Circumstances under which court can lift corporate veil?

In some cases the Court could look behind the registered
owner to determine the beneficial ownership. It could lift the veil not
once but more than once but the necessary ingredient for doing so is
that the independent companies are nothing but sham to defraud the
creditors. For two or more ships to be called sister ships they have to
be registered under the same ownership. For two ships owned by
different entities to be called sister ships, the corporate veil has to be
pierced. To pierce corporate veil fraud has to be established. Fraud has
to be prima face established at the time of obtaining the order of arrest.
A mere bald averment in the plaint is not enough. There has to be
prima face evidence which would show that the intention of the owners
to register the ships in different names was to play a fraud on the
creditors or a sham to mask the true owners and it should be such that

in all likelihood this allegation will be sustained during the final hearing
of the Suit. Otherwise it would set a wrong trend. 

IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ADMIRALTY AND VICE ADMIRALTY JURISDICTION
GAG
NOTICE OF MOTION NO. 1080 OF 2013
IN
ADMIRALTY SUIT NO. 77 OF 2012




 M/s. Universal Marine, 
Versus
M/T HARTATI, 
CORAM: K.R.SHRIRAM, J
Citation; 2014(3) MH LJ 857 Bom
Pronounced on: 11th February 2014


The Plaintiffs had sought and obtained on 09-08-2012 an


ex-parte order of arrest of the 1st Defendant-Vessel M.T. Hartati in
respect of their alleged claim as set out in the particulars of claim at
“Ex. E” in the plaint. The claim was in sum of Rs. 24,75,000/- which the
owners of the 1st Defendant-Vessel furnished as security without
prejudice to their rights and defences. Accordingly, the Order of arrest
of the 1st Defendant-Vessel was vacated by an order passed on
16-08-2012 and the vessel was directed to be released upon the owner
of the 1st Defendant depositing the amount of Rs. 24,75,000/- as
security with the Prothonotary and Senior Master.
2
While obtaining the Order of arrest, the Plaintiffs had in para
2 averred as under :-
“The Defendant No. 1 is a foreign flag vessel owned
by Defendant No. 2 having their address shown in
cause title. The Defendant No. 1 is presently in the
port and harbour of Mumbai i.e. within the Admiralty
jurisdiction of this Hon'ble Court. Besides Defendant
No. 1 vessel, the Defendant No. 2 owns several other
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3
vessels which are sister vessels of Defendant No. 1.
All the vessels are owned and managed by Defendant
No. 2.” (emphasis supplied)
NMS - 1080 - 2013
3
This para 2 was amended pursuant to leave granted by an
order dated 28-06-2013.
The para 3 of the Plaint reads as under :-
4
ig
“That between August, 2011 to July, 2012, at the
request of Defendant No. 2, the Plaintiffs under
various Delivery Challans raised in the name of
Master/Owner sold, supplied and delivered various
ship stores/goods to Defendant No. 1 vessel and her
various sisters vessels as per their requirements,
whilst at the Port of Mumbai, India, which were duly
received, accepted and acknowledged by Master/
Owner by making an endorsement and affixing their
rubber seal/stamp on the Delivery Challans without
any reservations and objections. The said supplies of
ship stores/goods were made to the Defendant No. 1
and her sister vessels and the Defendant No. 1 and
her sister vessels have received and appropriated and
benefited from said supplies of ship stores/
goods............” (emphasis supplied)
5
The para 4 of the Plaint reads as under :-
“The Plaintiffs have raised Invoices for said goods
sold, supplied and delivered to the Defendants. The
invoices are received by Defendant No. 2 and no
objection and reservations of any type is raised
against the said invoices. Plaintiffs crave leave to refer
and rely upon purchase orders, emails confirming
purchase order/sale, certificates of warranty/repair etc.
pertaining to each sale effected upon the Defendant
No. 1 and her sister vessels...........” (emphasis
supplied)
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NMS - 1080 - 2013
4
After obtaining the Order of arrest, the Plaintiffs had on
6
leave being granted amended para 2 and the amended para 2 reads as
under:-
7
ig
“The Defendant No. 1 vessel is a foreign flagged
vessel which is currently in port and harbour Mumbai.
The Defendant No. 2 is the wholly owned subsidiary of an
entity known as “PT. Berlian Laji Tanker, Tbk.”, in short,
BLT. The Defendant No. 2 along with BLT are the
owners/beneficial owners/the entities which are in de-facto
control of various vessels (including Defendant No. 1
vessel) which form part of their “fleet”. For convenience
the Defendant No. 2 and BLT (who for all practical
purposes are one and the same) are hereinafter jointly
referred to as “Owners”. The Plaintiff sold, supplies and
delivered necessaries to various vessels forming part of
the Owner's fleet (including the Defendant No. 1 vessel)
based upon orders received from the Defendant No. 2
from time to time.” (emphasis supplied)
It has to be noted that the case that the Plaintiff made out in
para 2 before amendment is entirely different from the case made out
post amendment.
8
The owners of Defendant No. 1 have taken out the present
Notice of Motion for reducing the security of Rs. 24,75,000/- to
Rs. 1,32,129.49 and the excess amount of Rs. 23,42,870.51/- be
returned to Defendant No. 1 along with interest accrued thereon.
During the course of argument it was submitted that the
amount of Rs. 1,32,129.49 which is equivalent to about US$ 2380.71
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NMS - 1080 - 2013
5
has subsequently being paid to the Plaintiffs and, therefore, the entire
security of Rs. 24,75,000/- has to be returned to the owners of
9
Defendant No. 1.
It is the case of Defendant No. 1 that the particulars of claim
at “Ex. E” provides a list of 36 invoices as outstanding. Only the
invoices at items 32, 33 and 34 pertain to 1st Defendant-Vessel and
ig
the rest belonged to vessels which are not owned by the owners of 1st
Defendant-Vessel. Therefore, the 1st Defendant-Vessel is not a sister
ship of the other vessels mentioned in “Ex. E” to the plaint and
therefore, the Plaintiffs were not entitled to an order of arrest of the 1st
Defendant-Vessel in any case for alleged supplies made to the other
vessels.
During the course of arguments, Counsel for Defendant
10
No. 1 agreed that Defendant No. 2 also belongs to BLT group though in
affidavit-in-rejoinder it is not admitted that BLT owns Defendant No. 2.
He hastened to add, that does not make Hartati Shipping PT Limited,
the owners of 1st Defendant-Vessel, liable in respect of claims against
the vessels owned by other companies belonging to BLT. He further
clarified that he was appearing only for Defendant No. 1. The Counsel
submitted that the vessels mentioned in “Ex. E” to the plaint at serial
nos. 1 to 31, 35 and 36 are not sister vessels of 1st Defendant-Vessel

