Commercial & Shipping Law

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NAROTTAM MORARJEE
INSTITUTE OF SHIPPING
MUMBAI
STUDY MATERIAL
COMMERCIAL & SHIPPING LAW
FIRST YEAR 2019
REGD. OFFICE
76, Jolly Maker Chambers No.2
Nariman Point, MUMBAI-400021 (INDIA)
Tele: +91-22-22024110 or +91-22-22022495
E-mail: admin@nmis.net
Website: www.nmis.net
NAROTTAM MORARJEE INSTITUTE OF SHIPPING
MUMBAI
COMMERCIAL & SHIPPING LAW
FIRST YEAR
INDEX
LESSON NO. TOPIC
- INDEX
- INSTRUCTIONS
- SYLLABUS
1 LAW OF CONTRACT
2 WHAT IS CONTRACT
3 CAPACITY TO CONTRACT
4 FREE CONSENT
5 CONSIDERATION & LEGALITY OF OBJECT
6 AGREEMENT / VOID AGREEMENTS
7 OFFER/PROPOSAL
8 ACCEPTANCE
9 CONSIDERATION
10 PRIVITY OF CONRACT
11 DISCHARGE OF CONTRACT
12 REMEDIES FOR BREACH OF CONTRACT
ANNEX-1 FORMATION OF AGREEMENT
13 CONTRACT OF INDEMNITY
14 CONTRACT OF GUARANTEE
15 BAILMENT
16 PLEDGE
17 AGENCY
18 THE SALE OF GOODS ACT, 1930
19 INTRODUCTION TO THE INDIAN COGSA 1925
20 THE INDIAN PORTS ACT, 1908.
21 THE MAJOR PORT TRUST ACT, 1963
22 HEALTH & HEALTH REGULATION
23 THE INDIAN LIGHT HOUSE ACT, 1927
24 THE INLAND VESSELS ACT, 1917
25 MARITIME LIEN
26 MARITIME ARBITRATION AND OTHER ALTERNATIVE DISPUTE
RESOLUTION METHODS
27 TORTS IN SHIPPING & DEFENCES AGAINST TORTIOUS LIABILITY
28. INTRODUCTION TO INDIAN BILLS OF LADING ACT, 1856
29. FREIGHT
30 CONVENTION ON FACILITATION OF INTERNATIONAL
MARITIME TRAFFIC
3 MODEL TEST PAPERS (COLOUR PAGES)
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NAROTTAM MORARJEE INSTITUTE OF SHIPPING, MUMBAI
INSTRUCTIONS
This guidance material is strictly for private circulation amongst the bonafied students and
members of the Narottam Morarjee Institute of Shipping only.
This material is merely for guidance. It is a skeleton and gives a bird’s eye-view of the
subject. The student must refer to prescribed text books.
Answers must be supported with case law and illustrations. However, full citation is not
essential. Neither is the section number, nor the actual words of the section. The aim is that
the student understands and appreciates the basic concepts and principles of law and learns
to apply them to factual situations. A student is not expected to cram or learn. Nor is the
student expected to fill pages to get marks. Answer what is asked. Be precise and relevant.
Marks will not be allotted for quantity but for quality and correctness.
Any unauthorized use, copying or taking extracts of this material for any purpose in any
form without the written permission of the Institute is strictly forbidden.
The books on "THE LAW OF CONTRACT - AN OUTLINE" by Dr. (Mrs) Nilima Chandiramani and
“CARRIAGE OF GOODS BY SEA & MULTIMODAL TRANSPORT” by Dr. (Mrs.) Nilima
Chandiramani are available in NMIS library. You will find the text-books simple and lucid.
After going through the relevant pages you will realize that the study of the law of contract
is no more formidable a task as is generally thought to be.
Basic Readings:
1. The materials given in this course are calculated to provide exhaustive basic readings
on topics and sub-topics included in the course. Experts in the area have collected the basic
information and thoroughly analyzed the same in topics and sub-topics. Lucid/supportive
illustrations have been provided to make the student understand the concept. Relevant
legislative provisions are also included. Care has been taken to communicate basic
information required for clarity and understanding the concept. Efforts have been made to
co-relate the topics and sub-topics for broad understanding and applications of subjects as
and when required during the course or if you are in employment with shipping concern or
related activities, this exercise would certainly reinforce cognitive process of learning and
assist in solving problems.
2. The reader is advised to read a least three times. The first reading, therefore
necessarily has to be very slow and extremely systematic. While so reading, the reader has
to understand the implications of the information given. In second reading, the reader has
to critically analyze the material and link the information with other subjects in the 1st year
course. It is advisable to write down in a separate note book, points stated in the material
as well as the comments. A third reading shall be necessary to prepare a check list. If
required that can be used afterwards for solving problems like a ready reckoner. The reader
is required to purchase the key bare acts that are used by the ship or port operators to
move the shipments and executes the relevant contracts.
Supplementary Reading:
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3. Several supplementary readings are suggested in the material. NMIS has good stock
of required books and journals etc. for the student to refer on regular basis. Supplementary
readings are also required to be studied more than once and marginal notes, marking notes,
analytical notes and check list prepared. A reader requiring any extra readings not available
at the NMIS may request the course coordinator who shall take prompt action on receiving
the request.
Problems and Responses:

4. After reading the whole module which is divided into several topics and sub topics,
the reader has to solve the problems specified at the end of each lesson. While solving the
problems the reader is advised to use checklist, the notes and supplementary material or
the relevant bare acts. This would provide confidence to the reader and also preparing
him/her for examination in a structured way giving positive results. After completing the
exercise, the reader is requested to send the same to the course coordinator for evaluation.
The candidates are advised to complete these assignments before they appear for final
examination.
SYLLABUS
Sr. COMMERCIAL & SHIPPING LAW

No.
1. CHAPTER-1 - Law of Contract - Lesson 1 to 10 : Introduction of Contract Act (Law of
Contract), What is contract?, Capacity to contract, Free consent, Consideration &
Legality of object, Agreements/Void Agreements, Offer/Proposal, Acceptance,
Consideration, Privity of contract.
2. CHAPTER-2 - Law of Contract – Lesson 11 & 12: Discharge of Contract, Remedies for
Breach of Contract.
3. CHAPTER -3 - Contract of Indemnity & Contract of Guarantee – Lesson 13 & 14 :
Characteristics; Rights of Indemnity-holder, Essentials of Contract of Guarantee;
Distinction between Contract of Indemnity & Guarantee; Continuing Guarantee;
Invalid Guarantee; Right of Surety; Liability of Surety; Discharge of Surety.
4. CHAPTER – 4 - Bailment & Pledge – Lesson 15 & 16 : Definition; Essentials of
bailment; Duties of Bailor; Liabilities of Bailee; Rights of Bailee; Definition; Essentials of
Pledge; Bottomry & Respondentia Bonds.
5. CHAPTER – 5 - Law of Agency – Lesson 17: General principles, types/creation of
agency, legal relationship between the parties involved, rights & duties of Agent &
Principal; breach of warranty of authority; Termination of Agency; Personal liability of
agents.
6 Lesson – 18: The Sale of Goods Act, 1930: Introduction; Formation of contract;
Formalities; Effect of good perishing; Conditions & Warranties; Implied
conditions/warranties as to title; Implied conditions when sale by description; No
implied condition/warranty as to quality or fitness; Implied conditions when Sale by
sample; Transfer of property (Generic goods & Specific goods); Conditional
appropriation; Performance of contract; Rights of Unpaid Seller against goods.
7. Lesson – 19: Introduction to the Indian COGSA 1925: Brief introduction.
8. Lesson – 20 : The Indian Ports Act, 1908 : Introduction; Salient features, Port officials
& their powers & duties; Port Health Officer; Port dues & other charges; Harbour
master’s function; Pilotage; Tugboat operations; Mooring services; Vessel traffic
service & aids to navigation; Other marine services performed by port authorities;
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Emergency services; Dredging.
9. Lesson – 21 - The Major Port Trust Act, 1963: Introduction; Definitions; Works &
Services; Imposition & Recovery of rates.
10. Lesson – 22 - Health & Health Regulation : Introduction to Indian Port Health &
Indian Port Health Rules 1955; Free Pratique;
11. Lesson – 23 - The Indian Light Houses Act, 1927 : Introduction; Definitions, Local
Light Houses, Light dues, Receipts for Lightdues; Ascertainment of tonnage; Recovery
of lighthouses expenses & costs; Refusal of port clearance; Exemption from payment
of lightdues.
12. Lesson – 24 - The Inland Vessels Act, 1917 & Amendments : Introduction; Survey of
Inland mechanically propelled vessels; Registration of Inland mechanically propelled
vessels; Masters (including Serangs) and Engineers (including Engine Drivers) of Inland
mechanically propelled vessels; Investigation & Casualties; Protection of, and Carriage
of Passengers in Inland (Mechanically propelled) vessels; Penalties & Legal
Proceedings.
13. Lesson – 25 - Maritime Lien : Introduction; Description/Type of claims; Claims
recognized as giving rise to maritime lien; Maritime liens implied by statute; Subjects
of maritime lien; Order of priorities; Priorities between competing claims or Maritime
liens of the sale class; Doubtful maritime liens; Hume life; Protection of a purchaser;
Position of India; Procedure for arrest.
15. Lesson – 26 – Maritime Arbitration and Alternative Dispute Resolution Modes:
Maritime contracts; Method of dispute resolution; Significant features of Arbitration &
Conciliations Act, 1996; Arbitration – why, when & how, Arbitration proceedings;
Arbitration Award; Advantages.
16. Lesson – 27 - Torts in Shipping and Defenses against Tortious Liability : Introduction;
Types of Torts; Duty of care; Breach of duty; Defendant’s breach caused the damage;
Case Laws; Negligence of the Master/Ship’s personnel; Vicarious liability; Tort actions
against carriers; Misrepresentation; Pre-contractual misrepresentations; Background
of the Himalaya clause; Remedies & Limitation; Defenses against Tortious liability;
Limitation of Action; Contributory negligence – in Admiralty.
17. Lesson – 28 - Introduction to the Indian Bills of Lading Act 1856: Brief introduction.
18. Lesson – 29 - Freight: Definition; When payable, Types of Freight; To whom/By whom
payable.
19. Lesson – 30 - Convention on Facilitation of International Maritime Traffic: Objective,
Application; Provisions.
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LESSON - 1
LAW OF CONTRACT
INTRODUCTION:
1.0 What is law?

1.1 Law is a set of rules for governance of human conduct. It is prescribed by the law
making authority and is enforceable by the Courts and Tribunals in the State.
1.2 Law can be classified in several ways. But broadly, there is Constitutional Law, Civil
Law, Criminal Law, and Commercial Law and so on.
2.0 Law of Contract:

2.1 A business activity can be divided into various sub-activities. An entrepreneur or a
businessman or any business institution may not always be equipped to perform all sub-
activities linked to its core business activities all by itself. In such a situation, the business
entity may look upon someone else to do that part of the activity and pay something in
return. For instance, a business person in India who has purchased some goods in
international market needs to bring these goods from the place of purchase to the place of
his business in India. S/He may not own any means of transportation of goods and may,
therefore, look for a carrier to transport these goods for him. A carrier in the business of
transportation of goods may agree to this request on payment of charges. This
understanding between the business person and the carrier amounts to a business
transaction, a contract. For this transaction to work, it is important that both the parties,
i.e. the business person whose goods are to be transported and the carriers who has agreed
to transport these goods, very well understand and execute their respective responsibilities.
If anyone of them fails to or refuse to carry out his/her responsibilities, then the agreed
activity will not be performed in right perspective. In such a scenario, there has to be a
mechanism either to enforce performance of responsibilities by the defaulting party, or to
recover the loss resulting from its non-performance. Law of Contract set of rules to achieve
these objectives.
2.2 Unlike a well-thought of commercial transaction of the above nature, most of the
people may unknowingly form a legally binding contract at some point or other in their life
while buying grocery from the super market or exchanging money in return of goods for
services, etc. Such contracts are simple in nature. But contracts in business can be very
complex in nature depending upon the terms on which they are entered into. Contract Law,
which deals with such complexities is regarded as the foundation of all commercial laws on
which huge superstructure of specific laws such as Sale of Goods, Carriage Law, Shipping
Law, Insurance Law, etc. is built.
2.3 The Law of Contract deals with general principles of contract such as how the
contracts are made, who must perform a contract, what amounts to breach of contract,
what is the remedy available in case of breach etc. The Contract Law also deals with a few
specific contracts, like contract of Indemnity, Guarantee, Bailment and Agency. In short,
the Contract Law aims to provide effective legal framework for parties to regulate their
contractual relationship and also provides for resolution of their disputes.
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SELF-EXAMINATION QUESTIONS
All answers should be brief and to the point.

This applies to all the lessons.
1. What is Law?
2. What is the foundation of Commercial Laws?
3. Is the Contract Act a complete Code? If not, why?
4. Must every contract be in writing for its validity?
RECOMMENDED FOR FURTHER READING
1. The Law of Contract: An Outline - Dr. Nilima Chandiramani.
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LESSON - 2
CONTRACT
1.0 What is a contract?

1.1 The term contract is derived from a Latin Word ‘contractum’, which means ‘drawn
together’. As per Section 2(h) of the Contract Act, 1872, “an agreement enforceable by law
is a Contract.” This means that for a contract to come into existence, following two
conditions must be satisfied –
(i) There must be an agreement; and
(ii) The agreement should be enforceable by law.
2.0 What is agreement?

2.1 An agreement is made up of two components, viz. (a) Proposal (offer) and (b)
Acceptance.
2.2 A proposal (from one party) when accepted (by the other party) becomes an
agreement between both the parties.
3.0 Enforceable by Law:

3.1 An agreement becomes a contract only when it is enforceable by law. As per Section
10 of the Contract Act, 1872, for an agreement to become enforceable by law, it must
satisfy following conditions –
(a) Parties to the contract are competent to contract;

(b) Their consent is free;
(c) There is some consideration for it;
(d) The object of contract is lawful;
(e) The agreement must not have been expressly declared void by law.
3.2 Thus, every contract is an agreement but every agreement is not necessarily a
contract. An agreement becomes a contract only when it satisfies the aforesaid five
conditions.
3.3 Having read the above, let us now understand each of the above conditions in some
detail for better comprehension.
1. Define a contract
2. Answer in one or two sentences;
a. What is an agreement
b. When is an agreement enforceable

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LESSON - 3
CAPACITY TO CONTRACT
1.0 Who is competent to contract?
1.1 As per Section 11 of the Contract Act, 1872, every person is competent to contract,
who is;
(i) of the age of majority according to the law;
(ii) of sound mind; and
(iii) Is not disqualified for contracting by any law.
1.2 In other words, (i) minors, and (ii) persons of unsound mind and (iii) persons
disqualified by law are not competent to contract.
1.3 The age of majority in India is generally 18 years as per Section 3 of the Indian
Majority Act, 1875.
2.0 Contract by minor:

2.1 It is abundantly clear from the above that a minor is incompetent to contract.
Hence, an agreement done by a minor is void abinitio i.e. it is considered as non-existent
from the very beginning. This principle is laid down by the Privy Council in 1903 in
Moharibibee v/s Dharmodas Ghose case. In this case Dharmodas Ghose, a minor,
mortgaged property to Brahmadutta, a money-lender for a loan of Rs.20,000/-. Before
execution of the mortgage, a notice was issued by Dharmodas’s mother to the money-
lender conveying the fact of Dharmodas’s minority. But the money-lender got a declaration
made by the Attorney that Dharmodas Ghose was a major and landed him Rs.8,000/-, while
executing the mortgage deed. Mother of Dharmodas Ghose filed a suit for cancellation of
mortgage deed and declaration of transactions as void. By the time of appeal, Brahamadutt
died. Case was prosecuted by his executors (Moharibibee). The money-lender contended
that Dharmodas was not a minor that he has misrepresented his age that he is not allowed
to plead minority by reasons of the declaration, that if considered a minor; contract was
only voidable and not void and if the court cancels the mortgage deed, the court should
order payment of money advanced. The Privy Council held that as per Contract Act, 1872, it
is essential that all contracting parties should be competent to contract. Section 11 of the
Contract Act makes it clear that a minor is incompetent to contract. Hence, mortgage made
by a minor was void. A minor cannot be held liable for any damages. There can be no
direction of specific performance against a minor. The money-lender could not recover the
amount because giving relief to the money-lender would amount to enforcing a contract
which was made by a minor and was void abinitio.
3.0 Of sound mind:
3.1 What is a sound mind for the purpose of contracting is stated in Section 12 to the
Contract Act, 1872 as follows:
“A person is said to be of sound mind for the purpose of making contract, if, at the
time when he makes it, he is capable of understanding it and of forming rational
judgement as to its effect upon his interests”.
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“A person who is usually of an unsound mind but occasionally of sound mind may
make a contract when he is of sound mind.”
“A person who is usually of sound mind but occasionally of unsound mind, may not
make a contract when he is of unsound mind.”
3.2 An agreement made by a person of unsound mind is absolutely void. In Indar Singh
v/s Permeshawardhari Singh (AIR 1957 Pat 498), property worth Rs.25,000/- was agreed to
be sold for Rs.7,000/- only. His mother proved that he was a congenital idiot incapable of
understanding the transaction. The sale was held to be void.
3.3 A “sound mind” means a mind in good condition. “Sound mind” does not mean a
perfect mind. It only means the state of mind in which, a person is able to reason and come
to a judgement about a subject like any other person of ordinary prudence. Opposite of
‘sound mind’ is ‘unsound mind’. ‘Unsound mind’ means lack of capacity to understand the
terms of contract and its effect.
oooooo
1. When is a person competent to make a contract?

2. Who is a "major"? Under what Act is the age of majority regulated?
3. When does the Act prohibit a person of unsound mind from contracting?
4. Say True or False. If false, please give correct answers:
a) Agreement by persons of unsound mind are voidable.
b) A person of unsound mind, even though occasionally of sound mind, cannot
make a contract.
c) A minor cannot be appointed as an agent.
d) There can be subsequent ratification of a minor's agreement.
e) Minor is not capable of entering into an agreement
RECOMMENDED FOR FURTHER READING:
1. The Law of Contract: An Outline – Dr. Nalima Chandiramani.

(Chapter 7, Pages 46-52)
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LESSON - 4
FREE CONSENT
1.0 Free Consent:
1.1 The word “consent” signifies voluntary agreement by a person out of his intelligence
to do something proposed by another. No contract can come into existence unless both the
parties to the contract agree upon the same thing in the same sense. If the minds of the
parties are directed to different things, there is no real agreement between them. Consent
is not considered free when it is obtained by- (a) coercion, (b) undue influence, (c) fraud, (d)
misrepresentation or (e) mistake. If the consent is obtained by coercion, undue influence,
fraud and misrepresentations, the contract becomes voidable. But if the consent is
obtained by mistake, the contract becomes void.
1.2 At this stage, it may be relevant to understand the difference between void and
voidable agreement. Under Section (2)(i) of the Contract Act, 1872, “an agreement which is
enforceable by law at the option of one or more of the parties thereto, but not at the option
of the other or others, is a voidable contract.”
1.3 As per Section 2(g) “an agreement not enforceable by law is said to be void”.
(a) Coercion: Consent is regarded as one obtained by coercion, if obtained by (1)
committing or threatening to commit any act forbidden by Indian Penal Code,
or (2) unlawful detaining or threatening to detain property of any.
Example ‘A’ threatens to shoot ‘B’, if ‘B’ does not lend him Rs.5000/-.
‘B’ lends the amount. Threat amounts to coercion.
(b) Undue influence: A consent to contract is said to be obtained by exercising

undue influence if the following conditions are satisfied –
(1) One of the parties to the contract –
(a) Must be in a position to dominate the Will of other, for example,
Spiritual Guru and his devotee;
(b) has a real or apparent authority over the other, example Doctor
and patient;
(c) is strong enough and upon him, the other has to depend because of
some mental or physical infirmity.
(2) Dominant party should have obtained an unfair advantage over the other.
(3) Dominant party must have used his dominant position to obtain the unfair
advantage.
In a case before Allahabad High Court Manu Singh v/s Umadutt Pandey, 1890
SCC Online ALL 2 ILR (1890) 12 ALL 523, a Spiritual Guru influenced his
devotee to gift him (Guru) the whole of devotee’s property to secure benefits
to his soul in the next world. Such a consent was hold to be obtained by
undue influence.
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(c) Fraud: Fraud means acts committed by party to contract with an intention to
deceive another party to enter into the contract,
For fraud to occur –
(a) There must be a representation, which must be false.
(b) Representation must relate to facts.
(c) Representation must deceive the other party.
(d) The party who is deceived must suffer some loss.
(e) Representation must be made with the knowledge of its falsity.
Example:
‘A’ says to ‘B’ that his ornament is made of pure gold though he knows that it is
untrue. ‘B’ purchase the ornament believing ‘A’s statement. It is a fraud by ‘A’
and the contract is voidable at the option of ‘B’.
(d) Misrepresentation: It is a false statement made innocently. It may be made either

before the contract or at the time of contract but not with an intention to deceive
the other party.
When a person positively asserts that a fact is true when his information does not
warrant it to be so, though he believes it to be true, he is said to have made
misrepresentation. In misrepresentation, the assertion is false but the person
making it does not know that it is false.
Example
‘A’, in good faith, informs ‘B’ that A’s estate is free from encumbrance. ‘B’
based on this assertion, buys ‘A’s estate but knows afterwards that the estate
was under mortgage. ‘B’ may either avoid the contract or require ‘A’ to clear
the mortgage. A contract by misrepresentation is voidable. But remedy in law
is lost, if the party whose consent was obtained by misrepresentation had the
means of discovering the truth with ordinary diligence.
(e) Mistake: As per Section 20 of the Contract Act, 1872, “when both the parties to an
agreement are under a mistake, as to matter of fact essential to agreement, the
agreement is void.
Example
‘A’ agrees to buy from ‘B’ his ship. It turns out that at the time of contract
the ship was lost and neither party was aware of this fact. The agreement is
void on account of mistake.
1. Define consent. What are the prerequisites for consent to be free?
2. What is the legal effect on an agreement when consent is not free?
3. How would you define coercion? Explain by giving an illustration.
4. Define fraud. What are the essentials of "fraud"?
5. "Misrepresentation is a false statement made by a person who honestly believes it to be
true." Explain.
6. What are the consequences of agreements induced by coercion, fraud, misrepresentation
and undue influence? Support your answer with illustrations.
7. In how many ways can a mistake affect a contract? Explain with reference to case law.
RECOMMENED FOR FURTHER READING:
1.The Law of Contract: An Outline - Dr. Nilima Chandiramani. (Chapter 8, Pages 53-77).
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LESSON - 5
CONSIDERATION AND LEGALITY OF OBJECT

1.0 For a valid contract to come into being, it is essential that the consideration and the
object of the contract both are lawful. Under Section 23 of the Contract Act, “the
consideration or object of an agreement is lawful unless it is (i) forbidden by law or (ii) is of
such a nature that if permitted would defeat provisions of any law or (iii) is fraudulent or (iv)
involves or implies injury to the person or property of another or (v) the Court regards it as
immoral or is opposed to public policy.” Every agreement of which the object or
consideration is unlawful is void.
Example 1.
‘A’, ‘B’ and ‘C’ enters into an agreement to divide amongst themselves gains
acquired by them by fraud. The agreement is void because its object is
unlawful.
Example 2.
‘A’ promises to ‘B’ employment in public service if ‘B’ pays him Rs.2 lakhs.
The agreement is void because the consideration is not lawful.
(a) FORBIDDEN BY LAW: An agreement is void if it is forbidden by law. For

example, in a case, a party was licensed under Excise Act to run a liquor shop. Act
did not allow transfer of this license to anybody else. It also did not allow creation of
a partnership to run the shop by signing a partnership agreement. The licensed party
signed a partnership agreement with another party to run the shop. The agreement
was held void as it would defeat the law if unapproved person could find their way
into running liquor shop.
(b) DEFEAT ANY LAW: An agreement is void if it defeats the provisions of some law.
In Fateh Singh v/s Sanwad Singh ILR(1878) 1 ALL 751, an accused was required to
furnish a surety of Rs.5,000/- for his good behavior. He deposited the sum with the
defendant and persuaded him to become a surety. After the period of suretyship,
the accused sought action against defendant for recovery of the amount. Held, the
money was irrecoverable as the agreement was void.
(c) FRADULENT: Where the parties agree to impose a fraud on a third person,
agreement between them is unlawful.
(d) INJURIOUS TO A PERSON OR PROPERTY: Any agreement between two persons

to injure another or property of another is unlawful.
Example
An agreement to assault or beat a person is void.
(e) IMMORAL: The law does not allow an agreement which is defeating an act is
immoral. What is immoral depends on the concept of morality prevailing in the
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society at a particular time. In a case, a married woman was given money to obtain
divorce from her husband by another man, who promised to marry her after divorce.
The money was not allowed to be recovered.
1. "Every agreement of which the object or consideration is unlawful is void." Discuss

by supporting with illustrations.
2. When and under what circumstances can consideration of an agreement become

unlawful?
3. What do you understand by the term "public policy"?
4. State whether the nature of consideration and object decides the validity of an
agreement.

(Chapter 9, Pages 78-84).
************************
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LESSON - 6
AGREEMENTS / VOID AGREEMENTS

1.0 The Chapter deals with Definition and Kinds of Agreements. There are five types of
agreements, viz:
a) Valid Agreement
b) Void Agreement
c) Voidable Agreement
d) Unenforceable Agreement
e) Illegal Agreement
2.0 A valid agreement is an agreement that is enforceable by law. Another term for an
agreement enforceable by law is contract [Section 2 (h) of the Indian Contract Act]. For an
agreement to be a contract, it must be enforceable by law. An agreement is enforceable by
law if the following four conditions are fulfilled:
a) The parties are competent to contract.

b) Their consent is free.
c) Their object and consideration of the agreement is lawful; and
d) The agreement is not expressly declared void by law.
3.0 Agreements Expressly Declared Void by Law:
3.1 Under Section 2(9) of Contract Act, 1872, an agreement not enforceable by law is said
to be void. As we have seen earlier, some of the agreements expressly declared void by law
are –
- Agreements by minors
- Agreements by persons of unsound mind
- The objects of consideration of which is unlawful
- Agreements induced by mistake.
3.2 Besides this, agreements not supported by consideration (excepting the three
exceptions, and the contract of agency, which are explained in subsequent part of this study
material), are also void. Furthermore, the Contract Act also declares following agreements
to be void:
(1) Agreements in restraint of marriage

(2) Agreements in restraint of trade
(3) Agreement in restraint of legal proceedings
(4) Uncertain agreements
(5) Wagering agreements
(6) Agreements to do impossible or illegal acts.
3.2.1 Agreement in restraint of marriage: Marriage is regarded as the ordinary right of

every person under the law. Consequently, any agreement with an object to restrain a
person from marrying is void.
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3.2.2 Restraint of trade: Freedom of trade and commerce is a fundamental right. Every
person is entitled to carry on any trade or business of his choice in the manner most
desirable in his own interest so long as nothing is unlawful. Any contract, which interfere
with this right of a person to carry out a lawful trade or business of his choice, is considered
in restraint of trade.
Example
In Madhav v/s Raj Coomar [(1889 ILR 19 Cal.840)]
‘A’ and ‘B’ were rival shopkeepers in a locality in Calcutta. ‘B’ agreed to pay sum of
money to ‘A’ if he would close his business in that locality. ‘A’ stopped his business
in that locality. But ‘B’ failed to pay him the promised money. ‘A’ filed a suit to
recover the promised money. The agreement was void for being in restraint of
trade. This rule of law is subject to following exceptions –
(a) Sale of goodwill : One who sales the goodwill of a business may agree to
refrain from carrying on similar business within the specified local limits so
long as the buyer is carrying on a like business in that locality, provided that
such local limits are reasonable. In Chandra Kanta Das v/s Parasullah Mullick,
48 IA 508, the seller of ferry business along with goodwill agreed with the
buyer that he would not carry on similar business in the same place for a
period of three years. The agreement is held as valid.
(b) Service agreement: A service agreement whereby an employer prevents his

employee from holding any other office of profit during the course of his
employment is considered a valid agreement.
(c) Trade combination: Agreement between a group of traders to limit

competition and keep up price is not void.
(d) Sole selling agent: A manufacturer agreeing to sell whole of his production to
a particular seller is not a void arrangement.
A partner in partnership firm may be validly restrained from (1) not to carry
on any other business during currency of partnership or (2) similar business
after retirement from the firm within a specified period or local limit or (3)
after dissolution of firm, within a specified period and in specified local limits.
3.2.3 Agreement in restrain of legal proceedings: Every person is entitled to take a legal
recourse for relief. This freedom is granted to everyone by law. Any agreement made to
oust the jurisdiction of the Court is contrary to public policy and is void. An exception to this
rule of law is a provision in contract to refer the existing or future dispute to arbitration.
3.2.4 Uncertain agreements: Under Section 29 of the Contract Act, the agreements, the
meaning of which is not certain or capable of being made certain, are void.
Example
‘A’ agrees to sell 100 tons of oil to ‘B’. There is nothing in the agreement to show
what kind of oil? The agreement is void for uncertainty.
15
Example
‘A’, a dealer in coconut oil only, agrees to sell ‘B’ 100 tons of oil. Nothing is written in
the agreement to show what kind of oil. But the nature of ‘A’s trade indicates the
meaning of the words, and it can be inferred that ‘A’ has entered into a contract for
sell of 100 tons of coconut oil.
3.2.5 Wagering Agreement: As per Section 30 of the Contract Act, agreements by way of
wager are void. This includes speculative transactions over uncertain events. There are
mutual chances of gains or losses to both party and neither party have control over the
event. Thus, the amount borne by a wager cannot be recovered by recourse to law.
3.2.6 Agreements to do impossible acts: Agreements made to do impossible acts are void
whether impossibility of the event is known or not to the parties at the time of making
agreement.
Example
‘A’ agrees to pluck stars for ‘B’ if ‘B’ pays him Rs.10,000/-.
1. What is the definition of an agreement under Section 2(e) of the Indian Contract Act, 1872?
2. Enumerate and explain the various kinds of agreements.
3. "Every contract is an agreement but every agreement is not a contract." Elucidate.
4. What are the four conditions for an agreement to be enforceable by law?
5. When is an agreement void? Give examples of at least five void agreements.
6. When is an agreement voidable? State few examples of voidable agreements.
7. What is an unenforceable agreement?
8. Write a short note on illegal agreements
9. Analyze the statement -- "Any agreement in restraint of trade is void."
10. Analyze the statement -- "Any agreement in restraint of judicial proceeding is void."
11. What do you understand by the "Doctrine of Frustration?" Illustrate your answer with case
law.
12. What are the effects of frustration?
13. Write a note on uncertain agreements
14. List out the agreements expressly declared void under the Indian Contract
Act.
1. The Law of Contract: An Outline – Dr. Nilima Chandiramani.

(Chapter 6, Pages 42-45 & Chapter 10 Pages 85-116)
16
LESSON - 7
OFFER/PROPOSAL
1.0 The word ‘proposal’ is used in Indian Contract Act in the same sense as the word
‘offer’ used in English Law. An offer is basically an expression of will or intention to do or
not to do something with a view to get something. The person who makes the offer is
called the ‘offerer’ or ‘proposer’ or ‘promiser’ and the person to whom the proposal is made
is called the ‘proposee’ or ‘offeree’ or ‘promisee’.
For example, ‘A’ offers to sell his ship to ‘B’ for Rs.50 lakhs. This is an offer from ‘A’ to
‘B’ and ‘A’ is the ‘offerer’ and ‘B’ is the ‘offeree’.
1.1 The word ‘offer’ and ‘proposal’ can be used interchangeably. As per Section 2(a) of
Contract Act, “When a person signifies to another his willingness to do or abstain from doing
anything with a view to obtaining the assent of that other to such act or abstinence, he is
said to have made a proposal.”
1.2 Thus, a proposal consists of two parts, (i) a promise by the promiser and (ii) a request
to the promisee for something in return.
2.0 Essentials of a valid offer:
2.1 Following are the essentials of a valid offer –
(i) The offer must create some legal obligation, give rise to legal relationship
between the parties carry legal consequences. For example, ‘A’ invites ‘B’ for
dinner. ‘B’ accepts the invitation. But, at the appointed day and time, ‘B’
does not turn up. ‘A’ cannot take legal action against ‘B’ for breach of
contract because this was a social arrangement and there was no intention
between ‘A’ and ‘B’ to create a legal obligation or a legal relationship with
legal consequences.
In Balfour v/s Balfour 1919(2) of KB 571, Mr. Balfour, a Government servant

from Ceylon went to UK with his wife on leave. After expiry of leave, Mr.
Balfour came to Ceylon but his wife did not accompany him on medical
grounds. Mr. Balfour promised her to send 30 pounds every month for
maintenance till she comes back. After some time, Mr. Balfour stopped
sending the money. Mrs. Balfour brought an action against him in the court.
The case was dismissed on the ground that this agreement was an
arrangement between husband and wife and there was no intention to
create any legal obligation.
(ii) Offer must be certain: The term of an offer must be certain. Under Section
29 of the Contract Act, only those agreements, meaning of which is certain or
capable of being made certain are valid. Otherwise, they are void.
17
For example, ‘A’ agrees to sell ‘B’ 100 tons of oil. There is nothing in the
contract to show what kind of oil was to be sold. The agreement is void
because it is not certain.
(iii) Offer may be specific or general: When an offer is made to a specific person,
the offer is specific. Its performance then has to be by the specific person
only. As against this, if the offer is made to world at large then it is called a
general offer and it can be performed by anybody. In a specific offer,
advertisement in media is not necessary. But in general offer, the offer is
made through advertisement in newspapers, radio, TV, etc.
For example
‘A’ promises to give ‘B’ Rs.10,000/- if ‘B’ brings back his missing dog. This is a
specific offer made by ‘A’ to ‘B’ which can be performed only by ‘B’.
As against this, if ‘A’ issues a public advertisement that he would give

Rs.10,000/- to anyone who brings back his missing dog, this becomes a
general offer. Any member of public can accept this offer, search the dog,
bring it back and claim the reward.
(iv) Offer must be communicated to the offeree: Communication is necessary. It

may be by words spoken, written, by conduct, by sign, by gestures, by post,
telephone, telex, internet, email, etc. But if there is no communication, there
can be no acceptance. And if there is no acceptance, there can be no
contract. In other words, a person can accept the offer only when he knows
about it. If he does not know, no contract can come into existence. Also, the
communication of an offer is complete when it comes to the knowledge of
the person to whom it is made.
(iv) An offer may be conditional: An Offeror is free to lay down any conditions as
he wishes in the offer. The only requirement is that all the terms and
conditions must be brought to the notice of the offeree at the time of making
of offer.
2.2 Offer must be made with a view to obtain the assent. This means that mere
expression of interest or intention is not enough, mere enquiry is not an offer.
2.3 Also, an Offer should not contain a term the non-compliance of which will amount to
acceptance.
For example
‘A’ writes to ‘B’ that I shall sell my ship to you for $ 9 million and if you don’t reply
within a week, I shall assume that you have accepted the offer. This is not a valid
offer.
3.0 INVITATION TO OFFER:
3.1 When a party without expressing final willingness proposes certain terms on which
he is willing to make a contract, he does not make an offer but only invites the other party
to make an offer. This kind of an offer to receive an offer is called invitation to offer.
18
For example
Menu Card in a restaurant giving list of eatables with its price, is an invitation to a
customer, to choose any item and place an order, which becomes an offer.
Advertisement calling bids is also an example of invitation to offer.
4.0 COUNTER OFFER OR COUNTER PROPOSAL:
4.1 An offer in response to an offer is counter offer. The effect of the counter offer in
law is that the original offer is replaced by counter offer and cannot be revived. In Hyde v/s
Wrench (1840) 3 Beav 334, the defendant offered to sell his estate for £1,000/-. The
plaintiff made a counter offer of £950/-. The defendant refused to sell for £950/-. After
refusal, the plaintiff wrote that he agreed to buy the estate at original offer of pound
£1,000/-. The defendant refused to sell for pound £1000/-. The plaintiff filed a case in the
court saying that the defendant must sell because his original offer of £1,000/- was
accepted. The court held that the original offer of £1,000/- was over-written by counter
offer of pound 950/- and did not survive and hence cannot be revived.
1. Define Offer/Proposal.
2. What are the requisites of a valid Offer/Proposal?
3. What is the difference between an offer and counter-offer/proposal?
4. What is the difference between an offer and invitation to offer? Give examples
of invitation to offer/proposal?
5. When is communication of an Offer/Proposal offer complete?
6. When can an offer/proposal be revoked?
7. How can an offer/proposal be revoked?
4. Mulla on the Indian Contract Act -- H.S. Pathak, 11th Ed., 1995.
A standard text-book on the Indian Contract Act.
3. Case Law on the Contract Act -- D.G. Cracknell, 1961.

This serves as a convenient reference book for case law.
19
LESSON - 8
ACCEPTANCE
1.0 A contract is formed only when an offer is accepted. Section 2 of the Contract Act
says that when ‘the person to whom the proposal is made signifies his assent thereto, the
proposal is said to be accepted’. A proposal when accepted becomes a promise.
2.0 ESSENTIALS OF A VALID ACCEPTANCE:
2.1 Acceptance must be absolute and unconditional: As per Section 7(i) of the Contract
Act, in order to convert a proposal into a promise, the acceptance must be absolute and
unqualified. If there is any deviation from the terms of the offer, the acceptance is not
considered as valid. To be a valid acceptance, the offer must be accepted as it is. A
conditional acceptance is rather a counter offer, which may be accepted or rejected by the
offerer.
2.2 Acceptance must be in the prescribed mode: If the manner of acceptance is

prescribed in the proposal, the acceptance has to be in that manner only. However,
acceptance of a proposal in a manner different from the prescribed one, does not
automatically invalidate the acceptance. If the proposer does not raise any objection to the
acceptance, which is different in manner from what is prescribed in proposal, he is deemed
to have accepted the same.
Example
‘X’ offers to buy rice from ‘Y’ and asks ‘Y’ to send telegram. ‘Y’, instead of
sending a telegram, sends a letter of acceptance. Now, ‘X’ may insist on
telegram from ‘Y’ because that is the manner of acceptance prescribed in the
offer. But if ‘X’ does not insists on telegram and accepts the letter, the
acceptance is good and valid.
2.3 Acceptance must be communicated: A mental acceptance or an uncommunicated

acceptance does not result in contract. Also, mere silence cannot be considered as
acceptance of the offer. Acceptance should be communicated to the offerer by the person
to whom the offer has been made.
2.4 Acceptance must be given within a reasonable time: If the offerer has prescribed a
time limit within which the offer must be accepted, it must be accepted within the
prescribed time limit only. However, if no time limit is prescribed than offer may be
accepted within a reasonable time. The proposal lapses even if acceptor is not in a position
to accept the offer within a prescribed time even if it is because of certain reasons which are
beyond his control.
In B. Rajkumar Patra v/s Union of India AIR 1981 ORI 143, the train by which the
representative travelled ran unusually late and could not reach the destination
on time. Hence, the person could not deposit the tender notice on the
prescribed time. It was held that delayed arrival of train could not constitute a
justification to accept the tender given beyond time.
20
2.5 Acceptance must be given only by the offeree:
In Boulton v/s Jones (1857) 157 ER 232, ‘A’ sold his business to ‘B’. The customer
of ‘A’ did not know this. He placed an order for goods on ‘A’. Order was received
by ‘B’. ‘B’ supplied the goods It was held that there was no contract because
the order was placed on ‘A’ and acceptance was done by ‘B’. The acceptance
must be given by the person to whom the offer has been made.
2.6 Acceptance must be after an offer: There cannot be any acceptance without an
offer. The acceptor must be aware of the proposal at the time of accepting the proposal.
Acceptance should be made while the offer is subsisting. If an offerer has withdrawn his
offer or if his offer has lapsed, there is nothing which can be accepted. A proposal once
rejected cannot be accepted unless it is renewed. A proposal if it is rejected than it gets
substituted by the offer by which it is rejected i.e. by the counter offer and the original
proposal does not subsist unless and until it is renewed.
3.0 COMMUNICATION AND REVOCATION OF OFFER AND ACCEPTANCE:
3.1 Section 4 of the Contract Act provides that communication of a proposal is complete
when it comes to the knowledge of the person to whom it is made.
Example
‘A’ proposes by letter to sell his ship to ‘B’ at certain price. The communication of
this proposal is complete only when ‘B’ receives the letter.
3.2 Communication of the acceptance is complete as against the proposer when it is put
in the course of transmission to him so as to be out of power of acceptor and as against the
acceptor, when it comes to the knowledge of the proposer. For instance, in the above
example, ‘B’ accepts ‘A’s proposal by a letter sent by post. The communication of the
acceptance is complete as against ‘A’ when the letter is posted and as against ‘B’ when the
letter is received by ‘A’.
3.3 In the same way, communication of a revocation is complete as against the person
who makes it when it is put into a course of transmission to the person to whom it is made
so as to be out of power of the person who makes it and as against the person to whom it is
made when it comes to his knowledge.
Example
In the above illustration, ‘A’ revoked his proposal by telegram. The Revocation is
complete as against ‘A’ when the telegram is dispatched. However, the revocation is
treated as complete as against ‘B’ only when ‘B’ has received it. Conversely, if ‘B’
decides to revoke the acceptance which he has communicated to ‘A’, ‘B’s revocation
is complete for ‘B’ when the telegram is dispatched but as against ‘A’ on when it
reaches ‘A’.
4.0 REVOCATION OF PROPOSAL:
4.1 Under Section 5 of the Contract Act, a proposal can be revoked at any time but
before communication of its acceptance is complete. There are ways to revoke a proposal.
A proposal can be revoked by (i) notice of revocation, (ii) lapse of time, (iii) lapse of
21
reasonable time, if there is no time prescribed, (iv) failure of the acceptor to fulfill a
condition precedent to acceptance, (v) death or insanity of the proposer, if the fact of his
death comes to the knowledge of the acceptor before acceptance.
4.2 A proposal also stands revoked if it is rejected or a counter offer is made in response
to the proposal.
5.0 REVOCATION OF ACCEPTANCE
5.1 An acceptance may be revoked at any time before the communication of acceptance
is complete.
Example
‘A’ proposes by a letter to sell his ship to ‘B’. ‘B’ accepts the proposal by a letter
sent by post. ‘B’ may revoke his acceptance any time before or at the moment when
the letter communicating his acceptance reaches ‘A’ but not afterwards. As soon as
the acceptance reaches the offeror it becomes a contract and the place where
acceptance is received, becomes the place of contract, and if any dispute arises,
court in that place will be the competent court for the dispute.
1. What are the essentials (or requisites) of a valid acceptance?
2. When is the communication of an acceptance complete?
3. Define acceptance. Should acceptance be absolute and unqualified?
4. Explain, quoting case law:
(a) Acceptance may be express or implied.
(b) Acceptance of an offer is acceptance of all its terms.
(c) Acceptance must be absolute and unconditional.
5. Say true or false. If false, give correct answers:
(i) Where the proposal prescribes the manner of acceptance, acceptance must
be in that manner only.
(ii) Acceptance need not be oral or written.
(iii) An act done in ignorance of the proposal is no acceptance.

