India, and haveexpertise in all issues relating to India.

Direct +44 20 7204 2114sumit.madhu@thomasmiller.com

July 2017 Legal Briefing 3

INDIAN COGSA

Cargo claims in IndiaWith the Indian Admiralty Act 2017 coming into force later this year, this publicationaims to highlight the types of issues owners may face with cargo claims in India.

The maritime law of India relating tothe carriage of goods by sea is governedprimarily by the Carriage of Goods bySea Act, 1925 as amended in 1993, theIndian Bills of Lading Act, 1856 and theMultimodalTransportation of Goods Act,1993.

The legislations

The statutes and legislations whichapply by force of Indian law governgoods loaded in India. Otherlegislations that could be applicable inIndia in relation to cargo include:

� (Indian) Merchant Shipping Act, 1958� Major PortTrusts Act, 1963� Indian Ports Act, 1908� Marine Insurance Act, 1963� Contract Act, 1872� Sale of Goods Act, 1930

The Indian Ports Act, 1908 and theMajor PortTrusts Act, 1963 deal with theadministration of the ports and thejurisdiction over ships in ports.TheCustoms Act, 1962, contains various

regulatory measures in relation to ships,goods and persons, in connection withimportation or exportation. It alsoapplies to clearance of goods for homeconsumption, exports, duty due ongoods, prohibitions, etc.

Procedural aspects of claims are coveredin the Civil Procedure Code, 1908 andthe Evidence Act, 1872.

Apart from these legislations,judgements of various courts in Indialay down general principles of maritimelaw for dealing with cargo claims andother matters.

Indian COGSA

Based on the Hague Rules 1924

The Indian Carriage of Goods by Sea Act,1925 (was amended in 1993) orCOGSA was enacted to recognise andgive effect to the Hague Rules 1924 asthey would apply in India, and itsubstantially follows the Hague Rules.

The Act applies to carriage of goods bysea under bills of lading or similardocuments of title issued in India, froma port in India, to any other portwhether in or outside India (Section 2).The Act is similar to the Hague Rules,and as in the Hague Rules’Articles, itimposes responsibilities and liabilities,and confers rights and immunities,upon the carrier.The Act appliesequally to foreign merchant ships aswell as to Indian merchant ships.COGSA is the substantive law in Indiaon the subject of carriage of goods bysea and would apply compulsorilywhen the carrier is sued by his shipperbased in India.

For inbound cargo, the rights, liabilitiesand obligations of the carrier and thecargo interests are governed by therelevant contract of affreightment.This relates to the applicable law of therelevant contract (if the contractprovides for application of a foreign lawand/or convention), the generalprinciples of law as applicable in Indiaand Judge-made precedents.

Defences

The Schedule to COGSA, referred to inArticle IV provides for certain rightsand immunities to the carrier and theship from liabilities for loss or damageto the cargo. If the ship or carrier isable to set up any of these defences andoffer evidence concerning the same,then such defences would be completeanswers to cargo claims.

The carrier may also rely on statutorydefences such as the right of the plaintiffto bring the claim, privity of contractand jurisdiction.Factual defences such asshort loading,weight, quality or quantityloaded unknown or not matching thedescription in the claused bill of ladingare available. Cargo pilfered or missingpost-discharge, or where the loss hasoccurred in spite of the carrier having

4 Legal Briefing July 2017

TIME BARS

complied fully with the customs orpractice at the port also applies.

Multimodal Transportation ofGoods Act, 1993 (MTOG Act)

The MultimodalTransportation of GoodsAct was introduced in India in 1993.This Act applies to all cases where twoor more modes of transport are used inthe course of transportation.The Actrecognises multimodal transportation ofgoods under a single transportdocument, which covers all the modesof transport.The multimodal transportoperator remains liable and responsibleto the cargo owner.

The MTOGAct provides for themultimodal transport operator to beliable when the goods are damagedwhile they are in his charge.

Limitation and Time Bars

The package limitation under Indian lawis 666.67 SDR per package or unit or2 SDR per kilogram of gross weight ofthe goods lost or damaged, whichever is

higher. If the Claimant can prove that thedamage resulted from an act or omissionof the carrier done with intent to causedamage, or recklessly with knowledgethat damage would probably result, thenthis package limitation defense will notbe available.