and in any case the Plaintiffs have not made out a case for lifting of
corporate veil. He added, for a vessel to be called a sister vessel she
has to be owned by the same person who is liable for the maritime
claim and who was, when the claim arose, owner of the ship in respect
of which the maritime claim arose. In this case each vessel was owned
by a different legal entity and therefore, even if all these separate legal
entities are subsidiaries of another legal entity, the ships owned by
ig
each of these legal entities do not become sister ships.
Mr. Pratap, Counsel for the Defendant No. 1, relied on
11
Article 3 (2) of the International Convention on Arrest of Ships, 1999.
Article 3 (2) (a) of the Convention provides as under:-
“2. Arrest is also permissible of any other ship or ships
which, when the arrest is effected, is or are owned by the
person who is liable for the maritime claim and who was,
when the claim arose.
12
a. owner of the ship in respect of which the maritime
claim arose”.
Therefore, the vessels not being owned by the same person
who is liable for the maritime claim do not become sister ships and
what is important is the registered owner of the vessels should be the
same entity.

On the issue of lifting of corporate veil, Mr. Pratap,

submitted that the Plaintiffs have to first allege in the plaint that each of
the vessel was being owned in the name of different companies with a
view to mask a fraud rather than show the true face of the corporation.
Mr. Pratap, states that this fraud cannot just be merely alleged but
there has to be a connection to show that the intention of owning the
vessel in different companies name was to mask a fraud. He further

submitted that foundation for this allegation has to be first made in the
plaint and there is no such averment in the plaint. First time allegation
of fraud has been made only in the affidavit-in-reply dated 09-12-2013
filed by Plaintiffs, which at para 12, provides as under :-
“I further state and submit that various apparently
'independent' entities have been set up for the purposes
of defrauding creditors and insulating the assets of the
“BLT” Group from clauses. This is borne out by the fact
that BLT group is facing insolvency proceedings and its
assets (including its vessels) are being attached by
creditors the world over.”

Mr. Pratap, further submitted that the arrest Order was
obtained on the basis that all vessels were owned by Defendant No. 2,
whereas that averment has been proved to be false by virtue of the
amendment sought to the plaint and the reply filed to the Notice of
Motion. He further submitted that the 1st Defendant-Vessel was bought
by Hartati Shipping on 12-11-2008 and claims of the Plaintiffs pertains

to the period from August, 2011 to August, 2012 and, therefore, the
Plaintiffs certainly knew and would have known while filling the suit as
to who were the real registered owners of all the vessels. He submitted
that the Plaintiffs have deliberately made false statement suppressing
material facts and obtained the order of arrest on the basis of false
averments in the plaint. He further submitted that the Plaintiffs, if it has

