CHRISOMAR CORPORATION v. MJR STEELS PRIVATE LIMITED & ANR.

41Copy pinpoint41. Equally in Satya Jain and others v. Anis Ahmed Rushdie F and others (2013) 8 SCC 131 at 143, this Court has held:- "The principle of business efficacy is normally invoked to read a term in an agreement or contract so as to achieve the result or the consequence intended by the parties acting as prudent businessmen. Business efficacy means the power to produce G intended results. The classic test of business efficacy was proposed by Bowen, L.J. in Moorcock [(1889) LR 14 PD 64 (CA)]. This test requires that a term can only be implied if it is necessary to give business efficacy to the contract to avoid such a failure of consideration that the parties cannot as reasonable H

CHRISOMAR CORPORATION v. MJR STEELS PRIVATE 61

LIMITED & ANR. [R. F. NARIMAN, J.)

42Copy pinpoint42. Reading the agreement through the prism of a businessinan 's eye, it is clear that all that the agreement does is to reinforce the original agreement by seeing that the payment under the said agreement is made. We, therefore, disagree with the view taken by the Division Bench that · there is a novatio of the original agreement in the fact circumstance of the present case.

43Copy pinpoint43. However, Mr. Banerjee cited a passage from Halsbury's Laws E of England and strongly relied upon a Singapore High Court judgment to argue otherwise. The passage from Halsbury (Vol. 37, 4th ed., p. 287) reads as follows:- · "391. Effect of settlement or compromise. Where the parties settle or compromise pending proceedings, whether before, at or during the trial, the settlement or compromise constitutes a r1ew and independent agreement between them made for good consideration. Its effects are (1) to put an end to the proceedings, for they are thereby spent and exhausted; (2) to preclude the parties from taking any further steps in the action, except where they have provided for liberty to apply to enforce the agreed terms; and (3) to supersede the original cause of action altogether. A judgment or order made by consent is binding unless and until it has been set aside in proceedings instituted for that purpose and it acts, moreover, as an estoppel by record." H

62 SUPREME COURT REPORTS [2017] 14 S.C.R.

44Copy pinpoint44. It is important to remember that when Section 63 of the Contract Act is to be applied, the High Courts in India have cautioned . that, being a wide departure from English law, the Section alone should be enforced according to its terms and not in accordance with English law. Thus, in New Standard Bank, Ltd. v. Probodh Chandra B Chakravarty, AIR 1942 Cal 87 at 90-91, the Calcutta High Court held:- "By s. 63, Contract Act, every promisor may dispense with or remit wholly or in part the performance of the promise made to him or may accept instead of it any satisfaction which he thinks fit. This section makes a wide departure from the English law, inasmuch as it does not refer to any agreement and valuable c consideration. It should not therefore, be enlarged by any implication of English doctrine: Chunna Mal Ram Nath v. Moo/ Chand-Ram Bhagat [(1928) I.L.R. 9 Lah. 510 (518): L.R. 55 I.A. 154 (160)]."

45Copy pinpoint45. To similar effect is a judgment of the Bombay High Court D reported as Anand ram Mangturam v. Bholaram Tanumal, AIR 1946 Born I at 6, in which Chagla, J. stated:- "But the learned Judge expresses his opinion that time can be extended even though the promisee may not bind himself to do so. With great respect to the learned Judge, I cannot accept that part of the statement of the law. The learned Judge's judgment is based on English decisions to which he has referred in his judgment. The Privy Council has repeatedly warned Courts in India not to import doctrines of common law when construing the plain sections of the Contract Act and the danger of relying on principles of Common Law is all the greater in this case when one remembers that s. 63, Contract Act constitutes a wide departure from the principles of the English common law." 46.Even if the passage in Halsbury is to be applied, it is obvious that the settlement terms spoken of must be made for good consideration, which is absent under Section 63. Also, for such settlement to constitute a new and independent agreement, it must put an end to the proceeding which is thereby spent and exhausted; and it is for this reason that the original cause of action is superseded altogether. We have seen on the facts of the present case how, by the order dated 25.1.2000, the application in Suit No.1 of2000 alone was dismissed for non-prosecution, only interim orders were vacated and it was stated that "the vessel shall cease to be

CHRISOMAR CORPORATION v. MJR STEELS PRIVATE 63

LIMITED & ANR. [R. F. NARIMAN, J.]

under arrest as of now." It is clear, therefore, that in accordance with the agreement dated 18.1.2000, the proceedings were not put an end to. Neither was the original cause of action superseded, as we have stated earlier. The moment there is a breach of the settlement agreement, the appellants would be entitled to take appropriate legal steps against the ship owner, including the arrest of the vessel, which can only be ifthe original contract still subsists.