Some of the important changes andamendments to COGSA were broughtabout by the MTOGAct:

� It allows parties to agree an extensionof the one-year period to bring suitfor cargo claims.

� It increased the per packagelimitation in India to 666.67 SDRsper package or unit or 2 SDRs perkilogram of gross weight of the goodslost or damaged, whichever is higher.

� Indian law now expressly providesthat neither the carrier nor the shipshall be entitled to benefit from thepackage limitation.That is, if it isproven that the damage resulted froman act or omission of the carrier donewith intent to cause damage, orrecklessly and with knowledge thatdamage would probably result.

COGSA

Article III, rule 6 of COGSA laysdown that the limitation period forfiling a suit under COGSA in India isone year from the date on which thegoods were delivered (or ought to havebeen delivered.) The one year timeperiod can be extended by agreementbetween the parties after the cause ofaction has arisen.

Rule 6, however, also contains thefollowing provision:

“Provided that a suit may be brought afterthe expiry of the period of one year referredto in this sub-paragraph within a furtherperiod of not more than three months asallowed by the court.”

This means that a suit may be broughtafter the expiry of the one year periodreferred to above, but within a furtherperiod of no more than three months(“time specified”), if allowed by thecourt.Therefore, after the 1993amendment, the period of limitationfor filing a suit under Indian COGSAmay be up to a maximum of one yearand three months. But only if

July 2017 Legal Briefing 5

BURDEN OF PROOF

permission is granted by the court orfor a period agreed between the partiesafter the cause of action has arisen.

Indian law on cargo claims mattersrecognises that the quoted provision inArticle III rule 6 above is not that a suitshall be brought within one year from aspecified date or that no suit shall bebrought after the expiry of one year, butthat if the suit is not brought within thetime specified, the carrier and the shipwould be discharged from all liability.This is in respect of loss or damage, i.e.that there will be no cause of actionsurviving against the ship or carrier.

The limitation period for claims bycarrier or lines for indemnity, recoveryof dues, etc. against the cargo interestsor merchant is three years from the dateof accrual of the cause of action.

MTOG Act

Under the MTOGAct, however, aMultimodalTransport Operator willnot be liable unless action is broughtwithin nine months of the date ofdelivery of the goods, the date whenthe goods should have been delivered,or the date on and from which theparty entitled to delivery of the goodshas the right to treat the goods as lost.

For claims by the carrier (or lines forindemnity, recovery of dues, etc.)against cargo interests or merchant, thelimitation period is three years from thedate of accrual of the cause of action.

Procedures and Burden of Proof

To bring a cargo claim in India, all thatthe Claimant has to establish is thatgoods of a certain quantity in good andsound condition were handed over tothe ship or carrier for carriage.Also thatthe same was discharged and receivedby the consignee not in the likequantity or order and condition. Itwould then be for the ship or carrier toestablish beyond reasonable doubt withevidence that the loss and damagecomplained of was not caused by theship or carrier or that the ship orcarrier is exempt from any liability onaccount of the statutory defences

available. Depending upon the facts ofeach case, the burden of proof requiredcould be onerous and the defenceexpensive to run.This is especially sodue to the time it takes for litigations tocome for trial in India.

Due to the backlogs in court, suitstake anywhere between eight to tenyears to come up for trial at the firstinstance.Then there are appeals to theDivision Bench of the same court, andthen to the Supreme Court, all ofwhich make litigation in India a long,expensive process.

It is advisable that appropriateinvestigations into any damage and lossare conducted thoroughly, reportsobtained, and relevant documentsretained for future use to defend claims.Also, the Indian Evidence Act requiresoriginals of all documents to beproduced and marked as evidence.Consequently, whenever it is expectedthat claims may have to be made anddefended, it has to be ensured that alloriginal documents are collected andfiled away safely, to be used in any trialin due course.

Indian law recognises and gives full effectto the terms of contracts between partiesand acknowledges exclusive jurisdictionclauses in bills of lading, providing theygive full effect to the terms of therelevant bills. If the contract ofaffreightment provides for a particularlaw or for a particular jurisdiction toapply to claims and disputes arisingfrom the contract, Indian courts givefull effect to such clauses, subject toexpert evidence of the foreign lawbeing provided.Of course, it should beabsolutely clear from the wordings ofsuch clauses that the law andjurisdiction of a particular place orcountry shall apply to the exclusion ofall other courts or jurisdictions.