to go against the assets/ships owned by a group of companies on the
basis of beneficial ownership has to show that all the companies were
formed to defraud the creditors while obtaining the Order of arrest.
In support of his submissions, Mr. Pratap, first relied upon
15
the “Maritime Trader” (1981), Vol. 2, LLR 153. In that case the arrest of
the vessel, Maritime Trader was held to be wrongful on the basis that
the only vessels which might be arrested in respect of a maritime claim
were the particular ship in respect of which the claim arose and any
other ship in the same ownership. In that case arrest was sought of a
ship beneficially owned by demise charterers and the Court held that it
was not a sister ship of the ship they had chartered. The facts in that
case were that MTS were the owners of the vessel Maritime Trader. All
the shares in MTS were owned by another company MTO. The
Plaintiffs in that case had given on charter their vessel to MTO.
A number of claims of the Plaintiffs arose out of the charter and the

Plaintiffs issued a writ against the vessel Maritime Trader on the
contention that the Maritime Trader was beneficially owned in respect
of all the shares therein by MTO. The Court held as under:-

“All the shares in MTS are owned by MTO. The question
is whether at the time when the action was brought
Maritime Trader was beneficially owned as respects all
the shares therein by MTO, the person who would be
liable on the claim in an action in personam. The starting
point is the fundamental principle of company law that a
shareholder has no property legal or equitable in the
assets of the company.
Following that principle, MTO, who owned all the
shares in MTS has no property in Maritime Trader which
was one of the assets of MTS. My attention was drawn
to the decision of Mr. Justice Pennycuick in Rodwell
Securities v. The Inland Revenue Commissioners, (1968)
2 All E.R. 257, and in particular to a short passage on p.
260 in which that learned Judge said :
According to the legal meaning of the words a
company is not the beneficial owner of the assets of its
own subsidiary. The legal meaning of the words takes
account of the company structure and the fact that each
company is a separate legal person.
From that starting point there is no way in which it can
be said that Maritime Trader was “beneficially owned as
respects all the shares therein” by MTO, unless the
corporate veil can be lifted. I would not hesitate to lift that
veil if the evidence suggested that it obscured from view
a mask of fraud rather than the true face of the
corporation.
I have already referred to the fact that Maritime Trader
has been owned by MTS since she was built nearly five
years ago. When Antaios was chartered to MTO on Mar.
25, 1980, Maritime Trader had been in the registered
ownership of MTS for over four years. There was no
device or sham designed to defraud the plaintiffs. If, when
the plaintiffs agreed to charter Antaios to MTO, they had
been concerned about the assets of MTO, they would or

could have found out that Maritime Trader was not a part
of those assets.
The Court in all cases can and in some cases should
look behind the registered owner to determine the true
beneficial ownership. I do not dissent from that view. In
that case there was much to be investigated in order to
see whether each change of ownership was genuine or a
sham. Circumstances may justify the lifting of the
corporate veil or more than one veil, if that is necessary,
to reveal the truth. But I also agree with Mr. Justice Slynn
that the onus is upon the plaintiffs to show that the
person against whom it is sought to invoke the Admiralty
jurisdiction by arresting his ship is the person who
beneficially owns all the shares in that ship and that he is
the person who is liable in an action in personam.

The evidence upon which I have to decide that matter
does not raise even a prima facie case that the ship
Maritime Trader was purchased by MTS in 1976 in order
that it would not be available as security for a judgment
against MTO. If, of course, the parent company, MTO, is
unable to pay its debts and is wound up, one of the
assets of the company will be its shareholding in MTS.
The value of those shares must depend upon the assets
and liabilities of MTS, about which I have no evidence.
Mr. Saville asked the rhetorical question, “What is
wrong with using the company structure to limit liability?”
To that question he said that the answer must be,
“Nothing, unless it is a sham”. I agree.” (emphasis
supplied)
16
I totally agree with this judgment which goes to show that
there is nothing wrong with a person owning different ships in the
names of different companies unless it is a sham. The onus is on the
Plaintiffs to show that the company structure is a sham and a mask to
play a fraud on the public.

seen in the plaint as originally filed and even after amendment.
In this case that is not even the Plaintiffs stand as could be
17
Mr. Pratap also relied upon the “Evpo Agnic” (1988), Vol. 2,
LLR 411. He relied on the said judgment to buttress his submission
that the Plaintiffs have to show evidence that the owners of all the
vessels to whom supplies have been made throughout are the same.