47Copy pinpoint47. Mr. Banerjee laid great reliance on a judgment of the Singapore High Court in The Dilmun Fulmar, (2003)' SGHC 270. On the facts of that case, the ship repairers repaired the vessel and supplied material to · the vessel. The ship owner paid a sum of $650,000 for repairs, leaving an outstanding balance sum of$770,822.28 as at 8.5.200 l. A subsequent settlement agreement was entered into in which the ship repairer agreed . to accept a total sum of$3 l0,000, inclusive of$25,000 interest and $25,000 · as legal costs in full and final settlement of their claim in the admiralty suit, which was for a sum of$1,154,916.78. Paragraph 7 of the said judgment is important and reads as under: D "7. The issue raised by this appeal touched on the true construction and effect of the SettlementAgreement. In corning to my decision to set aside the writ and warrant of arrest, I had to construe the accord. Generally, an agreement of compromise would discharge all original claims and counterclaims unless it expressly provides for their revival in the event of breach. The Settlement Agreement was worded in such a way that there was by its terms an immediate binding compromise of the claim amount of $1,154,916.78. By .::11, the plaintiff agreed to accept a sum of $310,000 inclusive of interest and legal costs in. full and final. settlement of a larger claim..." F

48Copy pinpoint48. From this paragraph, it is clear that the plaintiffs agreed to accept a lesser sum in full and final settlement of a larger claim and this was the amount stated in the settlement agreement. Indeed, in paragraphs 11 and 13 of the judgment, it is stated: G ".l l. .. The plaintiffs' solicitors in a fax dated l August2002 wrote: "[Tj he sum due is in fact S$170, 000 as stated in the Settlement Agreement together with interest thereon up to 23'd January 2002 ... " . "13 ... There was no explanation as to where the figure of H

64 SUPREME COURT REPORTS [2017] 14 S.C.R.

A $170,000 had come from if it was not from the Settlement Agreement. .. "

49Copy pinpoint49. On the facts of that case it was, therefore, held that the original cause of action had been superseded and that the Court had no jurisdiction in respect of the original claim.

50Copy pinpoint50. This case is wholly distinguishable in that, on the facts of the present case, the very sum due under the original contract continued to be due and payable under the settlement agreement. The fact that interest and legal costs were added would not amount in itself to superseding the original contract, as these relate to payments under the original contract c and put the promisee in the same position as ifthe contract had originally been performed. We have also seen that the original agreement was not superseded but was only sought to be enforced, the manner of performance being different. This being the case, we are of the view that the High Court's conclusion that there was a novatio of the original agreement on the facts of the present case is incorrect. D

51Copy pinpoint51. It only remains to be considered as to whether, on the date of arrest i.e. 2.5.2000, respondent no. 1 happened to be the owner of the vessel, as was found by the impugned judgment.

52Copy pinpoint52. The High Court strongly relied upon an oral admission of PW 1 E to the effect that respondent no. I had become the owner of the vessel sometime in April 2000. On going through the deposition of Mr. Stephen Livanos, we are clearly of the view that no such admission was ever made. The answers to questions 257 to 262 would clearly show that the witness's statement that respondent no. I was the end buyer of the vessel was equivocal at best, and was obviously hearsay as the answer to question 260 states that a lawyer in Greece had at some point of time told Mr. Livanos what happened with the vessel. To therefore conclude from this oral evidence that the vessel had changed hands in April, 2000 does not take the respondent's case very far.

53Copy pinpoint53. However, the High Court also relied upon a notarized bill of sale dated 14.4.2000, the notice of readiness of 15.4.2000, which was accepted by the respondent at 11.00 A.M, and was followed by the delivery of possession of the vessel at 2.00 P.M. What is important to note is that the signatory to the physical delivery certificate was on behalf of Pennon Shipping Corporation, which was only an agent of Third H Element Enterprises, and not an agent of Fairsteel. The High Court

CHRISOMAR CORPORATION v. MJR STEELS PRNATE 65

LIMITED & ANR. [R. F. NARIMAN, J.]

then went on to state that payment under the Letter of Credit was also A made on 26.4.2000 and since this would show that the property in the vessel was transferred in April, 2000, no cause of action would survive against the new owner of the vessel namely respondent no. I. The High Court also went on to state that the transfers pleaded in the written statement of respondent no. 1, namely from Third Element Enterprises B to Eastern Wealth Investment Limited and thereafter to Fairsteel Corporation Limited after which Fairsteel sold and transferred the vessel . to respondent no.1, had not been proved by respondent no.1, but that this did not affect the respondent's case.

