The first defendant vessel, the Nordlake, a motor vessel flying the flag of Cyprus and owned by Nordlake GmbH (the second defendant), collided with the INS Vindhyagiri, a vessel of the Indian Navy, on 30 January 2011 near Sunk Rock Light House, Mumbai. The Union of India filed an admiralty suit claiming damages of INR 1,058.54 Crores together with interest at 18% per annum. The vessel was arrested pursuant to an order dated 23 February 2011.

The second defendant separately filed an admiralty suit under Pt XA of the Merchant Shipping Act 1958 (the MS Act) to limit its liability to INR 20,01,86,113. The defendants sought release of the vessel on the basis of security equivalent to the value of the arrested vessel, assessed at approximately USD 10,500,000 or INR 47 Crores, rather than the full amount of the plaintiff's claim. The Single Judge dismissed the Notice of Motion, holding that under s 433 of the MS Act and r 954 of the Bombay High Court (Original Side) Rules, the defendants were bound to furnish security for the plaintiff's entire claim. The defendants appealed.

Three principal issues arose: (i) whether the Arrest Convention 1999 (the Convention) was applicable notwithstanding that India had not adopted it by legislation; (ii) whether art 8.3 of the Convention excluded its application given that the claim arose from damage to a naval vessel; and (iii) whether, in the event of conflict between s 443 of the MS Act and art 4 of the Convention, municipal law must prevail so as to require security for the full claim.

Held: Appeal allowed in part.

The order of the Single Judge was set aside and the matter was remitted to the Admiralty Judge for independent valuation of the arrested vessel, with appropriate orders in light of the principles laid down by the Division Bench.

On the applicability of the Convention, the Court held that its application could not be denied merely because India had not adopted it by legislation, following the Supreme Court decision in MV Elisabeth v Harwan Investments & Trading and the Full Bench decision in JS Ocean Liner LLC v MV Golden Progress. The principles in the Convention are derived from the common law of nations and form part of the common law of India applicable to maritime claims against foreign ships.

On the art 8.3 objection, the Court held that the provision refers to the ship to be arrested, not the ship to which damage is caused. The Nordlake was a privately owned foreign vessel, not a State-operated ship, and the Convention therefore applied.

On the central conflict question, the Court held that there was in substance no conflict between s 443(1) of the MS Act and art 4 of the Convention when read harmoniously. Section 443(1) of the MS Act confers discretion on the High Court to require the defendant to give security up to the extent of the plaintiff's claim, so that the plaintiff's claim is the outer limit. Article 4 of the Convention specifically deals with all three situations: where the plaintiff's claim is higher than the value of the arrested vessel, security must be confined to the value of the arrested vessel; where the value of the arrested vessel is higher than the plaintiff's claim, security must be confined to the plaintiff's claim; and where both amounts are equal, there is no controversy. Accordingly, where the value of the arrested vessel is less than the plaintiff's best arguable case, the security which the Admiralty Court may call upon the owner to furnish will not exceed the independently assessed value of the arrested vessel.