In other words the ships should be in the same ownership and that the
Plaintiffs did not have the right to arrest a ship which was a ship of a
had a claim.
Mr. Pratap also relied upon the MAWAN (1988), Vol. 2, LLR
18
sister company of the owners of the ship against whom the Plaintiffs
459 to submit that for a claim against the vessel the person who will be
liable to the Plaintiff in personam was the registered owner and if the
action is brought against another vessel the Plaintiff has to show that
the company who was liable in personam also owned the shares in the
vessel against which the interim action is commenced. In that case,
Defendant-Vessel Stanley Bay became a total loss while she was
carrying the Plaintiffs’ cargo. The Plaintiffs sought to recover that loss
from a sister ship of Stanley Bay, MAWAN. After writ was issued but
before she was arrested, MAWAN was sold. The new owners of
MAWAN which was renamed as MARA had applied for setting aside

the writ of summons and warrant of arrest and return of security. While
setting aside the Order of arrest, the Court gave its reasons as under:-

“The plaintiffs' case is more complex. Mr. Ruttle placed
before the Court a schedule which gave in outline a
history of the two ships Stanley Bay and Mara. The fact
that they were built to the same design and were in that
sense sister ships is not relevant to the issue on this
motion. The first relevant fact is that in 1983 the owners
of the two ships, Botelho Shipping Corporation of the
Philippines sold Stanley Bay to Chang Chun Shipping Co.
Ltd. and Mara to Chang Bai Shan Shipping Co. Ltd. Both
those companies had been registered in November,
1981. Their registered addressed were 601, Prince's
Building, Charter Road, Hong Kong and they had the
same directors, namely Nomitor Ltd. and Willserve Ltd.
Both of the ship-owning companies have a nominal share
capital of Hong Kong $1000 divided into 1000 shares.
Only two shares have been issued by each company, one
to Wilgrist Nominees Ltd. and one to Wilvester Ltd. These
latter two companies have the same registered addresses
as Chang Chun and Chang Bai Shan. Wilgrist Nominees
has a nominal share capital of $1000 divided into 1000
shares, of which only 200 have been issued. Those
issued shares are held as to 90 by Mr. Ian MacCallum, as
to 50 by Mr. Ella Cheung, as to 25 by Mr. Neil James.
Those four gentlemen are solicitors and partners in the
firm of Wilkinson and Grist, who practice at 601, Prince's
Building, Hong Kong.
Mr. Ruttle, on behalf of the plaintiffs, opposed this
motion with a characteristically attractive argument. But
when he was invited to identify “the relevant person” for
the purposes of s. 21 he declined the invitation, save that
he said that it was the person or company who was the
beneficial owner of Mawan. I intend no disrespect for his
able argument when I say that its substance can be
distilled into one sentence. He submits that, if one looks
at all the connecting links between the shareholders, the
directors and management of Chang Chun and Chang
Bai Shan, it becomes crystal clear that the beneficial
ownership of these two ships is vested in the same
person or company and that, therefore, they are truly
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ig
sister ships despite the efforts of the owners to conceal
that fact.
That approach involves not merely lifting a corporate
veil but also sweeping aside all the corporate structure. In
1952 when the Convention Relating to the Arrest of
Seagoing Ships was signed at Brussels the High
Contracting Parties agreed that a claimant may arrest
either the particular ship in respect of which the maritime
claim arose, or any other ship which is owned by the
person who was, at the time when the maritime claim
arose, the owner of the particular ship. At the time when
that agreement was reached, limited liability companies
were well known. It must have been in the minds of all the
parties to that agreement that ship owners would seek to
reduce the possibility of the arrest of “their” ships by
incorporating “one ship companies”. They have done so.”
NMS - 1080 - 2013

Mr. Pratap submits that, therefore, the vessels are not sister
ships and at best could be termed as owned by sister companies and
Plaintiffs will have to make a case for lifting of corporate veil in which
they have failed.
20
In contrast, Mr. Vishal Sheth, Counsel for the Plaintiffs
submitted, (a) that owner of the ship referred to Article 3 (2) (a) cannot
be restricted to only the registered owner but be extended to beneficial
owners as well. He submitted that the owner of the ship in the 1999
arrest convention does not mean only registered owner but would
include beneficial owner as well and for that purpose corporate veil
could be pierced; and (b) for piercing corporate veil there is no need to
allege or prove fraud.