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22
LESSON - 9
CONSIDERATION
1.0 Consideration is an important element in a valid contract. Consideration means
something in return. If a party promises to do something, he must get something in return.
Example
‘A’ agrees to sell his ship to ‘B’ for Rs.20 crores. Here, ‘B’s promise to pay Rs.20
crores is the consideration for ‘A’ and ‘A’s promise to sell the ship for Rs.20 crores to
‘B’ is the consideration for ‘B’.
1.1 A contract without consideration is void. This is a general rule. However, there are
certain exceptions to this general rule. As per Section 25 of the Contract Act, an agreement
made without consideration is not void in the following situations:
(i) It is made in writing, it is registered under the Law and it is made on account
of natural love and affection between the parties in close relationship to each
other.
Example
‘A’ promises to give his son ‘B’ Rs.100000/- and puts his promise in writing
and registers it. There is no consideration from ‘B’ to ‘A’. This is a valid
contract.
(ii) If it is a promise to compensate somebody who has already voluntarily done

something for the promisor.
Example
‘A’ finds ‘B’s purse and gives it to him. ‘B’ promises to give ‘A’ Rs.50/-. This is
a contract.
(iii) A written promise signed by a person to pay a debt which is time-barred by

law of limitation.
Example
‘A’ owes ‘B’ Rs.1000/- but this debt is time-barred. ‘A’ signed a written
agreement to pay ‘B’ Rs.500/- on account of debt. This is a valid contract.
1.2 Thus, promise made on account of natural love and affection in writing and
registered or promise to compensate for past voluntary services or a written promise to pay
a time-barred date are the exceptions where contract without consideration is considered
valid.
1.3 Similarly, completed gifts and contract of agency are exceptions to contract without
consideration.
2.0 SOME SALIENT FEATURES OF CONSIDERATION:

2.1 Consideration must move at the desire of the promisor: This means that the act
done by the promisee must have been done at the desire of the promisor. In other words,
an act done voluntarily or at the request of a third party would not be a valid consideration.
23
Example
‘A’ sees ‘B’s ship sinking in the sea and helps ‘B’ save the ship. ‘A’ cannot demand
payment for his service because it was a voluntary service done by ‘A’ and ‘B’ had
never asked for his help. In Durga Prasad v/s Baldev 1880, 3 ALL 221, the Plaintiff
constructed shops in a market at the desire of the District Collector. Defendant took
a shop in it. In consideration of the Plaintiff having spent money in constructing the
shop, the defendant promised to pay him commission on article sold through his
shop. After some time, the defendant stopped making payment. Plaintiff brought
an action against him in the court of law. It was held that the agreement was void
because there was no consideration between the plaintiff and the defendant. In
fact, plaintiff had constructed shops in the market at the desire of the Collector.
2.2 Consideration may move from the promisee or any other person: In other words, a
stranger to consideration can bring an action on a contract, provided he is a party to the
contract.
Example
‘A’, ‘B’ and ‘C’ make a contract in which ‘A’ will pay Rs.10000 to ‘B’ and ‘B’ will built a
house for ‘C’. Here, ‘C’ is a party to the contract but Stranger to consideration.
However, ‘C’ can enforce the contract.
2.3 Consideration may be past, present or future:
2.3.1 Present consideration - When the consideration and the promise are simultaneous,
it is called present consideration.
Example
‘A’ agrees to sell his ship to ‘B’ for Rs.20 crores. ‘B’ pays Rs.20 crores to ‘A’ at
the time of making of contract and ‘B’ delivers the ship at the same time of
making of contract. Consideration will be taken as present consideration.
2.3.2 Past consideration - Where the promisor has received consideration before the date
of promise, it is past consideration.
Example
‘A’ did some service to ‘B’ in the month of June. ‘B’ promised to pay him in
the month of July for the service. Consideration of ‘A’ is past consideration.
2.3.3 Future consideration – Where the promisor has to receive consideration in future, it
is called a future consideration.
Example
‘A’ looks after the children of ‘B’. ‘B’ promised to pay all the expenditure that
is incurred by him in looking after his children but at the end of the year. The
consideration in this case is future consideration.
2.4 Consideration need not be adequate: Consideration means something in return.

This something in return need not be equal in value to what has been given. Law does not
insist on adequacy. All that it insisted upon is presence of consideration. Adequacy is for the
parties to decide. Even a small consideration is enough provided it has some value.
24
2.5 Consideration must be real and not illusory:
A. Physical possibility: If a person agrees to perform an impossible act as a

consideration, the promise is not enforceable.
Example
‘A’ agrees to give some money to ‘B’ in consideration of ‘B’ promising to bring
dead man to life. Here the consideration i.e. ‘B’s promise to bring dead man to
live is physically impossible. Hence, this contract is not valid.
B. Uncertain consideration: ‘A’ engages ‘B’ for doing some work and promises to
pay him a reasonable sum. There is no methodology to know as to what is
reasonable and hence the consideration is not certain and not valid.
1. Define consideration.
2. State the essential elements of consideration. Support your answer with case law.
3. Explain: "It is not necessary that consideration must be adequate to the promise."
4. What are the exceptions to the rule--"An agreement made without consideration is
void."

25
LESSON - 10
PRIVITY OF CONTRACT
1.0 A contract between the parties generally does not give rights or does not impose any
obligations under the contract on anybody excepting those who are the parties to the
contract. It is only the parties to the contract which are bound by it. This concept in
contract law is called privity of contract. It disallows any third party, who is a stranger, an
outsider to the contract to exercise any rights or discharge any obligations in the contract.
Example
‘A’ and ‘B’ enters into a contract by which ‘A’ agrees to deliver his ship to ‘C’ in
consideration of ‘B’ paying him Rs.20 crores. In this arrangement, ‘C’ is a stranger, a
third party to the contract and therefore, ‘C’ cannot bring any action against ‘A’ to
enforce delivery of the ship.
1.1 However, there are certain exceptions to this general rule. These exceptions are:
(i) Trust or charge: A person in whose favour a charge or other interest is

created in some specific property then that person, though he may not be a
party to the contract, may enforce the contract.
Example
In Rana Umanath Baksha Singh v/s Jang Bahadur (AIR 1938 PC 245), the
father transferred all his property to his son and in return, his son agreed to
give a sum agreed money regularly to his father’s illegitimate son. A trust
was created to this effect. But the son failed to give the agreed amount to
the illegitimate son, though father had transferred all his property from his
side. The illegitimate son though was out of the contract, a third party, a
stranger to the contract, brought an action to recover the amount in the
court of law. The action was allowed.
(ii) Provision in marriage settlement: A stranger to the contract can bring an

action for enforcement of a contract when a provision is made to his/her
benefit in a marriage settlement.
In Khwaja Mohd v/s Hussain Begum [(1990) 12 BOM LR 638]

‘A’ agrees with ‘B’s father that he would pay ‘B’ regular monthly
allowance of Rs.500/- if she, i.e. ‘B’, marries ‘A’s son. ‘B’ married ‘A’s
son. But the payment of allowance was discontinued sometime after
celebration of marriage. ‘B’ brought an action in court of law against
her father-in-law i.e. ‘A’ for payment of Rs.1500/- outstanding as
arrears of the allowance. In this case, ‘B’ was not a party to the
contract. The contract was between ‘A’ and ‘B’s father. ‘B’ was only a
beneficiary to the contract. But it was held by the court that ‘B’ could
recover the money by virtue of this exception.
26
(iii) Assignee of a contract: The benefit arising out of a contract can be assigned
in favour of a third person. Such third person is known as assignee of a
contract.
Example
If you draw an insurance policy wherein the insurance company
agrees to pay a lump sum compensation on death of the insurer.
Than obviously, after death, a party to the contract cannot collect the
amount of compensation and therefor, during the life-time, has to
bind a person to the contract, who can collect this money after the
death of the insurer. Such third person i.e. assignee to the contract
can legally enforce the contract i.e. can bring an action against the
insurance company if not paid the compensation due, though not a
party to the contract.
(iv) Contract by agent: A contract made by an agent, who is acting within the
scope of his authority can be enforced by his principal.
(v) Holder of a Bill of Lading: In a case where the contract for carriage of goods
by sea is concluded between the shipper and the carrier but the Bill of Lading
is endorsed in favour of a third party during transportation of goods by sea,
this third party, who is a stranger to the original contract between the
shipper and the carrier can, as a holder of Bill of Lading bring an action
against the carrier for any loss or damage caused to the goods during
transportation.
(vi) Third party insurance: A person enters into an insurance contract with an
insurance company that in the event of any injury sustained by any third
person in accident by his vehicle, compensation claimed by the third person
will be paid by the insurance company. This arrangement is a third party
insurance. In such a case, the person who would claim the compensation is
not known at this stage because the accident has not taken place. But that
third person is the beneficiary to this arrangement and hence can bring the
action against the insurance company for recovery of compensation.
oooooooo
1. Discuss the doctrine of privity of contract with relevance to shipping

2. Explain the cases :
a. Dunlop Pneumatic Tyres v. Selfridge
b. Midland Silicones v. Scuttons(1962)

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27
CHAPTER - 2
LAW OF CONTRACT
• Discharge by Performance, by Impossibility

and by Breach
• Remedies for breach of contract.
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28
LESSON - 11
DISCHARGE OF CONTRACT
1.0 DISCHARGE BY PERFORMANCE:
1.1 A contract stands discharged by performance when the parties to the contract carry
out their respective obligations under the contract satisfactorily.
Example
A carrier engages a shipping agent in a port to look after and manage the affairs of
his ship calling on that port on payment of certain commission. The ship calls at the
port, the agent attends to its requirements, the ship sails out, and financial accounts
of the agent on account of the visit of the ship is settled and paid for by the carrier.
The agent is also paid his commission. In such a situation, the contract stands
discharged by performance.
2.0 DISCHARGE BY BREACH:
2.1 Whenever a contract is made, it is expected that the parties to the contract will
discharge or perform their respective obligations. Whenever a party to the contract fails to
discharge his responsibility as per the contract, the party is said to have committed a
breach. Thus, breach means either failure or refusal by a party to perform its obligation
under the contract without any lawful excuse. Breach of contract may take place at three
different stages – (i) before the time for performance of obligation under the contract has
arrived; and (ii) at the time of performance of the contract or (iii) in the course of
performance. The breach which takes place before the due date of performance of
obligation under the contract has arrived is also called an anticipatory breach. Whereas, the
breach either at the time of performance or in the course of performance of obligation is
referred to actual breach.
2.2 Consequence of breach of contract is that the other party to the contract is also
discharged from his obligation under the contract. However, this does not so happen if the
other party to the contract either by words or by conduct agrees to continue with the
contract.
2.3 Anticipatory Breach: The concept of anticipatory breach is based on the premise
that a contract is a contract from the time it is made and not from the time when its
performance is due. If a promisor, before the time of performance of contract comes,
convey his refusal to perform his part of contract, the other party is entitled in law to treat
the contract to have come to an end and bring an action against defaulting party in the
court of law for damages on account of breach without waiting for the actual time of
performance to come.
Example
‘A’ contracts with ‘B’ on 1st January to supply his ship to ‘B’ on 1st March. But on 15th
February ‘A’ writes to ‘B’ and says that he is not going to deliver his ship to ‘B’. Then
on 15th February, on receipt of this communication of refusal from ‘A’, ‘B’ may at
29
once treat the contract as at an end and bring action against ‘A’ for damages without
waiting till 1st of March.
2.3.1 The point to understand in this situation is that when a party to the contract conveys
his refusal to perform the contract before the date of performance comes, the other party
has two options –
(1) To treat the contract as to have come to an end and bring an action for damages,
or
(2) To wait until the actual time of performance comes.
2.3.2 However, if the party decides to wait till the actual time of performance comes, in
that event the contract remains operative to the advantage of both the parties and the
other party which had earlier conveyed refusal may change his mind and carry out
performance of his obligation in contract or the contract may come to an end because of
any subsequent impossibility.
For instance, in the above example, when on 15h February ‘A’ conveyed to ‘B’ his
refusal to supply the ship, ‘B’ had two options – (i) to bring an immediate action on
15th February itself for damages against ‘A’ treating the breach as anticipatory
breach or (ii) keep waiting until actual day of performance i.e. 1st March arrives. If
‘B’ elects to wait until 1st March, the contract will remain operative beyond 15th
February for both ‘A’ and ‘B’ and on the actual day of performance i.e. 1st March if
‘A’ supplies the ship contract will be discharged by performance. But if between
15th February and 1st March if the ship of ‘A’ is destroyed because of the reasons
beyond A’s control, the contract will be treated as frustrated on account of
subsequent impossibility and then on 1st March when the ship is not supplied, ‘B’ will
not have an option of bringing an action for damages against ‘A’, saying that on 15th
February, he had refused to supply the ship and at that time the contract had
actually come to an end.
2.4 Actual breach: Actual breach is committed either at the time when the performance
of the contract is due or during the performance of the contract. In all mercantile
transactions, time is generally the essence of contract and breach of contract occurs on
failure of the party to perform the contract at the agreed time. Under the Contract Act, if a
party fails to perform the contract at the agreed time, where the time is the essence of the
contract, the contract becomes voidable at the option of the promisor. But where the time
is not the essence of the contract, the contract does not become voidable. It entitles the
promisee for compensation from the promisor for any loss that is occasioned to him by such
failure to perform the contract on agreed time. But, if the promisor conveys to the
promisee performance of contract at some other time and if the promisee accepts this
proposition then promisee is not entitled even for any compensation for the non-
performance of the contract at the agreed time.
2.5 Breach during performance of the contract: If a party to the contract at the time of
or during the performance of the contract commits breach of a condition vital to the
contract, the party is said to have committed a breach.
30
Example
In merchant shipping, deviation of ship from the agreed route by the carrier is
considered as a breach of a condition vital to the contract and the contract comes to
an end moment the deviation takes place.
2.5.1 The consequence of actual breach whether at the time or during the performance of
contract is that the contract is discharged. It gives right to the aggrieved party to bring an
action against the party in fault for damages.
3.0 DISCHARGE OF CONTRACT BY IMPOSSIBILITY OF PERFORMANCE AND THE

DOCTRINE OF FRUSTRATION:
3.1 The term ‘frustration’ in the context of contract means impossibility of performance
of contract due to circumstances beyond the control or contemplation of the parties to the
contract, after the contract has been made. This impossibility is without any fault of any of
the parties to the contract. The effect of this impossibility is that the contract stands
dissolved and thereby frustrated. The concept of frustration of contract is based on the
premise that the law does not compel the impossible. This is based on a case law Taylor v/s
Caldwell (1863): 3 BS 826. In this case, the defendant had agreed to give the plaintiff his
Music Hall for holding a concert. Before the day of concert, the Hall was destroyed in fire.
Plaintiff, Taylor sued Caldwell for damages for breach of contract. It was held by the court
that the contract is subject to an implied condition that parties to the contract will be
excused from the performance of the contract if its performance becomes impossible for
reasons beyond the fault of the party to the contract. The essence of frustration is that it
should not be caused because of an act or election of the party claiming benefit of
frustration. In other words, the event leading to frustration must be outside or extraneous
to the control of the party. Meaning further that the frustration will not apply where the
event is intentionally caused by the conduct of any of the parties to the contract.
3.2 If a contract can be performed by more than one method, in that case, a contract
will not be frustrated only because one of the many methods of performance has become
impossible. It will be frustrated only when all the methods become impossible. Section 56
of the Contract Act, 1872, deals with impossibility of performance of a contract and states
that an agreement to do an impossible act in itself void. Thus, it envisages two types of
impossibilities. Impossibility existing at the time of making of contract, i.e. pre-contractual
or initial impossibility and impossibility arising after the formation of contract or subsequent
impossibility. Now, the impossibility existing at the time of making of an agreement can
again be of two kinds, (i) known to the parties and (ii) unknown to the parties. In situations
where it is known to the parties, it is known as absolute impossibility and the contract is
void abinitio.
Example
‘A’ agrees to put life in a dead body for ‘B’ if ‘B’ pays him Rs.10 lacs.
But when it is unknown to the parties at the time of making of contract then the
contract becomes void on the ground of mutual mistake.
Example
‘A’ agrees to sell his ship to ‘B’. But both ‘A’ and ‘B’ are unaware of the fact that at
the time when they are making this agreement, the ship is already lost in a voyage.
This contract is void on the ground of mutual mistake.
31
3.3 The subsequent impossibility of performance of a contract may be on account of any
of the following:
(1) Destruction of subject matter of contract: For instance – ‘A’ agrees to sell his
ship to ‘B’ for Rs.20 crore. Before the sale takes place, the ship meets with an
accident and is completely destroyed. This destruction of the ship discharges the
obligation of the parties to the contract. As in the case of Taylor v/s Cardwell,
discussed in preceding paragraph, the music hall was destroyed accidently before
the date of concert and that is why the contract was void.
Similarly, in case of death or personal incapacity of a party where performance of

the contract depends on the personal skill or qualification of that party, the
contract is frustrated on account of incapacity, death, and illness.
Example:
A Gazal Singer is engaged to perform at a concert. He is to be paid certain
amount of money. Before the date of concert, he falls seriously ill and cannot
perform. The artist, i.e. Gazal Singer, is discharged from his obligation to sing
due to illness and the contract is frustrated because of personal incapacity of
the singer.
(2) Change of law or legislative intervention: A contract is made between the

parties for sell of certain trees. The government issued an order prohibiting
cutting of trees in that area. The contract will be discharged on account of
frustration arising out of the change of law.
(3) Outbreak of war: Contracts made before the outbreak of war are declared void
on outbreak of war, when their performance becomes impossible. As an
alternative, they may also be suspended. If they are suspended they are required
to be performed after completion or termination of war.
(4) Non-existence of a particular even or thing: If a contract is made on the basis of

happening of a particular event and if that event becomes non-existent, the
contract also stands dissolved or discharged by frustration.
Example
A party books Hotel in a place where Olympic Games are to be held so that
they can watch the sporting events. However, before the date of event, the
Olympic Games venue is shifted. The room reservation done by the party
stand cancelled and contract discharged on account of frustration, provided
at the time of booking it was made known to the Hotel Owner that rooms are
being booked for this particular event.
However, impossibility of performance will not be accepted if it is arising out of-
(i) Difficulty of performance: An unexpected difficulty will not excuse

performance.
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Example
It is decided to transport the goods by ships from USA to India via Suez
Canal. Suez Canal is subsequently closed because of the war in that
region. The contract will not be frustrated. Because an alternate route via
Cape of Goodhope is still available to transport the goods. Performance
will not become impossible. Only difference that will occur now is that
the distance and the cost of transportation will increase. But this
difficulty in performance will not render the contract frustrated.
(ii) Commercial impossibility: ‘A’ agreed to lend his ship to ‘B’ at a

certain rate which increased manifold subsequently making it non-profitable
for him to supply the ship at the same agreed rate. This, however, will not
lead to discharge of contract by frustration.
(5) Strikes, lockouts and civil disturbances: If the frustrating event results from an
act of a third party, the contract is not considered frustrated. In other words,
unless it is agreed by the parties at the time of making of contract that such
situations will result in non-performance or frustration of contract, these
situations will not lead to discharge of contract by frustration.
Example
‘A’ agreed to sell to ‘B’ certain quantity of cotton goods to be manufactured
by a particular textile mill. ‘A’ could not meet his obligation because the mill
failed to produce the goods. The contract was not held as discharged but ‘B’
was entitled to recover the damages from ‘A’.
4.0 FAILURE OF ONE OF THE OBJECTS
4.1 When a contract is made for several objects than failure of anyone of those objects
will not result in discharge of contract on account of frustration. In H.B. Steamboat
Company v/s Hutton (1903) 2(KB) 683, H.B. Company agreed to let out a boat to Hutton (i)
for naval review on the occasion of coronation of Edward VII and (ii) to sail around the fleet.
Due to illness of the King, naval review was cancelled. But the fleet was assembled. The
boat could, therefore, still be used to sail around the fleet. It was held that contract was not
discharged by frustration.
5.0 SELF-INDUCED IMPOSSIBILITY:
5.1 If the contract is not performed because of an impossibility which has resulted from
the fault of the contracting party, the contract cannot be avoided.
Example
‘A’, an owner of inland vessel agreed to give his inland vessel on hire to ‘B’ after
renewing its licence. But he failed to apply for the renewal of the licence. He cannot
avoid the contract on the ground that his inland vessel does not have a valid licence.
This impossibility is self-induced.
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6.0 EFFECTS OF FRUSTRATION:
6.1 Following are the effects of frustration –
(i) Parties are excused from performing their respective obligations.

(ii) Any money or benefit paid before the frustration of contract is recoverable.
(iii) Money not paid need not be paid.
(iv) Compensation can be recovered for the work done by the party.
Example
‘A’ contracts to sing for ‘B’ at a concert for Rs.10,000/- which is paid by ‘B’ to ‘A’ in
advance. ‘A’ falls ill and cannot sing. ‘A’ is not bound to make compensation to ‘B’
for the loss of profit which ‘B’ might have earned if ‘A’ had been able to sing, but
must refund to ‘B’ Rs.10,000/- received by him in advance.
oooooooo
1. Explain the concepts of joint promisors and joint promises

2. What is anticipatory breach of contract? What is its effect?

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LESSON - 12
REMEDIES FOR BREACH OF CONTRACT
1.0 Following remedies are available to the party aggrieved by breach or non-
performance of contract:
1.1 Suit for rescission of the contract:
• The party affected by reach can bring an action in the court of law to set aside
the contract.
• When the court allows rescission, the aggrieved party (a) is free from his
obligation under the contract and (b) becomes entitled for compensation for the
loss suffered due to non-performance.
1.2 Suit for damages:
• When there is a breach of contract, the affected party can file a suit for damages.
Damages means monitory compensation for the loss suffered by the party. The
underlying principle is not punishment but compensation to the party which
suffered the loss. The objective behind awarding damages is to put an injured
party back in the same position in which it would have been if there was no
breach of contract.
1.3 Suit for quantum meruit:
• Quantum meruit means that much as is merited. In other words, it is payment in

proportion to the amount of work done. Benefit of quantum meruit can be
claimed in addition to claiming damages for breach.
1.4 Suit for specific performance:
• In some cases, it might so happen that damages or compensation in the form of

money is not an adequate remedy. In such cases, the court may direct specific
performance of the contract by the defaulting party. But specific performance
will not be allowed where the contract is for personal service or where damages
are adequate remedy.
1.5 Suit for injunction:
• Injunction is an order of the court restraining a person from doing a particular

act.
Example
‘A’ agreed to supply his ship to ‘B’ and to no one else. Afterwards, ‘A’ made a
contract with ‘C’ to supply his ship to ‘C’ and refused to supply it to ‘B’. ‘B’
brought an action against ‘A’ for breach. The court refused to order specific
35
performance of contract by ‘A’ but granted an injunction against ‘A’ to restrain
him from supplying his ship elsewhere.
ooooo
SELF-EXAMINATIONS QUESTIONS
1. What is the basic principle behind award of damages to the aggrieved party?
2. Discuss with reference to illustrations how the loss arising from a breach of contract
is estimated.
3. State and explain quoting relevant case law the rules governing the measure of
damages.
4. What do you understand by the terms "Penalty and Liquidated Damages"? Is there
any difference between the two terms?
5. Write notes on "quantum meruit" and "remoteness of damage."
6. Explain the principles laid down in Hadley v. Baxendale.

*****************
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ANNEX- 1
QUASI CONTRACTS
1.0 Quasi Contracts are based on the equitable doctrine of unjust enrichment. Equity will
not allow a person to be unjustly enriched over other.
2.0 Formation of a contract is absent but the result of a contract is present. Hence Quasi
contracts.
3.0 Types of Quasi contracts:
1. Supply of necessaries to incompetent person.

2. Payment by interested person.
3. Liability to pay for non-gratuitous act.
4. Finder of goods.
5. Payment or delivery under mistake or coercion.
ooooo
SELF-EXAMINATIONS QUESTIONS
1. Discuss the Quasi Contract relating to:
a. Payment by interested person.

b. Liability to pay for non-gratuitous act.
c. Payment or delivery under mistake or coercion.
*****************
37
CHAPATER - 3
• Contract of Indemnity and
• Contract of Guarantee
38
LESSON - 13
CONTRACT OF INDEMNITY
1.0 Before looking into the definition of contract of indemnity under the Contract Act,
let us look at the following illustration:
‘A’ was working as an auctioneer. He sold a ship on the instruction of ‘B’. After the
sale was complete, it was revealed that the ship did not belong to ‘B’ but belonged
to ‘C’. ‘C’ brought an action against ‘A’ for selling his ship in auction without his
permission. ‘A’ in turn brought an action against ‘B’ to make good the loss that ‘A’
suffered by acting on his instruction. It was held that ‘A’ had acted on the request of
‘B’ and he was, therefore, entitled in law to assume that if whatever he did as per
the instruction of ‘B’ turned out to be wrong, he would be saved harmless by ‘B’ on
whose instruction he has acted. This illustration is derived from Adamson v/s Jarvis
(1827)4 BING 66:5LJ (0S)(CB)68:29 RR 503.
1.1 Now in this backdrop, let us look at Section 124 of the Contract Act which defines
indemnity as under:
“A contract by which one party promises to save the other from loss caused to him
by the conduct of the promisor himself or by the conduct of any other person is
called a Contract of Indemnity.”
1.2 The points to understand from this definition are –
(i) Indemnity is a contact. Hence, in order to be enforceable in law, it must meet

all the requirements of a valid contract, which we have seen in chapter one,
that is, the parties must be competent to contract, there consent must be
free, object and consideration of the contract must be lawful, etc.
(ii) It is a promise to save the other from loss caused by the conduct of promisor
or of any other person. This means that loss must arise out of the human
conduct only. The loss caused on account of a natural calamity is not
covered.
(iii) The promise is to save the other from the loss. This means that if there is no
loss, the promise will not be put into effect.
1.3 The person who promises to save the other from the loss is the person who is giving
the indemnity and is called indemnifier. The person to whom this promise is made or to
whom the indemnity is given is called Indemnity Holder.
1.4 Now assume for a moment that the person holding indemnity has suffered a loss.
This loss is caused by human conduct. The contract was a valid contract of indemnity and is
enforceable through Court of Law. What all can be recovered by this indemnity holder from
the indemnifier in such a situation is defined under Section 125 of the Contract Act and is as
under:
39
(1) All damages that he may be compelled to pay in respect of any matter to
which the promise of indemnity applies.
(2) All the costs incurred by him in defending the claim, provided he is acting, as
he would have acted if there were no indemnity, i.e. like a prudent person,
and provided further that he did not go against the order of the indemnifier
or if the indemnifier authorized him to bring or defend the suit.
(3) All sums which he may have paid by way of compromising the suit. Provided
that the compromise made was not against the order of the indemnifier and
was of a type, which anybody else also would have made as a prudent
person, if there were no indemnity?
1.5 One finer point that needs to be understood in this concept of indemnity is when is
the indemnity holder entitled in law to recover the loss suffered by him from the
indemnifier? The original rule was that the indemnity holder is entitled to recover the loss
only after he has actually suffered the loss by paying out the claim and not before that. This
was based on a common understanding that one can bring an action to make good the loss
only if one has actually suffered the loss and not before that. But, in practical situation, this
rule needed certain amendment in application.
1.6 Suppose for instance, a case is filed in the Court of Law against the indemnity holder
then going by general rule indemnity holder will have to wait for the case to complete and
at the end if a claim is awarded, he will have to first pay the amount claimed and then only
he can bring an action against indemnifier or ask for recovery of his loss from the
indemnifier. However, this will cause an avoidable burden on the indemnity holder. He may
not be in a position to pay the claim determined against him by the Court of Law and,
therefore, may not be able to bring an action against the indemnifier. At this point, the rule
of equity is followed by the Court. In the case of Gajanan Moreshwar v/s Moreshwar Madan
AIR 1942 BOM 302 At B 304, the Courts of Equity held that if the liability of the indemnity
holder had become absolute then he was entitled either to get the indemnifier to pay off
the claim or to pay into Court sufficient money which would constitute a fund for paying of
the claim, whenever it was made.
1. Define the term "indemnity". Explain with an illustration. What are the rights of an
indemnity holder
2. Write a note on the essentials of an indemnity contract. Substantiate your answer with
necessary illustrations.
3. Say true or false. If false, give correct answers:
(a) A contract of indemnity is not a contingent contract.
(b) The indemnity-holder need not suffer an actual loss before he can be entitled to
recover the amount indemnified by the indemnifier.
(c) Contract of indemnity may be implied.
(d) In a contract of indemnity, loss may be caused by human or natural factor
(e) A contract of indemnity must possess all ingredients of a contract

40
LESSON - 14
CONTRACT OF GUARANTEE
1.0 What is a Contract of Guarantee and who are the people involved in this contract is
defined under Section 126 of the Contract Act as under:
126. "Contract of guarantee", "surety", "principal debtor" and "creditor" – A

‘contract of guarantee’ is a contract to perform the promise, or discharge the liability
of a third person in case of his default. The person who gives the guarantee is called
the ‘surety’; the person in respect of whose default the guarantee is given is called
the ‘principal debtor’, and the person to whom the guarantee is given is called the
‘creditor’. A guarantee may be either oral or written.
1.1 As can be seen from the above definition, in a contract of guarantee, there are three
parties - (i) one who gives a guarantee, i.e., Surety, (ii) person for whom the guarantee is
given, i.e., Principal Debtor, and (iii) person to whom the guarantee is given, i.e., the
Creditor. Thus, Contract of Guarantee is a Tripartite Privity.
1.2 Guarantee is a conditional promise made by the surety to the creditor, which
becomes operational only in the event of default by the Principal Debtor. In other words,
any liability which is not arising out of the default of Principal Debtor is not guarantee. As
you know by now, every contract need to be supported by some consideration.
1.3 In case of guarantee, what is the consideration for the surety is defined under
Section 127 of the Contract Act as under:
127. Consideration for guarantee - Anything done, or any promise made, for the
benefit of the principal debtor, may be a sufficient consideration to the surety for
giving the guarantee.
Illustrations
(a) ‘B’ requests ‘A’ to sell and deliver to him goods on credit. ‘A’ agrees to do so,
provided ‘C’ will guarantee the payment of the price of the goods. ‘C’ promises to
guarantee the payment in consideration of ‘A's promise to deliver the goods. This is
a sufficient consideration for ‘C's promise.
(b) ‘A’ sells and delivers goods to ‘B’. ‘C’ afterwards requests ‘A’ to forbear to sue ‘B’
for the debt for a year, and promises that, if he does so, ‘C’ will pay for them in
default of payment by ‘B’. ‘A’’ agrees to forbear as requested. This is a sufficient
consideration for C's promise.
(c) ‘A’ sells and delivers goods to ‘B’. ‘A’ afterwards, without consideration, agrees to
pay for them in default of ‘B’. The agreement is void.
1.4 Thus, there is no direct consideration between the surety and the creditor. What is
done by Creditor for the Principal Debtor is considered as a consideration for surety.
41
2.0 Extent of surety’s liability:
2.1 As per Section 128 of the Contract Act, surety’s liability is co-extensive with that of
the Principal Debtor, unless it is otherwise provided by the contract. What is meant by co-
extensive? It means that it is to the same extent as that of the Principal Debtor. So,
whatever amount the Principal Debtor is liable for, in case of a default by the Principal
Debtor same amount, the surety is also liable for. This may include any outstanding interest
and other charges that have become due.
3.0 Co-Surety:
3.1 There could be a situation in a contract where there are more than one surety. Such
additional sureties are called co-surety. If a surety is giving guarantee mentioning it
specifically that the Creditor shall not act upon this surety unless another person has joined
as co-surety, in such cases, guarantee does not become valid, if the other person does not
join. This indicates that surety has a right to limit his liability in a contract of guarantee.
4.0 Continuing Guarantee:

4.1 There is one more concept called ‘Continuing Guarantee’, which means a guarantee
which extends to a series of transactions. In other words, guarantee given for a single
specific transaction will come to an end once the liability associated with that transaction is
discharged, but a continuing guarantee will continue to remain in force for more than one
transaction unless the defined period or the defined limit of guarantee or surety is attained.
5.0 Discharge of surety from liability:

5.1 Following are the situations in which the surety will stand discharged from his
liability under the contract –
(i) By revocation:
Generally, a guarantee once acted upon cannot be revoked but in case of
continuing guarantee, the same can be revoked by the surety in respect of
future transactions by giving a notice to the Creditor. As per Section 130,
continuing guarantee may at any time be revoked by the surety, as to future
transactions, by notice to the creditor.
Illustrations
(a) ‘A’, in consideration of ‘B's discounting, at, ‘A's request, bills of exchange
for ‘C’, guarantees to ‘B’, for twelve months, the due payment of all such bills
to the extent of 5,000 rupees. ‘B’ discounts bills for ‘C’ to the extent of 2,000
rupees. Afterwards, at the end of three months, A revokes the guarantee.
This revocation discharges ‘A’ from all liability to ‘B’ for any subsequent
discount. But ‘A’ is liable to ‘B’ for the 2, 000 rupees, on default of ‘C’.
(b) A guarantees to ‘B’, to the extent of 10,000 rupees, that ‘C’ shall pay all
the bills that ‘B’ shall draw upon him. ‘B’ draws upon ‘C’, ‘C’ accepts the bill.
‘A’ gives notice of revocation. ‘C’ dishonors the bill at maturity, ‘A’ is liable
upon his guarantee.
(ii) By death of surety:

Death of the surety in absence of any contract to the contrary revokes a
continuing guarantee as far as future transactions are concerned. However,
for the liability already incurred, sureties’ heirs and legal representatives can
be held liable.
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(iii) By variance:
If any change is made in the terms of contract between the Principal Debtor
and the Creditor without taking the consent of the surety, the surety will be
discharged from his liability with reference to transactions subsequent to
such change or variance.
(iv) Release or discharge of Principal Debtor:

If either by a contract or by any act or omission of the Creditor, Principal
Debtor is released of his responsibility or liability, the surety will also stand
discharged or released.
Example
There is a contract for construction of a building. Performance of this
contract is guaranteed by surety and one of the conditions is that the
Creditor has to supply the building material. If the Creditor fails to supply the
building material, this will amount to an omission on his part and it would
discharge the contractor of his liability of constructing the building and
consequently the surety will also stand discharged.
(v) Composition, extension of time and promise not to sue:

According to Section 135 of The Indian Contract Act, 1872 – “A contract
between the creditor and the principal debtor, by which the creditor makes a
composition with, or promises to give time to, or not to sue, the principal
debtor, discharges the surety, unless the surety assents to such contract.”
As is seen from the above definition, a surety stands discharged in following

three situations:
(1) Composition – If Creditor makes a composition with Principal Debtor.
(2) Promise to give time – If the Creditor agrees to give more time to the
Principal Debtor without taking the consent of the surety.
(3) Promise not to sue – If the Creditor makes an agreement with the
Principal Debtor promising him not to sue.
(vi) By impairing surety’s remedy:
Discharge of surety by creditor's act or omission impairing surety's eventual

remedy
If the creditor does any act which is inconsistent with the right of the surety,
or omits to do any act which his duty to the surety requires him to do, and
the eventual remedy of the surety himself against the principal debtor is
thereby impaired, the surety is discharged.
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Illustrations
(a) B contracts to build a ship for C for a given sum, to be paid by installments
as the work reaches certain stages. A becomes surety to C for B's due
performance of the contract. C, without the knowledge of A, prepays to B the
last two installments. A is discharged by the prepayment.
(b) C lends money to B on the security of a joint and several promissory note
made in C's favor by B, and by A as surety for B, together with a Bill of Sale of
B's furniture, which gives power to C to sell the furniture, and apply the
proceeds in discharge of the note. Subsequently, C sells the furniture, but,
owning to has misconduct and willful negligence, only a small price is
realized. A is discharged from liability on the note.
(c) A puts M as apprentice to B, and gives a guarantee to B for M's fidelity B

promises to his part that he will at least once a month, see that M make up
the cash. B omits to see this done as promised, and M embezzles. A is not
liable to be on his guarantee.
6.0 Rights of surety:

6.1 A surety has rights against the Principal Debtor, against the Creditor and against the
Co-sureties.
6.2 Rights against Principal Debtor – A surety has two rights against the Principal Debtor
(1) Right of Subrogation and (2) Right to indemnity.
(1) Subrogation:
As per Section 140 in the Indian Contract Act, 1872, where a guaranteed debt
has become due, or default of the principal debtor to perform a guaranteed
duty has taken place, the surety upon payment or performance of all that he is
liable for, is invested with all the rights which the creditor had against the
principal debtor.
In other words, this means that the surety in such situation will step into the
shoes of Creditor i.e. he can bring a legal action against the Principal Debtor to
obtain from him all the loss that he has sustained on account of default of
Principal Debtor.
(1) Right to indemnity:

As per Section 145 in the Contract Act, 1872, in every contract of guarantee
there is an implied promise by the principal debtor to indemnify the surety,
and the surety is entitled to recover from the principal debtor whatever sum
he has rightfully paid under the guarantee, but no sums which he has paid
wrongfully.
Illustrations
(a) ‘B’ is indebted to ‘C’, and ‘A’ is surety for the debt. ‘C’ demands payment
from ‘A’, and on his refusal sues him for the amount. ‘A’ defends the suit,
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having reasonable grounds for doing so, but he is compelled to pay the
amount of the debt with costs. He can recover from ‘B’ the amount paid by
him as costs, as well as the principal debt.
(b) ‘A’ guarantees to ‘C’, to the extent of 2,000 rupees, payment for rice to be
supplied by ‘C’ to ‘B’. ‘C’ supplies to ‘B’ rice to a less amount than 2,000
rupees, but obtains from ‘A’ payment of the sum of 2,000 rupees in respect
of the rice supplied. ‘A’ cannot recover from B more than the price of the rice
actually supplied.
6.3 In a contract of guarantee, there is an express contract between Creditor and the
Principal Debtor and between the Creditor and the Surety. Besides this, there is an implied
contract between the Surety and the Principal Debtor by which the Surety is entitled to
recover from the Principal Debtor whatever sum he has rightfully paid under the guarantee.
7.0 Rights against the Creditor:

7.1 Right to securities - Section 141 defines the right of surety against creditor as under:
Surety's right to benefit of creditor's securities - A surety is entitled to the benefit of

every security which the creditor has against the principal debtor at the time when
the contract of suretyship entered into, whether the surety knows of the existence
of such security or not; and if the creditor loses, or without the consent of the
existence of such security or not; and if the creditor loses, or without the consent of
the surety, parts with such security, the surety is discharged to the extent of the
value of the security.
Illustrations
(a) ‘C’ advances to ‘B’, his tenant, 2,000 rupees on the guarantee of ‘A’. ‘C’ has also
further security for the 2,000 rupees by a mortgage of ‘B's furniture. ‘C’, cancels the
mortgage. ‘B’ becomes insolvent and ‘C’ sues ‘A’ on his guarantee. ‘A’ is discharged
from liability equal to the amount of the value of the furniture.
(b) C, a creditor, whose advance to ‘B' is secured by a decree, receives also a

guarantee for that advance from A. C afterwards takes B's goods in execution of
decree, and then, without the knowledge of A, withdraws the execution. A is
discharged.
7.2 This is basically based on a premise that surety is entitled in law to every remedy
which the creditor had against the principal debtor. Because, as we have seen earlier, on
paying to the Creditor, the surety steps into the shoes of Principal Debtor and therefore, he
should have all those securities, which are available with the Creditor against Principal
Debtor with him.
8.0 Right against co-sureties:

8.1 Effect of releasing a surety:
A Creditor may decide to release any of the co-sureties from his liability. However,
the released co-surety will still remain liable to other sureties in case of default.
45
8.2 Right to contribution:
(1)Co-surety is liable to contribute equally
In case of default by the Principal Debtor, the co-sureties are liable between
themselves to pay equal share of the whole debt or that part of it, which has
remained unpaid by the Principal Debtor. So, if there are 3 sureties for a
sum of Rs.30,000 and the Principal Debtor has defaulted, each one of them
will pay Rs.10,000. However, in case where co-sureties are bound in
different sums, they are liable to pay equally as far as the limits of their
respective obligation permits. So if for a sum of Rs.60,000 taken by Principal
Debtor there are three sureties ‘A’, ‘B’ and ‘C’ and’ A’s limit is Rs,10,000, ‘B’s
Rs.20,000 and ‘C’s limit is Rs.30,000 then if the Principal Debtor has
defaulted for Rs.40,000, ‘A’ is liable to pay Rs.10,000, ‘B’ and ‘C’ 15,000
each.
9.0 Distinction between indemnity and guarantee:

Criteria Indemnity Guarantee
1. Nature of liability Contingent – may or Subsisting, Activated on
may not arise default of Principal Debtor
2. Type of Liability Primary Secondary
3. No. of Parties Two Three
4. No. of Contract One Three
1. Define and illustrate a contract of guarantee and distinguish it from indemnity.
2. Define the words "surety", "principal debtor" and "creditor" in a contract of guarantee.
3. "Tripartite privity is a must to every contract of guarantee." Explain and support your
answer with illustrations.
4. Discuss in brief the characteristics of a contract of guarantee.
5. What are the different rights a surety has against the creditor and the principal debtor?
6. Discuss: "Liability of a surety is co-extensive with that of the principal debtor, unless it is
otherwise provided by the contract."
7. Explain the nature of the surety's liabilities.
8. Can a variance in the terms of the contract of guarantee discharge the responsibilities
of a surety?
9. Write a short note on "modes of discharge of a surety."
10. Discuss the effect of act or omission on the part of the creditor releasing the principal
debtor.
11. Comment on "Mere forbearance on the part of the creditor to sue the principal debtor
does not discharge the responsibilities of the surety."
12. Write short notes on:
(a) Misrepresentation of a material fact by the creditor.
(b) Variance in the terms of the contract.
(c) Surety's rights against co-sureties.
******************
46
CHAPTER - 4
• Bailment & Pledge
47
LESSON - 15
BAILMENT
1.0 Bailment is defined under Section 148 of the Contract Act as under:
"Bailment", "bailor" and "bailee" defined - A "bailment" is the delivery of goods by

one person to another for some purpose, upon a contract that they shall, when the
purpose is accomplished, be returned or otherwise disposed of according to the
directions of the person delivering them.
1.1 The person delivering the goods is called the "bailor". The person to whom they are
delivered is called the "bailee".
Explanation: If a person already in possession of the goods of another contract to

hold them as a bailee, he thereby becomes the bailee, and the owner becomes the
bailor of such goods, although they may not have been delivered by way of bailment.
1.2 An important thing to note in the above definition is that in this arrangement
personal property of one person temporarily goes into the possession of another without
there being any change in the ownership of that property.
Example
When you want to stitch a suit and deliver the material i.e. cloth to the tailor, the
arrangement by which you are handing over your cloth to the tailor is bailment,
wherein you are a bailor and the tailor is a bailee.
1.3 Handing over of goods by a shipper to a freight forwarder or to a carrier or delivery

of goods by the carrier to the port for onward delivery to person holding Bill of Lading are
some examples of bailment in maritime trade.
2.0 Some important characteristics of the contract of bailment are as under:

2.1 Delivery of possession: For the bailment to come into effect, it is necessary that the
goods are handed over to the bailee. The delivery can be of two kinds. It can be (1) an
actual delivery or (2) a constructive delivery. When physical possession of the goods is
given, it is called actual delivery. Whereas, if something is done effect of which is to put
bailee in possession of the goods such as handing over Bill of Lading to bailee, it amounts to
constructive delivery.
2.2 Delivery/Contract: As indicated in the definition goods should have been delivered
for some purpose, pursuant to a contract. This precisely means that if there is no contract,
bailment will not come into existence. However, there have been certain decisions in the
court of law where this concept was overruled.
Example
In State of Gujarat v/s Memon Mohomed AIR 1967 SC 1885, a motor vehicle and
other goods were seized by the Sea Customs and were not taken proper care of by
the authority. In the action brought by the owner, the authorities took a stand that
48
the arrangement was not bailment and there was no obligation to take care as there
was no contract. However, this view was not upheld.
Similarly, in shipping where ship brings goods and leave them in the port for onward
delivery to the consignee, a relationship of bailor and bailee comes into existence and the
port is regarded as a bailee of the goods notwithstanding that there may not be a contract
every time.
2.3 Delivery on purpose: In the arrangement of bailment the delivery of the goods is
given by the bailor to the bailee for a specific purpose and after accomplishment of the
purpose, the goods are either to return to the bailor or disposed of as per the direction of
the bailor.
3.0 Types of Bailment:

3.1 There are two types of bailment – (1) Gratuitous Bailment and (2) Non-gratuitous
bailment or bailment for reward.
(a) An arrangement where a person gives his goods without any charge, it is
called Gratuitous Bailment. For instance, you as a student, give your notes at
the time of examination to your friend for reading and returning to you after
reading and do not charge anything for it. This amounts to Gratuitous
Bailment.
(b) A Non-gratuitous Bailment or bailment for reward is one where the bailor is
receiving something in return of bailment of his goods to the bailee.
Example
If you lend your car to your friend for a tour and return it after the tour and
ask your friend to pay for this, the arrangement is non-gratuitous bailment.
4.0 Duty of bailor:

4.1 Section 150 of the Contract Act defines bailor’s duty as under:
“The bailor is bound to disclose to the bailee faults in the goods bailed, of which the
bailor is aware, and which materially interfere with the use of them, or expose the
bailee to extraordinary risk; and if he does not make such disclosure, he is
responsible for damage arising to the bailee directly from such faults.
If such goods are bailed for hire, the bailor is responsible for such damage, whether
he was or was not aware of the existence of such faults in the goods bailed.”
Illustrations
(a) ‘A’ lends a horse, which he knows to be vicious, to ‘B’. He does not disclose the
fact that the horse is vicious. The horse runs away. ‘B’ is thrown and injured, ‘A’ is
responsible to ‘B’ for damage sustained.
(b) ‘A’ hires a carriage of ‘B’. The carriage is unsafe, though ‘B’ is not aware of it, and
‘A’ is injured. ‘B’ is responsible to ‘A’ for the injury.
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4.2 As can be seen from the above, there is a difference in the extent of duty of bailor in
case of gratuitous and non-gratuitous bailment. In case of gratuitous bailment, it is the duty
of the bailor to inform the bailee of the faults in the goods bailed, provided he himself is
aware of the fault.
Example
If you give your car to your friend for use for a day without any charge and you are
not aware that the brakes of the car are not working. Consequently, you did not
inform your friend about it. You have not committed any breach of duty. Whereas, if
you knew about it, it was your duty to disclose it. But in case of non-gratuitous
bailment, since the bailor is making money out of the bailment, it is his responsibility
to exercise due diligence and examine the goods before giving it to the bailee and
ensure that they are free from defects.
4.3 For example, when a ship is hired, it is the responsibility of the shipowner to ensure
that due diligence is exercised and seaworthyship is made available to the charterer. If he
fails to do so, and if it any loss is suffered by the charterer on account of unseaworthiness of
the ship, it will be the responsibility of the shipowner to make good the loss.
5.0 Duties of Bailee

5.1 Duty of reasonable care: In terms of Section 151 of the contract Act -
“In all cases of bailment the bailee is bound to take as much care of the goods bailed
to him as a man of ordinary prudence would, under similar circumstances, take of his
own goods of the same bulk, quantity and value as the goods bailed.”
5.1.1 Thus, if the bailee has taken care of the goods upto the requirements stated above,
he will not be liable for any loss or damage to the goods. But if he is deficient in taking care
of the goods, he will be liable to that extent. It is the responsibility of the bailee to show
that he was exercising reasonable care.
5.2 Duty not to make unauthorized use: Bailee is expected to strictly use the goods for
the purpose for which they have been given to him. If he uses the goods for the purpose
other than the purpose for which it is given, the contract of bailment becomes avoidable at
the option of the bailee.
For instance, ‘A’ gives his ship to ‘B’ for use in a defined geographical area. ‘B’
starts using the ship beyond the area defined. It will be at the option of ‘A’,
whether to terminate the bailment arrangement.
5.3 Duty not to mix: A bailee is expected to take proper care in storage of goods. He is
not expected to mix the goods of the bailor with his own goods. If he does that he is bound
to bear all the expenditure that is incurred in separating the goods. He will also have to
bear any other expenditure associated with that including damage to the goods on account
of this mixing and separation. Furthermore, in cases where the goods are mixed and mixing
is of such a nature that bailor’s goods cannot not be separated from bailee’s goods, the
bailee will be required to compensate the bailor for the loss of goods.
50
Example
‘A’ bails a barrel of coconut oil worth Rs.80 a litre to ‘B”. ‘B’ without asking ‘A’ mixes
this oil with his own stock of coconut oil worth Rs.40 a litre. ‘B’ must compensate ‘A’
for the loss of his oil.
5.4 Duty to return: Once the time for which goods have been bailed has expired or the
purpose for which the goods were given is accomplished, it is the responsibility of the bailee
to return the goods to the bailor without waiting for any demand from the bailor. If the
bailee fails to do so and continue to remain in possession of the goods of the bailor, he will
keep custody of the goods at his risk and will be responsible for any loss or any damage to
the goods arising howsoever.
5.5 Duty not to set up adverse title: A bailee is not allowed to set up a title in favour of
third party in respect of bailor’s goods. Even if any other person is claiming the ownership
to the goods that have been bailed to the bailee he is expected to return the goods only to
the bailor and this will be without any risk or action against him in law for conversion by that
third person who was claiming to be the owner.
5.6 Duty to return increase: If there is any profit earned from the goods that have been
bailed, the bailee is bound to give this increase or profit to the bailor or as per the bailor’s
direction, provided there is no contract to the contrary.
For instance, ‘A’ leaves a cow in custody of ‘B’. The cow gives birth to a calf. ‘B’
is bound to deliver the calf as well as the cow to ‘A’.
6.0 Rights of bailee:

6.1 Right to compensation: In terms of Section 164 of Contract Act, if the bailee is
subjected to some loss for the reason that the bailor had no right to bail the goods or to give
direction respecting those goods, the bailor is responsible to compensate the bailee of the
loss.
6.2 Right to necessary expenses or remuneration: In a bailment arrangement of non-

gratuitous nature, a bailee is entitled to recover his agreed charges from the bailor. But in
all such cases where there is no such arrangement of reward, the bailee is entitled in terms
of Section 158 of the Contract Act for repayment of necessary expenditure by the bailor.
158. Repayment, by bailor, of necessary expenses – “Where, by the conditions of the

bailment, the goods are to be kept or to be carried, or to have work done upon them
by the bailee for the bailor, and the bailee is to receive no remuneration, the bailors
shall repay to the bailee the necessary expenses incurred by him for the purpose of
the bailment.”
6.3 Right of lien: If the bailor has not paid to the bailee all his lawful charges, bailee is
entitled under Section 170 of the Contract Act to retain the goods until payment of charges.
This process of retention of goods is also known as lien. Under Section 170 and 171 of the
Contract Act, a lien can be a ‘particular lien’ or a ‘general lien’.
51
SELF- EXAMINATION QUESTIONS
1. Discuss the concept of bailment.
2. State the essential features of bailment.
3. Briefly enumerate the duties of the bailor and the bailee.
4. What is possessory lien? Explain briefly the law of lien contained in the Indian Contract Act.
5. Under what circumstances can the bailee retain the goods?

(a) Reasonable care of the goods bailed.
(b) Disclosure of faults in the goods bailed.
(c) Distinction between general and particular lien.

(Chapter 18 of the text-book, Pages 209-226).
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52
LESSON - 16
PLEDGE
1.0 The concept of pledge is defined under Section 172 of the Contract Act as under:
“The bailment of goods as security for payment of a debt or performance of a

promise is called pledge”. As can be seen from the above definition, pledge basically
is a kind of bailment. However, in case of pledge, the temporary transfer of the
property by the bailor is to provide some sort of security for the loan taken or for
fulfillment of some obligation taken. The bailor in this case is called ‘Pawnor’ and
the bailee is called the ‘Pawnee’.”
1.1 Who can pledge: Ordinarily, goods can be pledged by a person who is the owner of
the goods. In other words, pledge cannot be made by a person who is not the owner. A
pledge made by any person other than the owner of the goods may not be a valid pledge. In
Biddomoy Dabee v/s Sittaram ILR 4 CAL 497, a servant, when his owner had gone out,
pledged the owner’s goods. The pledge was held to be invalid.
1.2 However, under the Contract Act, pledge made by a person other than the owner of
the goods with the consent of the owner is considered as valid pledge.
Section 178 deals with Pledge by mercantile agent and provides that “Where a
mercantile agent is, with the consent of the owner, in possession of goods or the
document of title to goods, any pledge made by him, when acting in the ordinary
course of business of a mercantile agent, shall be as valid as if he were expressly
authorized by the owner of the goods to make the same; provided that the pawnee
acts in good faith and has not at the time of the pledge notice that the pawnor has
no authority to pledge. Explanation. In this section, the expressions ‘mercantile
agent’ and ‘documents of title’ shall have the meanings assigned to them in the
Indian Sale of Goods Act, 1930.”
2.0 ESSENTIALS OF PLEDGE:

2.1 Delivery of possession: For a pledge to be valid, it is necessary that the property
pledged is delivered by the ‘Pawner’ to the ‘Pawnee’. There can be no valid pledge, if there
is no actual transfer of possession of goods or property.
In Lallan Prasad v/s Rehmat Ali AIR 1967 SC 1322 at page 1325(1967) 2SCR 233 –
Producer of a film borrowed money from the financier and agreed to deliver the
financier the final prints of his film when it is made. The agreement was not held
as a pledge because the film in fact was not yet ready and there was no actual
delivery of the possession.
2.1.1 The delivery of possession can be of two types. It can be (i) an actual delivery of
goods or (ii) a constructive delivery of goods. For instance, delivery of a document of a title
like a Bill of Lading, which will allow the pledgee to obtain the possession of goods will
amount to constructive delivery.
2.2 Pledge by hypothecation: A valid pledge can be created by way of hypothecation as

well. Hypothecation means the goods pledged are allowed to remain in the custody of the
pledger. In Bank of Chittod v/s Narsimbulu 1965 SCC Online AP 17 AIR 1966 AP 163, a
cinema projector was pledged with a bank. Bank permitted the pledger to continue with
the possession of the cinema projector because it was a necessary equipment for running of
the cinema. Afterwards, the pledger sold the cinema projector. It was held that this sale
53
was subject to pledge. Decision in this case demonstrates that sometimes even if the goods
are allowed to remain in the custody of the pledger, pledge is still valid.
3.0 Rights of Pawnee:

3.1 Right to retain the goods: Section 173 of Contract Act provides that -
“The pawnee may retain the goods pledged, not only for payment of the debt or
the performance of the promise, but for the interests of the debt, and all
necessary expenses incurred by him in respect of the possession or for the
preservation of the goods pledged.” Further Section 174 provides that –
“The pawnee shall not, in the absence of a contract to that effect, retain the
goods pledged for any debt or promise other than the debt or promise for which
they are pledged; but such contract, in the absence of anything to the contrary,
shall be presumed in regard to subsequent advances made by the pawnee.”
From the above definitions, two important things to be noted are (1) Pawnee has a right to
retain the goods till payment of all of his outstanding dues by the pawnor including interest
due as on date and all other necessary expenditure that might have been incurred by him in
respect of goods pledged. (2) Unless it is specifically agreed, the goods will be retained by
the pledgee only in lieu of that loan or debt for which the goods have been pledged and not
in lieu of any other promise, loan or debt. However, after creating a valid pledge if further
advance is given by the pledger to the pledgee without asking for any other additional
security for such an advance, a contract to cover the advance by the goods pledged earlier
will be presumed in law.
3.2 Right to extraordinary expenses: This right is defined under Section 175 of the
Contract Act as under:
“The pawnee is entitled to receive from the pawnor extraordinary expenses incurred
by him for the preservation of the goods pledged.”
3.3 Right of Sale: In cases where the pawnor makes default in repayment of the debt,
pawnee is entitled in law to effect sale of the goods pledged. This right of sale is defined
under Section 176 of Contract Act as under :
“If the pawnor makes default in payment of the debt, or performance, at the
stipulated time, of the promise, in respect of which the goods were pledged, the
pawnee may bring a suit against the pawnor upon the debt or promise, and retain
the goods pledged as a collateral security; or he may sell the thing pledged, on giving
the pawnor reasonable notice of the sale.
If the proceeds of such sale are less than the amount due in respect of the debt or
promise, the pawnor is still liable to pay the balance. If the proceeds of the sale are
greater than the amount so due, the pawnee shall pay over the surplus to the
pawnor.”
3.3.1 As can be seen from the above, under Section 176, there are two rights that are
available to pawnee –
(1) He can bring an action in the Court of law against the pawnor for recovery of the
debt and pending decision of the court can hold the property with him as security till
54
the money is recovered. However, once the money is recovered, the pawnee has to
surrender the goods to the pawnor; and
(2) Pawnee may sale the goods of the pawnor albeit after giving him a reasonable
notice of sale. Requirement to issue a notice is a statutory requirement, meaning
that it cannot be done away with by a contract. Also, the important point to be
noted here is that the notice is not only a notice but a reasonable notice. This means
that, from the time of notice to the actual sale, there should be enough time
available to the pawnor to pay any amount that is due within the time mentioned in
the notice.
4.0 Pawnor’s right to redeem:

4.1 Section 177 of the Contract Act defines pawnor’s right to redeem as under:
“If a time is stipulated for the payment of the debt, or performance of the promise,
for which the pledge is made, and the pawnor makes default in payment of the debt
or performance of the promise at the stipulated time, he may redeem the goods
pledged at any subsequent time before the actual sale of them; but he must, in that
case, pay, in addition, any expenses which have arisen from his default.”
4.2 Under the law, pawnor has a clear right to redeem the property which he has
pledged once the amount has been paid to the pawnee for which the goods have been
pledged. Even in a case where notice of sale is received by the pawnor from the pawnee
and the date mentioned in the notice is over, payment can be made and goods can be
recovered until actual sale is affected.
4.3 In the field of shipping when the Master of a vessel is in urgent need of money, to
carry out some urgent repairs to the ship to complete the voyage successfully and it is not
possible for him to contact the vessel owner, the Master may pledge; either the ship, or the
goods on board the ship or both and raise temporary loan to meet the emergency
expenditure by giving a constructive delivery of either the ship or the goods or both. This
kind of loan arranged by the Master is referred to as Bottomry’, if it is against the ship and
‘Respondetia’, if it is against the cargo. This system was in vogue until advent of maritime
insurance. Such advances usually carried higher rate of interest for the reason that advance
taken was returnable only subject to successful completion of voyage. That is, if the loan is
secured by pledging the ship and in the subsequent spell of the voyage if the ship is lost
before reaching the destination, right of pledgee to recover the money is lost. Hence, given
the higher risk involved in such kind of loans the rate of interest was higher.
1. Define Pledge
2. Explain Bottomry and Respondentia Bonds
13. The Law of Contract : An Outline - Dr. Nilima Chandiramani.

(Chapter 19 of the text-book, Pages 227-237).
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55
CHAPTER - 5
• Law of Agency
56
LESSON - 17
AGENCY
1.0 Who is an Agent?
1.1 As defined in Section 182 of the Contract Act, 1872, an Agent is a person employed
to do any act for another or to represent another in dealing with third person. The person
for whom such act is done or the person who is represented is called the ‘Principal’. This
however, does not mean that every person who acts for another is an agent. Basically, to be
an agent, one has to have the authority to act on behalf of Principal to create contractual
relations between that Principal and a third party. As against this, a domestic servant
working for a master or labourer working in the field though act for another is not an agent.
2.0 Essentials of Agency:
2.1 Who may employ agent: Any person who is of age of majority and is of sound mind
can employ an agent.
2.2 Who may be an Agent: Between the Principal and the third person, anybody can
become an agent. But no person who is not of major age and not of sound mind can
become an agent to bind his Principal of the contractual relationship, which he creates. In
other words, a minor can become an agent but then he will not be responsible to his
principal.
2.3 Consideration not necessary: A person who is appointed as an agent is usually paid a
commission at the end of his job. Hence, it is not necessary that at the time of entering into
a contract of agency, the agent is paid consideration by the principal.
3.0 Creation of Agency: The relationship between the principal and agent can be created
in any of the following ways:
3.1 Express appointment: Any person of age of majority and sound mind can appoint an
agent by a contract. The contract may be oral or written.
3.2 By the conduct or situation of the parties: This is also called as implied agency.
When by his conduct, a person places another in a situation in which that another is
understood to be representing him, he becomes an implied agent. Another example of
implied agency is creation of agency by holding out or stopple. This means that if a principal
has placed another person in such a situation that any third person of ordinary prudence
justifiably presumes that that third person has the authority to perform a particular act on
behalf of that person and therefore, deals with that person as an agent then the principal is
estopped from denying what has been done by his agent.
In Pickering v/s Busk 1812 KB 15:13RR 364:15 East 38, a purchaser of ham purchased
it through a broker. He allowed it to remain with the broker for a long time.
Ordinary business of the broker was to buy and sell ham and hence he sold the ham
for consideration. It was held that this sale though not directed by the principal was
binding on the principal. This was essentially so for the reason that a broker is
57
generally considered to be a person dealing on behalf of principal by any ordinary
person of ordinary prudence.
3.3 By necessity of the case: Some times in case of extreme emergencies, it may so
happens that an agent assumes extraordinary power on behalf of principal and without the
knowledge of the principal enters into acts to protect principal’s interest. In such cases,
agency by necessity will be created. This is one of the most common examples of creation
of agency in maritime trade. Sometimes, it may so happen that in an unforeseen
emergency in deep sea, the Master of the vessel is not in a position to contact the owner of
the ship and therefore, in a situation when maritime adventure is threatened, he may
decide to sell the goods for price to save their value. Now, this sell will bind the cargo
owner. The Master at this juncture has acted as an agent out of necessity. However, one
thing which is important to be established here is that the act should be reasonably
necessary. The person must satisfy that he acted bonafide in the interest of the party
concerned.
3.4 Agency by ratification: Whenever an act done by the third person is accepted by the
person on whose behalf it is said to have been done, the person who accepts it becomes
principal. And the person who has done act becomes the agent and the agency is
established by ratification.
4.0 DUTIES OF AGENT: While specific duties can be made a part of the contract between
principal and the agent, the general duties which are cast upon an agent by law are as
under:
4.1 Duty to follow the directions: Every agent is obliged to follow the directions given by
the principal while executing his job. If he fails to follow the instructions, he will be
held liable for any loss arising out of such failure. For instance, in Pannalal Janakidas
v/s Mohanlal AIR 1951 SC 144:1950 SCR 979, a commission agent was directed by
the Principal to purchase the goods and store them in the godown pending
despatch. The agent was also instructed by the principal to insure the goods. The
agent actually charged premium for insurance but in fact he did not insure the
goods. The goods were subsequently lost in an explosion. The agent was held liable
to compensate the principal. The amount of compensation paid was loss of the
principal minus compensation under Bombay Explosion Ordinance received by the
principal.
4.2 Duty to follow instructions or Customs: An agent is obliged in law to follow the
instructions given by his principal. In absence of any instructions, he is obliged to
follow the customs of the business as prevailing at the place of business. If the
agent acts otherwise, then as per the instructions or the customs and if any loss is
sustained by the principal, the agent is obliged to make good the loss and if any
profit accrues, he must account for it.
Example -
‘A’, an agent for the sale of goods, having authority to sell on credit, sells to ‘B’ on
credit, without making the proper and usual enquiries as to the solvency of ‘B’. ‘B’ at
the time of such sale, is insolvent. ‘A’ must make compensation to his principal in
respect of any loss thereby sustained.
58
4.3 Duties of reasonable care and skills: An agent is required to conduct the business of
his principal with such skill as is generally possessed by person who is carrying out
the similar business. The agent is also expected to act with reasonable diligence and
use the skills that he possesses. He is obliged to make compensation to the principal
if any loss is resulted to principal as a direct consequence of agent’s own neglect or
want of skill or misconduct.
Example
‘A’, an insurance-broker employed by ‘B’ to effect an insurance on a ship, omits to
see that the usual clauses are inserted in the policy. The ship is afterwards lost. In
consequence of the omission of the clauses nothing can be recovered from the
underwriters. A is bound to make good the loss to ‘B’.
4.4 Duty to avoid conflict of interest: It is the duty of the agent not to do anything in the
business which will bring his personal interest and his duty to the principal in conflict
with each other. In other words, he should not become personally interested in the
business transactions of the principal.
Where an Agent appointed to sell the property of the principal becomes himself
interested in buying the property or when he is instructed to buy on behalf of the
principal, and he sales his own goods to the principal, it will be deemed that he has
failed in his duty to avoid conflict of interest. In such situation, the principal may
repudiate the transaction.
Illustration
(a) ‘A’ direct ‘B’ to sell ‘A's estate. ‘B’ buys the estate for himself in the name of
C. A, on discovering that B has bought the estate for himself, may repudiate
the sale, if he can show that B has dishonestly concealed any material fact, or
that the sale has been disadvantageous to him.
(b) ‘A’ directs ‘B’ to sell ‘A's estate. ‘B’, on looking over the estate before selling
it, finds a mine on the estate which is unknown to ‘A’. ‘B’ informs ‘A’ that he
wished to buy the estate for himself but conceals the discovery of the mine.
‘A’ allows ‘B’ to buy, in ignorance of the existence of the mine. ‘A’, on
discovering that B knew of the mine at the time he bought the estate, may
either repudiate or adopt the sale at his option.
4.5 Duty not to make secret profit: The relationship of the agent with the principal is of
fiduciary nature. He is required to conduct business in good faith. He is entitled to
earn commission which has been agreed. Consequently, he should not involve
himself into any act by which he will earn more profit than what has been agreed
upon.
As per Section 216 of the Contract Act, 1872, if an Agent, without the knowledge of
his principal, deals in the business of the agency on his own account instead of on
account of his principal, the principal is entitled to claim from the Agent any benefit
which may have resulted to him from the transaction.
59
Illustration
‘A’ directs ‘B’, his agent, to buy a certain house for him. ‘B’ tells ‘A’ it cannot be
bought, and buys the house for himself. ‘A’ may, on discovering that ‘B’ has bought
the house, compel him to sell it to ‘A’ at the price he gave for it.
4.5 Duty to remit sums: It is the duty of the agent to remit all sums received by him in
his account on behalf of the Principal to the principal. He is entitled in law to deduct
his charges.
4.6 Duty to maintain accounts: An agent is expected to be making a proper account of

the business transactions. At the end of business transactions, he must furnish
complete account to his principal.
4,7 Duty not to delegate: An agent is appointed by the principal because of his skills,
knowledge, competence, integrity, etc. Therefore, he is not expected to delegate his
work to another agent or appoint any sub-agent. However, if the nature of work
given is such that it becomes necessary to appoint a sub-agent then he is allowed to
appoint a sub-agent.
Example
An agent is appointed to sell an estate. He may for this purpose, appoint an
auctioneer.
Thus, where the custom of trade is such that another person is appointed to do an
act, the agent can appoint such a person.
The agent may, however, appoint a sub-agent with the consent of the principal.
This consent may be expressed or implied in conduct and may also be by ratification.
5.0 RIGHTS OF AGENT:
5.1 Right to remuneration: Every agent is entitled in law to receive remuneration agreed
between him and his principal. This remuneration becomes payable on completion
of the act that has been assigned to the agent. However, if the agent commits a
misconduct in the business of agency he is not entitled to earn any remuneration in
respect of that part of the business which he has misconducted.
Illustration
‘A’ employs ‘B’ to recover Rs.100,000 from ‘C’, and to pay it out on good security. ‘B’
recovers Rs.100,000 and pays out Rs.90,000 on good security, but pays out 10,000
rupees on security which he ought to have known to be bad, whereby ‘A’ loses 2,000
rupees. ‘B is’ entitled to remuneration (i) for recovering the 1,00,000 rupees and (ii)
for investing the Rs.90,000. He is, however, not entitled to any remuneration for
investing Rs.10,000 and he must make good the loss of Rs.2,000.
5.2 Right to retain: The agent is possessed of a right to retain the money of his principal
until his claim from the principal is fully satisfied. This right can be exercised on any
money that is received in the business by the agent on behalf of principal.
60
5.3 Right of lien: Besides the right of retainership discussed above, the agent also has a
right to retain the goods, papers of his principal whether moveable or immovable
which were received by him in the course of business until the amount due to him
from the principal in the form of commission, disbursement and services is
completely received by him. The lien that the agent has in this case is a particular
lien and the property over which the lien has to be exercised has to be the property
that is received by the agent in the course of business of the agency. Also, the
amount in lieu of which he is proposing to retain must be an amount lawfully due to
him from the principal.
5.4 Right to indemnity: The principal is bound to indemnify the agent against the
consequences of all lawful acts done by the agent in exercise of business of agency.
Illustrations
(a) ‘’B, at Singapore under instructions from ‘A’ of Calcutta, contracts with ‘C’ to
deliver certain goods to him. ‘A’ does not send the goods to ‘B’, and ‘C’ sues ‘B’
for breach of contract. ‘B’ informs ‘A’ of the suit, and ‘A’ authorizes him to
defend the suit. ‘B’ defends the suit, and is compelled to pay damages and costs,
and incurs expenses. ‘A’ is liable to ‘B’ for such damages, costs and expenses.
(b) ‘B’, a broker at Calcutta, by the orders of ‘A’, a merchant there, contracts with ‘C’
for the purchase of 10 casks of oil for ‘A’. Afterwards ‘A’ refuses to receive the
oil, and ‘C’ sues ‘B’. ‘B’ informs ‘A’, who repudiates the contract altogether. ‘B’
defends, but unsuccessfully, and has to pay damages and costs and incurs
expenses. ‘A’ is liable to ‘B’ for such damages, costs and expenses.
5.5 Right to compensation: In case of any injury caused to an agent by principal’s

neglect or principal’s want of skill, the agent is entitled to receive compensation for
such injury in terms of Section 225 of Contract Act, 1872 which provides that –
“The principal must make compensation to his agent in respect of injury caused to
such agent by the principal's neglect or want of skill.”
Illustration
‘A’ employs ‘B’ as a bricklayer in building a house, and put up the scaffolding himself.
The scaffolding is unskillfully put up, and ‘B’ is in consequence hurt. ‘A’ must make
compensation to ‘B’.
6.0 TERMINATION OF AGENCY: The concept of termination of agency is exhaustively

explained in Section 201 of the Contract Act as under:
201. Termination of agency - An agency is terminated by the principal revoking his

authority, or by the agent renouncing the business of the agency; or by the business
of the agency being completed; or by either the principal or agent dying or becoming
of unsound mind; or by the principal being adjudicated an insolvent under the
provisions of any Act for the time being in force for the relief of insolvent debtors.
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As can be seen from the above definition, relationship between the principal and his agent
can be terminated on any of the following grounds:
6.1 By revocation: A principal may revoke the authority which he has given to his agent
at any time before that authority is exercised by the agent so as to bind the principal.
This revocation may either be express or implied in the conduct of the principal. The
point to be noted is that revocation always operates prospectively. This means that
if agent has partly exercised his authority before he gets a notice of revocation from
the principal, the revocation will become applicable from that time onwards and for
the acts done until then by the agent on behalf of the principal, the principal will be
accountable. Furthermore, where agency is created for a defined period of time
which is mentioned in the contract between the principal and the agent, in such
situations, it will be obligatory on the part of the principal to give a reasonable notice
of termination to the agent.
If a reasonable notice is not given, the principal will be obliged in law to make good
the loss suffered by the agent on this account. If an agency is created for a fixed
period, compensation will have to be paid for its premature termination, provided
termination is without sufficient grounds. But if the agency is not created for a
stipulated period of time, then question of payment of compensation does not arise.
Also, no compensation would become payable if the reasonable notice with
sufficient cause was given and the ground for termination was justified. However, as
per Section 202, an agency cannot be terminated by revocation in cases where agent
has an interest in the subject matter. The Section provides that “where agent has an
interest in subject-matter - Where the agent has himself an interest in the property
which forms the subject-matter of the agency, the agency cannot, in the absence of
an express contract, be terminated to the prejudice of such interest.”
Illustrations
(a) ‘A’, gives authority to ‘B’ to sell ‘A's land, and to pay himself, out of the proceeds,
the debts due to him from ‘A’. ‘A’ cannot revoke this authority, nor can it be
terminated by his insanity or death.
(b) ‘A’ consigns 1,000 bales of cotton to ‘B’, who has made advances to him on such
cotton, and desires ‘B’ to sell the cotton, and to repay himself out of the price
the amount of his own advances. A cannot revoke this authority, not is it
terminated by his insanity or death.
6.2 Termination by renunciation by agent: An agent may renounce his business of

agency and in such a situation, he will be obliged to compensate the principal if
agency was for a fixed period of time. Also, it will be incumbent upon the agent to
give a notice of renunciation to the principal. If he renounces without notice, he will
have to make good any damage resulted to the principal.
6.3 Termination on completion of business: An agency automatically comes to an end

once the purpose for which it is established is accomplished.
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6.4 Death or insanity: In case of death or insanity either of the principal or of the agent,
the agency stands terminated.
6.5 Principal’s insolvency: If the principal is adjudged insolvent, the agency comes to an
end. However, it does not terminate with insolvency of the agent.
6.6 On expiry of time: If an agent is appointed for a fixed period of time, the agency
terminates with efflux of time, i.e. it comes to an end automatically once the time
period stipulated is complete.
6.7 Agent’s duty on termination: Section 209 of the Contract Act, 1872 deals with
Agent's duty on termination of agency by principal's death or insanity and provides
that when an agency is terminated by the principal dying or becoming of unsound
mind, the agent is bound to take on behalf of the representative of his late principal,
all reasonable steps for the protection and reservation of the interests entrusted to
him.
1. What is meant by "agency"? What are the various methods in which an agency can be
created?
2. Write a note of various types of agents?
3. Discuss the law relating to sub-agent and substituted agent
4. Explain the rights and duties of principal and agent
5. Discuss the various ways in which agency can be terminated
6. Discuss fully the nature and extent of an agent's authority to act on behalf of his
principal.
7. Explain in detail the law relating to agency by ratification.
8. Explain briefly an agent's right of lien.
9. Comment briefly on "He who acts through an agent is himself acting."
10. Under what circumstances is an agent personally liable for the contracts made by him on
behalf of his principal?
11. Write notes on
(a) Undisclosed principal.
(b) Agency by holding out.
(c) Agency by estoppel.
(d) Agency coupled with interest

(Chapter 20 in the text-book, Pages238-271).
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63
LESSON - 18
THE SALE OF GOODS ACT, 1930
Please note that reading the below prescribed book is a must. This lesson is a mere
synopsis or précis of the book. It will not suffice for writing answers for examination
questions.
1.0 Let us first examine what is meant by the term "goods". The Sale of Goods Act,
1930, defines it as under:
"Goods" means every kind of movable property other than actionable claims and
money; and includes stock and shares, growing crops and things attached to or
forming part of the land which are agreed to be severed before sale or under the
contract of sale.
1.1 The different types of goods have been defined in the Act as under:
"Future goods" means goods to be manufactured or produced or acquired by the

seller after the making of the contract of sale. "Specific goods" means goods
identified and agreed upon at the time a contract of sale is made.
1.2 In the Sale of Goods Act two important aspects have to be looked into:
(i) Possession of Goods.

(ii) Property in Goods.
1.3 In a sale transaction either the Buyer or the Seller bears the risk of the goods to
whom the property in the goods is vested, irrespective of possession of goods lying with
either the Buyer or the Seller.
1.4 The rules regarding effects of the contract, that is, the transfer of property in goods
as between the Seller and the Buyer have been elaborated under Sections 18 to 26 of the
Sale of Goods Act, 1930.
2.0 The Act codifies the law relating to sale of goods which was contained in sections 76
to 123 of Contract Act. Those sections have been repealed by the SGA.
3.0 Parties are at a liberty to subject the contract of sale to the law of the country of
their choice.
4.0 Choice may be expressly stated by parties or determined by Court.
4.1 Two important presumptions made by Courts:
• Law of the place of making the contract - lex loci contractu.

• Law of the place of performance of the contract - lex loci solutions.
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4.2 Transfer of property in goods under sales made in foreign countries is in general
regulated by the law of the place where goods are situated at the time of sale.
4.3 Admissibility of evidence, enforceability of contract, procedure - lex fori or

law of the place where action is brought.
4.4 Foreign law presumed to be same as municipal law. If different, foreign law must be
proved as a fact by the party relying upon foreign law.
5.0 Section 4: Sale and agreement to sell :
5.1 A contract of sale of goods is a contract whereby the seller transfers or agrees to
transfer the property in goods to the buyer for a price. There may be a contract of sale
between one part-owner and another.
5.2 A contract of sale may be absolute or conditional
5.3 Where under a contract of sale the property in the goods in transferred from the
seller to the buyer, the contract is called a sale, but where the transfer of the property in the
goods is to take place at a future time or subject to some condition thereafter to be fulfilled,
the contract is called an agreement to sell.
5.4 An agreement to sell becomes a sale when the time elapses or the conditions are
fulfilled subject to which the property in the goods is to be transferred.
6.0 FORMATION OF CONTRACT :
7.0 FORMALITIES :
7.1 Formation
• Offer.
• Acceptance.
• Provision for delivery of goods.
• Provision for payment of price.
7.2 How made?
• Writing.
• Oral.
• Partly written and partly oral.
• Implied from conduct of parties or course of their business.
65
7.3 Goods
8.0 EFFECT OF GOODS PERISHING:
• Goods perishing before making of contract.

• Goods perishing before sale but after agreement to sell.
8.1 Before making of contract:
• Contract for specific goods only.

• Goods damaged, destroyed, seller deprived.
• Before contract of sale is made.
• Without knowledge of seller.
Void Agreement
8.2 Before sale but after agreement to sell:
• Specific goods.
• Goods perishing.
• Perishing after agreement but before sale.
• Without fault of seller or buyer.
Agreement can be avoided
9.0 CONDITIONS AND WARRANTIES:
9.1 Condition:
A stipulation essential to main purpose of contract, breach gives rise to a right to

repudiate contract.
9.2 Warranty :
A stipulation collateral to main purpose of contract, breach gives rise to claim for
damages.
9.3 Implied conditions and warranties:
• Implied undertaking as to title, etc.

• Implied conditions when sale is by description.
• Implied conditions when sale is by sample.
• But there is no implied conditions as to quality or fitness.
66
10.0 IMPLIED CONDITIONS/WARRANTIES AS TO TITLE:
• Seller has/will have right to sell– condition.

• Enjoy quiet possession of goods – warranty.
• Goods free from any charge or encumbrance – warranty.
11.0 IMPLIED CONDITIONS WHEN SALE BY DESCRIPTION:
• Goods shall correspond with description.

• If sale is by sample as well as by description, it is not sufficient that the bulk
corresponds with sample if goods do not also correspond with description.
• Description includes quality or fitness, place of shipment, time of dispatch or
delivery, time of shipment, mode of packing.
12.0 NO IMPLIED CONDITION/WARRANTY AS TO QUALITY OR FITNESS:
12.1 Exception 1
Implied condition as to quality/fitness when:
 Buyer expressly/impliedly makes known to seller the purpose.
 Buyer shows he relies on seller’s skill and judgment
And
 Goods are of a description dealt with by seller (manufacturer or not).
Exception to Exception 1
No implied condition when article sold under its patent or trade name
12.2 Exception 2 :
Implied condition as to merchant ableness when :

 Goods bought by description.
 From seller who deals in goods of that description (manufacturer or not).
Exception to Exception 2
If buyer has examined the goods, no implied condition as regards defects which
examination ought to have revealed
12.3 Exception 3
An implied warranty or condition as to quality or fitness for a particular purpose

may be annexed by usage of trade.
13.0 IMPLIED CONDITIONS WHEN SALE BY SAMPLE:

• Bulk shall correspond with sample in quality.
• Buyer to have reasonable opportunity of comparing bulk with sample.
• Goods free from defect, rendering them unmerchantable, which would not
be apparent on reasonable examination of sample.
67
14.0 TRANSFER OF PROPERTY:
1. Generic goods.
2. Specific goods.
14.1 TRANSFER OF PROPERTY – GENERIC GOODS:

• Goods must be ascertained
14.2 TRANSFER OF PROPERTY – SPECIFIC GOODS:

• Property passes when intended to pass.
• Specific goods in a deliverable state.
• Specific goods to be put into a deliverable state.
• Specific goods in a deliverable state, when the seller has to do anything in
order to ascertain price.
14.2.1 Property passes when intended to pass:

 Terms of the contract.
 Conduct of parties.
 Circumstances of the case.
Pawan Hans case (2009) Delhi High Court.
14.2.2 Specific goods in a deliverable state:

Unconditional contract.
 Specific Goods.
 Deliverable state.
 Property passes when the contract is made.
 Postponement of payment or delivery immaterial.
14.2.3 Specific goods to be put into a deliverable state:

 Specific Goods.
 Goods to be put in a deliverable state.
 Seller to do that act.
 Property passes when seller does that act and gives notice to buyer.
14.2.4 Specific goods in a deliverable state but seller to ascertain price:

 Specific goods.
 Goods in a deliverable state.
 Seller to do an act w.r.t goods to ascertain price.
 Property passes when seller does that act and gives notice to buyer.
15.0 TRANSFER OF PROPERTY:

15.1 Sale of unascertained goods and
appropriation, Delivery to carrier
Property passes on unconditional appropriation :
• Contract for sale of unascertained or future goods by description.
• Goods in a deliverable state.
• Goods unconditionally appropriated to contract by delivery to buyer or
carrier.
• Appropriation by seller with assent of buyer or by buyer with assent of seller.
• Assent express or implied.
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• Assent before or after appropriation.
16.0 WHEN UNCONDITIONAL APPROPRIATION?
• Seller delivers goods to buyer/carrier.

• Bailee (whether named by buyer or not).
• Delivery is pursuant to the contract.
• Delivery is for purpose of transmission to buyer.
• Seller does not reserve the right of disposal.
17.0 CONDITIONAL APPROPRIATION:
• Where seller will not part with the goods until he is paid.
• Where seller ships goods as per contract but takes out bill of lading to his
own order or to the order of his agent. (reserving the right of disposal)
.
18.0 PERFORMANCE OF CONTRACT:
• Duties of seller and buyer.