54Copy pinpoint54. We have been shown a bill of sale dated 27.4.2000 by which C Third Element Enterprises effected the first of these four sales to Eastern Wealth Investment Limited, only on 27.4.2000. This sale has for its consideration "one US Dollar and/or other valuable consideration" casting grave doubts about its efficacy in law. Be that as it may, since this sale is the first sale in the chain of sales made ultimately to respondent no. l, it is obvious that the sale made by Fairsteel to respondent no.1 could only have been after this date. Shri Banerjee cited before us authorities to the effect that it is well known that back to back sales of this nature take place between different parties for the same vessel. That may well be so, but it is still necessary to prove and explain each back to back sale from which respondent no. I ultimately derives its title; in accordance with its pleading in the written statement filed by it. As. has correctly been held by the High Court, there is no proof of any of these back to back sales, and in point of fact the very first sale from the original owner has taken place in favour of Eastern Wealth after the High Court has found that the vessel has been sold by Fairsteel to respondent no.I, which goes contrary to the pleaded case of respondent no.1 itself. We F were also referred to a document dated 26.4.2000 by which a new clause 8 was to be added to the Letter of Credit which read as follows:- "COPY OF FREE OF ENCUMBRANCES CERTIFICATE ISSUED BY EMBASSY OF REPUBLIC OF CYPRUS, MARITIME SECTION, PIRAEUS, CERTIFYING THAT G THE MOTOR VESSEL "NIKOLAS S" PERMANENTLY . REGISTERED IN THE CYPRUS REGISTER OF SHIPS, OWNED BY 'THIRD ELEMENT ENTERPRISES SHIPPING LTD." OF CYPRUS IS FREE OF MORTGAGE AND ANY OTHER ENCUMBRANCES." H

66 SUPREME COURT RE~ORTS [2017) 14 S.C.R.

A Further, as per clause no.8 we confirm that the Buyers have received the Notice of Readiness (NOR) on 15.04.2000 from the Sellers or their Agents in Calcutta and authorize you to negotiate the L/C as per the terms." This clause would again go to show that even on 26.4.2000 the B owner of the vessel was Third Element Enterprises and not respondent no.I. 55."With regard to the High Court finding that full payment had been made under the Letter of Credit on 26.4.2000, the respondent's own suit that was filed by it against Fairsteel on 9.5,2000 shows that no c such payment had been made by the date of the filing of the said suit. The suit was for the relief ofrescission of the agreement between Fairsteel and respondent no. I dated 21.1.2000 on the ground of fraud. Para 27 of the suit is important and states as follows:- "27. In the facts and circumstances aforestated, the defendant D no. l has fraudulently induced the plaintiff to issue/open the said L/C through the defendant no.2 in favour of the defendant no.1. The defendant no. I is not entitled to receive and should be restrained from receiving any payment under the said L/C and the plaintiff claims a decree of perpetual injunction in that regard."

56Copy pinpoint56. The relief claimed in the other suit is also important and prayers "C" and "D" are material and read as under:- "(c) Decree of perpetual injunction restraining the defendant no. I whether by itself or through its servants or agents from receiving any money under the Letter of Credit No.CAL/ 24006 dated 8'11 April 2000, issued by the defendant no.2 in F favour of the defendant no. l. (d) Decree of perpetual injunction restraining the defendant no.2 from making any payment under the Letter of Credit No.CAL/24006 dated 81h April 2000 issued/opened by it in favour of the defendant no.I." G

57Copy pinpoint57. This would show, on the respondent's own admission made in the plaint dated 9.5.2000, that monies were not yet received under the LetterofCredit even on 9.5.2000 and that, therefore, an injunction should be granted restraining defendant no.I from receiving this money and against the Bank of Baroda - plaintiff's bank - from making any such H

CH.RISOMAR CORPORATION v. MJR STEELS PRIVATE 67

LIMITED & ANR. [R. F. NARIMAN, J.]

payment to defendant no. I. Thus, it is clear that the High Court was not A correct in its view that it was proved by respondent no. I that sale had taken place in April, 2000 by Fairsteel Corporation to respondent no. I by which respondent no. I became the owner of the vessel. It is clear, therefore, that respondent no. I has failed to prove that there was a change of ownership of the vessel in its favour on the date of arrest i.e. B on 2.5.2000. This being the case, we set aside the judgment of the High Court and restore the decree of the trial court which reads as under:- "In the result, the suit succeeds. There would be a decree as against the vessel M.V. Nikolaos-S ofUS$ 94,611.25 equivalent to Rs.42,57,500.00 in Indian currency. The plaintiff would be entitled to recover the said sum from the cash security furnished C to the Registrar, High Court, Original Side together with accrued interest thereon. The Registrar, Original Side, High Court, however, is entitled to deduct necessary commission applicable thereto." ·

58Copy pinpoint58. The appeal is, accordingly, allowed in the aforesaid terms. D

Divya Pandey Appeal allowed.