In support of his second submission that fraud need not be
alleged or proved, he first relied upon the judgment of Supreme Court
of India in the matter of Life Insurance Corporation of India v. Escorts
Limited and others reported in A.I.R. 1986, Supreme Court 1370 where
in para 90, the Apex Court said:-
22
ig
“General and broadly speaking, we may say that the
corporate veil may be lifted where a statute itself
contemplates lifting the veil, or fraud or improper conduct
is intended to be prevented, or a taxing statute or a
beneficent statute is sought to be evaded or where
associated companies are inextricably connected as to
be, in reality, part of one concern. It is neither necessary
nor desirable to enumerate the classes of cases where
lifting the veil is permissible, since, that must necessarily
depend on the relevant statutory or other provisions, the
object sought to be achieved, the impugned conduct, the
involvement of the element of the public interest, the
effect on parties who may be affected etc.”
He later relied upon the unreported judgment of the Division
Bench of this Court in the matter of Lufeng Shipping Company Limited
v. M.V. Rainbow Ace and Anr. (Appeal (L) No. 228 of 2013 in Admiralty
Suit No. 29 of 2013). The Counsel submitted that the said matter also
was regarding arrest of a ship by piercing the corporate veil where the
beneficial owner of the vessel sought to be arrested was also beneficial
owner of Respondent company. He relied on para 13 which reads as
under :-

“In this case it is not the case of the appellant that the
applicant company has been created so as to only defeat
the maritime claims against the Respondent No. 2
company. In the present facts it is not the case of the
appellant that the applicant company is a subsidiary of
the Respondent No. 2 company when possibly it could be
said that the holding company is the beneficial owner of
the subsidiary company. In cases where two independent
companies are both 100% subsidiary of a common
holding company then it may be possible to contend that
the beneficial owner of both the companies is the
common holding company. These are not the facts in the
present case as the applicant company and the
Respondent No. 2 company are not subsidiaries of one
common holding company or have subsidiary and holding
company relationship inter se.”
NMS - 1080 - 2013

According to Mr. Sheth in every case, therefore where there
is a common holding company, the claim against one subsidiary of that
holding company can be enforced against the asset of another
subsidiary company or the holding company. He submitted that if it is
true that two independent companies are both 100% subsidiaries of a
common holding company then it means that beneficial owner of the
companies is the common holding company and hence no fraud need
to be even alleged later or proved and the Court can order the arrest of
the vessel belonging to a subsidiary company for a claim against the
vessel owned by another company.
24
I disagree with Mr. Sheth. The Division Bench has not held
what Mr. Sheth is suggesting. An odd observation of the Court when

such issue was not raised or decided does not become a binding
precedent. In the matter of State of Orissa and Ors. vs. M.D. Illiyas
(2006) 1 SCC 275, the Apex Court held as under :-
ig
“Reliance on the decision without looking into the
factual background of the case before it is clearly
impermissible. A decision is a precedent on its own
facts. Each case presents its own features. It is not
everything said by a Judge while giving judgment that
constitutes a precedent. The only thing in a Judge's
decision binding a party is the principle upon which the
case is decided and for this reason it is important to
analyse a decision and isolate from it the ratio
decidendi. According to the well-settled theory of
precedents, every decision contains three basic
postulates (i) findings of material facts, direct and
inferential. An inferential finding of facts is the
inference which the Judge draws from the direct, or
perceptible facts; (ii) statements of the principles of law
applicable to the legal problems disclosed by the facts;
and (iii) judgment based on the combined effect of the
above. A decision is an authority for what it actually
decides. What is of the essence in a decision is its ratio
and not every observation found therein nor what
logically flows from the various observations made in
the judgment. The enunciation of the reason or
principle on which a question before a Court has been
decided is alone binding as a precedent. (See: State of
25
Orissa v. Sudhansu Sekhar Misra and Union of India v.
Dhanwanti Devi). A case is a precedent and binding for
what it explicitly decides and no more.”
He also relied upon the matter reported in A.I.R. 1988
Supreme Court 1737 – State of U.P. and others v. Renusagar Power
Co. and others, in support of his contention that the frontiers for lifting
the corporate veil is unlimited and the Plaintiff need not allege any
fraud.

He also relied upon another judgment reported in 2005 (2)
Mh. LJ 700 – Lok Housing and Constructions Ltd. and Anr. vs Everest
Industries Ltd. and anr. This judgment is absolutely irrelevant to matter
in hand as that matter related to rejection of plaint under Order 7, Rule
11. of the C.P.C., 1908
The Plaintiffs's Counsel's reliance on the matter of LIC
ig
27
v. Escorts to suggest there is no need to plead fraud is misplaced. That
case related to lifting of corporate veil under the scheme framed under
the Foreign Exchange Regulation Act, 1973 to determine who the
shareholders are. The Apex Court while disposing of the appeal
observed that the lifting of corporate veil was necessary to discover the
nationality and origin of the shareholders because under the scheme
for investment in shares of Indian companies for non-residence
companies itself provided for lifting of the corporate veil. The facts in
that case were totally different and had no similarity even remotely to
the case in hand. That judgment is not at all applicable to the present
case.
28
Even the judgment in Rainbow Ace is of no assistance to
Mr. Sheth. Paras 9, 10 and 11 in the judgment of the Division Bench of

