Holding

The Board of Trustees is entitled to recover all demurrage charges accrued while the goods remain in its custody, and the statutory lien under Section 59 permits charging storage, independent of the bailee’s lien under Section 171.

Summary

The appellant imported a consignment of bearings and, after customs seized the goods, sought to clear them without paying the port charges and demurrage claimed by the Board of Trustees of the Port of Calcutta. The High Court allowed removal of the goods without payment, but the Board exercised its statutory lien under Section 59 of the Major Port Trusts Act and later sought to sell the goods. The appellant failed to pay the demurrage or furnish a bank guarantee, and the Board claimed that it was entitled to recover all charges accrued while the goods remained in its custody. The Supreme Court held that the statutory lien under Section 59 permits the Board to charge storage (demurrage) and that the principles of a bailee’s lien under Section 171 of the Indian Contract Act do not apply. Consequently, the Board could recover demurrage for the entire period up to the date of clearance and was not barred from selling the goods, though not obligated to do so. The Court set aside the lower court’s limitation on demurrage recovery.

Issues considered

The scope of the statutory lien under Section 59 of the Major Port Trusts Act with respect to charging demurrage.
Whether the Board’s lien is analogous to a bailee’s lien under Section 171 of the Indian Contract Act and thus precludes storage charges.
Whether the Board is obliged to sell the goods under Section 62 of the Major Port Trusts Act.
The extent of demurrage charges recoverable by the Board.

Legislation cited

Customs Acts. 110
Indian Contract Acts. 171
Major Port Trusts Acts. 58, s. 59, s. 62

Subjects

statutory liendemurrageport chargesMajor Port Trusts ActCustoms seizurebaileesale of goods

Judgment

OM SHANKAR BIYAN! A
v.
T
BOARD OF TRUSTEES, PORT OF CALCUTTA AND ORS.

FEBRUARY 22, 2002

[SYED SHAH MOHAMMED QUADRI AND S.N. VARIAVA, JJ.] B

Major Port Trusts Act: Sections 58, 59 and 62.

Import ofgoods for home consumption-Seizure of-Assessment of duty
by Customs Authority-liability of payment of Port charges-On the bailor to C
pay the Board before removal of goods.

Lien on goods-Board has a statutory lien towards rate and entitled to
retain goods until storage charges are paid-Exercise of lien on goods no bar
to recover storage charges-Non payment ofport charges-Power ofBoard- D
Exercise of-Board being a statutory body may take recourse to law and
could have sold off the goods.

Appellant had imported into India, a consignment of bearings for home
consumption and submitted a Bill of Entry for clearance of the goods. In the
meanwhile, Revenue seized the goods under Section 110 of the Customs Act. E
Aggrieved, Appellant moved the High Court by filing a Writ Petition.
However, Board of Trustee was not made a party. High Court in its interim
order allowed the appellant to clear the goods on payment of duty assessed
on the basis of C.I.F. Values provided the appellant furnished a bank
guarantee for the differential amount of duty after proper assessment of goods
by the Customs Authorities. Customs Authorities moved for modification of F
the interim orde.r. High Court modified its order and directed that goods could
be stored in a bonded warehouse of the Customs Authorities. This time also
Board of Trustees was not made a party. Appellant, with a view to take
advantage of the modified order sought to transfer the goods into the bonded
warehouse of the Customs Authorities, without payment of the charges due G
to the Board of Trustee~ but the Board did not allow the same. Subsequently,
the Board joined the proceeding and High Court passed further order in the
m{ltter on 2nd February, 1990, permitting the appellant to remove the goods
witilout payment of Port charges on the appellant undertaking to pay all
charg~ and Customs duty upon an effective adjudication of the matter.
H
19
20 SUPREME COURT REPORTS [2002] 2 S.C.R.

A Aggrieved, the Board filed an appeal, and the Appellate Court stayed
the order. In the meanwhile Customs Authority withdrew its seizure order.
Thus, appellant could clear the goods by payment of due charges but made
no efforts to clear the goods, knowing fully well that further demurrage
charges would be incurred. Subsequently, Single Judge of the High Court
B disposed of the Writ Petition and directed the Customs Authorities to complete
adjudication proceedings within stipulated time and if adjudication
proceedings were decided in favour of the appellant, then the Customs
Authorities would pay the demurrage charges for the period of detention of
goods. High Court further held that by not allowing the removal of goods,
the Board had exercised its right to lien, therefore, it was not entitled to claim
C any demurrage charges beyond 2nd February, 1990. It was also held that if
the appellant paid the demurrage charges upto February 2, 1990, Customs
Authorities would reimburse the same to the appellant The Board filed an
appeal against the said order. By an interim order appellants were permitted
to clear the goods on payment of demurrage charges upto 2nd February, 1990
and on furnishing a Bank Guarantee in favour of the Board for the period
,D 3rd February, 1990 till the date of Bank Guarantee. Appellants did not pay
the demurrage charges nor furnished Bank Guarantee. In the meanwhile,
Board had applied to the appellate Court for permission to sell the goods.
Court vide its order dated 10.1.1992 did not express any opinion, instead asked
the Board to decide the course of action itself. The appeal was finally disposed
E of by setting aside the Order of Single Judge. It was also held that the Board
can recover charges for the entire period the goods remained with it. Hence
this appeal.

