The plaintiffs were ship chandlers who had supplied ship stores and goods to various vessels allegedly belonging to the PT Berlian Laju Tanker Tbk (BLT) group of companies between August 2011 and July 2012. On the basis that all these vessels were owned by the second defendant (GBLT Ship Management Jakarta), the plaintiffs obtained an ex parte order of arrest of the vessel M/T Hartati for INR 24,75,000. Security was furnished by the owners of the Hartati and the vessel was released.

The owners of the Hartati subsequently sought reduction of the security, contending that only three out of 36 invoices in the claim pertained to the Hartati, and that the remaining vessels were owned by legally distinct entities within the BLT group, not by the same registered owner as the Hartati. They argued the vessels were not sister ships within the meaning of art 3.2.a of the Arrest Convention 1999 (the Convention), and that the plaintiffs had not made out a case for lifting the corporate veil.

The plaintiffs argued that 'owner' under the Convention should be read as 'beneficial owner,' and that, where two companies are both 100% subsidiaries of a common holding company, fraud need not be pleaded to pierce the corporate veil. The Court was therefore called upon to determine: (i) whether 'owner' in the Convention extends to beneficial owners; and (ii) whether fraud must be pleaded and prima facie established before the corporate veil may be lifted to treat vessels owned by separate legal entities as sister ships for the purpose of arrest.

Held: Motion allowed. The full security of INR 24,75,000 together with accrued interest was ordered to be returned to Hartati Shipping Pvt Ltd, and costs of INR 1,00,000 were awarded against the plaintiffs.

The Court held that 'owner' in art 3.2.a of the Convention means 'registered owner' and not 'beneficial owner.' It further held that Indian law treats each incorporated company as a separate legal entity, and that the mere fact that multiple shipowning companies are subsidiaries of a common holding entity does not render their vessels sister ships. To pierce the corporate veil for the purpose of arresting a vessel owned by a separate legal entity, fraud must be prima facie established at the time of obtaining the arrest order. A bare averment is insufficient. As no allegation of fraud or sham had been made either in the original plaint or in the amended plaint, and the claims directly relating to the Hartati had in any event been paid, the arrest and retention of security cannot be sustained.