The plaintiff applied for an order of arrest of the defendant vessel at Karaikal Port, India, as a result of a demise charter dispute. MARG Ltd had entered into an agreement with the plaintiff whereby the plaintiff would operate, crew, repair and maintain the vessel while it was used to conduct dredging and reclamation work at the Port. The plaintiff's invoices went unpaid. The plaintiff succeeded in obtaining an interim arrest order for the vessel. The owner of the vessel, MARG International Dredging Pte Ltd (MARG International), appeared and filed a counter-claim.

MARG International admitted that it was the registered owner of the defendant vessel at all relevant times. MARG International had not entered into any contract, agreement or arrangement with the plaintiff. The contract was between the plaintiff and MARG Ltd. MARG International had demise chartered the vessel to MARG Ltd. That charter had expired before the plaintiff's claim was brought and the vessel was arrested. MARG International then entered into a fresh demise charter with Pelagia Marine Services Pte Ltd (Pelagia). As neither the registered owner nor the present demise charterer was liable for the alleged claim of the plaintiff, the present suit was not maintainable, and the order of arrest should be vacated.

The plaintiff replied that MARG Ltd is a holding company and MARG International is its wholly-owned subsidiary. The Chairman and Managing Director of MARG Ltd and the Director of MARG International is one and the same person. Further, the alleged agreement entered into between MARG International and Pelagia is a fabrication and a fraud. Whether the vessel is owned by MARG Ltd or MARG International is a question to be decided only during trial. There is no need to even lift the corporate veil to see who is the actual owner. The vessel cannot be released at this stage on the bald and baseless averments of the defendant.

Held: Application dismissed. The interim order of arrest is vacated.

The plaintiff relied on Videsh Sanchar Nigam Ltd v MV Kapitan Kud AIR 1996 SC 516, (1996) 7 SCC 127, LNIND 1995 SC 1099 to argue that if the plaintiff establishes a prima facie arguable best case, the admiralty action must proceed to trial. In this case, there was an admitted liability by MARG Ltd. The plaintiff argued that on the date of arrest, the vessel was under a demise charter with MARG Ltd and the order of arrest was therefore in full compliance with art 3.1.b of the Arrest Convention 1999. However, the documents clearly show that on the date of arrest, Pelagia was the demise charterer of the vessel and not MARG Ltd, against whom the plaintiff is claiming. Only if the plaintiff established a strong prima facie case that the defendant has acted fraudulently by creating documents with an intention to overcome the order of arrest, would the question of piercing/lifting the corporate veil arise at the time of trial. In this case, the plaintiff has only made an attempt to create a suspicion in the mind of the Court by pointing out certain minor discrepancies in the documents filed by the defendant. This is insufficient to come to the conclusion that the defendant has committed fraud.

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 MARG International and MARG Ltd have common shareholders or a common board of directors will not convert the two companies into a single entity. The plaintiff's submission is that the concept of beneficial owner by itself implies the concept of lifting the corporate veil. In support of this, reliance was placed upon the Supreme Court decisions in MV Elisabeth v Harwan Investment & Trading Pvt Ltd 1993 Supp (2) SCC 433 (CMI883), and Liverpool & London SP & I Association Ltd v Sea Success (2004) 9 SCC 512 (CMI884), as well as the Calcutta High Court decision in Owners and Parties Interested in the Vessel MV 'Dong Do' v Ramesh Kumar & Co Ltd 2001 (2000) 1 CALLT 367.

The plaintiff's submission is not sustainable. In none of these 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 MV Elisabeth, the issue which arose for consideration was the question of jurisdiction, namely whether the Andhra Pradesh High Court had jurisdiction to proceed against a foreign ship owned by a foreign company not having a place of business in India. The arrested vessel was the vessel against which a maritime claim had arisen, and no issue of lifting the corporate veil arose. The Court observed that jurisdiction can be invoked against a sister ship, ie a ship in the same beneficial ownership. In the present case the arrest is being sought, not of a sister ship, but of a ship/vessel owned by a sister company of the company against which the maritime claim arose. In Liverpool, 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 the Sea Ranger and the Sea Glory. The vessels Sea Ranger, Sea Glory, and Sea Success were owned by the same owner. The vessel arrested was the Sea Success. No issue of lifting the corporate veil for the purpose of arresting the Sea Success arose. In MV Dong Do, the Calcutta High Court held that under 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.