• Payment and delivery are concurrent conditions.
• Delivery.
• Effect of part delivery.
• Buyer to apply for delivery.
• Rules as to delivery.
• Delivery of wrong quantity.
• Installment delivery.
• Delivery to carrier or wharfinger.
• Risk where goods are delivered at distant place.
• Buyer’s right of examining the goods.
• Acceptance.
• Buyer not bound to return rejected goods.
• Liability of buyer for neglecting or refusing delivery of goods.
19.0 RIGHTS OF UNPAID SELLER AGAINST GOODS
• Who is a seller?
• When is seller unpaid?
• What are his rights vis-à-vis goods?
69
1. Define and explain

a. Goods.
b. Generic and specific goods.
c. Existing and future goods.
d. Deliverable state.
2. What is the effect of destruction of goods on a contract of sale?
3. What are conditions and warranties and what is the difference between the
two?
4. Discuss implied conditions and warranties in a contract by description and
contract by sample.
5. Write notes on FOB and CIF contract.
6. Examine the rights of an unpaid seller with respect to goods.
7. Explain the rules relating to transfer of property in generic and specific goods.

1. ‘Sale of Goods and Partnership : A Concise Study’ – Dr. Nilima Chandiramani.
(Only pages 1-83)
70
LESSON 19
INTRODUCTION TO
THE INDIAN CARRIAGE OF GOODS BY SEA ACT,1925
1.0 This is an Act to amend the law with respect to the carriage of goods by sea.
2.0 The Indian legislature enacted the Indian Carriage of Goods by Sea Act, 1925, with
the purpose of establishing uniform rules for the liabilities and rights of the sea carrier. The
Act is based on the Hague Rules. The correct title of the Hague Rules is "The International
Convention for the Unification of Certain Rules of Law Relating to the Bills of Lading, 1924".
The Rules form the Schedule to the Act. The Act and the Schedule have now been amended
by the Multimodal Transportation of Goods Act, 1993, bringing the Indian law on par with
some of the Hague-Visby Rules of 1963 as amended by the Brussels Protocol of 1979.
2.1 Prior to this, the rights and liabilities of carriers by sea in India were regulated by the
English Common Law as administered in India. At common law, the sea carrier was
absolutely liable for any loss or damage caused to the goods carried by the carrier except
where the carrier was protected by a common law exception or where he had contracted
out of his liability.
2.2 Earlier a carrier was at liberty to increase or decrease his liabilities and was free to
impose terms and conditions on which he was willing to carry the goods from a port in India
to a port in India or overseas.
2.3 The main effect of the Act was that it changed the legal status of the shipowner by
imposing on him definite liabilities and responsibilities and by stating precisely the defined
rights and immunities in place of the previous freedom.
3.0 THE ACT HAS 7 SECTIONS VIZ :
(1) This Act is called THE INDIAN CARRIAGE OF GOODS BY SEA ACT, 1925, and it
extends to the whole of India.
(2) The rules affect the carriage of goods by sea in ships carrying goods from any
port in India to any other port whether in or outside India. It is essential that the
port of loading must be in India. But it is immaterial whether the port of discharge is
a port in or outside India. Thus the Act is applicable to coastal trade also.
Carriage within a port is not covered by the Act. Hence the carriage by
barges/lighters is not within the ambit of the Act.
(3) At common law the liability of the carrier to provide a seaworthy vessel was
absolute. This absolute undertaking by the carrier to provide a seaworthy ship is
done away with under the Act. Now, the carrier is bound merely to exercise due
diligence in providing a seaworthy vessel.
(4) The Rules do not apply to all contracts of carriage of goods by sea evidenced by
a bill of lading. They apply only to those bills of lading which contain an express
71
clause that the bills of lading are subject to the provisions of the Rules. Hence the
Rules shall not cover carriage of goods by sea if:-
(i) No bill of lading is issued; or

(ii) A bill of lading is issued but it does not incorporate a statement that the
carriage is subject to the Rules.
(5) This section permits a carrier to either totally exempt himself from liability or
to reduce his liability with respect to carriage of particular goods, or ordinary
commercial shipments, in the normal course of trade, if:
(i) The goods are carried in a sailing ship from a port in India to any other port
whether in or outside India; or
(ii) The goods are carried in a ship from a notified port in India to a notified port
in Ceylon (now Sri Lanka).
(6) Though the bill of lading is a prima facie evidence of the receipt of goods by
the carrier, it is not a prima facie evidence of the receipt of the goods of "the weight"
mentioned in it, if:
(i) The carriage is of bulk cargo;

(ii) There exists a custom of trade to have the weight of the bulk cargo
ascertained by a third party other than the carrier or the shipper; and
(iii) The weight so ascertained by the third party is stated in the bill of lading.
(7) None of the provisions in the Act shall affect certain stipulations in the
Merchant Shipping Act, 1958.
4.0 The Merchant Shipping Act prescribes special precautions to be taken in the carriage
of dangerous cargo and grains. Failure to comply with these Rules will make the person
liable notwithstanding anything contained in the Indian Carriage of Goods by Sea Act, 1925.
5.0 The Merchant Shipping Act deals with the global limitation of liability of the carrier.
It speaks about the total liability of the carrier for the loss or damage. If the aggregate
liability of the carrier to all the shippers under the Indian Carriage of Goods by Sea Act is
higher than the amount arrived at on the basis of the Merchant Shipping Act, then the
liability of the carrier shall be further limited to the amount arrived at under the Merchant
Shipping Act,1958.
6.0 THE ACT IS BASED ON THE HAGUE RULES, 1924, AS AMENDED BY THE HAGUE-
VISBY RULES , 1968, AND THE PROTOCOL OF 1979 :
6.1 Some of the details of the Rules which form the Schedule to the Act are:
(a) The Act does not apply to carriage contracts not evidenced by bills of lading.
(b) The Act does not apply to inward carriage contracts, unless parties contract to do
so. It applies only to outward cargo
(c) The Act does not apply to cargo carried on deck, live animals and non-
commercial goods (such as personal effects).
(d) The liability of the carrier to take care of the cargo under the Rules does not
extend to the whole period during which the goods are in the carrier's
72
possession. It is limited to the period from the time the goods are loaded till the
time they are discharged from the ship, that is, while the goods are on board the
hip.
(e) The Act provides that the bill of lading contract shall contain the clause
paramount, that is, it must incorporate a statement indicating that the carriage is
subject to the Rules contained in the Act.
(f) Liability of the carrier is limited in case of loss. It is now revised to 666.67 SDR per
package or 2 SDR per kilogramme of the gross weight of the goods, whichever is
higher.
(g) The Act does not apply to charterparties.
(SDR stands for “Special Drawing Right/s" of the International Monetary Fund. This is a unit
linked to a basket of five major currencies and may change from day to day. The SDR
replaces the gold value of 100 Pounds Sterling in the original Hague Rules and also the
Poincare Gold Francs in the 1968 Hague-Visby Rules. SDRs are converted into the national
currency on the basis of the value of the currency on a date as determined by the law of the
court seized of the case. The conversion value of an SDR on a particular day can be
determined from the Reserve Bank of India.)
1. What was the purpose of enacting this Act?

2. Discuss the application of the Rules set out in the schedule to the Act.
3. Name the Rules on which the Act is based upon.
4. What is the status of "absolute warranty of seaworthiness" in the Act?
5. How were the Rules modified in relation to goods carried in sailing ships and by
prescribed routes?
6. In what areas does the Merchant Shipping Act, 1958, overrule the Indian Carriage of
Goods by Sea Act, 1925.
7. Write short notes on
(a) SDR
(b) Limitation of liability
8. Say True or False. If false, give the correct answers:
(i) The Act also applies to deck cargo and live animals.
(ii) Maximum loss payable by carrier per package/unit is 835 SDR.
(iii) Charterparties are outside the scope of the Act.
(iv) "Carriage of Goods" covers the period when the goods are received by the agent
of the carrier.
(v) The carriage by a lighter or barge within a port is covered by the Act.
(vi) The Act extends to whole of India and Sri Lanka.
1. Carriage of Goods by Sea & Multimodal Transport -- Dr. (Mrs) Nilima Chandiramani,
1st Ed., 1996.
The Act is given in Appendix B Pages 99-113 along with commentary and notes,.
NOTE: THE HAGUE RULES, 1924; THE HAGUE-VISBY RULES, 1968 AND THE BRUSSELS
PROTOCOL OF 1979; AND THE MULTIMODAL TRANSPORTATION OF GOODS ACT, 1993,
WILL BE COVERED IN THE FINAL YEAR SYLLABUS.. THE STUDENTS NEED NOT GO INTO
DETAILS OF THESE AT PRESENT.
73
LESSON 20
THE INDIAN PORTS ACT, 1908
1.0 Ports are nation’s windows to the outside world. Ports are the third component in
the transport system and provide a crucial interface between land and sea. It is here that
much of the real activity takes place. Modern Ports are subtle because of automation and its
location away from the city. In Port operations, it is essential to understand three important
terms namely -
1. Port that means a geographical area where ships are brought alongside land
to load and discharge cargo- usually a sheltered deep water area such as a bay or
river mouth. Port may be major or non major in an Indian Context.
2. Port Authority means an organisation responsible for providing the various

maritime services required to bring ships alongside land. Ports may be public bodies,
government organization or private companies. In India all three types exist
depending on the policy and structure of the appropriate government, Central
government for major ports and state government for the non-major port.
3. Port Terminal means a section of a port consisting of one or more berths

devoted to a particular type of cargo handling. The port terminal may be owned and
operated by the port authority or by a shipping company which operates the
terminal.
1.5 Ports are considered as life line for the country’s maritime trade. Ports have several
functions which are crucial to the efficiency of the ships which trade between them. Their
main purpose is to provide a secure location where ships can berth and carry out the
functions of loading, discharging or transhipment within the port notified limits.
1.6 The object of The Indian Ports Act is:
1. To introduce rules and regulations relating to safety of ships;

2. For collection of dues;
3. Avoiding congestion of ports; and
4. To facilitate navigation.
1.7 This Act was enacted in 1908 to consolidate the various enactments relating to ports
and port charges. The Act is applicable to both major and minor ports in the country. While
the Major Port Trust 1963 is applicable to only the eleven major ports, this Act is applicable
to all ports. For example the compulsory pilotage charges for all vessels above 200 tons NRT
(Net Registered Tonnage) in all port is under the provision of this Act.
2.0 SALIENT FEATURES:
2.1 The Act applies to all the ports mentioned in the first schedule of the Act. Besides
the names of the ports, the schedule gives details of charges payable and the frequency at
which the charge is to be paid.
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2.2 The provisions of this Act do not apply to vessels in the service of the Central or State
Governments or naval vessels belonging to this country or to foreign countries arriving on
good-will visit at Indian ports.
2.3 A major port, according to the Ports (Technical) Committee 1984, appointed by the
Government of India, should possess facilities including an all-weather, sheltered harbor,
alongside berths capable of berthing vessels of 30 feet draft and having direct road and rail
access to the hinterland.
2.4 A port is declared as a Major Port by a notification by the Central Government as

provided in the Major Port Trusts Act, 1963. While major ports come under the jurisdiction
of the Central Government, minor ports come under the jurisdiction of the State
Governments.
2.5 Section 6 of the Act relates to the power of the State Government to make Port
Rules which mainly refer to regulations and movement of the vessel such as regulating and
anchorages, berths to be occupied by vessel, loading and landing, etc.
2.6 For medical inspection of vessels and persons on board vessels and other related
matters, Port Health Officers are appointed and Port Health rules are to be framed. The port
health rules applicable for minor ports are framed by State Governments. Rules applicable
for major ports are framed by the Central Government.
2.7 The Act indemnifies the Government against any act or default of the Deputy
Conservator, Port Officer, Harbour Master, Pilot or any other officials for a loss or damage
sustained by any vessel and consequence of any defect in moorings, buoys, etc belonging to
the Government, used by the vessel.
2.8 Some of the terms as defined in the Act are:
(a) Master means any person having the overall charge or control of the vessel.
(b) Pilot means a person authorized (by the Government) to pilot vessels while
entering the ports or leaving the ports. Section 31 deals with piloting of the
vessel in the habour.
(c) Port also includes any part of a river or channel. The limits of the port may
include any piers, jetties, landing places, wharfs, quays and docks and other
works made on behalf of the public for convenience of traffic, for safety of vessel
or good governance of the port and its approaches, whether within or without
high water mark, subject to any rights of private property therein, any portion of
the shore or bank within 50 yards of the high water mark [S. 4(3)].
(d) Port-officer is synonymous with master-attendant.
(e) Vessel includes anything made for the conveyance (mainly) by water of human
beings or of property.
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(f) Major Port means any port which the Central Government may by notification in
the Official Gazette declare, or may under any law for the time being in force
have declared, to be a major port.
(g) Magistrate means a person exercising powers under the Code of Criminal
Procedure, 1973.
(h) ton means a ton as determined or determinable by the rules for the time being in
force for regulating the measurement of the net tonnage of British ships; and
(i) Government, as respects major ports, for all purposes, and, as respects other
ports for the purposes of making rules under clause (p) of section 6(1) and of the
appointment and control of port health officers under section 17, means the
Central Government, and save as aforesaid, means the State Government.]
3.0 PORT OFFICIALS AND THEIR POWERS AND DUTIES:
3.1 The Act deals with the appointment of the Conservator and the allocation of the
powers of the Conservator.
3.2 The Government shall appoint some officer or body of persons as the Conservator of
every port subject to this Act.
3.3 In ports where there is a Port Officer, then he shall be the Conservator. However,
where there is no Port Officer but there is a Harbour Master, the Harbour Master shall be
the Conservator.
3.4 The Conservator shall be under the control of the Government or any intermediate
authority appointed by the Government.
3.5 In respect of major ports in India, the Boards of Trustees are the Conservators of the
Ports. Each Board of Trustees appoints a Deputy Conservator in each major port to look
after the conservation and functioning of the harbor and other waterways.
3.6 The Deputy Conservator in every major port implements the provisions of this Act as
and when applicable. The Deputy Conservator is assisted by the Harbour Master and other
officials in the day to day functions of the port.
3.7 In respect of minor ports, there is a Port Officer appointed by the State Governments
concerned for a port or a group of ports for implementing the relevant provisions of the Act
as and when applicable.
3.8 The Deputy Conservator or his officers in the case of major ports and Port Officers in
the case of minor ports have powers to enforce the rules.
3.9 Some of the powers of the Deputy Conservators (or major ports) or the Port Officers
(of minor ports) are:
(a) To ensure that ropes and cables do not endanger the safety of vessel in the port
or near the entrance of the port.
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(b) To remove any obstructions within the limits of the port.
(c) To recover expenses of removal.
(d) To prevent damage to buoys or moorings.
(e) To raise or remove wreck affecting navigation within the port limits.
(f) To board vessels and enter any premises for inspection within the limits of the
port.
(g) To request the master and crew of any vessel to prevent or extinguish fire.
4.0 PORT HEALTH OFFICER:
4.1 The Government may appoint at any port an officer to be called the Port Health
Officer. His powers consist of:
(i) To board any vessel and medically examine the officers and crew:
(ii) To examine any documents, papers, log-book, etc., for the purpose of enquiring
about the health and physical condition of the person on board the vessel.
(iii) To call any person for interrogation in the above connection.

(iv) To make any person so interrogated to sign a declaration of the truth of the
statements made by him earlier.
5.0 PORT DUES AND OTHER CHARGES:
5.1 The first schedule furnishes
• The name of the port

• Vessels chargeable
• The rate of port dues and class of vessel and
• The frequency of dues payable in respect of ore vessels.
5.2 All vessels, whether coastal or foreign going, shall be levied port dues at the rates
prescribed in the schedule.
5.3 Whenever the Government, whether Central or State, declares a port to the subject
of the Act, it declares the rate of port dues and its frequency. Any increase in port dues will
be effective on expiration of 60 days from the day on which the order was published in the
Government Gazette.
5.4 Some concessions are granted in port dues when the vessel enters the port in ballast
and is not carrying passengers or when the vessel enters the port but does not discharge or
load any cargo or take passengers. Concessional rate is also charged on coastal vessels. The
period of 30 days is reckoned from the date of entry of the vessel into the port.
5.5 For other services rendered such as pilotage, haulage, mooring in the port, etc., the
port authority has the right to levy separate charges for the same. The authority may
exempt any vessel from payment of port dues and cancel the exemption or may vary the
rates at which port dues are to be levied by reducing or raising the dues or may extend the
periods for any vessel may be exempt from paying port dues.
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5.6 Every vessel arriving in the port shall report its arrival to the Deputy Conservator or
Port Officer within 24 hours after its arrival. However, this will not be applicable to boats or
steamers carrying passengers and plying regularity between the ports. ‘A’ master failing
make such report without lawful excuse shall be penalized.
5.7 If any vessel is without any marks on the stem and stern posts to denote her draft,
the Deputy Conservator may get the same ascertained and the master of the vessel shall
pay the expenses of the operation.
5.8 Receipt for port charges: Person receiving port charges must give proper voucher in
writing under his hand, name of his office; port/place where charges paid; name, tonnage,
description of vessel.
5.9 Master of vessel to report arrival to Conservator within 24 hrs or face punishment.
5.10 Conservator to ascertain draught, if vessel is without marks on the stem and stern
posts, and master to pay the expenses of the operation.
5.11 Distraint if port dues not paid and sale on refusal to pay port charges within five days
after arrest of vessel.
5.12 Sale proceeds used to satisfy port dues, cost of sale, etc. Surplus, if any, to master if
he demands
5.13 No port clearance to be granted until port charges are paid.
5.14 Port charges payable in one port recoverable at any other port.
6.0 Harbourmaster's Function:

6.1 Generally, the harbourmaster (or port captain) manages port activities relating to
maritime safety and the protection of the marine environment. The legal basis of the
harbourmaster's function is usually embedded in the port's bye-laws or, in the case of a
state-owned port, in a specific law or ministerial decree. The harbourmaster often has
specific legal powers to act in emergency situations. Typically, the harbourmaster is part of
the port authority organization and heads the marine department. In some countries, the
harbourmaster may work for an independent public entity, such as the coast guard.
6.2 The harbourmaster is responsible for ensuring the efficient flow of traffic through
port and coastal waters (including allocation of vessels to public berths) and-on behalf of the
government or port authority-for coordinating all marine services. The harbourmaster
operates out of a port coordination center (or Captain‘s Room), which is often part of an
elaborate vessel traffic management system.
‘
6.3 Frequently, harbourmasters have police powers and act as head of-the port police.
The main functions of such police are enforcement of the port bye-laws, especially with
respect to traffic regulations, protection of the environment, and accident prevention.
When part of a port authority, the harbormaster also usually serves as head of the pilotage
service. ln the event that the pilotage service is not part of the port authority, the
harbourmaster is responsible for coordination between this service and port users. Finally,
the harbormaster is sometimes responsible for regulatory overseeing of the carriage and
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storage of dangerous goods in the port area as well as for ensuring the proper use of port
reception facilities.
6.4 ln view of the public character of the harbor-master's responsibilities, this function is
rarely privatized. To do so would raise a conflict of interest between the public interest
(safety, environment, and equal treatment under the law) and private interests from the
port industry. For example, since port time of ships is an important cost and operational
factor, the harbourmaster will always be under pressure to grant preferential treatment to
shipping lines. Impartial and consistent application of operational safety measures for ships
carrying dangerous or environmentally sensitive goods such as gas carriers, chemical parcel
tankers, and VLCCS is essential for the safe functioning of any port. The harbor-master,
therefore, should not function within a purely commercial environment, but must have
freedom of action to carry out public tasks in an unimpeded and unbiased manner.
6.5 Although the harbourmaster might be part of a port authority‘s management team,
he should be free to operate in his jurisdiction as independently as possible from the
commercial management of the port. ln carrying out emergency measures in the event of
accidents and industrial disasters, the harbourmaster should have full freedom of action and
possess the ultimate authority and responsibility for directing all necessary activities. ln a
fully privatized port, the harbourmaster should not be part of the port management, but
should be employed by a national or regional maritime administration.
6.6 Under the Major Port Trusts Act, 1963, the word ‘Master‘ has been defined inter-alia
as harbourmaster, assistant harbour master, dock manager or berthing master of the port.
The functions of the dock master and the dock manager are set out in the Dock- Bye-Laws.
On the other hand the harbor master of the Mumbai Port Trust performs the functions of
the 'conservator of the port under the provisions of The Indian Ports Act, Section 7. The
conservator and consequently the harbour master are under the control of the Central
Government or any intermediate authority as the Central Government may appoint. .
7.0 Pilotage:
7.1 Pilots usually constitute a closed group of professionals (often master mariners),
who are keenly aware of their unique position -in the port environment. Successful vessel
management relies heavily on the efficient functioning of the pilot organization.
7.2 Pilotage is an essential part of traffic management, and safe passage of vessels
through a port area requires expert teamwork of a vessel traffic management organization
(Captain‘s Room), tugs, mooring gangs, and pilots. As a consequence, retaining pilots as part
of a port authority‘s marine department is absolutely necessary. Pilots can also be self-
employed and work under the oversight of a maritime authority that serve as the regulator
and licensor of the individual pilots. Mumbai is one of the ports where pilotage is
compulsory. The Mumbai Port Trust appoints pilots and they are fully conversant with the
Pilotage Bye- Laws.
8.0 Tugboat Operations:

8.1 Tugboat operations are typically carried out by private firms. lf the volume of vessel
traffic is not sufficient to support a tugboat service on a commercial basis, a port authority
may be obliged to provide such service itself. Sometimes neighbouring ports can share
tugboat services to reach volumes sufficient to sustain a commercial operator.
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8.2 Under Major Port Trusts Act, Section 35 is concerned with the power of the Board to
execute works and provide appliances. Sub-Sec (2)(h) permits the Board to inter-alia provide
tugs for use within limits of the port or beyond those limits, in territorial waters or
otherwise for the purpose of towing or rendering assistance to any vessel etc.
9.0 Mooring Services:

10.1 Mooring services in smaller ports can be provided by the local stevedore. In larger
ports, a mooring service is usually performed by the port authority or by a specialized
private firm. Especially in a complicated nautical situation (for example, single point mooring
buoys, specialized piers for chemicals or gases, or ports with large tidal differences),
mooring activities require expert skills and equipment. A port authority may choose to
regulate this activity. Under the lndian Ports Act 1908, the Central Government has the
authority to make rules for regulating the anchoring, fastening, mooring and unmooring of
vessels in the port. Such rules have been framed for the port of Mumbai and are called
"Mumbai Port Rules".
10.0 Vessel Traffic Services and Aids to Navigation:

10.1 Vessel Traffic Services (VTS) are usually part of a port or a maritime authority. Such
services are provided in port areas and in densely used maritime straits (such as the Dover
Channel) or along a national coastline (for example, the coast of the Netherlands).
Responsibility for aids to navigation usually rests with a national maritime authority in port
approaches and in coastal areas, and with a port authority in port areas.
11.0 Other Marine Services Performed by Port Authorities:

11.1 The control of dangerous goods for maritime cargoes is usually performed by a
specialized branch of the port authority. The same goes for the handling of dangerous goods
in port terminals. Overseeing and regulation of land transport of dangerous goods is
normally a responsibility of the Central Government. The highly sensitive and technical
nature of this work makes it inadvisable for privatization. Waste management services in
ports are often privatized under strict control of a port authority or another competent
body. Privatization carries risks, however, especially with respect to the disposal of
dangerous chemicals. Proper waste management can be expensive for shipping lines. Dump
of waste into the sea or into port waters by vessels is to be strictly prevented. Control of
such dumping practices is extremely difficult, especially for chemical cargoes. Transport of
waste from the ship to a reception facility also poses a challenge, especially in larger port
areas. Port authorities provide or organize transport barges or trucks for this purpose.
12.0 Emergency Services:

12.1 Generally, emergency response services are carried out by a variety of public
organizations such as the port authority (harbourmaster), fire brigade, health services, and
police. Larger ports use patrol vessels and vehicles for a variety of public control functions.
Port patrol services are part of the harbourmaster‘s resources.
13.0 Dredging:
13.1 Control of dredging operations by a port authority is of utmost importance. Often,
the port authority or the competent maritime administration does not have enough
expertise to exercise sufficient control over both maintenance and capital dredging. Port
authorities with large water areas under their control should employ sufficient competent
personnel to prepare dredging contracts and oversee dredging operations. Sounding is an
activity that should preferably be carried 'out (or contracted out) by the port authority itself.
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Dredging is usually carried out by specialized firms. It might be cost effective for some ports
to use their own dredges, especially when continuous and important maintenance is
required.
14.0 SUMMARY:
14.1 Object of the Act:
1. Introduce rules and regulations relating to safety of ships;
2. Collection of dues;
3. Avoiding congestion of ports;
4. Facilitate navigation.
14.2 Applicability:
1. MPTA applies to only 12 major ports. This Act applies to all ports mentioned in
the First Schedule and to such parts of navigable rivers and channels leading to
such ports.
2. Does not apply to Central and State Government vessels or vessels of war or
vessels belonging to foreign States on friendly visits.
14.3 Port Officials and their Powers:
1. Government to appoint a Conservator for every Port;
2. Port Officer / Harbour Master to be Conservator;
3. Power to give and enforce directions for carrying into effect any rule made by
Government.
4. Punishment and fine for willful refusal or neglect to obey directions;
14.3 Power of Conservator:

1. Safety of vessel;
2. Removal of obstructions and recovery of expenses for such removal;
3. Prevent damage to buoys/moorings;
4. Remove wreck affecting navigations;
5. Board vessels for inspections, etc.
14.4 Port Health Office:
1. Board vessel to medically examine officers/crew;
2. Examine documents to enquire about health/physical conditions of persons on
board;
3. Interrogate for purpose of examining health and require the person interrogated
to sign declaration of truth.
14.5 Prohibited Acts:

1. Several acts such as injuring buoys, beacons, moorings; willfully loosening vessel
from moorings; improperly discharging ballast; removing stones or injuring
shores; moving vessel without pilot, etc are prohibited under the Act.
2. Any person offending these provisions is liable for fine and imprisonment.
14.6 Levy of Port dues:

1. Port dues shall be levied on vessels at the rate prescribed
2. Also prescribed is the frequency at which the port dues shall be levied.
3. Concession granted when vessel enters the port in ballast and is not carrying
passengers or when vessel does not discharge/load cargo or passenger. Coastal
vessels too enjoy concessional rates.
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1. Which ports come under the purview of the Indian Ports Act, 1908?
2. What is the definition of “Master Port” in the Indian Ports Act, 1908? How does
it define “Master”, Pilot”, “Port” and “Vessel”
3. To which type of vessels provisions of this Act do not apply?
4. Mention some of the powers of the Deputy Conservators or the Port Officers?
5. State the powers of the Port Health Officer.
6. When does the revised schedule in port dues become effective?
7. Write short note on:
a. Harbourmaster's Function
b. Pilotage
c. Tugboat Operations
d. Mooring Services
e. Vessel Traffic Services and Aids to Navigation
f. Other Marine Services Performed by Port Authorities
g. Emergency Services
h. Dredging .

The Indian Ports Act, 1908.
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LESSON - 21
MAJOR PORT TRUSTS ACT, 1963
1.0 INTRODUCTION:
1.1 The oldest major ports, viz., Calcutta, Mumbai and Chennai were administered by
the statutes provided under Calcutta Port Act, 1890, Bombay Port Trust Act, 1979 and
Madras Port Trust Act, 1905, respectively. The other major ports like Cochin,
Vishakhapatnam, Kandla and Paradeep which were declared as major ports subsequently,
were administered directly by the Central Government. The Port Administrative Officers
appointed by the Central Government were managing the affairs of the ports under the
direct control of the Government. For every matter pertaining to the port, they had to
approach the Central Government which caused delay in implementing the policy. The local
business interest had no voice in the management of ports.
1.2 The Central Government therefore decided to constitute Port Trusts in respect of
those ports which were not otherwise governed by any statute. The objective of the
Government was to grant similar powers as those existing in ports like Calcutta, Mumbai
and Chennai to other major ports. The Major Port Trusts Act, 1963, was passed by the
Parliament with a view to constitute Port Trusts at Vishakhapatnam, Cochin and Kandla
initially. Provision was also made in the Act to bring other major ports under the Act by
issue of notification. Thus the Act was extended to Murmagao in 1964 and Paradeep in
1967.
2.0 AIM:
2.1 Thus, the Major Port Trusts Act, 1963, was enacted by the Parliament to make
provision for the constitution of port authorities for certain major ports in India and to vest
the administration, control and management of such ports with such authorities and for
matters connected therewith.
2.2 The Major Port Trusts (Amendment) Act, 1974, was passed by the Indian Parliament
in 1974 which brought several amendments to the original Act of 1963. The objective of
amendments was to bring about a single Act governing all major port trusts including
Calcutta, Mumbai and Chennai. The amended Act of 1974 which became effective from 1-2-
1975, thus became applicable to Calcutta, Mumbai and Chennai. All other ports which were
declared as major ports later on by the Central Government were also covered under the
Major Port Trusts Act on the dates of their notification.
3.0 CONSTITUTION OF BOARD OF TRUSTEES:

1.4 The Board of Trustees consists of a chairman, appointed by the Central Government;
a Dy Chairman, if the Central Government deems fit; and not more than 19 persons in case
of each of the ports of Mumbai, Calcutta and Chennai and not more than 17 persons in case
of any other port, appointed by Central Government from various interests like Mercantile
Marine Department (MMD), Labour, Trades, Customs Dept, State Governments, Defence
Services, Railways, Shipowners, Shippers, etc.
2.0 DEFINITIONS:
Some definitions are given below with explanatory notes.
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2.1 Appointed Day means the date on which this Act is made applicable to the port. Thus
the MPT Act, 1963, became applicable to all the major ports in India as under:-
(1) Vishakpatnam }
(2) Cochin } 29-02-1964
(3) Kandla }
(4) Murmagao 01-07-1964
(5) Paradeep 01-11-1967
(6) Calcutta }
(7) Mumbai } 01-02-1975
(8) Chennai }
(9) Tuticorin 11-07-1974
(10) New Mangalore 01-04-1980
(11) J.N.P 28-05-1982
2.2 Major Port - Same meaning as in the case of Indian Ports Act, 1908. The Indian Ports
Act defines 'Major Port' as any port which the Central Government may by notification in
the official Gazette declare, or may under any law for the time being in force have declared,
to be a major port.
2.3 Master - Any person except a Pilot or Harbour Master, having commercial or charge
of a ship.
2.4 Goods include livestock and every kind of movable property.
2.5 High Water Mark in relation to a port means a line drawn through the highest points
reached by ordinary spring tides at any season of the year at the port.
2.6 Port Approaches mean those parts of the navigable rivers and channels leading to
the port in which the Indian Ports Act is in force.
2.7 Pier - A pier can be erected, made or fixed within the limits of a port or port
approaches. It can, therefore, be a stage, a leading place or a platform constructed not only
at the end of a Pier but also anchored midstream as long as it is within the port approaches.
2.8 Low Water Mark in relation to a port, means a line drawn through the lowest points
reached by ordinary springtides at any season of the year at the port.
Owner of Goods includes any consignor, consignee, shipper or agent for the sale, custody,
loading or unloading of such goods.
2.9 Owner of Vessel means any shipowner, charterer, consignee or mortgagee in

possession of the vessel.
2.10 Rate includes any toll, dues, rent, rate, fee or charge leviable under the Act.
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2.11 Vessel includes anything made for the conveyance, mainly by water, of human beings
or of goods.
2.12 Wharf includes any wall or stage and any part of the land or foreshore that may be
used for loading or unloading of goods or for the embarkation or disembarkation of
passengers and any wall enclosing or adjoining the same.
2.13 Goods are wares and merchandise of every description.
2.14 Trustee in relation to a port means a member of the Board constituted for the port.
3.0 WORKS & SERVICES:

3.1 Board to execute works and provide appliances (S.35). Such works and appliances
may include:
(a) Wharfs, quays, docks, jetties, piers, etc.

(b) Buses, railways, warehouses, sheds, etc.
(c) Moorings, cranes, scales, etc.
(d) Dredgers
(e) Lighthouses, buoys, pilot boats, etc.
3.2 When the necessary facilities like sheds, berths, warehouses, etc. necessary for cargo
handling and storage of cargo or passenger embarkation/disembarkation facilities
constructed are ready for use, it is necessary for the port to obtain permission from the
Customs authorities before they are put to use. This is necessary also under section 8 of the
Customs Act, 1962. After obtaining Customs approval and by notification published in three
consecutive issues of Government Gazette, the ports can declare that the said facilities are
ready for use. Once the declaration is made, the port can force the ships to use the facilities
created by the port, provided it is convenient for the shipper and vessels to load or unload
cargo. The Board also has power to remove vessels from docks and not allow them to come
alongside.
3.3 If the Central Government is satisfied that it is in the public interest to grant
exemption for certain vessels or certain specified goods to be handled at a place other than
the places notified in the gazette, it can permit so. Even this exemption will be subject to
payment of such charges and conditions specified by the Government.
3.4 S. 42(1) enumerates the services that the Board shall have the right to provide:
[Board alone has the right to provide such services]
(a) Landing, shipping, transshipping passengers/goods between vessels in the port,

wharves, etc.
(b) Acquiring, shifting, storing, delivering goods in Board’s premises
(c) Carrying passengers by rail or other means within port limits
(d) Recovering and delivering, booking and dispatching goods from vessel in the port
and intended for carriage by railways and vice versa.
(e) Piloting, hauling, mooring, etc of vessel.
(f) Developing and providing infrastructure facilities for port.
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3.5 Sea-going vessel as defined in section the Merchant Shipping Act, 1958, means a
vessel proceeding to sea beyond inland waters. Whether the vessel is sea-going or not, the
provisions regarding notification will apply.
3.6 The liability of the Board of Trustees for the destruction, loss or deterioration of
goods is that of a bailee under the Indian Contract Act, 1872. As a bailee, the Board should
take such care of the cargo entrusted to it as any person of ordinary prudence would take in
respect of his own cargo. As a bailee the Board is required to prove that sufficient care has
been taken and there has been no negligence on its part and to that extent the onus to do
so is on the Board.
3.7 It must be remembered that Board is not the agent of the consignee as observed by
the Supreme Court. The relationship of bailor and bailee is between the Port Trust and the
shipowner/agent. It is for this reason that once a receipt for goods is given to the
shipowner/ agent, a complete discharge is given to the shipowner/agent.
3.8 Loss of goods in consignment is not quite the same as non-delivery of the goods.
Loss means the goods are lost and non-traceable while non-delivery means goods are not
delivered. If the non-delivery is due to the Board's negligence or inadvertence, it is a case of
loss rather than non-delivery.
3.9 Destruction is a total loss of cargo as it is a loss to the owner for which the Board is
responsible.
3.10 Deterioration means impairing or reducing the value of articles contained in the
parcel or package and if it is due to negligence on the part of Board, then it is a loss for
which the Board is responsible.
3.11 The duty of taking charge of the goods after they are landed is the duty of the Board
of Trustees and the employees who do work are agents and not servants of the Board.
3.12 The responsibility for loss/destruction/deterioration of any goods taken charge for
carriage by railways will be governed by the provisions of Indian Railway Act, 1890. In all
other cases, it will be that of a bailee under the Indian Contract Act, 1872.
3.13 However, the Board's responsibility will be restricted to (a) to goods for which
receipt has been issued (b) to such period as may be prescribed by regulation from the date
of taking charge of such goods by the Board.
3.14 Under the Port of Mumbai (Responsibilities for Goods) Regulation the period
prescribed for responsibility for loss or damage shall be seven (7) clear working days from
the date of taking charge. The said regulation also states that the notice of loss or damage
to the goods of which the Board has taken charge shall be given within a period of seven
clear working days from the date of taking charge. In computing the period of seven clear
working days shall not be taken into account of the day of taking charge of the goods.
3.15 If the consignee/shipper does not clear the cargo or bring to the notice of the port
authorities of the loss/destruction/damage to his goods within seven working days from the
date of landing, port is absolved from liability regarding loss/damage etc. of the goods.
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3.16 The Board is required to provide accommodation to the Customs authorities for their
use in the port. The said place is to be maintained by the port. The port is entitled to levy
charges form the Collector of Customs for providing such a facility.
4.0 Tariff Authority for Major Ports (TAMP):

4.1 From 1996 onwards a new chapter "Tariff Authority for Major Ports" has been
included The chapter deals with contribution and incorporation of Tariff Authority for Major
Ports, terms of office and conditions of service etc. of chairperson and other members, etc.
In other words, it deals with how the authority will function and how their meetings will be
held.
4.2 With the amendments from 1996 the authority for framing scale of rates issued
vests with the "Tariff Authority for Major Ports" and not with the Board of Trustees or
Central Government. The Tariff Authority can frame scale of rates and after notification in
the Government Gazette, it shall become effective in all the Major Ports.
4.3 The Board is empowered to remit a part or whole of the charges due to it. This could
be either for goods detained by customs for analytical test or technical test or goods
detained for completing formalities or for other reasons. The Board is also empowered to
remit part or whole of the demurrage or ex-gratia on humanitarian grounds, for charitable
or research institutions, etc.
4.4 Once the goods are handed over to the Board, it is the responsibility of the Board to
store the goods safely and handed over to the consignees on presentation of documents
and payment of Board's charges. If, however, the shipowner/agent, before landing of the
goods, issue a notice in writing to the Board that the goods are to be delivered only on
payment of freight and other charges and not otherwise, the shipowner/agent has in law a
lien for freight over the said goods. The lien will be to the extent of amount mentioned in
the written notice. In such case, the Board cannot deliver the goods to the consignee unless
the importer obtains a receipt for discharge of lien and produces it to the Board.
4.5 Board has LIEN for rates in respect of any goods and may seize and detain the same
until such rates and rents are fully paid.
4.6 `Such lien shall have priority over all other liens and claims, except for G.A. and for
shipowner's lien upon the said goods for freight and other charges where such lien exists
and for money payable to the Central Government relating to Customs.
4.7 The Board may, after the expiry of two months from the date when goods have
passed into its custody, or in case of animals and perishable and has arduous goods within
24 hours from landing, sell by public auction or in any other manner. If rates payable to the
Board in respect of such goods have not been paid or if any rent payable for storage has not
been paid or if a lien of shipowner for freight has not been discharged and if the shipowner
has made to the Board an application for such sale.
4.8 Before making such sale the Board shall give 10 days’ notice of the same in the Port
Gazette and also in one of the principal local newspapers. In the case of animals and
perishable or hazardous goods, the Board may give a shorter notice.
4.9 Notice shall also be given to the owner of the goods if his address is known.
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4.9 Arms and ammunition and controlled goods may be sold at any time and in any
manner as the central Government may direct.
4.10 Uncleared goods lying in the port can be disposed of by sale or by auction or by
other arrangements after two months from the date of landing if the dues or rent payable
to the Board have not been paid. The condition of sale are as under.
Type of cargo after the expiry of
1. Non-hazardous and non-perishable goods. Two months from the date of

landing.
2. Animals, perishable or hazardous goods. Any time after 24 hours from

Landing.
3. Arms and Ammunitions and controlled As per the direction of the Govt.
goods.
4.11 Controlled goods are goods contracted by the Customs or detained by the Customs
and other investigation agencies for investigation.
4.12 Before making such a sale, the Board shall give 10 days' notice by publishing in the
State Government Gazette and also at least in one of the principal daily newspapers. In the
case of animals or hazardous/perishable cargo, the notice may be shorter, depending upon
the nature and urgency of the situation. If the address of the consignee is known, a notice
shall be issued to him by a letter. However it must be remembered that failure to issue a
notice to the importer by the Board does not invalidate the sale. Goods once sold, the
purchaser's right of ownership cannot be questioned.
4.13 The Board is permitted to issue a notice to the importer after one month from the
date of landing, if the rates or rent due to the Board are not paid and the goods remain
uncleared requiring the importer to remove the goods forthwith stating that default of
compliance, the goods are liable to the disposed off. If the rates and rent due to the Board
have been paid but the goods are not cleared, no notice shall be issued until the expiry of
two months from the date of landing of goods. The Board is also empowered to grant
exemption of any goods for clearance of the goods from the operation of this provision.
4.14 The sale proceeds shall be allocated in the order indicated by the Act. It must be
noted that after allocation for meeting the sale expenses and lien on freight, if any, the next
priority is Custom's duty. It is only after allocation of Custom's duty that port charges for the
limited period are allocated.
4.15 Perhaps after allocation as prescribed, surplus if any is payable to the importer
provided he or his agent makes an application for this purpose within 6 months from the
date of sale. Where no application is received within the prescribed time limit, the surplus
shall be appropriated by the Board.
4.16 Where such proceeds after allocation as described above is not sufficient to meet
the balance of port charges upto the date of sale mentioned, the port under the Act can file
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a suit against the importer for recovery of port charges. Suits can be filed upto three years
from the date of sale under the provision of the Indian Limitation Act, 1963.
5.0 SUMMARY :
5.1 Formerly, there were 6 major ports in India [Now 12].
(a) Mumbai, Kolkata, Chennai – Independent Acts / Port Trusts;

(b) Vishakhapatnam, Kochi, Kandla – Administrated directly by Government of
India;
5.2 Major Port Trust Act enacted in 1963 – Applicable to all major ports.
5.3 Aim:
(a) To constitute port authorities for major ports;
(b) To vest administration/control/management of these ports in such authorities.
5.4 Constitution of Board of Trustees:

(a) Chairman, Deputy Chairman and not more than 19 persons ---- Mumbai,
Kolkata, Chennai ports;
(b) Chairman, Deputy Chairman and not more than 17 persons ---- other ports;
(c) Persons represent labor, trade, mercantile marine department, customs
department, State Government, defence, railways, etc.
5.5 Board a body corporate, perpetual succession, common seal, acquire/dispose

property, sue and be sued.
5.6 Board to execute works and provide appliances (S.35)

(a) Wharfs, quays, docks, jetties, piers, etc.
(b) Buses, railways, warehouses, sheds, etc.
(c) Moorings, cranes, scales, etc.
(d) Dredgers
(e) Lighthouses, buoys, pilot boats, etc.
5.7 Power of Board to order sea-going vessels to use docks, wharves, etc.(S. 37).
5.8 Port users to use only the facilities provided by Port Trust (S. 38).
5.9 Power to order the vessel to vacate the berth, etc. (S. 39).
5.10 Similar facilities to be provided by Board for non-sea-going vessels engaged in

coastal trade such as ferry services, fishing, and other small vessels/boats.
5.11 S.42 (1) enumerates the services that the Board shall have the right to
provide:[Board alone has the right to provide such services] :
(a) Landing, shipping, transshipping passengers/goods between vessels in the
port, wharves, etc.
(b) Acquiring, shifting, storing, delivering goods in Board’s premises.
(c) Carrying passengers by rail or other means within port limits.
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(d) Recovering and delivering, booking and dispatching goods from vessel in the
port and intended for carriage by railways and vice versa.
(e) Piloting, hauling, mooring, etc of vessel.
(f) Developing and providing infrastructure facilities for port.
5.12 Responsibility of Board for loss, destruction, deterioration of goods (S. 43):
(a) Goods received for carriage by railway -------- Railway Act 1989.
(b) Other cases --------- bailee u/s 151,152 & 161 of Contract Act.
5.13 No responsibility shall attach to Board:

(a) Until a receipt [mentioned u/s 42(2)] is given by Board; and
(b) After expiry of prescribed period (7 clear working days from date of taking
delivery of goods by the Board);
(c) Board not responsible unless notice of loss/damage given within prescribed
period (7 clear working days from date of taking charge of goods by the
Board).
5.14 Tariff Authority for Major Ports [TAMP]:

(a) Major Port Trust Act amended in 1997 to constitute Tariff Authority for
Major Ports;
(b) Tariff Authority for Major Ports an independent authority/body corporate
with perpetual succession, common seal and capable of suing and being
sued;
(c) Regulates all tariffs, both vessel related and cargo related, and rates for lease
of properties in respect of Major Port Trust;
(d) Empowered to frame scales of rules for different services, frame fees for
pilotage and other services, fixing of port dues of vessels in ballast, vessel not
discharging/ taking in cargo, etc.
5.15 Refund of overcharges:

(a) Person to make a claim in writing within 6 months of payment
(b) Board of its own motion at any time.
5.16 Notice of payment of charges short-levied/erroneously refunded [S. 56]:

(a) After giving a show-cause notice.
(b) No notice to be issued after.
5.17 Time for payment of rates on goods [S.58]:

(a) Goods to be landed ------------ immediately on landing.
(b) Goods to be removed from Board’s premises or shipped for export or
transshipped ----------- before removal, shipment, transshipment.
5.18 Board’s lien on goods in its possession as a bailee [S.59]:

(a) For all rates and charges payable on goods; and
(b) Rents due to Board for any building, plinths for storing goods.
5.19 Board’s lien to have priority over all other liens and claims except:
(a) General average.
(b) Ship owners lien for freight and other charges; and
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(c) Money payable to Central Government for customs duties excluding
penalties.
5.20 In addition to particular lien, Board also has general lien u/s 171 of Contract Act. In
Board of Trustees of Port of Bombay v Shriyanesh Knitters AIR 1999 SC 2947, the Supreme
Court held that claims for wharfage and demurrage are covered under ‘general balance of
account’
5.21 Ship-owner’s lien for freight and other charges[S. 60]:

(a) Master to cause notice in writing to Board claiming lien at or before landing
of goods.
(b) Once notice given, ship owner’s lien to have priority over Board’s lien.
(c) Though Board will take custody of goods, goods at risk and expense of owner
of goods till ship owner’s lien is discharged.
5.22 Sale of goods after 2 months after landing rates/rents not paid or lien for freight not
discharged [S.61] :
(a) Shorter period of notice (but not less than 24 hrs) in case of animals,
perishable or hazardous goods.
(b) Goods sold by public auction.
(c) If sold by tender/private agreement/any other manner, then reason to be
recorded in writing before sale.
(d) Board also to give 10 days’ notice (shorter in case of animals, etc.) in Port
Gazette, or where no Port Gazette then in Official Gazette and in at least one
principal local daily newspaper.
(e) Not applicable to arms and ammunition or controlled goods.
5.23 Disposal of goods not removed from Board’s premise within time limits [S.62]:
(a) Over-riding section empowering Board to serve public notice to owner whose
goods not removed within one month from date of custody with Board
(shorter notice in case of animals, etc.).
(b) Default entitles Board to sell goods by public auction/tender/private
agreement/other manner.
(c) But where rates/charges have been paid, no notice of removal to be
served/published unless2 months have expired.
(d) Notice to be served upon owner. If address is not known, published in
Port/Official Gazette and newspaper.
(e) Notice may also be served on agent of the vessel [S.62(2)].
5.24 Application of sale proceeds: [S.63]:
5.25 The sale proceeds u/ss. 61 &62 shall be applied as follows:

(a) Payment of expenses of sale;
(b) Payment of liens payable in priority to Board’s lien;
(c) Payment of rates/charges due to Board up to a period of four months only.
(d) Payment of fine or penalties due to Central Government.
(e) Dues of Board beyond first 4 months.
(f) Surplus, if any, to be given to the owner of goods.
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5.26 Recovery of rates/charges by distraint of vessel [S.64]:
(a) Distraint of vessel.