Identity of the carrier or partyactually liable

More often than not the ship or itsowner is not the contractual carrier,and does not have a contract with theactual shipper or merchant. Instead, theship or its owner contracts with the

actual shipper or merchant. Instead, theship and its owner contracts with amultimodal transport operator, a non-vessel operating common carrier(“NVOCC”), a freight forwarder or acargo consolidator or such other partieswith whom the ship enters intocontracts of affreightment.The shipperor merchant is not a party to thiscontract of affreightment.Themultimodal transport operator, theNVOCC, the freight forwarder, thecargo consolidator or such parties,enter into separate contracts ofaffreightment with the shipper ormerchant and issue their owndocuments.As far as the merchant isconcerned, this party would be hiscontractual carrier and contractualclaims, if any, in relation to the saidcontract and the cargo ought to bedirected against this party only.

Shotgun approach

There is an increasing trend by Indiantraders also to bring contractual claimsagainst the carrying ship and to seekthe ship’s arrest.Actions includingcriminal complaints are often filedagainst agents of the carrying ship inrelation to contractual claims, in spite ofthe law being clear that an agent of adisclosed principal is not liable for anyact, omission or breach of contract byhis principal.Therefore, in relation tothe issues being discussed, not only is anagent not liable for its principals’contracts or breach of the same, butwhen the principals themselves do noteven have a contract with the merchant,the agent is definitely not liable orresponsible. Such criminal actions areonly being resorted to by the trade toput pressure on a local party to pay upand for obtaining security for the claimfrom the carrying ship or her sister ship.Such actions lead to the ship interestssuffering prejudice: i.e. their ships beingarrested for claims not of their concernand also having to furnish and maintainsecurities until the suits are disposed ofwhich could be many years.There areno real protective measures that carrierscan adopt against such tactics otherthan ensure that all properprecautionary steps are taken.This willensure they eventually succeed in thesenon-meritorious actions and suits.

The Claimants fail to appreciate that byresorting to such actions, they may beprejudicing their own rights. By failingor omitting to sue the proper party, theirclaim may thereafter become barred bylimitation.They may be unable todisclose any cause of action against theship, be unable to sustain the claimagainst the ship because of no privity ofcontract, improper jurisdiction forbringing the claim or other similar issues.Eventually, they may be unable torecover anything in relation to theircontractual claim, even in cases wheretheir contractual carrier would definitelyhave been liable for the claim had theyfocused their action on him instead.

Criminal cases

Criminal cases for offences undersections 407, 420, 424 and 120B of theIndian Penal Code are often sought tobe filed against the carrier, its agents, itsdirectors and principle officers.This isto put pressure on the earner in relationto cargo claims.You will see frombelow that these sections of the IndianPenal Code would only apply to acarrier on very exceptional sets of facts.

� Section 407 refers to the offence of acriminal breach of trust by a party inrespect of property entrusted to him.

� Section 420 refers to cheating anddishonestly inducing delivery ofproperty.This provision will notapply if the act complained of hastaken place outside India and thecarrier has nothing to do with it.

� Section 424 refers to the dishonestor fraudulent removal andconcealment of property and assistinganother person to do so.

� Section 120B refers to a criminalconspiracy, the grounds for whichwould usually be lacking in thecourse of a normal and regularcarriage of goods by sea.

Admiralty jurisdiction –Enforcement of rights and claims

The Admiralty jurisdiction exercised bythe courts in India is, stated simply, thejurisdiction of courts over maritimeclaims and the procedures relating to.

This includes jurisdiction over thearrest of ships, the determination ofclaims and priorities, and of liabilities.

Indian High Court

The High Courts in India havingadmiralty jurisdiction are Bombay,Madras, Calcutta, Gujarat,AndhraPradesh and Orissa.These High Courtsexercise admiralty jurisdictionconcurrently over ships found in theterritorial waters of India. This meansirrespective of where the ship is in theterritorial waters of India, any of theseHigh Courts shall have jurisdiction overher. By a decision of a Division Benchof the Kerala High Court in 2011, theKerala High Court also now exercisesAdmiralty Jurisdiction over ships foundin Kerala when the Court’s jurisdictionis invoked.