“9) While interpreting the above provision, the
Supreme Court in Liverpool and London S.P & I
Association Ltd. v. Sea Success 2004 (9) SCC 512 while
holding that Arrest Convention 1999 would be applicable
to India even though India is not a signatory thereto has
held that the same would be subject to a) domestic law
which may be enacted by Parliament and b) for
enforcement of the contract involving public law
character. Therefore the issue to be examined is whether
the Indian corporate law accepts the proposition that in
the absence of allegation of fraud, it is open to ignore the
independent corporate identity of a limited company and
to lift the corporate veil to identify the shareholder as
owner of the property of the limited company.
this Court in the matter of Rainbow Ace reads as under :-
10) The Supreme Court in Indo wind Energy Ltd. V
Wescare (India) Ltd. 2010(5) SCC 306 has held that each
company incorporated under the Companies Act has a
separate and distinct legal entity from its shareholders
and other companies. Therefore, the mere fact that the
two companies have common shareholders or common
Board of Directors will not convert the two companies into
a single entity. Similarly as far back as in 1955 Supreme
Court in Bacha F. Guzdar, Bombay Vs. Commissioner of
Income Tax, Bombay AIR 1955 SC 74 held that the
companies does not buy any interest in the property of
the company. This was on the basis that an incorporated
company has an identity different and distinct from that of
its shareholders. The submission of the appellant that the
concept of beneficial owner by itself implies the concept
of lifting the corporate veil and in support of which
reliance is placed upon the decision of the Apex Court in
M.V. Elisabeth and ors. Vs. Harwan Investment and
Trading Pvt. Ltd. 1993 Supp. (2) SCC 433 as well as the
decision in Liverpool and London S.P. & I Association
Ltd. v. Sea Success (supra) and the Calcutta High Court
decision in Owners & Parties Interested in the Vessel
M.V. “Dong Do” and anr. v. Ramesh Kumar & Co. Ltd.
2001 (2000) 1 CALLT 367 (H.C.).

11) We find that the submission of the appellant on
the above basis is not sustainable as in none of the cases
did the court permit the lifting of the corporate veil to
make the shareholder of a corporate entity the owner of a
property belonging to the incorporated company. In the
case of M.V. Elisabeth (supra) the issue which arose for
consideration was the question of jurisdiction viz. whether
Andhra Pradesh High Court had jurisdiction in its
admiralty jurisdiction to proceed against a foreign ship
owned by a foreign company not having a place of
business in India. The arrested vessel viz. M.V. Elizabeth
was the vessel against which a maritime claim had arisen
and no issue of lifting the corporate veil arose. In the
course of Judgment the Apex Court had observed in Para
46 thereof that the jurisdiction can be invoked against a
sister ship i.e. a ship in the same beneficial ownership. In
the present case the arrest is being sought not of a sister
ship i.e. a ship in the ownership of the same person but a
ship/vessel owned by a sister company of the company
against which maritime claim arose. In Liverpool and
London S.P & I Association Ltd. v. Sea Success (supra)
the issue for consideration was whether the non payment
of insurance premium gave rise to a maritime claim. The
premium was not paid in respect of vessels Sea Ranger
and Sea Glory. The vessels Sea Ranger, Sea Glory and
Sea Success were owned by the same owner. The vessel
arrested was Sea Success. No issue of lifting the
corporate veil for the purpose of arresting Sea Success
arose. In the case of M.V. Dong Do (supra) Calcutta High
Court held that under the Indian Law, shareholders of a
company are not the owners of the assets of the
corporate entity. The Court set aside the arrest of the
vessel even though it was alleged that both the vessels
were ultimately owned by the companies. The Calcutta
High Court negatived the aspect of beneficial ownership
as extending to shareholders of an incorporated entity
and as an illustration pointed out that in India various
Government Companies are in existence who are
independent of each other having a distinct identity.
Therefore a ship belonging to Shipping Corporation of
India cannot be said to be a sister ship of a ship
belonging to Oil & Natural Gas Commission to enable the
arrest of ship owned by one company for the maritime
claim arising in respect of another company.”(emphasis
supplied)

I am afraid, as regards his first submission that “owner” is to

be read as “beneficial owner” and not “registered owner”, I cannot
agree with the submissions of the learned Counsel for the Plaintiffs. As
to how did the Plaintiffs and what is the basis on which the Plaintiffs
obtained an order of arrest has to be seen. Arrest Convention 1999 is a
legal instrument to establish international uniformity in a field of arrest
of ships taking into account developments in related fields. Article 3 (1)

