This was a claim for short landing of goods. The plaintiff, an Indian company, entered into a contract with a Malaysian company, PateI Holdings Ltd Sdn Bhd (Patel), for the import of palm olien oil. Patel shipped 1,574 drums of the oil to Madras on the Sun Duex, belonging to the first defendant, Far Eastern Marine Transport Co, whose local agent at Madras, Chowgule Bros, was the second defendant. The shipment of the goods was covered by two bills of lading. The goods were insured against all risks, including shortage, with the third defendant, an insurance company. The vessel arrived at Madras Harbour on 18 September 1977. Upon discharge of the cargo, short landing was found.

The first defendant denied that there was any short landing of goods and asserted that all the drums covered by the two bills of lading were fully discharged at the Port at Madras. The second defendant contended that it was only an agent for the first defendant and is not liable. The third defendant claimed that the primary liability was on the first defendant as carrier, and only after exhausting the remedy against the carrier could any proceeding be taken against the third defendant. The third defendant further contended that if the first defendant escaped liability on the ground that the liability of the carrier became extinguished, the suit having been filed after one year from the date on which the goods ought to have been discharged, the suit against the third defendant must also be dismissed, in as much as the plaintiff has not diligently sued the carrier and allowed the claim against the carrier to be extinguished, thereby completely and irretrievably jeopardising the third defendant's right to recover any amount against the carrier. The plaintiff had thus violated the condition of the policy to keep the remedy against the carrier intact and had to be non-suited.

Held: The plaintiff's claims are dismissed.

Counsel for the first and second defendants argues that this suit for short landing is governed by the Carriage of Goods by Sea Act 1925, passed in accordance with the Code of Rules drawn up in 1921 by the International Law Association at the Hague in respect of which final agreement was reached at the International Conference of Maritime Law held in Brussels in October 1922 and again in October 1923. This international agreement was intended to remove uncertainty, and introduce uniformity about the liabilities attached to the carrier by sea. In accordance with this international agreement, the United Kingdom passed the Carriage of Goods by Sea Act 1924 and the Indian Act was passed in 1925. Article 3.6 of Sch III of the Indian Carriage of Goods by Sea Act 1925 lays down that the carrier and the ship shall be discharged from all liability in respect of the loss or damage unless the suit is brought within one year after delivery of the goods or the date when the goods should have been delivered. When the first defendant was impleaded, the period of one year had elapsed. It is therefore contended that the right [to sue] the first defendant carrier has become extinguished and cannot be revived. That contention of the learned counsel for the defendants has to be accepted.

In East & West Steamship Co v Chettiar (1963) 1 SCJ 808, AIR 1960 SC 1058, the scope of art 3.6 came up for consideration before their Lordships of the Supreme Court. One of the questions that arose for consideration was whether an acknowledgment of liability under s 19 of the Limitation Act extended the period of one year laid down under art 3.6. This is what their Lordships stated:

On the next question whether the clause prescribes only a rule of limitation or provides for the extinction of a right to compensation, it will be observed that the Bombay High Court has not discussed it at all, apparently because on the facts of the case before it, it would have mattered little whether the provision was one of limitation or of extinction of right. The question is however of some importance in the facts of the Madras case. For if the provision is one of limitation there would be some scope for argument on the facts of that case that the period was extended by acknowledgments of liability within the meaning of Art.19 of the Limitation Act. The question we have to decide is whether in saying that the ship or the carrier will be 'discharged from liability', only the remedy of the shipper or the consignee was being barred or the right was also being terminated. It is useful to remember in this connection the international character of these rules, as has been already emphasised above. Rules of limitation are likely to vary from country to country. Provisions for extension of periods prescribed for limitation would similarly vary. We should be slow therefore to put on the word 'discharged from liability' an interpretation which would produce results varying in different countries and thus keeping the position uncertain for both the shipper and the shipowner. [Quite] apart from this consideration, however, we think that the ordinary grammatical sense of 'discharged from liability' are more apt to mean a total extinction of the liability following upon an extinction of the right. We find it difficult to draw any reasonable distinction between the words, 'absolved from liability' and 'discharged from liability' and think that these words 'discharged from liability' were intended to mean and do mean that the liability has totally disappeared and not only that the remedy as regards the liability has disappeared. We are unable to agree with the learned Judge of the Madras High Court that these words merely mean that 'that even though the right may inhere in the person who is entitled to the benefits, still the liability in the opposite party is discharged by the impossibility of enforcement'. The distinction between the extinction of a right and the extinction of a remedy for the enforcement of that right, through fine, is of great importance. The legislature could not but have been conscious of this distinction when using the words 'discharged from all liability' in an Article purporting to prescribe rights and immunities of the shipowners. The words are apt to express an intention of total extinction of the liability and should, specially in view of the international character of the legislation, be construed in that sense. It is hardly necessary to add that once the liability is extinguished under this clause, there is no scope of any acknowledgement of liability thereafter.