To arrest a Defendant's ship in respect ofa maritime claim, the Claimant has tofile a substantive Suit to the concernedAdmiralty Court when the Defendant’sship is within the territorial waters ofIndia, and make out a prima facie case.The arrest of the ship would then follow.Once the ship is arrested, the owner orany party interested in the ship canapproach the Court and put up securityfor the release of the ship in the termsof theWarrant of Arrest issued by theCourt.The ship would then be released.The Suit would in due course be triedand decided by the Court. The HighCourts exercising Admiralty jurisdictionhave framed rules in respect of variousprocedures, filing of caveats againstarrest, release, payment out, sale of theship, determination of priorities, etc.

Security

The recognised security to be furnishedby the Defendant for the release of theship would either be by way of cashdeposited in the registry of theconcerned Admiralty Court or by aBank Guarantee issued by a nationalisedbank in favour of the AdmiraltyRegistrar of the concerned court.Thequantum of such security would be inaccordance with theWarrant of Arrestissued by the court in the matter. AP&I Club letter of guarantee is notrecognised or accepted by the courts as

security.A Club letter of guarantee canbe used as security only if the plaintiffagrees to accept the same as security forhis claim in the suit.

The Indian Supreme Court

The Supreme Court of India is thehighest court in India, and its decisionsare binding on all courts and tribunals.The court’s decision in the m.v. Elisabethcase (reported in AIR 1993 SC 1014)laid down that the principles ofInternational Conventions on Maritimelaws are applicable in India as part ofIndia’s common law. A ship can bearrested for a variety of claims includingclaims for damage to cargo, claims fordamage done by any ship claims arisingout of or in connection with the useand hire of a ship and claims as set outin the Arrest Conventions.

Ships that can be arrested

The offending ship – whose owner ordemise charterer is liable for themaritime claim (1999 ArrestConvention,Article 3(1)).

Sister ship(s) – Other ship(s) owned bythe person – who is the owner of theship against which the maritime claimarose, or any ship owned by the demisecharterer, time/voyage charterer of theship who is liable in personam for themaritime claim (1999 ArrestConvention;Article 3 (2) & decision ofthe Supreme Court in the m.v.Elisabeth).

Arrest of sister ships is restricted –to ships owned by the same person ORregistered entity who is responsible orliable for the claim.

Arrest of beneficially owned ships isno longer permissible – on account ofrecent rulings, except if fraud can bealleged and established with evidence,and the Plaintiff establishes beneficialownership.

Recent decisions of the Bombay HighCourt relating to sister ship arrests andbeneficial ownership:

Ships owned by a subsidiary company– for a claim against another subsidiarycompany, although forming part of one

6 Legal Briefing July 2017

ADMIRALTY JURISDICTION

July 2017 Legal Briefing 7

SHIP ARREST

common holding company, are notsister ships. (M/s. Universal Marine & Anr.V. m.t. Hartati, Bombay High Court (2014SCC OnlineBom 223).

Ships owned by companies withsimilar ownership patterns (sameshareholders, directors, etc.) are not sisterships (Condor Maritime DienstleistungGmbH & Co. m.v.Western Light & Ors,Bombay High Court (2014 SCCOnlineBom 257).

An arrest of beneficially owned shipswould necessitate a lifting of thecorporate veil. Under Indian Law, thecorporate veil can be lifted only underlimited circumstances, such as fraud.

A corporate identity is distinct from theidentity of its shareholders andshareholders of a company are notowners of the property of the company.In Lufeng Shipping Co. Ltd. v.M.V.Rainbow Ace (2013) 4 AIR Bom R1412, an arrest of a ship was vacated onthe ground that the Plaintiff could notestablish a prima facie beneficialownership without lifting the corporate

veil and the latter is not permittedunder Indian Law:

“The Plaintiff must plead fraud in theplaint and prima facie establish fraud, at thetime of seeking order of arrest (M.T.HARTATI).”

Single ship companies –To arrest aship owned by such a company for aclaim against another such company,the Plaintiff must establish that theseparate companies are formed with thesole intention to defraud the creditors.That or the structure of the companywhose ship is to be arrested is a shamto mask a fraud.

Apart from the limited circumstancesmentioned, beneficial ship arrests arenot possible in India.