relates to arrest of a ship in respect of which a maritime claim is
asserted. Article 3 (2) relates to arrest of any other ship or ships other
than ship in respect of which a maritime claim is asserted. Which “any
other ship or ships can be” is clearly mentioned in Article 3 (2) (a)”.
Those are ship or ships which, when the arrest is effected, is or are
owned by the person who is liable for the maritime claim and who was,
when the maritime claim arose a owner of the ship in respect of which a
maritime claim arose. Though the Arrest Convention has not defined
who the “owner” is, it certainly means a “registered owner”. The reason
why it has to be meant a registered owner is because the only person
who could held be liable for a claim against the ship, is the person who
owns all the shares in the ship and who would be liable on the claim in
an action in personam. The only person who can be liable for action in
personam is the registered owner of the vessel and no one else. If the
‘owner’ should be meant to be beneficial owner, the convention would
have said ‘beneficial owner’. This is because beneficial owner need not

mean he is the registered owner. On the contrary registered owner or
the owner in whose name the ship is registered would also be the
beneficial owner unless otherwise proved. S. 25 (b) and (c) of the
Merchant Shipping Act, 1958 makes it very clear. It reads as under:
“25. Register book. Every registrar shall keep a book to
be called the register book and entries in that book
shall be made in accordance with the following
provisions:-
ig
(a) ........
(b) subject to the provisions of this Act with respect to
joint owners or owners by transmission, not more than
ten individuals shall be entitled to be registered at the
same time as owners of any one ship; but this rule
shall not affect the beneficial interest of any number of
persons represented by or claiming under or through
any registered owner or joint owner;
30
(c) a person shall not be entitled to be registered as
owner of a fractional part of a share in a ship; but any
number of persons not exceeding five may be
registered as joint owners of a ship or of any share or
shares therein.”
Therefore upto 10 individuals shall be entitled to be
registered at the same time as owners but each of them may represent
beneficial interest of many others who may hold a fractional part of a
ship.
31
Further rules of interpretation require that a word should be
given its normal, plain and natural meaning. An owner will naturally

mean a person in whose name the ship is registered. A ship is not
registered in the name of the beneficial owner. A beneficial owner only
owns the shares in the company in whose name the ship is registered.
If the beneficial owner is wound up or if an individual's assets are
attached, one of the assets of the company or the individual will be the
shareholding in the company in whose name the ship is registered.
The ship will not be the asset of the beneficial owner company or
ig
individual. Let us assume the situation where the Plaintiffs chose to file
action in personam and not in rem. Will the action in personam be filed
against the owning company or the beneficial owner? The answer
32
undoubtedly is the owning company.
Moreover when the 1999 Arrest Convention came into effect
or was signed at Geneva, limited liabilities companies were well known
and one vessel owned companies were also well known. It must have
been in the mind that the convention was signed with the ship owners
to seek to reduce the possibility of arrest of “their” ships by
“incorporating one ship companies”. Therefore, the owner of the ship
referred to in the convention has to be registered owner. This is more
so because the convention also provides for demise charterer or
manager or operator or time charterer or voyage charterer of a ship.
Article 3 (2) of the 1999 Convention provides as under:-
“3(2) Arrest is also permissible of any other ship or ships

which, when the arrest is effected, is or are owned by the
person who is liable for the maritime claim and who was,
when the claim arose.

If it was to extend to ships belonging to different companies
but under common holding, the convention would have said so
33
expressly.
Moreover Article 3 (3) of the 1999 Arrest Convention

provides as under:

“3. Notwithstanding the provisions of paragraphs 1
and 2 of this article the arrest of a ship which is not
owned by the person liable for the claim shall be
permissible only if, under the law of the State where the
arrest applied for, a judgment in respect of that claim can
be enforced against that ship by judicial or forced sale of
that ship.”
Indian law views each company incorporated under the
Companies Act as a separate and legal entity from its shareholders
and other companies and the fact that the two companies have
common shareholders or common Board of Directors will not convert
the two companies into a single entity [INDO WIND ENERGY LTS. Vs
WESCARE (INDIA) LTD. 2010 (5) SCC 306]. The apex court in Bacha
F. Guzder vs Commissioner of Income Tax AIR 1955 SC 74 held that
shareholders do not buy any interest in the property of the company
and an incorporated company has an identity different from that of its

shareholders. It is also trite that Indian law does not permit one to
ignore the independent corporate identity of a limited company and to
lift the corporate veil to identify the shareholder as owner of the
property of the limited company in the absence of fraud.
35
This is the legal position in many countries. It is for that
reason when it comes to arrest of ships in India, Article 3 (3) of the
ig
1999 convention must be read to provide that arrest of a ship which is
not owned by the person liable for the claim shall be permissible, which
means arrest of a ship in common beneficial ownership is permissible,
36
if Indian Law would permit.
Indian law says shareholders are not the owners of the
assets of the company. Therefore, to arrest a ship which is not owned
by the person liable for the claim, which means arrest of a ship under
common beneficial ownership, is not permissible unless fraud is
established.
37
Here is a case where Plaintiffs have obtained an order of
arrest of the 1st Defendant-Vessel. The order of arrest obtained is a
very drastic step and moreover it is obtained ex-parte. An incorporated
company has an independent identity and is different and distinct from
that of its shareholders. The submission of the Plaintiffs that the

