JS Ocean Liner LLC (the plaintiffs) chartered the vessel Golden Progress (the first defendant), which was owned by Abhoul Marine LLC (the second defendants). The parties were incorporated outside India and their places of business were also outside India. Alleging various breaches of the charterparty, the plaintiffs redelivered the vessel and terminated the charterparty. Seeking a refund of the excess sums paid, the plaintiffs sued the second defendants for compensation or, alternatively, security for the same quantum in favour of arbitration to be commenced in London, UK. Following the vessel's arrest, the second defendants provided security and the vessel was released. The defendants applied to dismiss the plaintiffs' suit or, alternatively, stay proceedings for arbitration. Thereafter, the plaintiffs commenced London arbitration. The tribunal was constituted.

There were two questions for consideration: first, whether an application under section 9 of the Indian Arbitration and Conciliation Act 1996 (the 1996 Act) was maintainable for obtaining security for an arbitration award by way of ship arrest? If the first question was answered in the negative, then the second question was whether a suit can be maintained or proceeded with when it is commenced only for the purpose of obtaining security by way of ship arrest to aid the pending arbitration? Section 9 states in pertinent part:

A party may, before or during arbitral proceedings or at any time after the making of the arbitral award …, apply to a Court: - … (ii) for an interim measure of protection in respect of any of the following matters, namely: - … (b) securing the amount in dispute in the arbitration ...

The plaintiffs argued that art 7 of the Arrest Convention 1999 permits the commencement of an in rem action only for security to aid pending arbitral proceedings in which the merits of the dispute would be finally adjudicated: Arrest Convention 1999 art 2.3. The plaintiffs argued that The Rena K [1978] 1 Lloyd’s Rep 545 (QBD) (The Rena K) (CMI2198) principle was inconsistent with the 1996 Act, and in any event, unnecessary to apply given that the Arrest Conventions 1952 and 1999 are part of Indian law as held in MV Elisabeth v Harwan Investment & Trading Pvt Ltd AIR 1993 SC 1014 (The MV Elisabeth) (CMI883) and Liverpool & London SP&I Association Ltd v MV Sea Success I (2004) 9 SCC 512 (The MV Sea Success I) (CMI884).

The defendants argued that a suit to obtain security in aid of foreign arbitration is unsustainable: s 45 of the 1996 Act; Blue Diamond Freight Pvt Ltd v The MV Indurva Valley (Appeal Lodging No 503 of 2003) (The MV Indurva Valley); P Anand Gajapathi Raju v PVG Raju AIR 2000 SC 1886 (P Anand Gajapathi Raju); Bhatia International v Bulk Trading SA (2002) 4 SCC 105.

One intervenor argued that s 45 of the 1996 Act should be interpreted to allow the court to exercise jurisdiction in accord with art 7 of the Arrest Conventions to facilitate enforcement of the arbitral award. That section did not override the power to release an arrested vessel, which is governed by admiralty law. It also did not oust the jurisdiction of the admiralty courts. Accordingly, the Court can exercise jurisdiction on general principles or on the basis of art 7 of the Arrest Conventions. Another intervenor argued that the court's jurisdiction is not ousted by an arbitration agreement: The Rena K; Arrest Convention 1999 art 7.

Held: Application dismissed.

On the first question, the application was not maintainable. Section 9(ii)(b) of the 1996 Act provides for the securing of the amount in dispute in the arbitration by way of an interim measure, but it does not cover ship arrest under the exercise of the Court's in rem jurisdiction. It does not refer to the jurisdictional power to issue a warrant of arrest: see s 12(6)(f) of the repealed UK Arbitration Act 1950; The Tuyuti [1984] 2 Lloyd's Rep 51 (CA); The Rena K. The view to the contrary in The MV Indurva Valley is, to that extent, overruled.

On the second question, when a ship is arrested by an action in rem for a claim falling under an arbitration agreement, or when security is provided to obtain the release of the arrested ship, the matter shall proceed in accord with the Arrest Convention 1999 art 7. If the proceedings are brought within the time so ordered by the Court before the arbitral tribunal, any final decision resulting therefrom shall be recognised and given effect with respect to the arrested ship or to the security provided in order to obtain its release provided that the defendant has been given reasonable notice of such proceedings and a reasonable opportunity to present the case for defence and in accord with the provisions contained in the 1996 Act. However, retention of security shall remain a matter of discretion.

There is no express statutory provision for the retention of security under Indian law. In the circumstances, international Conventions may be of guidance because where no statute operates, interpretive changes must be made having regard to the ever-changing global scenario: The MV Sea Success I. If the Arrest Convention 1952 had been applied though India was not signatory to it, there is no reason why the Arrest Convention 1999 should not be applied: The MV Elisabeth and The MV Sea Success I. Article 7 of the Arrest Convention 1952 implies that where the parties have agreed to submit the dispute to arbitration, then, provided that the plaintiff brings proceedings before the arbitral tribunal within the time allowed by the court of arrest, the security will not be released but will remain in the court of arrest to satisfy any award in the arbitration proceedings. See also art 7 of the Arrest Convention 1999.

Section 45 of the 1996 Act does not exclude the admiralty jurisdiction in rem exercised by the Court. The Court can directly apply the principle set out in the Arrest Convention 1999. There is considerable force in the plaintiffs' argument that it is unnecessary to apply The Rena K principle in view of the Arrest Convention 1999 being part of Indian law. It is purposive and preferable to apply art 7.

The applicability of the Arrest Convention 1999 in the absence of any domestic law or inconsistency with the domestic law would be more in regard to the international general principles and interaction between the arbitration agreement and in rem action. Such purposive interpretation would be in consonance with broadly accepted international procedure by which the security obtained by the arrest of the ship in the action in rem is retained to satisfy the arbitral award. Such interpretation does not conflict with s 45 of the 1996 Act or with P Anand Gajapathi Raju; Hindustan Petroleum Corp Ltd v Pinkcity Midway Petroleums (2003) 6 SCC 503.

The observation made by the Supreme Court in P Anand Gajapathi Raju that once the dispute has been referred to arbitration, nothing remains to be decided by the court has to be read to have been made in the context of section 8 of the 1996 Act and cannot be construed as wide as to cover actions in rem or the retention method as provided in the Arrest Convention 1999. Rather, the application of the Arrest Convention, particularly art 7, is in accord and in conformity with the observations made by the Supreme Court: The MV Elisabeth; The MV Sea Success I; Sukanya Holdings Pvt Ltd v Jayesh H Pandya AIR 2003 SC 2252.

In deciding the second question, the Court referred to the following decisions by Brandon J: The Cap Bon [1967] 1 Lloyd's Rep 543; The Golden Trader [1974] 1 Lloyd's Rep 378 (CMI2725); The Rena K. In The Rena K, Brandon J reiterated that it is not the purpose of arresting a ship in an action in rem to provide the plaintiff with security for payment of an award which the plaintiff may obtain in an arbitration of the same claim as that raised in the action and, therefore, the court has no jurisdiction to arrest a ship, or keep a ship under arrest, for such other purpose. Nevertheless, the Court understood Brandon J to be dissatisfied with this conclusion on jurisdiction from Brandon J's perspective of what the law ought to be. One of Brandon J's reasons was that art 7 of the Arrest Convention 1952, to which the UK was a party, 'contemplates that a Court, which stays an action on the ground that the dispute should be decided by another tribunal, will have power to retain any security obtained in the action'. Unsatisfactorily, the UK Court did not have the power which the Convention contemplated that it would have. Brandon J also pointed out that the Convention recognised the distinction between choice of forum and right to security.