Other issues in India

Uncleared and abandoned goods

Uncleared and abandoned goods are abig problem in India, particularly for

the container trade. Even if a carrier orits agent takes prompt action to de-stuffcargo from containers and to return thecontainers to the line, due to theshortage of space Customs delay ingiving approval for the disposal ofuncleared or abandoned goods. Untilthese goods are auctioned, permissionfor de-stuffing and returning of emptycontainers back to the lines is rarelygranted.This leads to their agentsissuing writs for appropriate ordersagainst Customs to force them intoaction, which is a time consumingprocess.This remains the position inspite of circulars and directives by theGovernment to Customs encouragingthem to be prompt and not to detainladen containers.

Suits by major ports

Another peculiar type of claim and suitsfaced by ship and the carrier’s agents inIndia are claims and suits from the majorports.These claims or suits are filed bythe major ports against the consigneeor receiver of the cargo, the agents whoenter ships at the ports and against the

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CONCLUSION

slot charterers’ agents for recovery of thedeficit in the sale proceeds of unclearedand abandoned cargoes.These casesrelate to unclaimed and or unclearedcargoes, the accrual of the ports’ chargesthere, and their sale and disposal by theport trusts.The subsequent demand forpayment of the deficit in the salesproceeds made by the PortTrusts andnon-payment is also related. Cargolanded and uncleared is subject to portcharges by way of ground rent (in caseof containerised cargo) or demurrage,PortTrusts file these suits for recoveryof the deficit in the sale proceeds andthe shortfall of their charges.

Section 61 of the Major PortTrusts Acthighlights that if goods in the port’scustody are not cleared, the PortTrustsare entitled to sell such goods (or somuch as is necessary), for recovery ofthe rates and rents payable to the PortTrusts.The said provision also describesthe procedure to be adopted by thePortTrusts for this purpose.Thisenables the PortTrusts to sell cargoesthat remain uncleared in excess of twomonths from their respective arrivalsand in the port’s custody. In practice,the PortTrusts take their own time andfollow their own procedures, which arefraught with delays, in selling suchuncleared cargoes. Eventually, after thecargoes are sold, the sale proceeds areutilised to defray the cost of sale, theCustoms’ duty payable on the cargo andthe balance towards payment of theport charges accrued on the cargo. Inthe event of any deficit, the ports file

suits for recovery of the deficit, againstthe consignee and receivers but alsoagainst the agents of the line.

The PortTrusts of the major Ports relyon the definition given under section2(o)(i) of the Major PortTrusts Act tocontend that the ships or lines’ agentsare agents for the custody, loading orunloading of the goods and aretherefore, “owner” and consequently,liable.The Supreme Court recentlypronounced that the Ports are entitledto such recovery.The only defence nowavailable against such claims are delayand laches by the Ports in selling cargo,and in cases where the ship agents haveissued ‘delivery orders’, relying uponother Supreme Court judgments tocontend that it is the consignee, andnot the ship’s agent, who is liable forthe port charges.

Customs claims

Under the Customs Act, 1962, theMaster of the Conveyance is requiredto file an Import General Manifest(IGM) prior to the arrival of the ship atthe Customs Station.The IGM must listall cargoes and containers that are to bedischarged at the said Customs Stationin India. If the ship discharges aquantity less than that manifested in theIGM, then it becomes liable to apenalty of up to twice the amount ofthe duty leviable on the short landedcargo.The same applies even if thequantity in excess of the quantitymanifested should be discharged.There

are provisions that if good and sufficientcause can be shown; applications can bemade for amending the IGM.However,once the cargo and containers that aremanifested in the IGMs land in India, itbecomes an uphill task to seek a returnof the cargo. It is also difficult to gainpermission for re-exporting the samefrom Customs even where the shipperstill holds the original bills of lading,and thus title in the cargo.

Conclusion

Members are reminded that no twocases are identical. Each unique issuerequires a specific solution which has tobe found in the facts and circumstancesof the case.

The Government of India is currentlyrepealing some of the obsoletelegislations prevalent in India andreplacing them with a maritime law.This will regulate claims, jurisdiction,procedures and all matters relating tomaritime claims and issues in India.Thebill for the new law was passed by theLok Sabha (lower House) on the 10thMarch 2017. It will now go to theRajya Sabha (Upper House), and ifpassed there, will go to the President ofIndia for his Presidential Assent beforebecoming law.When the Admiralty(Jurisdiction and Settlement of MaritimeClaims) Bill, 2016 comes into force asthe Indian Admiralty Act 2017, it will bea new comprehensive legislation inIndia in relation to maritime law.