concept of beneficial owner by itself requires the lifting of corporate veil
is not sustainable. None of the case relied upon by the Plaintiffs
permitted lifting of corporate veil to make the shareholders of a
corporate entity the owner of a property belonging to the corporate
entity. None of the judgment relied upon by the Plaintiffs support the
fact that the order of arrest can be obtained of a vessel which is owned
by a different entity not by the entity that owned the vessel against

which the maritime claim arose just because both the entities are
owned by a common holding entity.
38
In some cases the Court could look behind the registered
owner to determine the beneficial ownership. It could lift the veil not
once but more than once but the necessary ingredient for doing so is
that the independent companies are nothing but sham to defraud the
creditors. For two or more ships to be called sister ships they have to
be registered under the same ownership. For two ships owned by
different entities to be called sister ships, the corporate veil has to be
pierced. To pierce corporate veil fraud has to be established. Fraud has
to be prima face established at the time of obtaining the order of arrest.
A mere bald averment in the plaint is not enough. There has to be
prima face evidence which would show that the intention of the owners
to register the ships in different names was to play a fraud on the
creditors or a sham to mask the true owners and it should be such that
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NMS - 1080 - 2013
26
in all likelihood this allegation will be sustained during the final hearing
of the Suit. Otherwise it would set a wrong trend. As illustrated in M.V.
Dong DO (Supra) in India various government companies are in
existence who are independent of each other having a distinct identity.
In foreign jurisdictions a Shipping Corporation of India ship might
get arrested for a claim against ONGC by simply showing common

will be used for persuasive effect.
ownership and baldly alleging fraud and the judgments of our Courts
In this case, the Defendant No. 1 has admitted that all the
39
ships listed in “Ex. E” in the plaint are owned by companies which are
subsidiaries of a common entity. My question is what is wrong in that if
somebody had business in that fashion. There is nothing wrong unless
it is being done with an intention to defraud or with a view to mask the
fraud or it is a sham. It is not even the case of the Plaintiffs in the plaint
that BLT has created all these companies to own the individual vessel
with a view to mask the fraud or to defraud the Plaintiffs or other
creditors or it is a sham. It is not even alleged in the plaint as it was
originally filed or even when it was amended. Even when the leave to
amend the plaint was sought, there is no allegation of fraud or a sham.
On the contrary, the Plaintiffs had obtained ex-parte order of arrest on
the ground that Defendant No. 2 vessel owned the Defendant No. 1
vessel and several other vessels. This was later amended to state that

Defendant No. 2 along with BLT are the owners/beneficial owners/the
entity which are in various fields (including Defendant No. 1 vessel)
formed part of their fleet. Just because BLT owns various
entities/incorporated companies, and each of the entities/incorporated
companies owned different ships does not make all the ships sister
ships and does not entitle any claimant to seek arrest of a ship owned
by particular entity for a claim against a ship owned by another entity
ig
just because both the entities are subsidiaries of a third entity. Of
course, there could be an exception. The exception will be where the
Plaintiff is able to prove that all the companies were formed and all the
ships were registered in the ownership of the respective companies
only with an intention to defraud the Plaintiffs or creditors and the
registered owners of the ships are sham companies. In this case, the
1st Defendant-Vessel was purchased by Hartati Shipping Private
Limited in November, 2008 whereas the claims pertain to August, 2011
to August, 2012. This itself shows that the 1st Defendant-Vessel was
not registered in the name of Hartati Shipping Private Limited as a
sham or to defraud the Plaintiffs. Moreover the admitted position is that
the claim relating to 1st Defendant-Vessel has been paid off by Hartati
Shipping Private Limited.

In the circumstances, the order of arrest or retention of
security furnished for release of Defendant No. 1 cannot be sustained.

Notice of Motion is allowed in terms of prayer clause – (a).
The Prothonotary and Senior Master, High Court, Bombay

is directed to forthwith recall/foreclose the fixed deposit and return the
amount of Rs. 24,75,000/- furnished on behalf of Defendant No. 1
together with interest accumulated thereon to Hartati Shipping Private

Limited.

The Defendant No. 1 in my opinion is also justified in
claiming cost and is entitled to cost. The Plaintiffs are directed to pay a

sum of Rs. 1,00,000/- as cost to the Advocates for Defendant No. 1.
The Counsel for the Plaintiffs seeks stay of the judgment.
(K.R.SHRIRAM,J)
The Judgment is stayed for a period of 1 week from today.