(b) Sale of vessel is charges unpaid for 5 days after arrest of vessel.
ooooo
1. What were the reasons to introduce Major Port Trusts Act, 1963?
2. Which ports had their own Acts before the introduction of MPT Act, 1963?
3. Define a Major Port.
4. State the responsibility of the Board for loss/destruction of goods.
5. State the shipowner's lien for freight and other changes under the Act.
6. What are the conditions for sale of cargo.
7. How are sale proceeds allocated under the Act?
8. How are new scale of rates passed in major ports?
9. What responsibility does the port have under the Indian Contract Act?
10. Write a short note on "Tariff Authority of Major Ports".
11. Define the following under the Act: Appointed day, rate, pier, wharf and owner of
vessel.
Commentary on Major Port Trusts Act, 1963 -- A.B. Gandhi.
******************
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LESSON - 22
HEALTH & HEALTH REGULATIONS
1.0 The Master of a foreign-going ship when approaching a port in India from a foreign
port must ascertain the state of health of all personnel on board on board and must fill in
and sign the declaration of health as set forth. The Master has a duty to report on the health
condition of his vessel and also about any circumstances on board which are likely to cause
the spread of infectious diseases. He must make a report if his ship is not a “healthy ship”.
1.1 The ship can also be an “infected ship” if it has on board on arrival a case of a disease
subject to the international health regulations or other infectious disease where a plague
infested rodent is found on arrival. A ship is a “suspected ship” if it does not have on board
persons who have certain diseases, but which has called at some infected place before
arrival or where there was cholera on board before arrival or where there is evidence of
abnormal mortality among rodents, the cause of which is unknown. A vessel is a “healthy
ship” if it is neither infected nor suspected.
2.0 Free Pratique: This is also referred to as Certificate of Free Pratique. It is a certificate
issued by the Port Health Authorities that the ship is without infectious diseases or plague
on board and therefore permitted to enter the port and allow people to board and
disembark from the vessel. In the early days many ports required arriving vessels to drop
anchor at a “Quarantine Anchorage” and be cleared by the Port Health authorities after a
stringent inspection. This began to create problems as Masters’ found that the Notice of
Readiness (NOR) would not be accepted by the receivers. In recent times free pratique can
be obtained by radio (called a Radio Free Practique), still after the vessel arrives, the Master
is required to fill up the Maritime Declaration of Health.
3.0 Typically in India when a foreign going ship arrives the pilot who boards the arriving
vessel hands over a Maritime Declaration of Health to the Master. If the answer to all the
questions is negative the pilot brings the ship alongside to the berth. If any of the answer is
yes, the pilot takes the ship to a “Quarantine Anchorage” for inspection and clearance by
the Port Health Authorities. The questions in the Maritime Declaration of Health are as
follows:
(i) Has there been on board during the voyage any case or suspected case of plague,
cholera, yellow fever, small pox, typhus or relapsing fever? Give particulars in the
schedule.
(ii) Has plague occurred or been suspected among the rats or mice during the
voyage or has there been an abnormal mortality among them?
(iii) Has any person died on board during the voyage otherwise than as a result of
accident? Give particulars in the schedule.
(iv) Is there on board or has there been during the voyage any case of disease which
you suspect to be of an infectious nature? Give particulars in the schedule.
(v) Is there any sick person on board now? Give particulars in the schedule.
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(Note: In the absence of a surgeon, the Master should regard following symptoms as
ground for suspecting the existing of disease of an infectious nature: fever
accompanied by prostration or persisting for several days or attended with glandular
swelling; or any acute skin rash or eruption with or without fever; severe diarrhea
with symptoms of collapse; jaundice accompanied by fever).
(vi) Are you aware of any other condition on board which may lead to infection or
the spread of disease?
4.0 In India the Ministry of Health and Family Welfare (Department of Health) has
prepared and issued the Indian Port Health Rules 1955. Since then there has been a radical
change in the scenario of global disease owing to which the Director General of Health
Services, in collaboration with the World Health Organization (WHO) organized an expert
committee to suggest amendments to the existing rules. This meeting was held at Mumbai
on December 15th and 16th 1989. However, the amendments have still not been effected.
Therefore the Indian Port Health Rules 1955 are today in existence and valid. Some
important rules are given below:
4.1 The Indian Port Health Rules 1955.
4.1.1 Rule 1- These rules may be called the Indian Port Health Rules 1955.
4.1.2 Rule 2- Due to changing concepts in Epidemiology of diseases global eradication or

small pox, emergence of newer disease and increasing international traffic, following
terminology has also been amended for the purpose of these rules:
Existing Amended
Quarantinable diseases Diseases subject to the regulations
Minicoy Deleted
Small pox All rules relating to small pox deleted
Sanitary Health
4.1.3 In these rules unless there is anything repugnant in the subject or context:
a) “arrival” means arrival of a vessel at an Indian Port.
b) “baggage” means the personal effects of a traveler or of a member of the crew.
c) “cattle” means horses, camel, sheep, cow, bull, buffalo – cow and all other
ruminating animals and also swine:
d) “contamination” means the presence of undesirable substance or material which

may contain pathogenic micro organisms.
e) “container” (freight container) means an article or transport equipment.

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f) “crew” means the personnel of a ship employed for duties on board.
g) “day” means and interval of 24 hours.
h) “diseases subject to the regulation” (Quarantinable diseases) means cholera,

including cholera due to eltor vibrio, plague and yellow fever.
i) “disinfesting” means the operation in which measures are taken to kill the insect
vectors of human disease present in vessels and container.
j) “epidemic” means an extension of a disease subject to the regulations.
4.1.4 Rule 3- The Health Officer may for the purpose of these rules inspect any vessel on
arrival or already in port.
4.1.5 Rule 4- The Master of every vessel arriving at any Port shall show until the vessel has
received free pratique under these rules, whichever of the following signals are appropriate.
a. By day, during the whole of the time between sunrise and sunset when the ship
is within five kilometers of the coast-
(i) The flag signal Q meaning “my vessel is healthy and I request free pratque”.
(ii) The 2 flag signal QQ meaning “my vessel is suspected”
(iii) The 2 flag signal QL meaning “my vessel is infected”
b. By night – During the whole of the time between sunset and sunrise but only
when the vessel is within 5 kms of the coast, a signal which shall be shown at the
peak or other conspicuous place where it can best be seen, comprising a red light
over a white light, the lights being not more than 2 mtrs apart and meaning “I
have no free pratique”. Provided that the authorities at a Port may, with the
previous approval of the Central Government, notify alternative signals not
conflicting with the International Code for use by vessels visiting the Port
frequently.
4.1.6 Rule 9- Every medical practioner who becomes cognizant that nay person on board
any vessel in the Port is suffering from a disease subject to the regulations or an infectious
disease shall immediately give notice thereof by telephone and in wiring to the Health
Officer.
4.1.7 Rule 27- A healthy ship shall be given free pratique, but if it has come form a
cholera infected area the measures specified in sub-clauses (1) & (7) of clause A of Rule 25
may be taken at the discretion of the Health Officer.
4.1.8 In addition the Health Office may apply the following measures to a person who
within five days of arrival in India was in a cholera infected area and to a person who arrives
in a Port on the Andaman and Nicobar Islands from a Port on the mainland.
a) If he is in possession of a valid certificate of vaccination against cholera, he may
be placed under surveillance for a period of not more than 5 days reckoned form
the date of his departure from the infected area or from a Port on the mainland.
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b) If he is not in possession of such a certificate, he may be placed in isolation for a
like period.
4.1.9 Rule 28 – (1) No ship shall bring to India any person who has been in a yellow fever
infected area within 9 days of embarkation unless such a person is vaccinated against yellow
fever. In addition no ship which has started from or touched at any Port in a yellow fever
infected area within 30 days of its arrival in India shall bring to India any person even though
he may not have been in a yellow fever infected area unless such a person is vaccinated
against yellow fever.
4.1.10 Rule 28 (2) - The proof of vaccination against yellow fever shall consist in the
possession of a certificate in the form laid down in appendix 2 to these rules.
4.1.11 Rule 28 – (3) If any ship brings to India any person not vaccinated against yellow
fever in contravention of sub-rule 1 then without prejudice to any other proceedings that
may be taken against the Master of the ship the health officer may, in his discretion apply
the measures prescribed in clause V of rule 31.
4.1.12 Rule 35 –
1 - A ship shall be regarded as infected with small pox if it has a case of small pox on
board or if a case of small pox has occurred on board during the voyage.
2- Any other ship shall be regarded as healthy even though there may be suspects on
board but any suspect on disembarking may be subjected to the measures provided
for in clause iii of rule 36.
5.0 Deratting Certificate and Deratting Exemption Certificates: According to part IV rule
57, every ship should be periodically deratted or permanently kept in such a condition that
the number of rodents on board are negligible. No ship is allowed to sail for a foreign port
without being in possession of a Deratting Certificate or a Deratting Exemption Certificate.
This is required as per Article 17 of the International Sanitary Regulations (ISR). The validity
of the certificate is for six months.
6.0 A Port Officer carries out health Inspection of all ships. When a Master of a ship
makes an application for deratisation of his vessel, the Port Health Officer carries out an
inspection of the entire ship. If he is satisfied that the ship is free of rodents or is kept in a
condition that the number of rodents on board is negligible, he shall issue a Deratting
Exemption Certificate.
However, if after the ship has been inspected the Port Health officer is not so satisfied he
shall require the ship to be deratted in a manner to be determined by him. The Master shall
forthwith make arrangements for any deratting required by the Port Health Officer. When
the deratting has been completed, to the satisfaction or the Port Health Officer, he shall
issue a Deratting Certificate.
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THE INDIAN PORT HEALTH RULES - 1955
Part / Sub-Part Contents Rules

------------------------------------------------------------------------------------------------------------
I Introductory Rule 1 & 2(1) to 2 (33)
II A Vessles Arriving - General 3&4

Provisions
B Quarantine Message 5
C Granting of Pratique 6 – 10
III A Infected & Suspected Vessels 11 – 21

Isolation & Surveillance of
Persons, restrictions & remand
of vessels
B Special Provisions relating to 22

Vessels arriving in an area where
Malaria or other mosquito
Borne diseases could develop from
Imported vectors
C Vessels of National & Foreign 23

armed services.
D Animal quarantine 24 – 25
E Vessels arriving with Haj Pilgrims 26
F Special Provisions relating to diseases

subject to the Regulations
G Special Provisions relating to Infectious 28

diseases
IV A Health Inspection of vessels 29
B Health Inspection of sailing vessels and 30

Fishing barges
V A Vessels departing – General Provisions 31 – 37
B Special provisions relating to Pilgrim

vessles
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C Provisions relating to rodent 39
VI A Provision relating to the carriage of 40

dead bodies & cremated bodies
B Provisions relating to death on board 41
VII Health inspection in port area 42 – 45
VIII Miscellaneous rules 46 – 65
IX A Penalities 66
B Service Charges 67
X Powers & duties of Health Officer 68
98
THE INDIAN PORT HEALTH RULES – 1955
INDEX - 22 SCHEDULES & ANNEXURE
PART CONTENTS
------------------------------------------------------------------------------------------------------------
Schedule 1 Special Provisions relating to Diseases subject to

The Regulations;
A) Plague
B) Cholera including Cholera due to Eltor Vibrio
C) YELLOW FEVER;
Schedule 2 Special Provisions relating to Infectious Disease
Schedule 3 Special Provisions relating to Malaria or other

Mosquito
Borne Disease;
Schedule 4 Special Provisions relating to Rodent Control, Deratting

Certificates and Deratting Exemption Certificate
Schedule 5 Special Provisions relating to Carriage of Dead bodies

and Cremated Remains
Schedule 6 Special Provisions applicable in the event of Death on

Board
Schedule 7 Special Provisions relating to import of monkeys
Schedule 8 International Health Regulations – Pratique Messages
Schedule 9 Recommended Code of Health Practices for Supply of

Drinking Water from the shore to the vessels
Schedule 10 Health Code for supply of Food Articles to Vessels
Schedule 11 Sanitary Inspection Notice
Schedule 12 Health Inspection of Vessels
Schedule 13 Certificate of Medical Inspection
Schedule 14 Health and deratting Certificate issued to sailing &

Fishing Vessels
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Annexure 1 Maritime Declaration of Health
Annexure 2 Deratting / Deratting Exemption Certificate Proforma
Annexure 3 International Certificate of Vaccination against Yellow

Fever – Proforma
Annexure 4 Certificate of disinfectious/fumigation
Annexure 4 (a) Dead Body Certificate – Proforma
Annexure 4 (b) No Objection Proforma for Dead Body
Annexure 5 Certificate of Health Inspection – Proforma
Annexure 6 Schedule to the Declaration of every case of illness / or

Death on Board – Proforma
Annexure 7 Proforma for issue of Deratting Exemption Certificate

for “Sailing Vessels”
Annexure 8 Proforma for Bill of Health for Pilgrim Ship Resolutions
1. Define (a) infected ship (b) suspected ship (c) health ship.
2. Write a short note on free pratique.
3. Write a note on Indian Port Health Rules (1955)
4. What is “disinfesting” a ship?
5. Write a note on the flag signals/light signals.
6. What is a deratting certificate? Also explain the term “deratting exemption
certificate”.
************************
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INTERNATIONAL & NATIONAL HEALTH REGULATIONS
SUB TOPICS
1. Introduction.
2. Implementing the Revised International Health Regulations,2005 in India.
3. Salient points of the International Health Regulations, 2005.
4. Salient points of the Indian Port Health Rules,1955.
5. Concluding Remarks.
1.0 Introduction
1.1 The Master of a foreign-going ship when approaching a port in India from a foreign
port must ascertain the state of health of all personnel on board on board and must fill in
and sign the Maritime declaration of health as set forth as per the FAL, 1965 Convention.
The Master has a duty to report on the health condition of his vessel as per the health
regulations and also about any circumstances on board which are likely to cause the spread
of infectious diseases as per the provisions of the International Health Regulations 1969. He
must make a report if his ship is not a “healthy ship”.
1.2 The purpose of the International and national health regulations is to ensure
maximum security against the international spread of disease with minimum interference in
world trade and travel. The International Health Regulations 1969 to which India is party is
administered by World Health Organisation (WHO). It is the only legally binding global
agreement which focus on measures for preventing the transboundary spread of infectious
diseases. India is promulgating this through the India Port Health 1955 Rules.
1.3 The Government of India is considering to accede to the new health regulations
which provide a single code of procedures and practices for all participating counties, which
include routine measures at airports and seaports for preventing the importation and
exportation of disease and disease transmitting agents (that is mosquitoes, rats,
cockroaches etc).
2.0 Implementing the Revised International Health Regulations, 2005 in India:
2.1 On 23 May 2005, the World Health Assembly adopted the new International Health
Regulations (IHR). The revised IHR came into force on 15 June 2007 in 193 member
countries of the World Health Organization (WHO). The goal of the IHR is to prevent the
international spread of emerging infections such as severe acute respiratory syndrome
(SARS), a pandemic of human influenza, as well as other public health emergencies such as
chemical and industrial accidents that may affect populations across borders. The IHR (2005)
are an update of the IHR (1969), which were limited to the reporting of just 3 infectious
diseases—cholera, plague and yellow fever. The IHR (2005) are broader in scope and require
each country to report to the WHO ‘any public health emergency of international concern
(PHEIC)’, whether nuclear, biological or chemical in nature, irrespective of the origin. In
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contrast to the IHR (1969), which were restricted to the passive reporting of information by
governmental authorities, the IHR (2005) are proactive and include provisions that empower
WHO to initiate an assessment and response based not only on government reports but also
other relevant information and reports by the media and non-governmental organizations
(NGOs).
2.2 Diseases reportable under the IHR (2005) - The infectious diseases reportable under
the IHR (2005) include unusual diseases such as smallpox, wild poliovirus infection, human
influenza (new subtype), SARS; epidemic-prone diseases such as cholera, pneumonic plague,
yellow fever, viral haemorrhagic fevers, West Nile fever; and diseases of special regional
concern such as dengue fever (Fig. 1). There are several recent examples of internationally
notifiable infectious diseases that have occurred in India. In April 2007, in an outbreak of
Nipah virus infection in Nadia District in West Bengal, 5 individuals were infected and all
died. A total of 255 cases of poliomyelitis due to the wild-type virus have been reported in
India up to September 2007. Although no human influenza cases have been reported so far,
H5N1 outbreaks among poultry in Maharashtra, Gujarat and Madhya Pradesh and more
recently in Manipur indicate the need for continued vigilance. Outbreaks of water-borne
and vector-borne diseases such as cholera and dengue fever are also common in India.
2.3 The requirements that need to be fulfilled by WHO member countries to comply
with the IHR (2005) include (i) designating a national IHR focal point; (ii) strengthening core
capacity to detect, report and respond rapidly to public health events; (iii) assessing events
that may constitute a PHEIC within 48 hours and notifying WHO within 24 hours of
assessment; (iv) providing routine inspection and control activities at international airports,
ports and some ground crossings; and (v) examining national laws, revising health
documents/forms and certificates, and building a legal and administrative framework in line
with the IHR requirements. Member countries are required to complete the assessment of
existing national structures and resources by June 2009, and develop the necessary public
health infrastructure and human ???????
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3.0 Salient points of the International Health Regulations, 2005
3.1 The health regulations are very comprehensive document as against the earlier
document. This has 46 article supported by 9 annex and 2 appendix. An extract of the
relevant provisions are given below;
3.2 Article 1 Definitions
1. For the purposes of the International Health Regulations (hereinafter “the IHR” or
“Regulations”):
“affected” means persons, baggage, cargo, containers, conveyances, goods, postal

parcels or human remains that are infected or contaminated, or carry sources of
infection or contamination, so as to constitute a public health risk;
“affected area” means a geographical location specifically for which health measures
have been recommended by WHO under these Regulations;
“aircraft” means an aircraft making an international voyage;

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“airport” means any airport where international flights arrive or depart;
“arrival” of a conveyance means:
(a) in the case of a seagoing vessel, arrival or anchoring in the defined area of a port;
(b) in the case of an aircraft, arrival at an airport;
(c) in the case of an inland navigation vessel on an international voyage, arrival at a

point of entry;
(d) in the case of a train or road vehicle, arrival at a point of entry;
“baggage” means the personal effects of a traveller;
“cargo” means goods carried on a conveyance or in a container;
“competent authority” means an authority responsible for the implementation and

application of health measures under these Regulations;
3.3 Article 2 Purpose and scope:
1. The purpose and scope of these Regulations are to prevent, protect against, control
and provide a public health response to the international spread of disease in ways that are
commensurate with and restricted to public health risks, and which avoid unnecessary
interference with international traffic and trade.
3.4 Article 4 Responsible authorities:

1. Each State Party shall designate or establish a National IHR Focal Point and the
authorities responsible within its respective jurisdiction for the implementation of health
measures under these Regulations.
2. National IHR Focal Points shall be accessible at all times for communications with the
WHO IHR Contact Points provided for in paragraph 3 of this Article. The functions of
National IHR Focal Points shall include:
(a) sending to WHO IHR Contact Points, on behalf of the State Party concerned,
urgent communications concerning the implementation of these Regulations, in
particular under Articles 6 to 12; and
(b) disseminating information to, and consolidating input from, relevant sectors of
the administration of the State Party concerned, including those responsible for
surveillance and reporting, points of entry, public health services, clinics and
hospitals and other government departments.
3. WHO shall designate IHR Contact Points, which shall be accessible at all times for
communications with National IHR Focal Points. WHO IHR Contact Points shall send urgent
communications concerning the implementation of these Regulations, in particular under
Articles 6 to 12, to the National IHR Focal Point of the States Parties concerned. WHO IHR
Contact Points may be designated by WHO at the headquarters or at the regional level of
the Organization.
4. States Parties shall provide WHO with contact details of their National IHR Focal
Point and WHO shall provide States Parties with contact details of WHO IHR Contact Points.
These contact details shall be continuously updated and annually confirmed. WHO shall
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make available to all States Parties the contact details of National IHR Focal Points it
receives pursuant to this Article.
3.5 Article 23 Health measures on arrival and departure

1. Subject to applicable international agreements and relevant articles of these
Regulations, a State Party may require for public health purposes, on arrival or departure:
(a) with regard to travellers:
(i) information concerning the traveller’s destination so that the traveller may
be contacted;
(ii) information concerning the traveller’s itinerary to ascertain if there was
any travel in or near an affected area or other possible contacts with
infection or contamination prior to arrival, as well as review of the traveller’s
health documents if they are required under these Regulations; and/or
(iii) a non-invasive medical examination which is the least intrusive
examination that would achieve the public health objective;
(b) inspection of baggage, cargo, containers, conveyances, goods, postal parcels and
human remains.
3.6. Article 25 Ships and aircraft in transit Subject to Articles 27 and 43 or unless
authorized by applicable international agreements, no health measure shall be applied by a
State Party to:
(a) a ship not coming from an affected area which passes through a maritime canal
or waterway in the territory of that State Party on its way to a port in the territory of
another State. Any such ship shall be permitted to take on, under the supervision of
the competent authority, fuel, water, food and supplies;
(b) a ship which passes through waters within its jurisdiction without calling at a port
or on the coast; and
(c) an aircraft in transit at an airport within its jurisdiction, except that the aircraft
may be restricted to a particular area of the airport with no embarking and
disembarking or loading and discharging. However, any such aircraft shall be
permitted to take on, under the supervision of the competent authority, fuel, water,
food and supplies.
3.7 Article 28 Ships and aircraft at points of entry:
1. Subject to Article 43 or as provided in applicable international agreements, a ship or an

aircraft shall not be prevented for public health reasons from calling at any point of entry.
However, if the point of entry is not equipped for applying health measures under these
Regulations, the ship or aircraft may be ordered to proceed at its own risk to the nearest
suitable point of entry available to it, unless the ship or aircraft has an operational problem
which would make this diversion unsafe.
2. Subject to Article 43 or as provided in applicable international agreements, ships or

aircraft shall not be refused free pratique by States Parties for public health reasons; in
particular they shall not be prevented from embarking or disembarking, discharging or
loading cargo or stores, or taking on fuel, water, food and supplies. States Parties may
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subject the granting of free pratique to inspection and, if a source of infection or
contamination is found on board, the carrying out of necessary disinfection,
decontamination, disinfection or deratting, or other measures necessary to prevent the
spread of the infection or contamination.
3.8 Article 35 General rule No health documents, other than those provided for under
these Regulations or in recommendations issued by WHO, shall be required in international
traffic, provided however that this Article shall not apply to travellers seeking temporary or
permanent residence, nor shall it apply to document requirements concerning the public
health status of goods or cargo in international trade pursuant to applicable international
agreements. The competent authority may request travellers to complete contact
information forms and questionnaires on the health of travellers, provided that they meet
the requirements set out in Article 23.
3.9 Article 36 Certificates of vaccination or other prophylaxis:
1. Vaccines and prophylaxis for travellers administered pursuant to these Regulations,

or to recommendations and certificates relating thereto, shall conform to the provisions of
Annex 6 and, when applicable, Annex 7 with regard to specific diseases.
2. A traveller in possession of a certificate of vaccination or other prophylaxis issued in

conformity with Annex 6 and, when applicable, Annex 7, shall not be denied entry as a
consequence of the disease to which the certificate refers, even if coming from an affected
area, unless the competent authority has verifiable indications and/or evidence that the
vaccination or other prophylaxis was not effective.
3.10 Article 37 Maritime Declaration of Health:
1. The master of a ship, before arrival at its first port of call in the territory of a State
Party, shall ascertain the state of health on board, and, except when that State Party does
not require it, the master shall, on arrival, or in advance of the vessel’s arrival if the vessel is
so equipped and the State Party requires such advance delivery, complete and deliver to the
competent authority for that port a Maritime Declaration of Health which shall be
countersigned by the ship’s surgeon, if one is carried.
2. The master of a ship, or the ship’s surgeon if one is carried, shall supply any
information required by the competent authority as to health conditions on board during an
international voyage.
3. A Maritime Declaration of Health shall conform to the model provided in Annex 8.
4. A State Party may decide:

(a) to dispense with the submission of the Maritime Declaration of Health by all
arriving ships; or
(b) to require the submission of the Maritime Declaration of Health under a
recommendation concerning ships arriving from affected areas or to require it from
ships which might otherwise carry infection or contamination. The State Party shall
inform shipping operators or their agents of these requirements.
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3.11 Article 39 Ship sanitation certificates:
1. Ship Sanitation Control Exemption Certificates and Ship Sanitation Control
Certificates shall be valid for a maximum period of six months. This period may be extended
by one month if the inspection or control measures required cannot be accomplished at the
port.
2. If a valid Ship Sanitation Control Exemption Certificate or Ship Sanitation Control

Certificate is not produced or evidence of a public health risk is found on board a ship, the
State Party may proceed as provided in paragraph 1 of Article 27.
3. The certificates referred to in this Article shall conform to the model in Annex 3.
4. Whenever possible, control measures shall be carried out when the ship and holds
are empty. In the case of a ship in ballast, they shall be carried out before loading.
5. When control measures are required and have been satisfactorily completed, the
competent authority shall issue a Ship Sanitation Control Certificate, noting the evidence
found and the control measures taken.
6. The competent authority may issue a Ship Sanitation Control Exemption Certificate
at any port specified under Article 20 if it is satisfied that the ship is free of infection and
contamination, including vectors and reservoirs. Such a certificate shall normally be issued
only if the inspection of the ship has been carried out when the ship and holds are empty or
when they contain only ballast or other material, of such a nature or so disposed as to make
a thorough inspection of the holds possible.
7. If the conditions under which control measures are carried out are such that, in the
opinion of the competent authority for the port where the operation was performed, a
satisfactory result cannot be obtained, the competent authority shall make a note to that
effect on the Ship Sanitation Control Certificate.
4.0 The Salient Points of Indian Health Rules,1955:
4.1 The salient points of the existing port health regulations that is being implemented
and enforced by the Port health officer under the Indian Ports Act, 1908 and Merchant
Shipping Act,1958 are given below;
4.1.1 The ship can also be an “infected ship” if it has on board on arrival a case of a
disease subject to the international health regulations or other infectious disease
where a plague infested rodent is found on arrival. A ship is a “suspected ship” if it
does not have on board persons who have certain diseases but which have called at
some infected place before arrival or where there was cholera on board before
arrival or where there is evidence of abnormal mortality among rodents, the cause
of which is unknown. A vessel is a “healthy ship” if it is neither infected nor
suspected.
4.1.2 Free Pratique: This is also referred to as Certificate of Free Pratique. It is a

certificate issued by the Port Health Authorities that the ship is without infectious
diseases or plague on board and therefore permitted to enter the port and allow
people to board and disembark from the vessel. In the early days many ports
required arriving vessels to drop anchor at a “Quarantine Anchorage” and be cleared
by the Port Health authorities after a stringent inspection. This began to create
problems as Masters’ found that the Notice of Readiness (NOR) would not be
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accepted by the receivers. In recent times free pratique can be obtained by radio
(called a Radio Free Practique) Still after the vessel arrives, the Master is required to
fill up the Maritime Declaration of Health.
4.2 Typically in India when a foreign going ship arrives the pilot who boards the arriving
vessel hands over a Maritime Declaration of Health to the Master. If the answer to all the
questions is negative the pilot brings the ship alongside to the berth. If any of the answer is
yes, the pilot takes the ship to a “Quarantine Anchorage” for inspection and clearance by
the Port Health Authorities. The questions in the Maritime Declaration of Health are as
follows:
4.2.1 Has there been on board during the voyage any case or suspected case of
plague, cholera, yellow fever, small pox, typhus or relapsing fever? Give particulars in
the schedule.
4.2.2 Has plague occurred or been suspected among the rats or mice during the
voyage or has there been an abnormal mortality among them?
4.2.3 Has any person died on board during the voyage otherwise than as a result of
accident? Give particulars in the schedule.
4.2.4 Is there on board or has there been during the voyage any case of disease
which you suspect to be of an infectious nature? Give particulars in the schedule.
4.2.5 Is there any sick person on board now? Give particulars in the schedule.
4.2.6 Are you aware of any other condition on board which may lead to infection
or the spread of disease?
4.3 In India the Ministry of Health and Family Welfare (Department of Health) has
prepared and issued the Indian Port Health Rules 1955. Since then there has been a radical
change in the scenario of global disease owing to which the Director General of Health
Services, in collaboration with the World Health Organization (WHO) organized an expert
committee to suggest amendments to the existing rules. This meeting was held at Mumbai
on December 15th and 16th 1989. However, the amendments have still not been effected.
Therefore the Indian Port Health Rules 1955 are today in existence and valid. Some
important rules are given below:
4.3.1 Rule 1- These rules may be called the Indian Port Health Rules 1955
4.3.2 Rule 2- Due to changing concepts in Epidemiology of diseases global eradication or

small pox emergence of newer disease and increasing international traffic, terminology has
also been amended for the purpose of these rules :In these rules unless there is anything
repugnant in the subject or context:
1. “arrival” means arrival of a vessel at an Indian Port.
2. “baggage” means the personal effects of a traveler or of a member of the crew.
3. “cattle” means horses, camel, sheep, cow, bull, buffalo – cow and all other
ruminating animals and also swine.
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4. “contamination” means the presence of undesirable substance or material which
may contain pathogenic micro organisms.
5. “container” (freight container) means an article or transport equipment.
6. “crew” means the personnel of a ship employed for duties on board.
7. “day” means and interval of 24 hours.
8. “diseases subject to the regulation” (Quarantinable diseases) means cholera,
including cholera due to eltor vibrio, plague and yellow fever.
9. “disinfesting” means the operation in which measures are taken to kill the insect
vectors of human disease present in vessels and container.
10. “epidemic” means an extension of a disease subject to the regulations.
4.3.3 Rule 3- The Health Officer may for the purpose of these rules inspect any vessel on
arrival or already in port.
4.3.4 Rule 4- The Master of every vessel arriving at any Port shall show until the vessel has
received free pratique under these rules, whichever of the following signals are appropriate.
c. By day, during the whole of the time between sunrise and sunset when the ship
is within five kilometers of the coast-
(iv) The flag signal Q meaning “my vessel is healthy and I request free pratque”.
(v) The 2 flag signal QQ meaning “my vessel is suspected”
(vi) The 2 flag signal QL meaning “my vessel is infected”
d. By night – During the whole of the time between sunset and sunrise but only
when the vessel is within 5 kms of the coast, a signal which shall be shown at the
peak or other conspicuous place where it can best be seen, comprising a red light
over a white light, the lights being not more than 2 mtrs apart and meaning “I
have no free pratique”. Provided that the authorities at a Port may, with the
previous approval of the Central Government, notify alternative signals not
conflicting with the International Code for use by vessels visiting the Port
frequently.
4.3.5 Rule 9- Every medical practioner who becomes cognizant that nay person on board
any vessel in the Port is suffering from a disease subject to the regulations or an infectious
disease shall immediately give notice thereof by telephone and in wiring to the Health
Officer.
4.3.6 Rule 27- A healthy ship shall be given free pratique, but if it has come form a
cholera infected area the measures specified in sub-clauses (1) & (7) of clause A of Rule 25
may be taken at the discretion of the Health Officer.In addition the Health Office may apply
the following measures to a person who within five days of arrival in India was in a cholera
infected area and to a person who arrives in a Port on the Andaman and Nicobar Islands
from a Port on the mainland.
c) If he is in possession of a valid certificate of vaccination against cholera, he may

be placed under surveillance for a period of not more than 5 days reckoned
form the date of his departure from the infected area or from a Port on the
mainland.
d) If he is not in possession of such a certificate, he may be placed in isolation for a
like period.
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4.3.7 Rule 28 – (1) No ship shall bring to India any person who has been in a yellow fever
infected area within 9 days of embarkation unless such a person is vaccinated against yellow
fever. In addition no ship which has started from or touched at any Port in a yellow fever
infected area within 30 days of its arrival in India shall bring to India any person even
though he may not have been in a yellow fever infected area unless such a person is
vaccinated against yellow fever.
4.3.8 Rule 28 (2) - The proof of vaccination against yellow fever shall consist in the
possession of a certificate in the form laid down in appendix 2 to these rules.
4.3.9 Rule 28 – (3) If any ship brings to India any person not vaccinated against yellow
fever in contravention of sub-rule 1 then without prejudice to any other proceedings that
may be taken against the Master of the ship the health officer may, in his discretion apply
the measures prescribed in clause V of rule 31.
4.3.10 Rule 35-

1 - A ship shall be regarded as infected with small pox if it has a case of small pox on
board or if a case of small pox has occurred on board during the voyage.
2- Any other ship shall be regarded as healthy even though there may be suspects on
board but any suspect on disembarking may be subjected to the measures provided
for in clause iii of rule 36.Deratting Certificate and Deratting Exemption Certificates:
According to part IV rule 57, every ship should be periodically deratted or
permanently kept in such a condition that the number of rodents on board are
negligible. No ship is allowed to sail for a foreign port without being in possession of
a Deratting Certificate or a Deratting Exemption Certificate. This is required as per
Article 17 of the International Sanitary Regulations (ISR). The validity of the
certificate is for six months. A Port Officer carries out health Inspection of all ships.
When a Master of a ship makes an application for deratisation of his vessel, the Port
Health Officer carries out an inspection of the entire ship. If he is satisfied that the
ship is free of rodents or is kept in a condition that the number of rodents on board
is negligible, he shall issue a Deratting Exemption Certificate. However, if after the
ship has been inspected the Port Health officer is not so satisfied he shall require the
ship to be deratted in a manner to be determined by him. The Master shall forthwith
make arrangements for any deratting required by the Port Health Officer. When the
deratting has been completed, to the satisfaction or the Port Health Officer, he shall
issue a Deratting Certificate.
4.4 THE INDIAN PORT HEALTH RULES
Part / Sub-Part Contents Rules
------------------------------------------------------------------------------------------------------------
I Introductory Rule 1 & 2(1) to 2 (33)
II A Vessel’s Arriving - General 3&4

Provisions
B Quarantine Message 5
C Granting of Pratique 6 – 10
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III A Infected & Suspected Vessels 11 – 21
Isolation & Surveillance of
Persons, restrictions & remand
of vessels
B Special Provisions relating to 22

Vessels arriving in an area where
Malaria or other mosquito
Borne diseases could develop from
Imported vectors
C Vessels of National & Foreign 23

armed services.
D Animal quarantine 24 – 25
E Vessels arriving with Haj Pilgrims 26
F Special Provisions relating to diseases

subject to the Regulations
G Special Provisions relating to Infectious 28

diseases
IV A Health Inspection of vessels 29
B Health Inspection of sailing vessels and 30

Fishing barges
V A Vessels departing – General Provisions 31 – 37
B Special provisions relating to Pilgrim

vessels
C Provisions relating to rodent 39
VI A Provision relating to the carriage of 40

dead bodies & cremated bodies
B Provisions relating to death on board 41
VII Health inspection in port area 42 – 45
VIII Miscellaneous rules 46 – 65
IX A Penalties 66
B Service Charges 67
X Powers & duties of Health Officer 68

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4.5 THE INDIAN PORT HEALTH RULES
PART CONTENTS
------------------------------------------------------------------------------------------------------------
Schedule 1 Special Provisions relating to Diseases subject to
The Regulations;
D) Plague
E) Cholera including Cholera due to Eltor Vibrio
F) YELLOW FEVER;
Schedule 2 Special Provisions relating to Infectious Disease
Schedule 3 Special Provisions relating to Malaria or other

Mosquito
Borne Disease;
Schedule 4 Special Provisions relating to Rodent Control, Deratting
Certificates and Deratting Exemption Certificate
Schedule 5 Special Provisions relating to Carriage of Dead bodies

and Cremated Remains
Schedule 6 Special Provisions applicable in the event of Death on

Board
Schedule 7 Special Provisions relating to import of monkeys
Schedule 8 International Health Regulations – Pratique Messages
Schedule 9 Recommended Code of Health Practices for Supply of

Drinking Water from the shore to the vessels
Schedule 10 Health Code for supply of Food Articles to Vessels
Schedule 11 Sanitary Inspection Notice
Schedule 12 Health Inspections of Vessels
Schedule 13 Certificate of Medical Inspection
Schedule 14 Health and deratting Certificate issued to sailing &

Fishing Vessels
Annexure 1 Maritime Declaration of Health
Annexure 2 Deratting / Deratting Exemption Certificate Proforma
Annexure 3 International Certificate of Vaccination against Yellow

Fever – Proforma
Annexure 4 Certificate of disinfectious/fumigation

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Annexure 4 (a) Dead Body Certificate – Proforma
Annexure 4 (b) No Objection Proforma for Dead Body
Annexure 5 Certificate of Health Inspection – Proforma
Annexure 6 Schedule to the Declaration of every case of illness / or