In a more recent decision rendered by a Bench of the Kerala High Court in Union of India v SS Navigation Co AIR 1978 Ker 136, the suit was originally filed before the City Civil Court, Madras and was subsequently re-presented in the court of Cochin, on finding that the court of Cochin had jurisdiction. It was contended that the plaintiff believed in good faith that the suit was to be instituted in the City Civil Court, Madras, and the plaintiff prayed under s 14 of the Limitation Act for the exclusion of the time during which it was presenting the case with due diligence and in good faith in the City Civil Court, Madras, which from defect of jurisdiction was unable to entertain it. It was held that once the liability of the carrier or the ship terminates under art 3.6, there is no survival of the cause of action against them for claiming damages and there is no Limitation Act. The Bench went on to observe: 'It may not be correct to say that the suit is barred if it is beyond the period of one year specified. It will be more appropriate to view it as a case where the suit has to fail for want of a subsisting cause of action on the date of suit.'

Therefore, at the time the first defendant was added as party and the plaint was re-presented on 8 December 1978, the liability of the first defendant carrier had become extinguished and there is hardly any scope for the application of the proviso to s 21(1) of the Limitation Act and treating the suit as if it had been instituted against the first defendant at the time of the original presentation itself. The suit against the first defendant must therefore fail.

The second defendant is the local agent of the first defendant carrier. Neither in the plaint nor in the argument advanced by counsel for the plaintiff has it been explained how the second defendant is liable for the claim. This contract of carriage by sea has been entered into with the first defendant directly. In such a case, no liability can be attached to the agent. The claim against the second defendant is therefore misconceived.

The third defendant is the insurer. The contention of the third defendant is that the plaintiff has allowed the liability of the first defendant carrier to become extinguished by its failure to file the suit within one year under art 3.6, and hence the suit against the first defendant must fail. As is laid down in the policy of insurance, the insurer's liability is only to succeed to and not in any way supersede any claim which the insurer may be entitled to make on any carriers or their agents. It is also laid down therein that it is the duty of the assured and the agents in all cases to take measures as may be reasonable for the purpose of averting or minimising a loss and to ensure that all the rights against the carriers, bailees or other third parties are properly observed and exercised. In particular, the assured or their agents are required to take these steps, and failure to comply with this requirement may prejudice any claim under this policy. Under the law of insurance, the right of the insurer on payment of the loss to the assured is to be subrogated to the rights of the assured so as to enable the insurer to proceed against the third party and indemnify itself. It is therefore incumbent upon the assured to keep alive its remedies against the carrier or other third party, and any default committed by the assured, either by allowing the remedy to get time-barred or by abdicating or abandoning its rights against the carrier or the third party will deprive the insurer of its remedies against the third party for indemnity. In such cases, it is open to the insurer to repudiate the liability under the policy, to not pay the loss to the assured, or to lay a counterclaim against the assured for damages if it had paid the loss to the assured. In this case, the plaintiff by its failure to institute this action in time against the first defendant carrier has lost its remedy against the carrier, and consequently the third defendant insurer is deprived of its right of indemnity against the carrier. It is therefore open to the third defendant insurer to repudiate the claim under the policy of insurance, and the suit against the third defendant must therefore fail.