Death on Board – Proforma
Annexure 7 Proforma for issue of Deratting Exemption Certificate

for “Sailing Vessels”Annexure 8 Proforma for Bill
of Health for Pilgrim Ship Resolutions
5.0 Concluding Remarks:
5.1 India became party to these regulations in August 2007 and giving effect to the
provisions through the Port Health Officer, who issues new sanitation control /sanitation
controlexemption certificate as per the provisions of new regulations. The revisions to the
existing rules are under consideration of the competent authorities.
5.2 The port Health Officers appointed under the Indian Ports Act, 1908 also issues
Medicine certificate valid for 1 year. This is the requirements under the provisions of the
Merchant Shipping Act, 1958.
1. Define (a) infected ship (b) suspected ship (c) healthy ship.
2. Write a short note on free pratique.
3. Write a note on Indian Port Health Rules (1955)
4. What is “disinfesting” a ship?
5. Write a note on the flag signals/light signals.
6. State the duties of Port Health Officer.
7. What is the content of the Maritime declaration of Health? 2005.
8. Briefly State the salient points of the IHR, 2005.
9. State the purpose of the International Health Regulations (IHR).
10. What is a Sanitation control certificate? Also explain the term “Sanitation control
exemption certificate”.
Recommended References
1. International Health Trgulations,2005
2. Indian Health Rules,1955
3. Notifications issued by Ministry of Health with regard to
promulgations of new IHR,2005
4. Indian Merchant Shipping Act,1958
5. Merchant Shipping, medicines, medical stores and appliances
Rules,1994
6. Indian Ports Act, 1908.
*******************
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LESSON - 23
THE INDIAN LIGHT HOUSE ACT 1927
1.0 The Indian Light House Act was enacted in 1927 (Act No. XVII of 1927 and amended
on 9.12.1985). It was an act which was meant to consolidate and amend the law relating to
the provision and maintenance and control of lighthouses by the Govt. of India. There are 22
sections in this act and these are as follows:
1. Preliminary
2. Definitions
3. Appointment of Officers
4. Advisory committee
5. Management of General Lighthouses
6. Power to inspect local lighthouses
7. Control of local lighthouses by Central Government
8. Management of local lighthouses by Central Government
a) Power of Central Govt. to prohibit lights and regulate heights of buildings,
structures and trees.
9. Levy and collection of light dues
10. Rates of light dues leviable
11. Receipts for light dues
12. Ascertainment of tonnage
13. Recovery of lighthouses expenses and costs
14. Refusal of port clearance
15. Determination of disputes as to liability for payments
16. Light dues payable at one port recoverable at another
17. Penalty for evading payment of light dues
18. Exemption from payment of light dues
19. Refund of excess payment
a) Fees for caliberating vessel’s wireless direction finder
20. Accounts
21. Power to make rules
22. Repeals
1.1 Some of the important sections are quoted below by which it is necessary for us to
know the real aspects of the light houses.
1.2 Lighthouses have been put up by the Government for assisting ships in navigating
and also to help the ships in steering clear of dangers. These lighthouses are usually out of
the port limits and do not belong to any particular major port or local port authority. This is
the reason why such light houses come under the Department of Light Houses.
1.3 Each vessel that calls at Indian Harbours is required to pay light dues at a rate of
Rs.8/- per Net Registered Tonnage (NRT). This amount is paid by each vessel for a period of
30 days. Some important sections of the Light House Act are given below:
114
2.0 DEFINITIONS:
In this Act, unless there is anything repugnant in the subject or context, -
(a) “district” means an area defined as a district for the purposes of this Act under Section
3;
(b) “lighthouse” includes any light-vessel, fog signal, buoy, beacon, or any mark, sign or
apparatus exhibited or used for the guidance of ships;
(c) “general lighthouse” means any lighthouse which the Central Government may by
notification in the Official Gazette, declare to be a general lighthouse for the purposes of
this Act;
(d) “local lighthouse” means any lighthouse which is not a general lighthouse;
(e) “local lighthouse authority” means a State Government, local authority or other person
having the superintendence and management of a local lighthouse;
(f) “owner” includes any part-owner, charterer or mortgages in possession and any agent
to whom a ship is consigned;
(g) “port” means any port, as defined in the Indian Ports Act, 1908, to which that Act
extends;
(hh) “Proper officer”, in relation to any functions to be performed under this Act, means
the officer of Customs who is assigned those functions by the Central Board of
Excise and Customs constituted under the Central Boards of Revenue Act, 1963, and
includes any person appointed by the Central Government to discharge the functions
of a proper officer under this Act;
(hha) “ship” includes a sailing vessel;
(h) words and expression used in this Act and not otherwise defined have the same
meaning respectively as in the Merchant Shipping Act, 1958
3.0 LOCAL LIGHT HOUSES:

3.1 Power to inspect local lighthouses:
3.1.1 The Director General of Lighthouses and Lightships may, at any time and any
Directors or Deputy Director General of Lighthouses and Lightships may, if authorised in this
behalf by a general or special order in writing of the Central Government enter upon and
inspect any local light house and make such inquiries in respect thereof or of the
management thereof as he thinks fit.
3.1.2 Every person having the charge of, or concerned in the management of, any
lighthouse shall be bound to furnish to any officer authorised by or under sub-section (1) to
inspect the lighthouse, all such information regarding the same as the officer may require.
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3.1.3 Every local lighthouse authority shall furnish to the Central Government all such
returns and other information in respect of the lighthouses under its supervision and
management, or of any of them, as the Central Government may require.
3.1.4 Power of central Government to prohibit lights and regulate heights of buildings,
structures and trees for unobstructed functioning of lighthouses.
4.0 LIGHT DUES :
4.1 Levy and collection of lightdues :

4.1.1 For the purpose of providing or maintaining or of providing and maintaining
lighthouses for the benefit of ships voyaging to or from India or between ports in India, the
Central Government shall, subject to the provisions of this Act cause light dues to be levied
and collected in respect of every ship arriving at or departing from any port in India.
4.2 Rates of lightdues leviable :

4.2.1 The Central Government may, by notification in the Official Gazette, prescribe such
rates as it may deem necessary to provide for the purpose mentioned in Section 9, at which
lightdues shall be payable, and may prescribe different rates for different classes of ships or
sailing vessels, or for ships or sailing vessels of the same class when in use for different
purposes or in different circumstances.
4.2.2 Lighthouse payable in respect of a ship shall be paid by the owner or master of the
ship on its arrival at and on its departure from any port in India. Provided that, if light dues
have been paid in accordance with the provisions of this Act in respect of any ship, no
further dues shall become payable in respect of that ship for a period of thirty days from the
date on which the dues so paid became payable.
5.0 Receipts for Lightdues :

5.1 Lightdues shall be paid to the Proper Officer who shall grant to the person paying the
same a receipt in writing specifying –
a) The port at which the dues have been paid;
b) The amount of the payment;
c) The date on which the dues became payable; and
d) The name, tonnage and other proper description of the ship in respect of which
the payment is made.
6.0 Ascertainment of tonnage :
6.1 For the purposes of levy of lightdues, the tonnage of ship or sailing vessel shall be
reckoned as under the Merchant Shipping Act, 1958 for dues payable on a ship’s tonnage
including the tonnage of any space and added under the said Act to the tonnage of ships by
reason of such space being utilised for carrying cargo.
6.2 In order to ascertain the tonnage of any ship for the purpose of varying lightdues,
the proper officer may :
(a) if the ship is registered under any law for the time being in force in India or under
the law of any country, other than India, being a country the ships of which are
recognised or accepted by the Central Government to be of the tonnage denoted
in their certificates of registry or other national papers under any order made
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under any enactment replaced by subsection (1) of section 461 of the Merchant
Shipping Act, 1958, and continued in force under clause (a) of subsection (3) of
that section or under any rule made under clause (b) of subsection (2) of section
74 of the said Act (any such ship being hereafter in this section referred to as
registered ship) require the owner or master or other person having possession
of the ship’s register or other papers denoting her tonnage to produce the same
for inspection and, if such owner, master or other person refuses or neglects to
produce the register of papers, as the case may be, or otherwise to satisfy the
proper officer as to the tonnage of the ship, cause the ship to be measured and
the tonnage to be ascertained; or
(b) if the ship is not a registered ship and the owner or master fails to satisfy the
proper officer as to the true tonnage thereof according to the mode of
measurement prescribed by the law for the time being in force for regulating the
measurement of registered ships, cause the ship to be measured and the
tonnage thereof to be ascertained according to such mode.
6.3 If any person refuses or neglects to produce any register or other papers or
otherwise to satisfy the proper officer as to the true tonnage of any ship when required to
do so under this section, such person shall be liable to pay the expenses of the
measurement of the ship and of the ascertainment of the tonnage, and if the ship is a
registered ship, shall further, on conviction by a Presidency Magistrate or Magistrates of the
First Class having jurisdiction in the port where the ship lies in any port to which she may
proceed, be punishable with fine which may extend to some thousand rupees.
7.0 Recovery of lighthouses expenses and costs

7.1 If the owner or master of any ship refuses or neglects to pay to the proper officer on
demand the amount of any light dues or expenses payable under this Act in respect of the
ship, the proper officer may seize the ship and the tackle, apparel and furniture belonging
thereto, or any part thereof, and detain the same until the amount of the dues or detention
is paid.
7.2 If any part of such dues, expenses or costs remains unpaid after the expiry of five
days following the date of the seizure, the proper officer may cause the ship or other things
seized to be sold, and with the proceeds of the sale may satisfy the dues, expenses or costs
remaining unpaid together with the costs of the sale, and shall repay the surplus, if any, to
the person by whom the same were payable.
8.0 Refusal of port clearance:

8.1 The Officer whose duty it is to grant a port clearance for any ship shall not grant the
port clearance until the amount of all lightdues, expenses and costs payable in respect of
the ship under this Act, and of any fines imposed thereunder has been paid, of until security
for the payment thereof has been given to his satisfaction.
9.0 Exemption from payment of lightdues:

9.1 The following ships shall be exempted from the payment of light dues under this act,
namely:
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(a) any ship belonging to Government or to a foreign prince or State and not
carrying cargo or passengers, freight or fares; and
(b) any ship or a tonnage of less than fifty tons; and the Central Government may, by
notification in the official gazette, exempt any other ships or classes of ships or
ships performing specified voyages from such payment, either wholly or to such
extent only as may be specified in the notification.
10.0 Gist of Light Dues :

(a) Central Government to levy and collect light dues with respect to every ship
arriving at/departing from any port in India.
(b) Rate of light dues for different classes of ships; purpose for which used; and for
different circumstances.
(c) Dues to be paid by master on arrival/departure from port in India
(d) No further dues to be paid for 30 days.
(e) Receipt for light dues paid to be given by officer specifying the port where paid;
amount paid; date; name, tonnage and description of ship.
(f) Tonnage of vessel to be reckoned as under Merchant Shipping Act for the purpose
of levy of light dues. For determining tonnage, officer may ask for papers/
documents.
(g) If master refuses to pay light dues, ship, her tackle, apparel, and furniture may be
seized and detained. And vessel sold if amount not paid after expiry of five days
from seizure.
(h) Master/ owner liable to pay fine extending to five times the amount payable for
evading payment of light dues.
(i) Refusal of port clearance if light dues not paid.
(j) Light dues payable at one port recoverable at another.
(k) No refund of excess light dues paid unless claim made within 6 mts from date of
payment.
(l) Determination of disputes as to liability for payment --- Presidency Magistrate/
Magistrate of First class.
11.0 SUMMARY OF THE INDIAN LIGHT HOUSE ACT 1927 :

11.1 Word ‘Indian’ omitted by Amendment Act
11.2 Lighthouses assist ships in navigation and help them in steering clear of dangers.
Beyond port limits. Hence under Department of Lighthouse.
11,3 Aim of Act : To consolidate and amend the law relating to provision and
maintenance and control of Lighthouses by Government of India.
11.4 Appointments of Officers: Director, Deputy Director General, Director General,

Superintendent of Lighthouse.
11.5 Advisory Committee:
11.6 Power to inspect local lighthouse:
a) Director General of Lighthouses / Officer to enter and inspect lighthouse and

make inquiries
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b) Person in charge of lighthouse to furnish information and afford facilities for
inspection
11.7 Power of Central Government to prohibit lights and regulate heights of buildings,
1. What is a local lighthouse? Who has the power to inspect it?

2. Write a short note on light dues, stating the need for the same. Also mention
the authority who is responsible for the collection of lighthouse dues.
3. What is mentioned in the receipts provided by the “Proper Officer”?
4. How is tonnage ascertained? How is refusal to produce necessary papers of

tonnage for light dues dealt with?
5. What ships are exempted from payment of light dues?
6. Write short notes on (a) General Lighthouse (b) Lighthouse.
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LESSON - 23
THE INDIAN LIGHT HOUSE ACT 1927
1.0 The Indian Light House Act was enacted in 1927 (Act No. XVII of 1927 and amended
on 9.12.1985). It was an act which was meant to consolidate and amend the law relating to
the provision and maintenance and control of lighthouses by the Govt. of India. There are 22
sections in this act and these are as follows:
23. Preliminary
24. Definitions
25. Appointment of Officers
26. Advisory committee
27. Management of General Lighthouses
28. Power to inspect local lighthouses
29. Control of local lighthouses by Central Government
30. Management of local lighthouses by Central Government
b) Power of Central Govt. to prohibit lights and regulate heights of buildings,
structures and trees.
31. Levy and collection of light dues
32. Rates of light dues leviable
33. Receipts for light dues
34. Ascertainment of tonnage
35. Recovery of lighthouses expenses and costs
36. Refusal of port clearance
37. Determination of disputes as to liability for payments
38. Light dues payable at one port recoverable at another
39. Penalty for evading payment of light dues
40. Exemption from payment of light dues
41. Refund of excess payment
b) Fees for calibrating vessel’s wireless direction finder
42. Accounts
43. Power to make rules
44. Repeals
1.1 Some of the important sections are quoted below by which it is necessary for us to
know the real aspects of the light houses.
1.2 Lighthouses have been put up by the Government for assisting ships in navigating
and also to help the ships in steering clear of dangers. These lighthouses are usually out of
the port limits and do not belong to any particular major port or local port authority. This is
the reason why such light houses come under the Department of Light Houses.
1.3 Each vessel that calls at Indian Harbours is required to pay light dues at a rate of
Rs.8/- per Net Registered Tonnage (NRT). This amount is paid by each vessel for a period of
30 days. Some important sections of the Light House Act are given below:
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2.0 DEFINITIONS:
In this Act, unless there is anything repugnant in the subject or context, -
(i) “district” means an area defined as a district for the purposes of this Act under Section
3;
(j) “lighthouse” includes any light-vessel, fog signal, buoy, beacon, or any mark, sign or
apparatus exhibited or used for the guidance of ships;
(k) “general lighthouse” means any lighthouse which the Central Government may by
notification in the Official Gazette, declare to be a general lighthouse for the purposes of
this Act;
(l) “local lighthouse” means any lighthouse which is not a general lighthouse;
(m) “local lighthouse authority” means a State Government, local authority or other person
having the superintendence and management of a local lighthouse;
(n) “owner” includes any part-owner, charterer or mortgages in possession and any agent
to whom a ship is consigned;
(o) “port” means any port, as defined in the Indian Ports Act, 1908, to which that Act
extends;
(hh) “Proper officer”, in relation to any functions to be performed under this Act, means
the officer of Customs who is assigned those functions by the Central Board of
Excise and Customs constituted under the Central Boards of Revenue Act, 1963, and
includes any person appointed by the Central Government to discharge the functions
of a proper officer under this Act;
(hha) “Ship” includes a sailing vessel;
(p) words and expression used in this Act and not otherwise defined have the same
meaning respectively as in the Merchant Shipping Act, 1958
3.0 LOCAL LIGHT HOUSES:

3.1 Power to inspect local lighthouses:
3.1.1 The Director General of Lighthouses and Lightships may, at any time and any
Directors or Deputy Director General of Lighthouses and Lightships may, if authorised in this
behalf by a general or special order in writing of the Central Government enter upon and
inspect any local light house and make such inquiries in respect thereof or of the
management thereof as he thinks fit.
3.1.2 Every person having the charge of, or concerned in the management of, any
lighthouse shall be bound to furnish to any officer authorised by or under sub-section (1) to
inspect the lighthouse, all such information regarding the same as the officer may require.
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3.1.3 Every local lighthouse authority shall furnish to the Central Government all such
returns and other information in respect of the lighthouses under its supervision and
management, or of any of them, as the Central Government may require.
3.1.4 Power of central Government to prohibit lights and regulate heights of buildings,
4.0 LIGHT DUES:
4.1 Levy and collection of lightdues :
4.1.1 For the purpose of providing or maintaining or of providing and maintaining

lighthouses for the benefit of ships voyaging to or from India or between ports in India, the
Central Government shall, subject to the provisions of this Act cause light dues to be levied
and collected in respect of every ship arriving at or departing from any port in India.
4.2 Rates of lightdues leviable :

4.2.1 The Central Government may, by notification in the Official Gazette, prescribe such
rates as it may deem necessary to provide for the purpose mentioned in Section 9, at which
lightdues shall be payable, and may prescribe different rates for different classes of ships or
sailing vessels, or for ships or sailing vessels of the same class when in use for different
purposes or in different circumstances.
4.2.2 Lighthouse payable in respect of a ship shall be paid by the owner or master of the
ship on its arrival at and on its departure from any port in India. Provided that, if light dues
have been paid in accordance with the provisions of this Act in respect of any ship, no
further dues shall become payable in respect of that ship for a period of thirty days from the
date on which the dues so paid became payable.
5.0 Receipts for Lightdues :

5.1 Lightdues shall be paid to the Proper Officer who shall grant to the person paying the
same a receipt in writing specifying –
e) The port at which the dues have been paid;
f) The amount of the payment;
g) The date on which the dues became payable; and
h) The name, tonnage and other proper description of the ship in respect of which
the payment is made.
6.0 Ascertainment of tonnage:

6.1 For the purposes of levy of lightdues, the tonnage of ship or sailing vessel shall be
reckoned as under the Merchant Shipping Act, 1958 for dues payable on a ship’s tonnage
including the tonnage of any space and added under the said Act to the tonnage of ships by
reason of such space being utilised for carrying cargo.
6.2 In order to ascertain the tonnage of any ship for the purpose of varying lightdues,
the proper officer may :
(c) if the ship is registered under any law for the time being in force in India or under
the law of any country, other than India, being a country the ships of which are
recognised or accepted by the Central Government to be of the tonnage denoted
in their certificates of registry or other national papers under any order made
under any enactment replaced by subsection (1) of section 461 of the Merchant
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Shipping Act, 1958, and continued in force under clause (a) of subsection (3) of
that section or under any rule made under clause (b) of subsection (2) of section
74 of the said Act (any such ship being hereafter in this section referred to as
registered ship) require the owner or master or other person having possession
of the ship’s register or other papers denoting her tonnage to produce the same
for inspection and, if such owner, master or other person refuses or neglects to
produce the register of papers, as the case may be, or otherwise to satisfy the
proper officer as to the tonnage of the ship, cause the ship to be measured and
the tonnage to be ascertained; or
(d) if the ship is not a registered ship and the owner or master fails to satisfy the
proper officer as to the true tonnage thereof according to the mode of
measurement prescribed by the law for the time being in force for regulating the
measurement of registered ships, cause the ship to be measured and the
tonnage thereof to be ascertained according to such mode.
6.3 If any person refuses or neglects to produce any register or other papers or
otherwise to satisfy the proper officer as to the true tonnage of any ship when required to
do so under this section, such person shall be liable to pay the expenses of the
measurement of the ship and of the ascertainment of the tonnage, and if the ship is a
registered ship, shall further, on conviction by a Presidency Magistrate or Magistrates of the
First Class having jurisdiction in the port where the ship lies in any port to which she may
proceed, be punishable with fine which may extend to some thousand rupees.
7.0 Recovery of lighthouses expenses and costs

7.1 If the owner or master of any ship refuses or neglects to pay to the proper officer on
demand the amount of any light dues or expenses payable under this Act in respect of the
ship, the proper officer may seize the ship and the tackle, apparel and furniture belonging
thereto, or any part thereof, and detain the same until the amount of the dues or detention
is paid.
7.2 If any part of such dues, expenses or costs remains unpaid after the expiry of five
days following the date of the seizure, the proper officer may cause the ship or other things
seized to be sold, and with the proceeds of the sale may satisfy the dues, expenses or costs
remaining unpaid together with the costs of the sale, and shall repay the surplus, if any, to
the person by whom the same were payable.
8.0 Refusal of port clearance:

8.1 The Officer whose duty it is to grant a port clearance for any ship shall not grant the
port clearance until the amount of all lightdues, expenses and costs payable in respect of
the ship under this Act, and of any fines imposed thereunder has been paid, of until security
for the payment thereof has been given to his satisfaction.
9.0 Exemption from payment of lightdues:

9.1 The following ships shall be exempted from the payment of light dues under this act,
namely:
(c) any ship belonging to Government or to a foreign prince or State and not
carrying cargo or passengers, freight or fares; and
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(d) any ship or a tonnage of less than fifty tons; and the Central Government may, by
notification in the official gazette, exempt any other ships or classes of ships or
ships performing specified voyages from such payment, either wholly or to such
extent only as may be specified in the notification.
10.0 Gist of Light Dues:
a. Central Government to levy and collect light dues with respect to every ship
arriving at/departing from any port in India.
b. Rate of light dues for different classes of ships; purpose for which used; and for
different circumstances.
c. Dues to be paid by master on arrival/departure from port in India
d. No further dues to be paid for 30 days.
e. Receipt for light dues paid to be given by officer specifying the port where paid;
amount paid; date; name, tonnage and description of ship.
f. Tonnage of vessel to be reckoned as under Merchant Shipping Act for the
purpose of levy of light dues. For determining tonnage, officer may ask for
papers/ documents.
g. If master refuses to pay light dues, ship, her tackle, apparel, and furniture may be
seized and detained. And vessel sold if amount not paid after expiry of five days
from seizure.
h. Master/ owner liable to pay fine extending to five times the amount payable for
evading payment of light dues.
i. Refusal of port clearance if light dues not paid.
j. Light dues payable at one port recoverable at another.
k. No refund of excess light dues paid unless claim made within 6 mts from date of
payment.
l. Determination of disputes as to liability for payment --- Presidency Magistrate/
Magistrate of First class.
12.0 SUMMARY OF THE INDIAN LIGHT HOUSE ACT 1927 :

11.1 Word ‘Indian’ omitted by Amendment Act
11.2 Lighthouses assist ships in navigation and help them in steering clear of dangers.
Beyond port limits. Hence under Department of Lighthouse.
11,3 Aim of Act : To consolidate and amend the law relating to provision and
maintenance and control of Lighthouses by Government of India.
11.4 Appointments of Officers: Director, Deputy Director General, Director General,

Superintendent of Lighthouse.
11.6 Advisory Committee:
11.6 Power to inspect local lighthouse:
c) Director General of Lighthouses / Officer to enter and inspect lighthouse and

make inquiries
124
d) Person in charge of lighthouse to furnish information and afford facilities for
inspection
11.7 Power of Central Government to prohibit lights and regulate heights of buildings,
1. What is a local lighthouse? Who has the power to inspect it?
2. Write a short note on light dues, stating the need for the same. Also
mention the authority who is responsible for the collection of lighthouse
dues.
3. What is mentioned in the receipts provided by the “Proper Officer”?
4. How is tonnage ascertained? How is refusal to produce necessary papers of

tonnage for light dues dealt with?
5. What ships are exempted from payment of light dues?
6. Write short notes on (a) General Lighthouse (b) Lighthouse.
**************
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LESSON - 24
THE INLAND VESSELS ACT, 1917
1.0 INTRODUCTION :
1.1 India has about 14,500 km of navigable waterways, which consists of the Ganges–
Bhagirathi–Hooghly rivers, the Brahmaputra, the Barak river, the rivers in Goa, the
backwaters in Kerala, inland waters in Mumbai and the deltaic regions of the Godavari -
Krishna rivers. About 44 million tons of cargo is moved annually through these waterways
using mechanized vessels and country boats. As per the Report prepared by RITES Ltd. in the
year 2009 titled “Total Transport System study on Traffic Flows & Modal Costs”, the share of
Inland Water Transport (IWT) in the total domestic transport during 2007-08 was 0.24%
compared to 50.12% for the road and 36.06 per cent for the rail sector in terms of tonne
km.
1.2 The development and regulation of the waterways which are declared as National
Waterways are under the purview of Central Government, while the other waterways
remain under the purview of the respective State Governments. IWAI is responsible for
regulation and development of National Waterways in the country for shipping and
navigation.
1.3 A large number of small boats, launches etc. are registered at the Mercantile Marine
Department, under the Inland Vessels Act, 1917. Some of the tugs of various major ports,
pilot launches, crew boats, pleasure launches (used commercially for ferrying public at large,
between Ferry Wharf, Mumbai,to Elephanta Caves, or for tourists off the Gateway of India)
are all registered under the Indian Vessels Act, 1917.
1.4 Original nomenclature ---- The Inland Steam Vessels Act 1917.
1.5 1977 Amendment deleted the word “steam”.
1.6 Act amended in 2007.
2.0 Act aims at:

(a) Safety on inland waters.
(b) Mandatory to have certificate of survey and certificate of registration before
voyage. Default attracts penalties.
(c) Master, Engineer and engine drivers to possess certificate of competence,
failing which Act provides penalties.
(d) Addresses casualties on inland waters and investigation of casualties.
(e) Provides protection to passengers and insurance for third party risks.
(f) Prevention of pollution [2007 Amendment].
3.0 Definitions:
(a) “Inland vessel” or “Inland mechanically propelled vessel” means a
mechanically propelled vessel which ordinarily plies on any inland waters.
(b) “Inland waters” means any canal, river, lake or other navigable waters.
(c) ‘passenger’ includes any person carried in a mechanically propelled vessel
other than the master and crew and the owner, his family and servants.
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4.0 Survey of Inland Vessels:
(a) No vessel to proceed on voyage without certificate of survey applicable to
that voyage.
(b) Violation---fine of rupees 1000 and suspension/cancellation of licence of
master.
4.1 Surveyors:
(a) State Government to appoint surveyors.
(b) Surveyor a public servant.
(c) Surveyor can board a vessel and inspect it.
(d) Duty of owner/master to afford facilities to surveyor and to pay survey fee
calculated on the tonnage of vessel.
4.2 Declaration of Survey:

(a) If surveyor is satisfied that the vessel and its equipments are suitable for the
voyage; and the master/engineer posses certificates of competence, he will give
declaration of surveyor containing above particulars and other additional particulars
such as limit beyond which vessel is not fit to ply; no. of passengers and nature and
amount of cargo vessel is fit to carry, etc. [S.9]
(b) The 2007 Amendment provides for a temporary permit. Section 9A says the
surveyor who conducted the survey may, without following the procedure laid down
in section 9, grant a permit to be effective for a period which shall not in any case
exceed forty-five days, to authorise the inland mechanically propelled vessel to
proceed on voyage or use in service temporarily pending the issue of the certificate
of survey.
4.3 Declaration of Surveyor to be sent by owner/master within 14 days of its receipt to

State Government.
4.4 Certificate of Survey :

(a) Certificate of Survey to be granted in duplicate by State Government to the
owner/master.
(b) One of the duplicate of Certificate of Survey affixed conspicuously on vessel.
(c) Certificate of Survey to have effect throughout the State for 1 year.
(d) Effect in other State if endorsed.
(e) Certificate of Survey can be renewed after a fresh survey after 1 year.
4.5 Cancellation / Suspension of Certificate of Survey by State Government:

(a) Obtained fraudulently/erroneously.
(b) Vessel sustained material injury after declaration of survey.
5.0 Certificate of Registration :

(a) No vessel to proceed without Certificate of Registration on board.
(b) State Government to declare places of registry and appoint registering
authorities[public servants].
(c) Application for registration ( accompanied by Certificate of Survey) to be
made by owner/master to registering authority.
(d) Registering Authority to grant Certificate of Regestration if satisfied. If not,
reason for refusal to be given.
127
(e) Particulars of Certificate of Registration entered in Book of Registration.
(f) True and exact copy of Certificate of Registration sent to State Government
by registering authority.
(g) Registering Authority to assign registration mark to be conspicuously
displayed on vessel.
(h) Prohibition against transfer of Certificate of Registration and transfer of
ownership of registered vessel.
(i) Alterations to be registered.
(j) Certificate of Registration to be suspended if vessel unfit to ply.
(k) Certificate of Registration to be cancelled if vessel destroyed or permanently
unfit for service.
6.0 Investigations into Casualties :

6.1 A casualty arises whenever:
(a) Any inland [mechanically propelled] vessel has been wrecked, abandoned or
materially damaged, or
(b) By reason of any casualty occuring to, or on board of, any inland
[mechanically propelled] vessel loss of life has ensued, or
(c) Any inland [mechanically propelled] vessel has caused loss or material
damage to any other vessel.
6.2 Master to immediately give notice of wreck, abandonment, damage, casualty or loss
to officer in charge of the nearest police station:
(a) State Government to appoint Court of Investigation or direct Principal Court

of Ordinary Criminal Jurisdiction to investigate the casualty.
(b) Court to investigate into charges of incompetency or misconduct.
(c) Person charged to have opportunity of being heard and making defence.
7.0 Protection of Passengers :

(a) No carriage of dangerous goods without giving notice of its nature to
owner/master.
(b) Dangerous goods to be distinctly marked indicating their nature on outside of
package.
(c) If master suspects dangerous goods in luggage he can refuse to carry the
luggage or require it to be opened or stop its transit.
8.0 Insurance against third party risk:

(a) Provisions of Motor Vehicles Act to apply mutatis mutandis.
9.0 CHAPTER VI AB --- PREVENTION AND CONTROL OF POLLUTION AND PROTECTION

was added by the Amendment Act of 2007 :
9.1 S.54D – Definitions:

(a) "hazardous chemical" or "obnoxious substance" means any chemical or
substance, as the case may be, which has been designated as such by rules
made under this Chapter;
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(b) "oil" means any persistent oil such as crude oil, heavy diesel oil, lubricating oil
and white oil, whether carried on board a tanker as cargo or fuel;
(c) "oily mixture" means a mixture with any oil content.
9.2 S.54E - Prohibition as to discharge of oil, oily mixture, etc., in the inland water.
No oil or oily mixture, hazardous chemical or obnoxious substance from a
mechanically propelled vessel shall be discharged in inland water:
Provided that nothing in this Section shall apply to the discharge of such oil or oily
mixture, hazardous chemical or obnoxious substance from a mechanically propelled
vessel for the purpose of securing the safety of a mechanically propelled vessel,
preventing damage to a mechanically propelled vessel, cargo or saving of life at
inland water.
9.3 S.54F - Reception facilities at inland port, etc.

(1) The owner or operator of an inland port, at cargo or passenger terminal, as
the case may be, shall provide reception facilities to discharge oil, oily mixture,
hazardous chemical or obnoxious substance at such inland port, cargo or passenger
terminal.
(2) The owner or operator of an inland port, at cargo or passenger terminal, as

the case may be, providing reception facilities at any inland port, a cargo or
passenger terminal may make charges for the use of the facilities at such rates and
may impose such conditions in respect of use thereof as may be approved by
notification in the Official Gazette, by the State Government in respect of the inland
port, cargo or passenger terminal.
(3) For the purposes of minimizing the pollution already caused, or for
preventing the pollution threatened to be caused, the State Government may direct,
by order in writing, the owner or operator of an inland port, at cargo or passenger
terminal to provide or arrange for the provision of such pollution containment
equipments and pollutant removing materials at such inland port, cargo and
passenger terminal as may be specified in the order.
9.4 S.54G - Power of entry, inspection, etc.

(1) Any surveyor or any person authorised under this Act in this behalf may, at
any reasonable time, enter and inspect any inland port, at cargo or passenger
terminal for the purposes of-
(a) ensuring that the provisions of this Chapter are complied with;
(b) verifying whether such inland port, at cargo or passenger terminal is

provided with the pollution containment equipment and pollutant removing
materials in conformity with the order of the State Government or the rules
made under this Chapter; and
(c) satisfying himself about the adequacy of the measures taken to prevent
pollution.
(2) If the surveyor finds that the inland port, at cargo or passenger terminal is
not provided with the aforesaid equipment and materials, he shall give notice to the
129
owner or operator of such inland port, cargo or passenger terminal, as the case may
be, a notice in writing pointing out the deficiency and also what in his opinion is
requisite to remedy the said deficiency.
(3) No owner or operator of such inland port, at cargo or passenger terminal, as

the case may be, served with the notice under sub-section (2), shall proceed with
any work at such inland port, cargo or passenger terminal, as the case may be, until
he obtains a certificate signed by the surveyor to the effect that the inland port,
cargo or passenger terminal, as the case may be, is properly provided with the
aforesaid equipment and materials in conformity with the rules made under this
Chapter.
9.5 S.54H - Powers of Central Government to make rules for prevention and control of
pollution.
(1) The Central Government may make rules for the purposes of this Chapter.
(2) In particular, and without prejudice to the generality of the foregoing power,
such rules may-
(a) prescribe the designated hazardous chemical and obnoxious substance
under clause (a) of section 54D;
(b) prescribe fitment of oily mixture treatment equipment on shore and on
board in certain cases;
(c) prescribe details of reception facilities at inland port, cargo or passenger
terminal;
(d) prescribe the forms and record books for inland port, cargo or passenger
terminal and the manner in which such books shall be maintained, the
nature of entries to be made therein, the time and circumstances in
which such entries shall be made, the custody and disposal thereof and
all other matters relating thereto;
(e) any other matter which is to be, or may be, prescribed.'.
9.6 Two new sections 62D and 62E provide for punishment for offences relating to
pollution.
9.7 S.62D - Whoever contravenes any provision of Chapter VI AB or of any rule made
thereunder, shall be punishable with imprisonment which may extend to one year, or with
fine which may extend to fifty thousand rupees, or with both.
9.6 S.62E - Offences by companies. –

(1) Where an offence under Chapter VI AB has been committed by a company,
every person who, at the time the offence was committed, was in charge of, and was
responsible to, the company for the conduct of the business of the company, as well
as the company shall be deemed to be guilty of the contravention and shall be liable
to be proceeded against and punished accordingly:
Provided that nothing in this sub-section shall render any such person liable to any
punishment provided in this Act, if he proves that the offence was committed
without his knowledge or that he exercised all due diligence to prevent the
commission of such offence.
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(2) Notwithstanding anything contained in sub-section (1), where an offence
under Chapter VI AB has been committed by a company, and it is proved that
theoffence was committed with the consent or connivance of, or is attributable to
any neglect on the part of, any director, manager, secretary or other officer of the
company, such director, manager, secretary or other officer shall also be deemed to
be guilty of that offence and shall be liable to be proceeded against and punished
accordingly.
9.8 Explanation.-For the purposes of this section,-

(a) "company" means any body corporate and includes a firm or other association of
individuals; and
(b) "director", in relation to a firm, means a partner in the firm.'.
ooooo
1. Define the following as envisaged in the Act:

(a) "Inland vessel"
(b) "Mechanically propelled vessel"
(c) "Passenger"
(d) "Voyage".
2. What are the requirements of registeration of an inland vessel under the Act?
3. What are the requirements for obtaining certificate of survey under this ct?
4. State the role of surveyor under the Act.
5. State the requirements for the carriage of dangerous goods on inland vessels,
6. What are the provisions for the conduct of investigations?
7. What are the provisons under the Act to protect the inland waters against
pollution.?
RECOMMENDED FOR FURTHER REFERENCE:
Inland Vessels Act, 1917.
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131
LESSON - 25
MARITIME LIEN
1.0 INTRODUCTION :
1.1 The lien is a right possessed by a person who detains or retains the goods or
property belonging to another person for non-fulfilment of an obligation by that other
person.
1.2 A possessory lien is a common law right founded on possession to detain property
until a debt which has accrued from service to the property is discharged. Shipowners may
have a lien on goods carried for charges incurred in carrying them. The seller of the ship
may have a possessory lien for unpaid purchase money and the shipbuilder for execution of
repairs. These are instances of possessory liens which ensure only so long as the persons
claiming the liens have got possession of the properties over which their claims are made.
The possessory lien is subordinate to all maritime liens which attach prior to the assumption
of possession, but takes priority over all such liens which accrue subsequent to the
assumption of possession.
1.3 As a rule, a vessel represents an unusually large proportion of the owner's general
property. It can often possibly cause unforseeable damage by collision or otherwise and it is
not possible to forecast when the vessel would require unexpected assistance from persons
who could be total strangers, when encountering perils of the sea. Additionally, a ship is an
evasive sort of property which may easily slip out of the hands of a person. The owners of
the vessel may be miles away, their financial standing unknown and the courts of country of
registry may be either inefficient or very expensive to approach. All these factors have led
to the concept of 'Maritime Lien' by which the party that is injured is enabled to make the
vessel herself available as security for his claim. A maritime lien is therefore a claim against
a ship or other maritime property which can be made effective by the seizure of the
property in question. It exists independently of the possession of the object over which it is
claimed but is attached to it in the sense that it is unaffected by change of ownership or of
registration. In legal terminology, it is known as a right in rem i.e. a right enforceable
against the world at large, in this case against the thing itself, as opposed to a right in
personam, that is, against a particular person, say the owner.
2.0 A MARITIME LIEN MAY BE DESCRIBED AS:

(a) A "privileged" claim or charge;
(b) Upon maritime property;
(c) For service rendered to it or damage done by it;
(d) Accruing from the moment of the events out of which the cause of action arises;
(e) Travelling with the property secretively and unconditionally; and
(f) Enforced by an action in rem.
2.1 "Privileged" Claim: A maritime lien may be considered as 'privileged' as it enjoys a

high priority in ranking over mortgage, possessory liens and statutory right in rem.
2.2 Maritime Property: Traditionally, maritime property refers to a ship, cargo and
freight. By statute the concept of maritime property has, however, been extended to
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include aircraft when water-borne and hovercraft. No maritime lien is capable of
encumbracing property beyond these categories even though the property in a general
sense may be regarded as maritime property like dock, wharf, light-house, off-shore oil rig.
2.3 Service rendered to it or damage caused by it : Maritime liens represent a small

cluster of claims which arise either out of services rendered to a maritime res or from
damage done by such a res. The claims currently recognized as giving rise to maritime liens
are mainly the following:
(a) Damage done by a ship
(b) Salvage
(c) Seamen's wages and disbursements, and
(d) Bottomry and Respondentia
2.3.1 It will be observed from the above that all maritime liens except for the damage
done by a ship have the common feature of arising from a service rendered.
2.4 Accruing from the moment of the events out of which the maritime lien arises: A
Maritime lien springs into existence the moment the circumstances give birth to it. In the
case of damage, a maritime lien arises from the moment damage or injury is caused by the
offending ship. In the case of salvage, a maritime lien arises from the time beneficial
services are rendered to a distressed vessel.
2.5 Travelling with the property secretively and unconditionally: A maritime lien is
invariably described as an invisible, secret, indelible or inalienable encumbrance. Once it
reaches to a res, a maritime lien thereafter travels with the thing into whosoever's
possession it may come. The purchaser of an encumbranced res takes the res subject to the
maritime lien and it is of no avail to plead for want of notice.
2.6 Enforced by an action in rem: The maritime lien is perfected or crystalised by an

action in rem. Under such proceeding a maritime lien may cause the encumbranced res to
be arrested by an officer of the Admiralty Court and thereafter sold and the claim satisfied
out of proceeds of sale.
3.0 CLAIMS RECOGNISED AS GIVING RISE TO MARITIME LIEN:

a) Damage done by a Ship
b) Salvage
c) Seamen's Wages
d) Master's Wages and Disbursements
e) Bottomry and Respondentia
f) Necessaries
3.1 Damage done by a Ship: This is also referred as collision lien. In order to render a
ship liable to a maritime lien for injury caused, the ship itself must be the instrument which
causes the damages. In order to establish the liability of the ship to the maritime lien
claimed some sort of navigation of the ship itself should either mediately or immediately be
the cause of the damage. It is not sufficient to show that those in charge and control of the
ship are in breach of duty. It must further be shown that the ship herself was the active
means by which the damage was inflicted.
3.1.1 Damage done by a ship to any movable or immovable property, not being a ship,
gives rise to a maritime lien, for example, damage done by a ship to a landing stage. So also
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to personal injury and loss of life. Though it has not been expressly decided by the courts,
the court may accept the existence of a maritime lien in respect of personal injury.
3.2 Salvage: The salvage maritime lien accrues from the fact of beneficial service to an
imperilled res and attaches to every category of property which is under the maritime law or
statute capable of being a proper subject matter of salvage and which has benefitted from
the service rendered.
3.2.1 The salvage maritime lien accrues from the amount of the salvage services rendered
and thereafter encumbrances the benefitted res until it is lawfully discharged. Once it
accrues the salvage maritime lien is unaffected by any subsequent change of ownership.
The salvage lien attaches to each and every part of the benefitted res and where salvage is
rendered to an imperilled ship the maritime lien survives to the last plank. With the
destruction of the res the maritime lien is lost. A salvage maritime lien encumbrances only
the particular res which has benefitted from the salvage service.
3.3 Seamen's Wages : The law recognizes a maritime lien in respect of a seaman's wages
and those wages must have been earned in respect of services rendered to the ship.
3.3.1 Wages have been construed very broadly by the courts and generally cover
something which is received by a member of a ship's company from which he has received a
benefit "as recompense for the execution of his duty". Courts have held wages to include
conditional payments and allowances which were not wages in this strict sense; victualling
allowances provided for under a contract of employment; profit sharing payments;
vacational pay; sick pay and overtime payments; employee and employer pension fund
contributions; provident fund contributions; income tax; trade union dues, etc.
3.4 Master's Wages and Disbursements : The master of a ship shall have the same lien
for his remuneration and all disbursements or liabilities properly made or incurred by him
on account of the ship, as a seaman has for his wages.
3.5 Bottomry and Respondentia : Where the ship is charged either in isolation or jointly
with freight and cargo, the instrument is termed bottomry which is the term symbolic of the
"bottom" or "keel" of the ship. In the circumstances when the cargo alone is charged the
instrument is known as respondentia.
3.5.1 Over the years bottomry has been constantly viewed by the judiciary as a maritime
agreement whereunder a representative of a ship, in most instances, the master in
circumstances of distress and necessity, and in the absence of any other source of finance or
credit, hypothecates the ship (or cargo in the case of respondentia) with a view to meeting
the necessary expenditure or obtaining credit and so facilitating the safe continuation or
completion of the voyage. In brief, both bottomry and respondentia represent methods of
dealing with emergencies encountered by the master in the course of the voyage when no
other means are available. These two maritime liens are now almost obsolete.
3.6 Necessaries: Necessaries are those which are required for the operation and
management of a ship. This is a situation where the master takes the service on the credit
of the shipowner.
3.6.1 There exists a close relationship between a 'disbursement' and a 'necessary' for a
service rendered or a thing supplied. Where the master is content to defray the expense
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himself or incur a personal liability, such expense or liability represents a disbursement in
respect of which he may claim an indemnity against the shipowner. In contrast, where the
master takes the service on the credit of the shipowner the supplier must seek his remedy
against the shipowner under the court's jurisdiction over necessaries. The transactions may
be identical in every respect and are only differentiated by reference to whether or not the
master pledges the shipowner's credit.
4.0 MARITIME LIENS IMPLIED BY STATUTE:

(a) Fees and expenses of receiver of wreck on returning a wreck, or the proceeds of
sale thereof to its owner or other lawful claimants.
(b) Coastguards are entitled to claim remuneration from the owners of
shipwrecked property for services rendered.
(c) Damage to adjoining lands in case of shipwreck assistance.
(d) Statutory life and property salvage.
(e) Damages caused to harbours, piers and docks, quays or wharfs.
(f) Expenses incurred by a receiver of wreck in buying or destroying any animal
carcasses (dead bodies) washed ashore.
5.0 SUBJECTS OF MARITIME LIEN :

5.1 Ship: Where there is a maritime lien it attaches to the hull, machinery and fixed
parts.
5.2 Cargo: The term cargo is a broad expression which relates to all property,
irrespective of the identity of the owner, carried on board a ship. The term does not
embrace the ship's provisions, the personal effects of the master and crew, or the wearing
apparel and the personal effects of passengers taken on board and intended for daily use
during the course of the voyage.
5.3 Freight: Where a salvage service results in a ship owner earning freight which
otherwise would have been lost or at risk of being lost, the freight so earned is charged with
the salver's maritime lien. As a general principle, the lien on freight is dependent upon the
existence of a lien against the ship.
6.0 ORDER OF PRIORITIES:

6.1 Special legislative rights, for example, under the Major Port Trusts Act, the rights of
the authorities to detain the ship in respect of damage to dock properties, or detain and sell
a ship for unpaid dock and harbour dues, or to take possession of wrecks for unpaid
conservancy charges, etc. There is no rule how these are paid when more than one of these
rights exist. Presumably they will rank equally.
6.2 Admiralty Marshall or the Sheriff's fees and expenses for arrest, detention,
appraisement and sale.
6.3 Costs and expenses of the person causing the realization of the fund, i.e., the money
available in court upto the date of the order of appraisement and sale.
6.4 Person with a possessory lien but subject to, most importantly, earlier maritime liens
and earlier statutory liens.
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6.5 Life salvage gets high priority. Each separate life salvage operation is in inverse order
to date, i.e., the most recent salvage operation is given precedence to the earlier salvage.
Thereafter property salvage is considered, each separate property salvage operation is
considered in inverse order to date. This is subject to later claims for damage or for wage
liens which represent the subject matter. Different salvage claims arising out of the same
operation rank pari passu.
6.6 Damage liens rank pari passu and they prevail over all earlier voluntary (salvage)
liens but not subsequent voluntary liens which preserved the res.
6.7 Crew wages and other employment benefits, master's wages and probably master's
disbursements come here. They rank pari passu.
6.8 Bottomry.
6.9 Registered mortgages. Where priority between mortgages arise, priority depends on
the date of registration. But a subsequent mortgage prevails over an existing mortgage
which makes further advances with the notice of the subsequent mortgage.
6.10 Equitable mortages, i.e., unregistered mortgages and they rank in the order of the
date of creation.
6.11 Statutory rights in rem, i.e., rights in rem enforceable by admiralty proceedings but
not protected by maritime liens. These are claims which exist purely by virtue of the
Admiralty Courts Act, 1840 and 1861.
7.0 PRIORITIES BETWEEN COMPETING CLAIMS:

7.1 Currently any party who, in an action in rem, obtains judgment against a ship or the
proceeds of sale thereof, may apply to the court for an order determining priorities. Apart
from the jurisdiction of the court, it is always open to the parties to agree between
themselves on the priorities.
7.2 Salvage: As a salvage service operates to salve not only the imperilled res but all
existing liens, which attach to it, the salvage lien enjoys a priority over all prior liens. The
basis for this is that the salvage service concerned has preserved the property to which the
earlier liens have attached and out of which none of the claims to which such liens relate
can be satisfied. The salvage lien does not share this dominance over subsequent liens and
is inferior to a later damage lien and also to later service lien but only in circumstances
where such liens operate to preserve the res. The relative priority of the salvage lien may
be summarized as follows:
(a) It is superior to earlier damages, wages, bottomry and salvage liens.
(b) It is subordinate to a later damage lien and salvage lien.
(b) It is subordinate to a later wages lien but only when the wages lien has
actually preserved the res.
7.3 Damage: The Maritime lien for damage stands superior to all voluntary liens. This is
aimed at the prevention of careless navigation and reparation of negligent wrong doing. If it
can be shown that a subsequent voluntary lien has preserved the res, then the subsequent
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voluntary lien will be superior. The damage lien takes priority over all prior voluntary liens --
wages and disbursements, bottomry and salvage.
7.4 Wages and disbursements: A seaman's lien for wages ranks before a master's lien for
wages and disbursements. A wages lien usually ranks in priority to both prior and
subsequent bottomry liens except wages earned on a previous voyage and where the
master has rendered himself personally liable on the bond.
7.5 A bottomry lien is actually subordinate to wages lien, damage lien and a later salvage
lien.
8.0 PRIORITY BETWEEN MARITIME LIENS OF THE SAME CLASS:

8.1 Damage lien stands on an equal footing. Successive damage liens rank pari passu.
8.2 Competing salvage liens are ranked in accordance with the inverse priority rule with
the result that the last voyage lien in time prevails over the earlier salvage liens. Life salvage
is generally awarded a priority over all other claims for salvage.
8.3 Bottomry: As between bonds of different dates, the last in point of time is entitled
to priority of payment.
8.4 Seamen's wages: On grounds of public policy, it is established that the individual
wage liens of seamen rank pari passu.
8.5 Master's wages and disbursements: There are two sides to the master's lien one
relating to wages and the other to disbursements. When these two co-exist, they are
treated as ranking pari passu.
8.6 A mortgage and maritime lien are similar in that under both there is created a charge
on a ship which may be enforced against the original owner and any subsequent purchaser.
Notwithstanding this similarity, the two concepts are quite distinct and unrelated. The
charge of a mortgagee arises solely by virtue of the mortgage agreement whereas the
charge of a maritime lienee arises by operation of law and without any formal requirement,
from the moment of the circumstances which give rise to the claim. The right of a
mortgagee to pursue his security into the hands of a third party is founded on notice,
whereas the same right of a maritime lienee arises again by operation of law and is
independent of notice.
8.7 The material advantage which accrues to a maritime lienee is that from the moment
service is rendered or damage done by an encumbranced res, the lienee is provided with a
security for his claim to the value of the res. The fact that a maritime lienee may proceed in
rem against a res means that many of the problems that confront ordinary litigants, such as
the inability to trace a defendant, or the residents abroad of a dependant, or the insolvency
of a defendant, are of much less concern. Maritime lienees also enjoy high priority and in
circumstances where the multiplicity of computing claims exist against a res, the claim of a
maritime lienee is generally the first to be satisfied.
9.0 DOUBTFUL MARITIME LIENS:

9.1 A certain doubt has existed about the precise nature of claims in the nature of
towage and pilotage. In some cases, claims for towage and pilotage were ranked equally
137
with a wages maritime lien and in priority to an antecedent bottomry maritime lien. In
other cases such claims possess no maritime liens but only statutory right of action in rem.
It may be added that a claim arising out of cargo damage is not in the nature of a maritime
lien.
10.0 PROCEEDS OF SALE EQUIVALENT TO ORIGINAL RES :

10.1 When a 'res' is sold by order of the court, any rights enjoyable against the original
'res' may thereafter be pursued against the fund. The Admiralty Court enjoys the same
jurisdiction over the proceeds of sale as it does over the original 'res'.
11.0 ONLY THE PARTICULAR RES INCUMBRANCED:

11.1 The fundamental principle is that a maritime lien attaches only to the 'res' in respect
of which the claim arises. No other property is capable of being charged. However, under
the Administration of Justice Act, 1956, there is made available a right in rem against a
sister-ship in the same beneficial ownership as the particular ship in respect of which the
claim arises. This remedy was not available to a maritime lienee prior to 1956. However,
this advantage is not available to claimants in India against Indian shipowners as we have
not ratified the above.
12.0 HUMAN LIFE:

12.1 No maritime lien attaches to human life. Although by statue, salvage may be
claimed in respect of services rendered in saving human life from a distressed ship, aircraft
(waterborne) or hovercraft, no maritime lien attaches to the persons of those saved.
13.0 PROTECTION OF A PURCHASER:

13.1 There exists no system of registration and public notice by which charges in the
nature of maritime liens may be rendered overt and visible. Consequently a prospective
purchaser of a ship has to be constantly aware that the ship may be encumbranced with
maritime liens, of which he has no notice or the means of unearthing. In practice, a
purchaser protects himself by insisting on an indemnity from the vendor in respect of claims
which may have accrued against the 'res' prior to the sale and purchase. The existence of
such an indemnity does not affect the right of a maritime lienee but only provides the
purchaser with a right of recourse in the event of a proceeding in 'rem' against the acquired
'res'. This indemnity will only afford a real protection in circumstances when the vendor
continues to be solvent.
14.0 POSITION IN INDIA:

14.1 Maritime lien is a common law concept and in India there is no specific legislation
dealing with maritime liens. India has been following the laws of U.K. in this respect and
courts in India, having admiralty jurisdiction, are competent to deal with cases pertaining to
maritime liens. The basic piece of legislation which governs merchant shipping today is the
Indian Merchant Shipping Act, 1958. In India, the High Courts of Mumbai, Chennai and
Calcutta being located at the key ports of India, have been taking up maritime law cases for
adjudication. The Colonial Courts of Admiralty (India) Act 1891 vests Admiralty Jurisdiction
in the High Courts of Mumbai, Calcutta and Chennai. However, since independence, various
State High Courts have exercised the Admiralty Jurisdiction and issued orders to arrest,
though their power to do so may be doubtful. The 1891 Act details how the procedure is to
be followed for arrest of a ship, its cargo and freight, whenever a suit or a rem is filed before
the Admiralty Jurisdiction of the High Court concerned. The purpose of the arrest is only to
secure the continued presence of the ship and cargo and to prevent her from slipping away.
138
15.0 PROCEDURE FOR ARREST:
15.1 The application for arrest or attachment is made by a 'plaint' giving details of the
claims with the relevant documents. The application will be supported by an affidavit which
must contain an undertaking that if the arrest is found in bad faith the claimant will be
responsible for damages. The claimant may also be required to meet the expenses of
manning and maintaining the vessel, should the court so order.
16.0 SUMMARY:
16.1 Lein may be defined as a privilege entitling a person who has it a means to secure a
claim which he has in respect of the defendant’s property in certain circumstances.
16.2 A maritime lien may be described as a privileged claim or charge upon a maritime
property for services rendered to it or damage done by it accruing from the moment of the
events out of which the cause of action arose and travelling with the property secretly and
unconditionally enforced by an action of rem.
16.3 Maritime lien is distinct from statutory lien and possessory lien. In statutory liens the
lien is lost if the ownership of the vessel is different at the time the cause of action is
brought. In possessory liens the lien is lost when the possession is given up and cannot be
regained even if he gets the ship back.
17.0 GLOSSARY:
17.1 Right in rem: Right enforceable against the world at large.
17.2 Right in persona: Right enforceable against a particular person.
17.3 Res: The thing.
17.4 Pari Passu: Equally.
17.5 Bottomry: The hypothecation of a ship itself as security with or without her cargo, in
order to obtain a loan by the master of a ship to complete his voyage.
17.6 Respondentia: The hypothecation of the cargo alone as security, in order to obtain a
loan by the master of a ship to complete his voyage. (Both bottomry and respondentia are
now hardly used).
17.7 Salvage: A service voluntarily rendered (and independent of contract) to save ships
and lives at sea. Property saved.
17.8 Salvage charges: Charges recoverable under maritime law by a salvor.
17.9 Salvor : A person who performs a salvage operation.
17.10 Salvage Agreement: Usually Lloyd's Form of Salvage on "no-cure, no-pay" basis and
provides for payment of a fixed sum or for the sum decided by arbitration. No-cure, no-pay
means that the salvor is entitled to a salvage award based on the value salved. If nothing is
saved there is no award.
17.11 Mortgage: A conveyance of property as security for a debt, subject to the provision
that the property will be returned when the debt is discharged.
139
17.12 Mortgagee: A lender to whom property is given as security for a debt on the
condition that the property will be returned to the mortgagor (borrower) when the debt is
paid off.
17.13 Mortgagor: A borrower who gives (mortgages) his property to another (mortgagee)
on condition that it will be returned to him (borrower) as soon as the debt is paid off.
1. What is a possessory lien? How does it differ from a maritime lien?

2. How would you describe a maritime lien? Explain in detail.
3. List claims which are usually accepted as maritime lien.
4. How are the priorities between competing claims decided? Discuss with reference
to salvage, damage done by a ship, wages and disbursements.
5 What is the legal position of maritime lien in India? Describe briefly the procedure
for arrest of ship in India.
6 Enlist the different subjects of a maritime lien
(a) Bottomry and Respondentia
(b) Necessaries
(c) Protection of a Purchaser
(d) Doubtful maritime lien
8. Explain:
(i) "Enforced by an action in rem".
(ii) Maritime property.
(iii) "Privileged" claim.

1.Carriage of Goods by Sea & Multimodal Transport -- N. Chandiramani, 1st Ed.,1997.
Chapter 12 -- Maritime Lien, Pages 91-95. Covers up the topic briefly in a very simple
language.
2. Shipping Law -- Chorely and Giles, 8th Ed., 1987.

The book is a leading text-book on the basic principles of shipping law and deals with all the
aspects of law. Chapter 7 deals with "Lien."
The student may read "Introduction" (Pages 69-70); Section 7.1 "Maritime Lien" (Pages 70-
73); Section 7.2 "Statutory Rights in Rem" (Pages 74-78), and Section 7.3 "Priority" (Pages
78-81).
3. Carriage of Goods by Sea -- E.R. Hardy Iwamy, 12th Ed., 1985.

The book is written in an easy, straight forward style by an author whose experience as a
teacher has shown him exactly what is required by students. The opening chapter on
commercial practice includes explanations of all the common shipping terms. Chapter 12 on
"Lien" (Page 258-263) is highly recommended.
4. Maritime Law of India -- Dr. Nagendra Singh, 1st Ed., 1979.

This is an excellent reference book for anyone who needs to consult the provisions of
international conventions pertaining to merchant shipping as well as the national laws
enacted by India from time to time to regulate Indian shipping.
140
Please see Chapter 4 "The Ships", Section VII- "Maritime Lien" (Pages 34-36) and "Arrest
and Jurisdiction" (Pages 36-37).
5. Maritime Liens (Volume 14) -- D.K. Thomas, 1980.

An authoritative book which analyses in great detail the concept and nature of a maritime
lien. Separate chapters are given to various associated issues such as legal sources of
maritime lien, nature of right of a maritime lienee, property encumbranced, maritime lien
and action in rem, etc., etc.
Students may read Chapter 1 (Pages 5-36) covering sections on classification, definition,
characteristics, personal liability, doubtful maritime lien, lien implied by statute and action
in rem.
********************
141
LESSON - 26
MARITIME ARBITRATION AND OTHER ALTERNATIVE DISPUTE RESOLUTION METHODS
1.0 MARITIME CONTRACTS :

1.1 Maritime contracts may be in the form of --
(a) Charter Parties -- Voyage Charter/Time Charter/Bareboat Charter.

(b) Contract of Sale and Purchase of a Ship.
(c) Ship Management.
(d) Technical know-how/collaboration.
(e) Hull/Machinery insurance policies (especially sister-ship collision and salvage
cases etc.).
2.0 These contracts could be between –

(a) Two local parties.
(b) One local and one foreign party.
3.0 While entering into contracts one should envisage disputes. Where the contract is an
international one the chances of dispute are multiplied. So, what can the parties do to
prevent disputes as far as possible? The parties should insert in the contract clear
unambiguous clauses, terms, terminologies, the interpretations and meanings of which have
been established in the courts of law as well as in the given trade. The intentions of the
parties behind the stipulations in the contract should be clearly reflected in the contract, as
far as possible and practicable, and the clauses which create frequent disputes should not
be included. Such foresight in drawing up the contract may reduce the number of disputes.
4.0 METHODS OF DISPUTE RESOLUTION:

4.1 When disputes or differences arise between the parties to a contract, one or more of
the following avenues may be open to them.
4.1.1 Litigation: The aggrieved party files a suit in court of competent jurisdiction. Instead
of the going to the court, parties may decide to settle their dispute amicably without
approaching the court. These methods are known as alternative dispute resolution
modes. Some of them are:
4.1.2 Negotiations: Ideally, the parties sit together and try to convey to each other their
points of view and merits of their stand and come to a negotiated settlement,
normally on a give-and take basis. This would result in payment to the party to
whom it is agreed to be due finally.
4.1.3 Mediation/Conciliation: Mediation is facilitated negotiation. The parties entrust the

matter to a mediator or a conciliator known to them. The mediator's role is to
regulate the process and enable the parties to themselves decide their dispute. He
does not decide for them. A conciliator’s role is persuasive. The conciliator gives his
recommendation. However his recommendation is not binding upon the parties. But
an agreement reached by the parties and signed by them with the help of the
mediator or conciliator will be final and binding on the parties and the persons
claiming under them. The parties are under obligation not to initiate any arbitral or
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judicial proceedings during the continuance of the mediation or conciliation
proceedings.
4.1.4 Arbitration: The decision of the arbitrator/s appointed by the parties in terms of the
contract is final and binding upon the parties. An award can be challenged on very
limited grounds. The decision called the 'award' is capable of being enforced with the
sanction of the law.
4.2 Contracts based on standard forms normally contain one of the standard arbitration
clauses, with specific stipulations regarding appointment of arbitrators, venue of arbitration
and sometimes applicable law, conduct of arbitration proceedings, etc.
4.3 Arbitration is one of the oldest ways of dispensing justice. It was practiced widely in
ancient India. In ancient society, disputes were being referred to friends and neutral
persons which avoided delays and expenses of litigation before a duly constituted tribunal.
In the villages in India, the authority of dispensing justice was lodged with the sarpanch or
where the village community was more evolved with the village council called the
Panchayat. This method of settling disputes is still around in certain communities in India.
Every trade and profession had its own guild having judicial power. A considerable portion
of cases, such as village disputes and differences between members of corporate
organizations (guilds), was allotted to these bodies for reducing the range of work of the
courts.
4.4 With the advent of British rule in India, existing social institutions underwent
changes. Enactments made during the earlier periods of the rule tried to preserve the law
dispensing machinery prevalent in the community. The Regulations for the Administration
of Justice passed in 1787 empowered the courts to refer certain suits to the decision of a
single person even without the consent of the parties. The Bengal Regulations of 1793, the
Madras Regulations of 1816 and the Bombay Regulations of 1827 all prescribed rules
encouraging arbitration. However, the regulations had some drawbacks. The Arbitration
Act, 1899, was passed to remove the drawbacks existing in the earlier legislations. The 1899
Arbitration Act provided for future disputes and laid down the law relating to arbitration by
agreement with the intervention of courts and was mainly drawn up on the lines of the
English Arbitration Act of 1889. Originally, the Act was limited to the three presidency
towns of Calcutta, Bombay and Madras. For the rest of India, the Second Schedule of the
Civil Procedure Code 1908 governed the arbitration proceedings.
4.5 The Arbitration Act, 1940, was enacted as a complete code of arbitration and
precluded any oral or common law arbitrations. The 1940 Act was outdated and later found
wanting in several respects, and its amendment or a new act was overdue. Though
arbitration was meant to avoid lengthy and expensive method of litigation, cases continued
to be referred to courts under one or the other provisions of the 1940 Act. The confidence
of international commercial community in India as the venue of arbitration under Indian law
could not be established. The economic liberalization set in motion from 1991 made it
imperative to enact a new Act which met the international standards and could gain the
confidence of international community in India and its law.
4.6 The new law enacted is The Arbitration and Conciliation Act of 1996 consolidating,
repealing and replacing 3 enactments, viz.,
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(1) Arbitration Act, 1940.
(2) Arbitration (Protocol and Convention) Act, 1937.
(3) Foreign Awards (Recognition & Enforcement) Act, 1961 and
Codifying for the first time the law relating to conciliation.
4.7 The new Act conforms Indian Law to United Nations Commission on International
Trade Law (UNCITRAL) Model Law on International Commercial Arbitration and Conciliation
Rules to promote uniformity of Arbitral Law.
4.8 The new Act delimits court's jurisdiction at each juncture and gives more power to
arbitration.
4.9 The new Act provides for appointment of sole arbitrator or arbitrators as agreed to
by parties but not of even number. The practice of appointing umpire is dispensed with but
appointment of third arbitrator by the two arbitrators appointed by parties, or if they do not
agree, by the Chief Justice or his designate upon a request by a party, is provided for in the
Act.
4.10 The award has been given a status of a decree, which can be enforced, as a rule of
court.
4.11 The provisions of the said three (repealed) enactments shall apply in relation to
arbitral proceedings which commenced before 25-1-1996 unless otherwise agreed to by the
parties, but the new Act shall apply to all arbitral proceedings which commenced on or after
25-1-1996 and all rules made and notifications published under the three enactments shall
to the extent to which they are not repugnant to the new Act be deemed respectively to
have been issued under the new Act.
5.0 Significant features of Arbitration and Conciliation, 1996 are :

5.1 International and domestic commercial Arbitration and Conciliation are covered.
5.2 For the first time, law relating to conciliation has been codified.
5.3 Arbitral Tribunals can use mediation, conciliation or other procedures during arbitral
proceedings.
5.4 Supervision by courts has been reduced.
5.5 Only independent and impartial persons can act as arbitrators.
5.6 The appointment of arbitrators could be by the parties or a permanent arbitral

institute.
5.7 Arbitrators have been given more powers such as:
a. Powers to proceed ex-party if party does not appear inspite of notices.

b. to grant interest
c. to make interim measures for protection in respect of subject matter of dispute.
d. Arbitrators can decide on a challenge to their own appointment and their own
jurisdiction and have been authorized to take procedural decision, previously left
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to courts. But the arbitrators have also the duty to disclose their interest; treat all
parties equally and grant them full opportunity to present their cases.
5.8 Arbitral awards have to be reasoned awards.
5.8 Not easy to challenge the arbitral award.
5.10 An Arbitral award is deemed as a decree of the court. There is no need of going to
court for getting a decree.
5.11 Settlement reached by Conciliation would have the same status and effect as an
arbitral award.
5.12 Every arbitral award, made in country, which is a party to the two International
Convention (Schedule I & II), is to be treated as a Foreign Award.
5.13 The party who wishes to challenge the award is required to deposit the amount of
award at the court at the time of challenge.
6.0 ARBITRATION -- WHY?

6.1 In the commercial field, arbitration has certain distinct advantages over litigation.
They are as under:
(i) It brings down the cost of decision.
(ii) It is less time consuming.
(iii) It is less complicated, i.e., flexible and simple.
(iv) The parties have the benefit of arbitrators who are men having commercial
knowledge and experts in their field and therefore the decision is not purely
on judicial grounds.
(v) Parties can decide the venue and time for arbitration
(vi) The award has a finality, with certain exceptions.
7.0 ARBITRATION -- WHEN?

7.1 The parties can resort to arbitration when --
(i) There exists a dispute under a contract.
(ii) There exists an agreement between the parties to resolve the dispute/s
through arbitration.
7.2 The arbitration agreement could be --

(a) In writing (by telex, fax, telegram or letter) which then may be governed by
the Arbitration Act, 1940, or if arbitration is resorted to on or after 25-1-
1996, under the Arbitration and Conciliation Act, 1996.
(b) By way of a clause in the contract, or
(c) Separate from the contract, either before or after the occurrence of the
dispute.
8.0 ARBITRATION -- HOW?

8.1 Institutional Arbitration: When the parties to commercial contract have agreed to
submit their disputes under the rules of an arbitral institution, the entire procedure for the
145
conduct of arbitration belonging from the appointment of arbitrators till making award will
have to be followed by the parties, as per the rules of the arbitral institution chosen by the
parties
8.2 Ad-hoc Arbitration: Where the parties have not agreed to institutional arbitration,
following are the steps which any party, wishing to commence arbitration proceedings must
take:-
(a) It invokes arbitration within contractual or statutory time-limit by appointing
the arbitrator of its choice.
(b) It serves a notice on the other party notifying it the nature of the disputes,
the name and address of the arbitrator appointed and asks the other party to
nominate its arbitrator within the statutory time limit (30 days of such
request), unless the agreement provides for appointing a sole arbitrator, in
which case it asks the concurrence of the other party of the appointment of
arbitrator nominated by it as the sole arbitrator.
(c) If the other party fails to nominate its arbitrator, it may notify after the expiry
of the statutory time limit as per the notice the appointment of its arbitrator
as the sole arbitrator.
(d) The two arbitrators appointed then have to appoint a third arbitrator, or the
presiding arbitrator under the 1996 Act, failing which, upon request from a
party, he will be appointed by the Chief Justice or by the one designated by
him. The agreement may also provide for the appointment of one arbitrator
nominated by the parties as the sole arbitrator. Under the 1940 Act, an
Umpire was to be appointed either before or after, as provided in the
contract, if the two arbitrators failed to agree.
9.0 ARBITRATION PROCEEDINGS:

9.1 Arbitral Tribunal gives directives to the parties to submit their respective pleadings
with supporting documents.
9.2 After receipt of pleading with the documents, tribunal notifies the parties date and
venue of hearing in keeping with the Arbitration Clause.
9.3 Parties appear with or without their counsels, witnesses, if any, for oral evidence or
written affirmed evidence and further documents, if any, at the hearing(s).
10.0 ARBITRATION ‘AWARD’:

10.1 After conclusion of the hearing/s, the Arbitral Tribunal gives the award. No time
limit for making the award has been specified in the 1996 Act (unlike the 1940 Act, which
did specify it) but it is to be made without undue delay, failing which arbitrators' mandate
can be terminated, if he fails/they fail to act without undue delay.
10.2 Award contains amount awarded interests and costs, if/as deemed proper.
10.3 If the losing party fails to pay, award was required to be made rule of court (i.e.
decree) under the 1940 Act and enforced. However, under the 1996 Act, the award has
been given the status of a decree.
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1. What are Alternative Dispute Resolution (ADR) methods?

2. What are the advantages of Arbitration over Litigation?
3. When can Arbitration be resolved to?
4. What is the status of Conciliation under the Arbitration & Conciliation Act, 1996?
5. Which are the maritime contracts which may be subject to Arbitration.
6. Give the salient features of the Arbitration and Conciliation Act 1996?
1. Shipping Law -- Chorley & Giles, 8th Ed., 1987.

A standard work used all over the world by students of maritime law. The book contains all
aspects of shipping law and is an excellent reference book.
For "Arbitration" please see Section 1.2, Pages 3-4.
2. Maritime Law -- C. Hill, 6th Ed., 2003.

This thoroughly accessible book, published by the Lloyd's List, has been completely revised.
Frequent references are made throughout the book to case law to illustrate how the law
operates in practice.
For Maritime Arbitration please see Section on "Maritime Arbitration", Pages 234-238, for
implications of having the arbitration clause in a charterparty.
3. Arbitration and alternative dispute resolution – G.K.Kwatra, New Delhi 2004
4. Carriage of Goods by Sea and Multimodal Transport -- Dr (Mrs.) Nilima

Chandiramani, 1st Ed., 1997.
The purpose of this book is to explain the law relating to the carriage of goods by sea and
multimodal transport in a way that will make the subject intelligible to a beginner.
For Arbitration, see Chapter 9, Pages 84-85. The book tells the reader very briefly what are
the provisions for arbitration under the Hague and Hague-Visby Conventions as well as
under the Hamburg Rules and Multimodal Transport of Goods Act.
See Page 128, Appendix C, for provision for Arbitration in MTOG Act, 1993. Also see Pages
166-167, Appendix F, for provision in the Hamburg Rules.
********************
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LESSON - 27
TORTS IN SHIPPING
1.0 TORTS:
1.1 Often one person’s actions may adversely affect another/another’s property, though
there may be no contract between them. Such situations can be addressed by the law of
torts.
1.2 Law of torts is fashioned for making people adhere to standards of reasonable
behavior and respect the rights and interests of one another.
1.3 The word ‘tort’ has been derived from the Latin word ‘tortum’ which means twisted
conduct. Thus, a tortious act is a wrongful act (other than breaches of contract), leading to
liability and the wrongdoer is called the ‘tortfeasor’.
1.4 Tort is a civil wrong, arising independent of a contract and for which remedy is an
action for unliquidated damages.
1.5 A contract is founded upon consent, a tort is without consent. In tort, the liability
arises from a duty imposed on persons generally by law, whereas contractual duties arise
from the agreement between the parties.
1.6 The same act may amount to a tort and a breach of contract. Persons such as
carriers (solicitors, surgeons) can be liable for neglect/unskillfulness either in tort or
contract. When a party has concurrent remedies in contract and in tort available to him he
may choose the one that appears the most advantageous. Claims in tort are subject to
different time limits from claims in breach of contract and that result may be of great
advantage to a claimant. In addition, damages recoverable in tort may be more generous
than damages recoverable in breach of contract.
1.7 A tort is a civil injury, but all civil injuries are not torts. There are moral wrongs for
which law gives no legal remedy though they cause great loss, example, setting up a rival
school. On the other hand there are legal wrongs for which law gives legal remedy though
there is only violation of a private right without actual loss, example, and refusal to register
a vote.
1.8 In Rogers’s v Rajendro Dutt, the plaintiff owned a tug which he employed for towing
ships in charge of government pilots in Hooghly. A troopship arrived in Hooghly. The plaintiff
asked for an exorbitant amount for towing the ship, whereupon the superintendent of
marine issued a general order to officers of the government pilot service not to employ the
tug in future. The plaintiff brought an action against the superintendent for damages. Held,
plaintiff has no legal right to have his tug employed by government.
1.9 A tort may arise by way of:

1. Malfeasance – commission of unlawful act, eg., trespass
2. Misfeasance – improper performance of lawful act eg. Negligence
3. Nonfeasance – omission to perform when there is obligation to perform eg. not
issuing bill of lading on shipper’s demand.
2.0 VARIOUS TYPES OF TORTS:

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2.1 TRESPASS : This is interference with a person or his/her property.
2.2 NUISANCE : This essentially prevents a person from enjoyment of his/her property in
any manner and to any extent he/she likes.
2.3 CONVERSION : This is essentially the treating of someone else’s property in a way
that is inconsistent with their ownership of that property.
(a) Where the ship owner/master refuses to issue bill of lading to the shipper on
shipper’s demand
Refer to:
1. MV X-press Annapurana and Anr. Etc. v. Gitanjali Woollen Pvt. Ltd.and Ors.
AIR 2001 Bom 105.
2. Shaw Wallace & Co. Ltd. v. Nepal Food Corporation & Ors. AIR 2012 SC 72.
(b) Where the owner/master delivers goods to a person without the production of
bill of lading.
Refer to:
1. Sze Hai Tong Bank v. Rambler Cycle Co. Ltd.
2. Truck and Spares Ltd. v. Maritime Agencies Ltd. [in the prescribed book
“Carriage of Goods by Sea-------“ by Dr. Nilima Chandiramani p 23]
2.4 DEFAMATION: This is either saying or publishing untrue statements about a person
which ruins his/her reputation.
2.5 DECEIT: Fraud or cheating.

Where the ship owner delivers goods not as described in the bill of lading as to
leading marks necessary to identify the goods; number of pieces/packages or weight
or quantity; apparent order and condition of this.
2.6 FRAUD AND MISREPRESENTATION
2.6.1 Where the ship owner delivers goods not as described in the bill of lading as to
leading marks necessary to identify the goods; number of pieces/packages or weight or
quantity; apparent order and condition of goods.
Refer to the following cases in the prescribed book “Carriage of Goods by Sea-------“
by Dr. Nilima Chandiramani pp 15—22:
1. The Nea Tyhi
2. The Saudi Crown
3. Parson v. New Zealand Shipping Co.
4. Peter der Grosse
5. Silver v. Occean S. S. Co.Ltd.
6. The Skarp
7. Dona Mari
8. Brown Jenkinson and Co. Ltd. V. Percy Dalton
9. Hellenic Lines Ltd. V. Chemoleum Corpn.
2.7 NEGLIGENCE : It is basically injury to a person or his property which is caused by the
wrongdoer by an unreasonable act or an unreasonable failure to act. Hence negligence
could be by way of commission or omission
2.7.1 Liability for collision at sea arises from a tort of negligence
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2.7.2 If a plaintiff is to succeed against the defendant in an action for negligence, he must
prove three things:
(i) That the tortfeasor (the defendant) owed the injured party a duty of care.
(ii) That the defendant was in breach of his duty.
(iii) That the defendant's breach caused the damage.
3.0 DUTY OF CARE:

3.1 Liability in negligence is based on a legal duty not to be careless. In order for one
person to be liable to another for the results of his carelessness, there must be some
legally recognized proximity as between those persons. The decision in Donaghue v
Stevenson (1932) is a landmark in the development of the question of as to whom
does a person owes a duty of care. Lord Atkin propounded the now famous
“Neighbour Principle". Lord Atkin attempted to establish a single general principle
which could be applied in all circumstances to determine the existence of a duty of
care.
3.2 Recently a series of decisions in the House of Lords has emphasised the Courts'
doubts about the ability of any single general principle to provide a practical test
which may be applied to every situation. These doubts have been expressed in the
recent case of Caparo Industries Plc v Dickman & Others (1990), where it can be seen
from the speech of Lord Bridge that the Courts are now once again attaching greater
significance to the more "traditional" approach of establishing the existence of a
duty of care in distinct and specific situations, rather than under a single and general
application of the neighbour principle.
3.3 Recent case law, however, shows that today the Courts may, at times, determine the
question of whether or not the duty of care exists as between the parties by a
consideration of the former guidelines relating to specific categories of duty rather
than the general neighbour principle.
4.0 BREACH OF DUTY:

4.1 This is the actual negligent act (commission or omission). Negligent behaviour is
judged on the basis of acceptable standards of behaviour. The question to be asked
is whether a reasonable person would have acted or failed to act in this way. What is
unreasonable in one situation may not be unreasonable in other situations. Each
case is decided on its circumstances.
5.0 DEFENDANT’S BREACH CAUSED THE DAMAGE:

5.1 The defendant’s breach of duty, that is, his unreasonable act or failure to act, must
have actually caused the damage/injury. The plaintiff is not only required to show
that the defendant was unreasonable but also that his unreasonableness actually did
cause the injury. The plaintiff's claim will fail if he is not able to establish that the
damage is actually the result of the breach of duty.
5.2 Negligence is the tort under which most liability arises in commercial situations
and the shipbroking profession.
6.0 CASE LAW 1

Tarrant v/s Ramage, Sembawang Salvage (IV) and Semco Salvage Pte Ltd
(Salvital).
An Iraqi missile struck the tug “Salvital” during salvage operations in the Gulf in 1987.
150
The radio operator, Nicholas Tarrant, suffered serious injuries. He alleged negligence
by the tug-master Captain Stuart Ramage, his employer Semco Salvage (crew
employer), and the shipowner Sembawang Salvage.
Tarrant claimed that the master had responded “unreasonably” to a red alert “105”
warning while the Salvital was fighting fire in a holed oil tanker on November 1987.
Mr. Justice Clarke said that both Semco and Sembawang were vicariously liable for
the negligence of Semco’s employees. He held that Semco should have made
reasonable enquiries about how exocets worked and the appropriate response to a
“105” warning. The key point said the Judge, was that Captain Ramage (not held
liable) should have been provided with written instructions and information about
the safest place to shelter.
6.2 CASE LAW 2:
Arbuthnot & Others v. Fagan & Feltrim
The House of Lords has delivered a judgment of general importance on the matter of
the obligations of those who assume responsibilities to others, whether or not there
is also a contractual relationship. The case involved Lloyd’s Underwriting Agents but
the principle applies to many others in business, including bankers, accountants,
surveyors, valuers, lawyers and insurance brokers.
If one party assumes a position of responsibility to another (e.g. by agreeing to give a

gratuitous service such as a reference) then it has been long settled that there is a
duty to act with reasonable care or else a liability in damages for any provable
economic loss will arise. The present case has extended that duty even to those
relationships in which a contract also exists between the parties (e.g., insurance
broker or underwriting agent).
6.3 CASE LAW 3

In Nicholas H, a recent notorious case of 1995, the Court ruled that the Class NK
surveyor owed no duty of care to cargo interests. After temporary repairs, the
surveyor had recommended that the vessel should proceed on its voyage, with
repairs to be dealt with after discharge. The vessel sailed and sank a week later. The
House of Lords upheld the Court of Appeal’s decision that there did not exist a
proximate relationship between the cargo interests and the classification society to
support a duty of care and neither was it just to impose one.
7.0 NEGLIGENCE OF THE MASTER/SHIP'S PERSONNEL:

7.1 Normally, by incorporation of clause paramount and other protective clauses in the
bills of lading and charter parties, the owner seeks to protect himself against the
negligence of the master/ship’s personnel.
7.2 Under Art.1V(2) of the Hague and Hague-Visby rules the carrier is exempted from
responsibility for loss or damage caused to the cargo due to act, neglect or default of
the master, mariner, pilot or the servants of the carrier in navigation or in the
management of the ship. [But under Hamburg and Multimodal Transportation of
Goods Act the carrier can claim protection only if he proves that he and his servants
and agents took all measures that could reasonably be required to avoid the
occurrence and its consequences.]
7.3 However, this may not always be the case. Take the English case of Marion. The
Marion was expected to anchor in an oil field and the Master used an obsolete chart
which did not show the existence of a pipeline which was fouled-up by the anchor.
The correct chart which showed the presence of the pipeline was available on board
151
but was not used due to an oversight. It was later discovered that the condition of
the vessel’s chart-room, like most vessels perhaps, left a lot to be desired. The Court
held that owners were responsible and negligent in not having a proper system of
chart management and denied them the advantage of limitation of liability under
the Merchant Shipping Act.
7.4 In certain instances, the charterers may not be able to enforce a claim on owners
despite the fact that such claims have arisen because of negligence of the personnel
on board. In the famous case of Aquacharm, the Master was ordered by charterers
under a New York Produce Exchange form charter to load to the draft permitted for
a transit of the Panama Canal. He negligently loaded to a greater draft. This resulted
in lightening of excess cargo and its transshipment and reloading of the cargo after
the vessel had transitted the canal. The charterers could not claim the extra costs
and the loss of time successfully because Clause 24 of the charter party incorporated
the U.S. Clause Paramount as per which owners were not responsible.
7.5 The point to be noted is that only in cases of certain types of negligence the owner
may avail such defences successfully.
8.0 VICARIOUS LIABILITY:

8.1 Vicarious liability basically means liability on behalf of another. At times, one person
will be liable for the torts committed by another person. Most common example is
the employer/employee or the master/servant relationship. Where damage results
from an employee’s negligence, for example, by the negligence of the master then
the non- tortfeasor, that is, the shipowner in this case is held liable on behalf of his
employee. However, this is not applicable in the case of torts committed by
independent contractors.
9.0 TORT ACTIONS AGAINST CARRIERS:

9.1 In The Aliakmon the House of Lords held that in order to sue in tort, it is necessary
for the plaintiff to have property in the goods at the time that they were damaged.
Property in this context means either legal ownership or the possessory title to the
property concerned at the time when the loss or damage occurred. Although Lord
Brandon does not elaborate upon this, it would seem that “possessory title”
encompasses the special property which obtains on endorsement can sue the carrier
in tort.
10.0 MISREPRESENTATION:
10.1 Misrepresentation has been defined under the Law of Contract. It can be said to
be of three kinds: (a) Unwarranted statement; (b) Breach of duty; & (c)
Inducing mistake about subject - matter.
11.0 PRE-CONTRACTUAL MISREPRESENTATION:

11.1 If one party has been induced into a contract on the basis of a false statement of
fact, which is not a contractual term, that is, by misrepresentation, there can be no
action for breach of contract. Thus in such a case, it will be necessary to rely upon
tort and the rules relating to misrepresentation.
11.2 Today, under the English law, pre-contractual misrepresentations are governed by
The Misrepresentation Act, 1967. Before this Act came into force, it was necessary
for the plaintiff to either establish the tort of deceit in relation to a fraudulent
152
misrepresentation (Derry v/s Peek) or to establish negligence for a negligent
misrepresentation (Hedley Bryne v/s Heller).
12.0 THE HIMALAYA CLAUSE:

12.1 During the nineteenth century a passenger/ cargo-owner could not bring an action in
a contract against the servants of the carrier or an independent contractor, such as a
stevedore, for the injury/damage caused to him or his goods by such a servant or contractor
because there was no privity of contract between them. But with the development of the
tort of negligence in 1932 (Donoghue v Stevenson), the passenger/cargo owner could sue
the master and servants of the carrier or the stevedore in the tort of negligence. He no
longer needed a contractual relationship to sue the latter. The doctrine of privity of
contract, which formerly was used by the master/ servant/stevedore as a shield to protect
himself against the passenger/cargo-owner, now became a sword in the hands of the
passenger/cargo-owner to strike the master/servant/stevedore. In absence of a contract
between them, the latter was prevented from relying on the limitation of liability clauses in
the carriage contract between the passenger/cargo-owner and the carrier.
12.2 To enable such master/servant/stevedore and independent contractor to claim

protection, the Himalaya Clause was evolved. It provides that the carrier, as an agent of his
own servants and agents, including independent contractors from time to time employed by
him, contracts with the cargo-owner that these servants, agents and independent
contractors shall be entitled to the limits of liability and other defences arising from the
contract of carriage.
12.3 The origin of this clause was in the case of Adler v/s Dickson (1954). The facts are: A
female passenger suffered injury during a voyage on the vessel Himalaya, as a result of the
negligence of a member of the ship’s crew. Her ticket contained an exclusion clause, freeing
the shipowner from liability for death or injury howsoever caused. The court found that the
shipowner could escape liability by reason of the terms of carriage, but that the passenger
had a valid case in tort directly against the negligent crew member.
12.4 It is interesting to note that it was this case and this vessel which gave rise to the
now well-known Himalaya Clause in cargo-carrying contracts contained in bills of lading,
which allows a servant or agent of a carrier of goods, if sued directly, to have the same
benefits, defences, etc., as the carrier himself has under the bill of lading contract.
12.5 In Scruttons Ltd.v. Mildland Silicones Ltd. the stevedores, employed by the carrier,
negligently dropped a drum of chemicals while unloading it. The consignees, suing the
stevedores in the tort of negligence, recovered an amount of 593 pounds as against the 500
dollar limit under the Rules.
12.6 In The Eurymedon – a case very similar to Scruttons case- the consignee having failed
to sue the carrier within the limitation period of one year, brought an action against the
stevedores alleging negligence. The bill of lading incorporated a well - defined Himalaya
clause. The judicial Committee of the Privy Council held that the benefit of the period of
limitation available to the carrier is also available to the stevedores.
12.7 In the Eurymedon, the carrier was a subsidiary company of the stevedores and hence
it was inferred that the stevedores were aware of the terms of the bill of lading.
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12.8 Consequently a contract was implied between the stevedores and the shippers. But
in New York Star the Privy Council clarified that it was not necessary that there should be a
close relationship between the carrier and the stevedore ( as was the case in Eurymedon) to
protect the latter. A well-drafted Himalaya clause in the bill lading will often be effective in
protecting an independent contractor.
12.9 Similar observations were made by Samuel J. in the Australian case of Godina v
Patrick Operations pty. Ltd.
13.0 REMEDIES & LIMITATION :

13.1 DAMAGES:
13.1.1 The redress of wrongs/injuries most commonly takes the form of damages, that is to
say, monetary compensation. The aim of damages in tort is to put the plaintiff back
in the same position as if the tort had not occurred. The award of damages thus does
not encompass expectation loss, that is, profit.
13.1.2 Indeed, it may be that the availability of the action for unliquidated damages is the
hallmark of a true tort.
13.1.3 Damages in negligence were, until 1961, awarded on the basis of all direct loss. In
1961 the Privy Council in the Overseas Tankship (UK) Ltd v/s Morts Dock &
Engineering Co. Ltd. (1961) decided to depart from the direct consequence test laid
down in Re Polemis (1921) and to adapt the test of reasonable foreseability. The
award of damages for negligence is all that type of loss which is reasonably
foreseeable and not too remote from that type of tort or injury.
13.1.4 In Re Polemis (1921) – Plaintiff can recover all direct loss i.e. loss that is the direct
consequences of defendant’s negligence. Pure economic losses not connected with
defendant’s negligence not recoverable.
13.1.5 In Liesbosch Dredger v S.S. Edison (1933) – due to negligence of vessel Edison,
Liesbosch, which was performing harbour dredger work under a contract which
provided severe penalties for delay, was dragged from her mooring into the open
sea – financial position of Liesbosch not such to purchase a new dredger – so hired a
replacement – Liesbosch claimed damages +cost of hiring replacement. Held
damages for hiring replacement was the direct result of claimants financial instability
and not defendants negligence and hence not recoverable. However court held
claimant entitled to value of Liesbosch as a going concern.
13.1.6 Then in ‘The Wagon Mound (No1) (1961), Re Polemis over – ruled. Test of
remoteness for damages is now one of ‘reasonable foreseeability’. Plaintiff can
recover all damages which are reasonably foreseeable as a result of defendant’s
negligence, whether or not the injury caused was a direct result of negligence.
13.1.7 Damage when ship is lost in collision:

Not entitled to a new ship but to the market value of the ship at time of casualty. If
difficult to assess then it would be the value of ship as a going concern or original
value less proportionate depreciation
13.1.8 Damages when ship is damaged but not lost Reasonable costs of repairs Out of
pocket expenses also recoverable such as salvage, towage, cost of survey, dock dues,
etc.
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13.2 AN EXCEPTION - PURE ECONOMIC LOSS:
13.2.1 Pure economic loss is money (profit) loss which is not the result of some physical
damage. If the claim in tort is for loss of profit only, that is, not including loss or
damage to goods, the claimant is unlikely to be awarded any damages even where
the plaintiff succeeds in proving negligence on the part of the defendant.
14.0 REMEDIES OTHER THAN DAMAGES:

14.1 INJUNCTIONS:
14.1.1 An injunction is an order of the Court requiring the defendant to refrain or
desist from some wrongful course of action. This is the main tort remedy other
than an award for damages and is a dominant remedy in some areas, particularly
nuisance and “economic torts”.
15.0 DEFENCES AGAINST TORTIOUS LIABILITY:

15.1 DEFENCES FOR NEGLIGENT HARMS TO PERSON AND PROPERTY:
15.1.1 Contributory Negligence and Assumption of Risk : Contributory negligence may be
applicable to some torts other than negligence but that is its main sphere of
operation. By speaking of contributory negligence of the defendant, it is meant that
the accident is partly caused by the negligence of the defendant and partly by the
failure of the plaintiff to take such care of his own safety as is reasonable in the
circumstances.
15.1.2 The defence of assumption of risk, often called “volenti non fit injuria” (Latin phrase
meaning "there can be no injury to a person who is willing" involves that the plaintiff
has expressly or impliedly agreed to run the risk without compensation of
defendant’s negligence if it occurs. A good example of this is the refusal to apply the
defence in cases involving passengers who knowingly continue to travel in a vehicle
with a drunken driver. Dann v. Hamilton (1939).
15.1.3 Contributory negligence was at Common Law a complete defence of tort and now,
under the Law Reform (Contributory Negligence) Act, 1945, goes to reduce damages.
15.2 DEFENCES FOR INTENTIONAL TORTS TO PERSON AND PROPERTY
15.2.1 Consent: No injury is done to one who consents. No act is actionable as a tort at the
suit of any person who has expressly or impliedly assented to it. This applies to
intentional acts which would otherwise be tortious, for example, consent is to an
entry on land or goods, which would otherwise be a trespass. The defendant must
establish that the plaintiff’s consent was fully and freely given.
15.2.2 Mistake : Mistake may enable the defendant to shelter under a privilege
which he believes erroneously to exist on the facts.
15.2.3 Necessity: The defence, if it exists, enables the defendant to escape liability for the
intentional interference with the security of another person or property on the
ground that the acts complained of were necessary to prevent greater damage to
the common wealth of another or of the defendant himself, or to their or his
property. But the defence of necessity is not generally favoured by the Courts.
15.2.4 Contributory Negligence and Illegality: Since contributory negligence has already
been dealt with, we shall here deal with illegality. Illegality is an obscure area of
torts. It is certainly not the law that the plaintiff is barred from suing because he was
engaged in criminal conduct when the tort was committed against him. No one
155
suggests that the plaintiff’s exceeding the speed limit necessarily provides a
complete defence in a road accident case.
15.2.5 Exemption Clauses and Disclaimers: Although parties to a contract are in general
free to make what bargain they please, the Courts lean against clauses which
purport to exempt a party from the liability which would otherwise fall on him. The
question whether a party who has been guilty of a fundamental breach of contract
can rely on an exemption clause has been discussed before the House of Lords. Held
that there is no rule of law requiring any particular construction of the contract in
issue.
Where but for the contract there would be a concurrent liability in tort and contract,
the contract may give express protection to what would otherwise be a tort. The
plaintiff cannot then disregard any limitations of liability under the contract by
alleging a wider liability in tort. Here, it may be pointed out that limitation of liability
under the Hague/Hague-Visby Rules incorporated into the Bills of Lading by
incorporation of the clause paramount prevents the named consignees/endorsees to
sue in tort.
15.2.6 Disclaimers: It is impossible to disclaim liability for a dishonest statement made with
the intent that another shall act on it.
15.2.7 Plaintiff a Wrongdoer: There is an overlap with the defenses of consent and
contributory negligence.
15.2.8 Statutory Authority: When a statute authorizes a certain act to be done by a certain
person, which would otherwise be unlawful and actionable, no action will lie at the
suit of any person for the doing of that act. For such a statutory authority is a
statutory indemnity, taking away all legal remedies provided by the law of torts for
persons injuriously affected. No compensation is obtainable save that, if any, which
is expressly provided by the statute itself. This defence of statutory authority has its
most important application in actions of nuisance. But it is one of general application
throughout the whole sphere of civil liability. The statutory authority and indemnity
extends not merely to the act itself but also to all its necessary consequences.
16.0 LIMITATION OF ACTION:
16.1 This is defence common to all claims under statutes where a prescribed period of
limitation is provided. In cases where there is no prescribed period, the provisions of
the Limitation Act would apply. In the absence of any prescribed period as aforesaid
the doctrine of laches would apply.
17.0 CONTRIBUTORY NEGLIGENCE: IN ADMIRALTY:

17.1 The Maritime Conventions Act, 1911, consisting of Rules of Maritime Law Governing
Collisions at Sea, has enabled the Courts to apportion the loss according to the
degree to which each party is in fault, but the Court has first to decide whether the
fault of either vessel had contributed to the loss or damage suffered. By section 3 (1)
of the Law Reform (Contributory Negligence) Act, that Act does not apply to any
claim to which section 1 of the Maritime Conventions Act, 1911, applies. The
principles to be applied at Common Law are now the same as those applied in
Admiralty.
156
1. Identify the differences in the remedies available for a breach of contract and under
tort.
2 List the essential elements that must be satisfied in order to establish the tort of
negligence.
3 Write a short note on "Negligence of the Master/Ship’s personnel".
4 What is contributory negligence ?
5 What remedy is available under tort law other than damages ?
6 List out the various defences against tortious liabilities.
*********************
157
LESSON 28
INTRODUCTION TO
THE INDIAN BILLS OF LADING ACT, 1856.
1.0 The enacting of the Bills of Lading Act was of great significance. Prior to this,
contracts were not freely assignable as per Common Law. Whenever the bill of lading was
transferred to a consignee, the bill of lading did not actually transfer the legal rights and
liabilities under the carriage contract to the consignee. It merely transferred the title or
ownership of the cargo to the buyer. This situation was amended by the introduction of
Section 1 to the Bills of Lading Act which states that the bill of lading not only becomes a
document of title in the hands of an endorsee for value but it also passes the rights and
liabilities under the contract of affreightment after the cargo has been shipped. Now
consignees, bankers, underwriters and other interested parties hold legal rights under the
Bill of Lading. In other words, the bill of lading is as good as possession of the goods.
1.1 Section 2 of the Bills of Lading Act deals with "Stoppage In Transitu." It maintains
that nothing in the Act will itself prejudice in any way the rights of an unpaid seller to stop
the goods in transit and prevent them from being passed on to the buyer or to the Bill of
Lading holder. These rights can arise after the goods have been shipped on board the vessel
and the purchase price of the goods has not been paid in accordance with the sale of goods
contract. This right can be exercised as long as the goods are in transit.
1.2 Lastly, a harsh and unfair judgement of the court in Grant v. Norway in 1851 was
overruled by enacting Section 3 in the Bill of Lading Act.
1.3 In Grant v. Norway a bill of lading was signed by the master for 12 bales of silk which
the shipowner proved had not been loaded on board. Held that since the master had no
authority to sign for goods not shipped, the holder of the bill of lading had no claim against
the shipowner for non-delivery of these bales. Under common law the shipowner could
therefore escape liability by establishing that the goods were never loaded on board.
1.4 Under Common Law the situation had been that statements made in the bill of
lading represented prima facie evidence against the carrier but this has now changed
through Section 3 of the Bill of Lading Act.
1.5 Under Section 3, every bill of lading now in the hands of the consignee for valuable
consideration representing goods to be shipped on board shall be conclusive evidence of
such shipment against the master or other persons who sign the bill of lading.
2.0 THE ACT ITSELF:

2.1 AN ACT TO AMEND THE LAW RELATING TO BILLS OF LADING:
Whereas by the custom of merchants a bill of lading of goods being transferable by
endorsement, the property in the goods may thereby pass to the endorsee but
nevertheless all rights in respect of the contract contained in the bill of lading
continue in the original shipper or owner and it is expedient that such rights should
pass with the property and whereas it frequently happens that the goods in respect
of which bills of lading purport to be signed have not been laden on board, and it is
proper that such bills of lading in the hands of a bonafide holder for value should
not be questioned by the master or other persons signing the same, on the ground of
the goods not having been laden as aforesaid, it is enacted as follows:-
158
1. Rights under bills of lading to vest in consignee or endorsee:- Every consignee of goods
named in a bill of lading and every endorsee of a bill of lading to whom the property in
the goods therein mentioned shall pass, upon or by reason of such consignment or
endorsement shall have transferred to and vested in him all rights of suit, and be subject
to the same liabilities in respect of such goods as if the contract contained in the bill of
lading had been made with himself.
2. Not to affect right of stoppage in transitu or claims for freight:- Nothing herein
contained shall prejudice or affect any right of stoppage in transitu or any right to claim
freight against the original shipper or owner, or any liability of the consignee or
endorsee by reason or in consequence of his being such consignee or endorsee, or of his
receipt of the goods by reason or in consequence of such consignment or endorsement.
3. Bill of lading in hands of consignee, etc. conclusive evidence of the shipment as

against master etc.:- Every bill of lading in the hands of a consignee or endorsee for
valuable consideration, representing goods to have been shipped on board a vessel,
shall be conclusive evidence of such shipment as against the master or other person
signing the same, notwithstanding that such goods or some parts thereof may not have
been so shipped, unless such holder of the bill of lading shall have had actual notice at
the time of receiving the same that the goods had not in fact been laden on board;
Provided that the master or other person so signing may exonerate himself, in respect of
such misrepresentation by showing that it was caused without any default on his part, and
wholly by the fraud of the shipper, or of the holder or some person under whom the holder
claims.
(Answers should be brief and to the point)
1. What was the decision of Grant v. Norway, a case decided in 1851, on the status of the
bill of lading? What legislative attempt was made to overrule this judgement?
2. "Possession of a B/L is the same thing as possession of the goods." Elucidate.
3. In your own words describe what the three Sections of the Bill of Lading Act are meant
to convey.
1. Carriage of Goods by Sea and Multimodal Transport -- Dr (Mrs) Nilima Chandiramani,
1st Ed., 1996.
(Chapter 3, Pages 11-32, deals with the various aspects of the Bill of Lading).
2. Bills of Lading -- A. Mitchelhill, 1st Ed., 1982.
This book deals with the very heart of the shipping documentation -- the Bill of Lading --
explaining its history, development and practical applications. It explains in an easy to
understand manner all the aspects of this important document.
Chapter 1 deals with the evolution of the bill of lading -- historical, the Act, development
and definition. Other chapters cover the Rules, conventional and through bills of lading,
documentary credits, combined transport documents, letters of indemnity, related
documents, carriage of dangerous goods, etc. etc.
3. Bills of Lading -- Capt. D.E Driver, 2nd Print, 1995.
4. This small booklet of 24 pages is a handy guide covering functions of the bills of lading,
types, definition; law relating to carriage of goods by sea; duties and liabilities of the
carrier under COGSA; B/L issued pursuant to a C/P, etc.
159
LESSON - 29
FREIGHT
1.0 DEFINITION:
1.1 Freight is the remuneration payable for the carriage of goods in a ship. It is payable
only on the safe carriage and delivery of the cargo.
2.0 WHEN PAYABLE:

2.1 The carrier is entitled to freight if the following two conditions are satisfied:-
(i) There is safe carriage of goods; and
(ii) The carrier is ready to deliver the cargo.
2.2 Safe Carriage:

2.2.1 If the goods are lost on voyage, no matter how, the shipowner is not entitled to
claim freight. Even if the cargo is lost due to an excepted peril, he cannot earn freight;
though he may be excused for non-delivery of the goods.
2.2.2 But where the cargo arrives damaged, deteriorated or delayed, the shipowner has a
right to receive full freight. The consignee cannot deduct from the freight the amount due to
him for loss or damage to the goods. For this he will have a separate cause of action, unless
the damage is solely due to excepted perils. But no freight is payable if the goods delivered
are so damaged that they have completely lost their merchantable character. Thus in Asfar v
Blundell, a ship, carrying dates, sank. The dates were recovered but were unfit for human
consumption. So, they were sold for distilling purpose. Held, no freight is payable because
the goods delivered were (in a mercantile sense) not the same goods as those shipped.
2.3 Delivery:
2.3.1 Unless otherwise agreed, payment of freight is to be made upon delivery of the
goods at the port of discharge. Thus, readiness to deliver at the port of discharge is a
condition precedent to the shipowner's right to earn freight. Unless the carrier carries the
goods to the destination agreed on and is ready and willing to deliver the cargo, he is not
entitled to any part of the freight. But actual delivery is not necessary. It suffices if he is
ready to deliver. Where the shipowner has lien on goods for demurrage or in general
average, he must be willing and able to deliver the cargo on payment of his just and fair
charges before he can earn freight.
2.3.2 Further, the carrier should be ready to deliver the cargo at the destined port and
generally at the usual discharging place for the cargo at the port. But sometimes, where
under special circumstances delivery is given at a place other than the usual discharging
place, carrier's readiness to deliver at such other place entitles him to freight.
2.3.3 Once the shipowner is ready and able to deliver the cargo, the consignee must pay
the freight as the goods are delivered. He cannot withhold payment until whole parcel
included in the bill of lading is delivered.
3.0 TYPES OF FREIGHT:

Following are the different types of freight:
3.1 Lump Sum Freight:
160
3.1.1 Normally, freight is charged on basis of value, weight or measurement of the cargo.
Sometimes, the shipper may agree to pay a lump sum as freight for the use of the entire
ship or a portion of it. This amount is fixed and invariable whether the shipper uses the
hired space to full capacity or not. The shipper must pay the amount even if he does not
load at all. Unless agreed otherwise, the shipper must pay full lump sum freight even if a
part of the cargo is lost through causes other than excepted perils. However to earn lump
sum freight the carrier should deliver at least part of the cargo. Further, to claim lump sum
freight the ship must complete the voyage or else the cargo must be transhipped or
forwarded and delivered at its destination.
3.2 Advance Freight:

3.2.1 Generally, payment of freight and delivery of goods are concurrent acts. But parties
are free to modify this rule by agreement. They may decide that payment of freight shall be
made on shipment of goods or at a definite period after the ship sails. In such cases the
freight is known as Advance Freight and it becomes due at that defined time. And it
continues to be due, if not paid, even though the ship is lost and the cargo not delivered.
Conversely, where advance freight is paid it cannot be recovered from the carrier upon
frustration of voyage and loss of goods. But the carrier has to return the advance freight if
the ship never earned freight e.g. where goods were never shipped on board or the ship did
not sail; or where the goods were lost before advance freight became due or the goods
were lost by an event other than an excepted peril.
3.2.2 Advance freight must be distinguished from advance of cash given by the shipper on
account of freight payable. The latter is a loan to the shipowner and can be recovered by the
shipper when the goods are lost in transit; whereas the former cannot normally be
recovered.
3.2.3 Whether the prepayment clause amounts to advance freight or to a loan shall be
construed by the Courts according to the intention of the parties as expressed in the bill of
lading or charter-party. Usually, where the freight is insured by the shipowner, it is a loan
but where insured by the charterer or shipper, it is likely to be advance freight.
3.3 Pro Rata Freight:

3.3.1 Pro Rata Freight is that percentage of freight payable to the carrier which is in
proportion to the part of the voyage completed or to the part of the cargo loaded or
delivered. Where the shipper accepts delivery at a place other than the port of destination
under circumstances which show that was intended to be treated as substituted
performance of the contract, he must pay pro rata freight. This pro rata freight will be in
proportion to the part of the voyage accomplished. Similarly, the shipowner will be entitled
to pro rata freight if he loads only part of the agreed cargo or delivers only part of the
loaded cargo.
3.3.2 The claim for pro rata freight, when goods are delivered short of their destination,
rests upon a substituted or new contract. This contract may be expressly made or inferred
from the conduct of the parties. However, no inference can be drawn unless the shipper has
a genuine option of having his cargo conveyed to the port of destination; though he may
voluntarily accept it at an intermediate port.
161
3.4 Back Freight:
3.4.1 Sometimes the delivery of goods at the port of destination may be prevented due to
a cause beyond the control of the carrier e.g. where the consignee fails to accept delivery;
or where the shipper, as an unpaid seller, exercises his right of stoppage in transit; or where
the port is strikebound, etc. In all such cases the carrier, in the interest of the shipper, may
land the cargo or carry or tranship it to another place and charge the shipper with back
freight for the expenses incurred.
3.5 Dead Freight:

3.5.1 Where a charterer or shipper fails to fulfill his contract to load the cargo or the full
cargo, he commits a breach of contract for which he is liable to pay damages. These
damages are known as dead freight. If the shipowner offers the unutilized freight space of
the defaulting shipper to other shippers and obtains their cargo, he must deduct the earned
freight when claiming damages from the defaulting shipper. The defaulting shipper will have
to pay the difference between the freight he had agreed to pay to the shipowner and the
freight actually earned by the shipowner by offering his unutilized freight space to other
shippers.
4.0 BY WHOM FREIGHT IS PAYABLE:

4.1 The question to whom freight is payable poses no problem but the question by
whom it is payable causes some difficulty. The contract of sale may regulate the liability for
payment of freight but such a contract merely determines the responsibility for freight
between the parties to the sale. It is irrelevant as far as the shipowner is concerned.
4.2 Usually the bill of lading provides for payment of freight. A typical clause in the bill of
lading is as follows:-
"Freight for the said goods shall be due and payable by the shipper on shipment at
port of loading in cash-----------".
4.3 A bill of lading to which Hamburg Rules apply, and a multimodal transport document
issued under The Multimodal Transportation of Goods Act must sate the extent of freight if
payable by the consignee.
4.4 Where there is no express provision in the bill of lading regarding the liability of the
parties for freight, the following rules apply:-
(1) The liability to pay freight is primarily on the shipper whether the goods are
deliverable to him or to his order or to a third party. The reason is simple. It is
the shipper who concludes the contract of carriage with the carrier.
(2) The consignee can be liable for the freight if he is named in the bill of lading as
the consignee and to whom the property in the goods described in the bill of
lading has passed by virtue of such consignment as laid down by section 1 of
The Bill of lading Act, 1856.
(3) The shipowner can demand freight from an indorsee of the bill of lading and to
whom the property in the goods as described in the bill of lading has passed by
virtue of such endorsement as laid down by section 1 of The Bill of Lading Act,
1856.
162
(4) An unpaid seller of goods, who has exercised his right of stoppage in transit, is
liable to pay freight to the shipowner.
1. Define "freight". When is the carrier entitled to receive freight?
2. What do you understand by lump sum freight? How does it differ from "pro-rata
freight"?
3. Explain the term "dead freight".
4. What is back freight? Under what circumstances can the ship owner claim "back
freight".
5. Discuss the term "advance freight" and how is it different from "cash advance".
6. (a) The question as to whom freight is payable poses no problem but the question
by whom freight is payable causes difficulty". Elaborate.
7. (b)What rules apply when there is no express provision in the B/L regarding liabilities
of the party for payment of freight?
8. Match types of freight in "A" with description in "B":
A B
(a) Dead freight (i) Amount fixed.
(b) Pro-rata freight (ii) Transhipped cargo.
(c) Back freight (iii) Space booked but not used.
(d) Advance freight (iv) Payment and delivery or shipment at same time.
(e) Lump sum freight (v) Proportionate to part of voyage completed.
1. Shipping Practice -- Stevens & Butterfield 11th Ed., 1981. Reprinted in 1997.
This book is a prescribed test-book for first year students of NMIS.
See Chapter 8 entitled "Freight", Pages, 51-55.
2. Elements of Shipping -- A. E. Branch, 7th Ed., 1996.

Read Chapter 9, Section 9.5, Pages 194 and 195, entitled "Types of Freight."
THIS LESSON HAS BEEN REPRODUCED HERE FROM THE TEXT-BOOK "CARRIAGE OF GOODS
BY SEA & MULTIMODAL TRANSPORT" BY DR (MRS) NILIMA CHANDIRAMANI BY THE KIND
CONSENT OF THE AUTHOR.
THE COPYRIGHT OF THIS LESSON VESTS WITH THE AUTHOR.
*******************
163
LESSON - 30
CONVENTION ON FACILITATION OF INTERNATIONAL MARITIME TRAFFIC
1.0 INTRODUCTION:
1.1 Most human activities are regulated, either by precedent, convention or regulation.
Most regulations are essential – but sometimes they come to be regarded not only as
unnecessary but as a positive burden on the activities they are supposed to control. Few
activities have been more subject to over-regulation than international maritime transport.
1.2 This is partly because of the international nature of shipping. Countries developed
customs, immigration and other standards independently of each other and a ship visiting
several countries during the course of a voyage could expect to be presented with
numerous forms to fill in, often asking for exactly the same information but in a slightly
different way causing tremendous inconvenience.
1.3 To tide over these obstacles, the IMO adopted the FAL Convention, 1965 with the
aim of facilitating maritime trade by reducing the period of arrival, stay and departure of
ships from ports with cargo, carriage of passenger, stores, put ashore sick or injured persons
rescued at sea or other persons for emergency medical treatment and other related
activities.
1.4 The Convention entered into force on 5 March 1967. It was been amended several
times. It is expected to be revised sometime in 2015/2016.
2.0 Amendments to the FAL Convention, 1965:
1) 1969 amendments (cruise ships) entered into force w.e.f 12.08.1971;
2) 1977 amendments (sick / injured / transit persons/ scientific services / relief

work) entered into force w.e.f. 31.07.1978;
3) 1986 amendments (EDP/EDI) entered into force w.e.f. 01.10.1986;
4) 1987 amendments (FAL.1 (17)- upgrading of recommendation) entered into

force w.e.f. 01.01.1989;
5) 1990 amendments (FAL.2 (19)- drugs trafficking) entered into force w.e.f.
01.09.1991;
6) 1992 amendments (FAl.3 (21) – restructuring of annex, EDP/EDI/specialized

equipment) entered into force w.e.f. 01.09.1993;
7) 1993 amendments (FAL.4 (22)- general ) entered into force w.e.f.

01.09.1994;
8) 1996 amendments (FAL.5 (24) – general/ pre-import information/ pre-arrival

clearance) entered into force w.e.f. 01.05.1997;
164
9) 1999 amendments (FAL.6 (27) – definition and general provision/ arrival,
stay, departure of ships/ persons/clearance of cargo, passenger, crew and
baggage / arrival, stay and departure of cargo/ clearance of cargo) entered
into force w.e.f. 01.01.2001;
10) 2002 amendments (FAL. 7(29) – definition and general provisions/ arrival, stay,
departure of ship/ stowaways) entered into force w.e.f. 01.05.2003;
11) 2005 amendments (FAL.8 (32) – definition and general provisions/ /arrival,
stay, departure of ship arrival and cargo) entered into force w.e.f.
01.11.2006;
12) 2009 amendments (FAL.10 (35) – arrival, stay departure of ship and arrival and
departure of persons) entered into force w.e.f. 15.05.2010.
3.0 The harmonization of FAL with other International Laws :

3.1 The FAL Convention is not stand alone convention. it is interlinked with other IMO
Conventions or UN Conventions in the matter of facilitation of Maritime Trade. These
Conventions are as follows;
1) Safety of Life at Sea [SOLAS], 1974 as amended;

2) Load Line, 1966 as amended;
3) International Tonnage, 1992 as amended;
4) MARPOL, 73/78 as amended
5) STCW, 78 as amended;
6) ILO, 1947 relating to minimum standards for crew as amended by MLC, 2006;
7) CLC, 1992 with respect to liability and compensation for oil pollution from
cargo of oil tankers;
8) SAR Convention, 1979 as amended; and

9) Salvage Convention, 1989 as amended.
4.0 OBJECTIVE :
4.1 To facilitate maritime traffic by simplifying and reducing to a minimum-- the
formalities, documentary requirements and procedures on arrival, stay and departure of
ships engaged in international voyages.
4.2 The Contracting Governments undertake to adopt all appropriate measures to
facilitate and expedite international maritime traffic and to prevent unnecessary delays to
ships and to persons and property on board.
5.0 APPLICATION:
5.1 The Convention applies to coastal and non-coastal states.
5.2 The provisions do not apply to warships and pleasure yachts.
165
5.3 Nothing in the Convention should be interpreted as preventing the application of
wider facilities which a contracting government grants or may grant in future in respect
international maritime traffic under its national laws or the provision of any other
international agreement.
5.4 Nothing in the Convention should be interpreted as precluding a contracting

government from applying temporary measures considered by that government to be
necessary to preserve public morality, order and security or to prevent the introduction or
spread of diseases or pests affecting public health, animals or plants.
6.0 The contents of the Convention are in the form of:

6.1 STANDARDS: Measures, the uniform application of which is necessary and
practicable.
6.2 RECOMMENDED PRACTICES: Measures, the application of which is desirable in

order to facilitate maritime traffic.
7.0 Annex B of the Convention is divided into 5 sections; each of these is discussed
below in brief:
7.1 SECTION 1 : DEFINITIONS AND GENERAL PROVISIONS
7.1.1 Deals with the definitions such as Cargo, Crew’s effects, Crew Member, Mail, Public
Authorities, Shipowner, Ship’s Equipment, Ship’s spare parts, Ship’s stores and Time of
arrival.
7.1.2 Forms the “General Provisions”. For instance, the Standard is that public authorities
should call only for essential information and the Recommended Practice is that two or
more documents should be combined into one, when an appreciable degree of facilitation
would result.
7.2 SECTION 2 – ARRIVAL, STAY AND DEPARTURE OF THE SHIP :
7.2.1 The section deals with the formalities required from shipowners by the public
authorities on the arrival, stay and departure of the ship.
7.2.2 The Standard is that the authorities should call only for the following documents:
(1) General Declaration: Basic document on arrival and departure providing

information relating to the ship. The Recommended Practice is that not more
than the following should be called for –
a) Name and description of ship
b) Nationality of ship
c) Particulars regarding Registry
d) Particulars regarding tonnage
e) Name of Master
f) Name and address of ship’s agent
g) Brief description of the cargo
h) Number of crew
166
i) Number of passengers
j) Brief description of voyage
k) Date and time of arrival and date of departure
l) Port of arrival and departure
m) Position of the ship in port
(2) Cargo Declaration: Lists the information required separately on arrival and on
departure of the ship.
(3) Ship’s Stores Declaration: Should be dated and signed by the Master or by some
other ship’s officer duly authorized by the ship’s master, having personal
knowledge of the facts regarding the ship’s stores.
(4) Crew’s Effects Declaration: This declaration is not called for on departure. The
Master should sign the same or authorise any person to do so.
(5) Crew List: As per the Recommended Practices, the following information is
required:
a) Name and nationality of ship
b) Given names
c) Nationality
d) Rank or rating
e) Date and place of birth
f) Nature and number of identity document
g) Port and date of arrival
(6) Passenger List: One of the Recommended Practices is that these should not be
called for on short sea routes or combined ship/railway services between
neighbouring countries.
(7) The documents required under the Universal Postal Convention for mail
(8) Maritime Declaration of Health
7.2.3 Section 2 (c) and 2 (d) deal with the number of documents on arrival and departure
as given below:
Arrival Departure
General declaration 5 5
Cargo declaration 4 4
Ships stores declaration 4 3

Crew’s effects declaration 2 -
Crew list declaration 4 2
Passenger list 4 2
Maritime declaration of health 1 -
167
7.2.4 Section 2 (e) deals with the measures to facilitate clearance of cargo, passengers,
crew and baggage. One Recommended Practice is that arrangements should cover all
phases from the time the ship arrives at the dock for unloading and Customs clearance and
for warehousing and re-forwarding of the cargo, if required.
7.2.5 Section 2 (f) suggests that if the ports of call are two or more in the same state,
formalities at second port of call should be kept at the minimum.
7.3 SECTION 3 – ARRIVAL AND DEPARTURE OF PERSONS :
7.3.1 The Passport should be taken as the valid document relating to individuals. The same
should be checked only once on arrival and once on departure and handed back
immediately after examination.
7.3.2 The section also provides in detail, of information which the public authorities can at
best require in the Embarkation/Disembarkation Card [family name, given name,
nationality, passport number, date and place of birth, occupation, port of
embarkation/disembarkation, sex and signature.]
7.3.3 In cases where evidence of protection against cholera, yellow fever, or small pox is
required from persons on board a ship, public authorities shall accept the International
Certificate of Vaccination or Re-vaccination in the forms provided for in the International
Sanitary Regulations.
7.4 SECTION 4 : PUBLIC HEALTH AND QUARATINE INCLUDING SANITARY MEASURES

FOR ANIMALS AND PETS :
7.4.1 Few of the recommended practices include-

a) Simple documents to be widely published, required in respect of shipments of
certain animals, plants or products thereof.
b) Whenever practicable, pratique should be granted by radio.

c) As far as possible, health authorities should join a ship prior to entry of ship into
port.
d) Public authorities should maintain at as many ports as possible facilities for

administration of public health, animal and agricultural quarantine measures.
e) A ship not infected with a quarantinable disease shall not on account of any
other epidemic disease be prevented from discharging/loading cargo/stores or
taking on fuel or water.
f) Shipment of animals, animal raw material, crude animal products, animal

foodstuff and quarantinable plant material should be permitted when
accompanied by a quarantine certificate in the form agreed by the States
concerned
168
7.5 SECTION 5: MISCELLANEOUS PROVISIONS :
7.5.1 Provisions in this section cover bonds and other forms of security; errors in
documentation and penalties therefore; and services at ports. It also covers aspects with
regard to facilitation of maritime traffic when cargo is not discharged at the intended
destination. Public authority shall permit amendment of cargo declaration and not impose
penalty if cargo was not in fact loaded or if loaded, landed at another port. It recommends:
a) A single comprehensive bond recommended for security for immigration,

customs, public health, agricultural quarantine or similar laws.
b) There should be no detention to ships for errors in documents, which are
inadvertent and the ship should be allowed to sail after correction.
c) Normal services of public authorities at port should be provided without charge
during regular working hours. Services outside service hours should not exceed
actual cost.
FOR A DETAILED STUDY ON THE FACILITATION CONVENTION REFER TO MARITIME
LAW OF INDIA BY Dr. NAGENDRA SINGH
ooooo
1. What is the objective of the Convention on Facilitation of International

Maritime Traffic?
2. To whom and what does the Convention apply to?
3. Discuss the Section dealing with formalities to be observed on arrival, stay

and departure of the ship.

(a) Particulars furnished in the “General Declaration of a ship”.
(b) Documents for arrival and departure of persons.
**************
169
Three Model Test Papers have been kept

below for each subject,
Every Correspondence Student is to

compulsorily answer two Test Papers on
each subject and send them back to the
Institute before 31st December, 2020 in
order to be eligible to take up March 2021
Examination.
***************
170
FIRST YEAR
II. COMMERCIAL AND SHIPPING LAW
TEST PAPERS
THE TEST PAPERS GIVEN BELOW ARE ONLY TO ASSIST THE STUDENTS IN
PROBING THE DISTANCE EDUCATION PROGRAMME CORRESPONDENCE
NOTES FOR PROPER ANSWERS AND IN NO WAY REFLECT THE PATTERN OF
THE ACTUAL EXAMINATION QUESTION PAPERS.
Test Paper 1
1. Define proposal. What are the requisites of a valid proposal?

2. What agreements are expressly declared void under various sections of
the Indian Contract Act?
3. Define bailment. What are the duties of a bailee?
4. In your own words describe Section 3 of the Bill of Lading Act, 1856.
5. Why was the Indian COGSA enacted by the legislature?
6. What was the purpose of enacting the Facilitation Convention? Where and
what does it apply to?
7. Discuss various defences against tortious liabilities.
8. Write a note on the Indian Port Health Rules, 1955.
Test Paper 2
1. What are the essentials of a valid acceptance? When is communication of
an acceptance complete?
2. Explain, quoting case law, the rules governing the measure of damages for
breach of contract.
3. How is a "major port" defined in the Indian Ports Act, 1908 ? State the
powers of the Port Health Officer.
4. Write notes on lighthouse, general lighthouse and local lighthouse.
5. On what rules is the Indian COGSA based upon? Discuss the application
of the rules.
6. Give the case law of Grant v. Norway. How was it subsequently over-
ruled?
7. In what ways can an agency be terminated?
8. Define "freight". What are the different types of freight?
****************
171
II. COMMERCIAL & SHIPPING LAW
THE TEST PAPER GIVEN BELOW IS ONLY TO ASSIST THE STUDENTS IN

PROBING THE DISTANCE EDUCATION PROGRAMME STUDY MATERIAL FOR
PROPER ANSWERS AND IN NO WAY REFLECTS THE PATTERN OF THE
ANNUAL EXAMINATION QUESTION PAPER.
TEST PAPER 3
1. (a) Define "Contract" as envisaged in the Indian Contract Act, 1872.

(b) State the essential elements of "Consideration".
2. Explain the terms "agent' and "principal".
3. (a) Discuss the characteristics of a contract of guarantee.

(b) What are the various ways in which a surety can be discharged?
4. (i) What are the advantages of arbitration over litigation?

(ii) Write a note on the "Arbitration & Consolidation Act, 1996".
5. (i) What claims are normally accepted as maritime lien?
(ii) What do you mean by following terms:
(a) Right in personam
(b) Respondentia
(c) Mortgagee
6. When does property in ascertained goods pass from the Seller to the
Buyer under the contract of sale?
7. (i) What type of conveyances are covered by the Inland Vessels Act,
1917?
(ii) How are the following defined in the Act --
(a) Inland vessel
(b) Mechanically propelled vessel
(c) Passengers?
8. Write notes on:

(a) Duties of a Bailor (b) Maritime Fraud
(c) Communication of Acceptance (d) Doctrine of Frustration
(e) Substituted Agents (f) Negligence in Shipping
************
172

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3

COMMERCIAL & SHIPPING LAW

FIRST YEAR 2019

Problems and Responses:

Sr. COMMERCIAL & SHIPPING LAW

1.0 What is law?

2.0 Law of Contract:

All answers should be brief and to the point.

RECOMMENDED FOR FURTHER READING

1. The Law of Contract: An Outline - Dr. Nilima Chandiramani.

1.0 What is a contract?

2.0 What is agreement?

3.0 Enforceable by Law:

(a) Parties to the contract are competent to contract;

RECOMMENDED FOR FURTHER READING

2.0 Contract by minor:

3.0 Of sound mind:

1. When is a person competent to make a contract?

RECOMMENDED FOR FURTHER READING:

1. The Law of Contract: An Outline – Dr. Nalima Chandiramani.

(b) Undue influence: A consent to contract is said to be obtained by exercising

(d) Misrepresentation: It is a false statement made innocently. It may be made either

CONSIDERATION AND LEGALITY OF OBJECT

(a) FORBIDDEN BY LAW: An agreement is void if it is forbidden by law. For

(d) INJURIOUS TO A PERSON OR PROPERTY: Any agreement between two persons

1. "Every agreement of which the object or consideration is unlawful is void." Discuss

2. When and under what circumstances can consideration of an agreement become

3. What do you understand by the term "public policy"?

RECOMMENDED FOR FURTHER READING:

1. The Law of Contract: An Outline - Dr. Nilima Chandiramani.

AGREEMENTS / VOID AGREEMENTS

a) The parties are competent to contract.

3.0 Agreements Expressly Declared Void by Law:

(1) Agreements in restraint of marriage

3.2.1 Agreement in restraint of marriage: Marriage is regarded as the ordinary right of

(b) Service agreement: A service agreement whereby an employer prevents his

(c) Trade combination: Agreement between a group of traders to limit

RECOMMENDED FOR FURTHER READING:

1. The Law of Contract: An Outline – Dr. Nilima Chandiramani.

2.0 Essentials of a valid offer:

2.1 Following are the essentials of a valid offer –

In Balfour v/s Balfour 1919(2) of KB 571, Mr. Balfour, a Government servant

As against this, if ‘A’ issues a public advertisement that he would give

(iv) Offer must be communicated to the offeree: Communication is necessary. It

3.0 INVITATION TO OFFER:

4.0 COUNTER OFFER OR COUNTER PROPOSAL:

RECOMMENDED FOR FURTHER READING

3. The Law of Contract: An Outline - Dr. Nilima Chandiramani.

3. Case Law on the Contract Act -- D.G. Cracknell, 1961.

2.0 ESSENTIALS OF A VALID ACCEPTANCE:

2.2 Acceptance must be in the prescribed mode: If the manner of acceptance is

2.3 Acceptance must be communicated: A mental acceptance or an uncommunicated

3.0 COMMUNICATION AND REVOCATION OF OFFER AND ACCEPTANCE:

4.0 REVOCATION OF PROPOSAL:

5.0 REVOCATION OF ACCEPTANCE

RECOMMENDED FOR FURTHER READING

5. The Law of Contract: An Outline - Dr. Nilima Chandiramani.

(ii) If it is a promise to compensate somebody who has already voluntarily done

(iii) A written promise signed by a person to pay a debt which is time-barred by

2.0 SOME SALIENT FEATURES OF CONSIDERATION:

2.3 Consideration may be past, present or future:

2.4 Consideration need not be adequate: Consideration means something in return.

A. Physical possibility: If a person agrees to perform an impossible act as a