It was contended for the appellant that the right of lien under Section
59 of the Major Port Trusts Act is similar to a lien exercised by a bailee under
F Sectio,n 171 of the Indian Contract Act; and that once a right of lien has been
exercised the bailee cannot charge rent for storage of goods; and that it was
the duty of the Board to have sold the goods under Section 62 of the Major
Port Trusts Act, so that further demurrage charges were not incurred since
the Court on the application of the Board for permission to sale of goods
G directed the Board to decide the course of action by itself.

Disposing of the appeal, the Court

HELD: 1.1. The proposition that the bailee, who exercises a lien, is not
entitled to charge rent for storage of goods can never apply to a case where
H the lien is exercised for non-payment of rent or storage charges. If such a
OM SHANKAR BIYANI v. BOARD OF TRUSTEES, PORT OF CALCUTTA 2J
proposition were to be accepted it would lead to catastrophic results, as all A
thata person need to do is to make a demand for removal of the goods without
offering to pay the storage charges. If the bailee were to refuse to allow
clearance and exercise his right of lien, as he is bound to do, the bailor's
purpose would be served. He would thereafter have rent free storage space.
He could then continue to store the goods free of rent On the other hand, if B
the bailee were to permit clearance, in almost all cases, his charges would
not be subsequently paid and he would have to then pursue the bailor for
recovery of his charges. This could never be the law. [26-B-C-D)

1.2. Statutorily the Board of Trustees is entitled to claim payment of
all demurrage charges before the goods were cleared. The Appellants never C
offered to pay the demurrage charges. They sought to misuse the Order of
the Court and take the goods out of the custody of the Board without payment
of their charges. The Board was fully justified in refusing to allow such
clearance and the Appellate Court was right in concluding that the Board
was entitled to recover all charges till the date the goods remained with it
[25-G-H) D

Board of Trustees of the Port of Bombay v. Sriyanesh Knitters., (1999] 7
~ sec 359, distinguished.
2. Board of Trustees being a statutory body should have sold off the
goods at the stage when the Appellate Court did not express its opinion on E
the application by the Board seeking permission to sell the goods. Merely
because there is no obligation to sell does not mean that they can allow the
goods to lie around. By the time the Board well knew that the Appellant was
not paying the charges and the Court had permitted them to take recourse
to such action as was available in law. Sale is contemplated in the Major Port
Trusts Act itself. Apart from the fact that demurrage charges would have F
stopped running, valuable godown space would also have become available
to them. Therefore it is just and proper that the Board not be allowed to
charge demurrage after 10th Jan 1992. [26-E-F-G)

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1407 of G
2002.

From the Judgment and Order dated 27. 7.2000 of the Kolkata High
Court in A. No. 645/91 Matter No. 3274 of 1989.

L.N. Rao, Rana Mukherjee, Sumita Mukherjee and S. Gautam for the
Appellant. H
22 SUPREME COURT REPORTS [2002] 2 S.C.R.

·A Jaideep Gupta, Nimimesh Dube, Ms. Indra Sawhney, Ms. Nisha Bagchi,
Ms. Smitha Inna for B. Krishna Prasad for the Respondents. ..,.

The Judgment of the Court was delivered by

S.N. VARIAVA, J. Leave granted.
B
Heard the learned counsel for the parties.

This Appeal is against an Order dated 27th July, 2000.

Briefly stated the fact~ are as follows:
c The Appellant had imported int~ India, from Singapore, a consignment
of bearings. The said consignment landed at the Port of Calcutta on 13th
July, 1989. The Appellant submitted a Bill of Entry for home consumption
for clearance of the said goods. The said goods were assessed by the Customs
and valued at Rs. 1,24,691. However, on 1st August, 1989 before the goods
D could be cleared by the Appellant the Customs Authorities passed a seizure
order under Section 110 of the Customs Act. The Appellant then filed a Writ
Petition in the High Court of Calcutta. To this Writ Petition the 1st Respondent
was not a party.

On 27th September, 1989 an interim order was passed, whereunder the
,E Appellant was permitted to clear the goods on payment of duty as assessed
on the basis of the CIF value as appearing in the invoice. However, the
Appellant had to furnish to the Customs Authorities a bank guarantee to pay
the difference between. the duty found payable on a proper assessment and
the duty being then paid by the Appellant. The Customs Authorities were ,...
F also allowed to take a sample of the goods for necessary testing. This interim
order did not provide that the Appellant could clear the goods without payment
of the charges due to the l st Respondents. Thus the Appellant could have
cleared the goods only after payment of the charges payable to 1st Respondent.

The Customs Authorities then applied to the Calcutta High Court for
G modification of the earlier order. The Customs Authorities opposed clearance
of the goods. On 15th December, 1989 the earlier order was modified. It was
directed that the goods could be stored in a bonded warehouse of the Customs
Authorities. To be noted that at this sage also the 1st Respondents are not a
party to the Writ Petition. Therefore the goods could be cleared from custody
of the 1st Respondent only on payment of all charges payable to the 1st
H Respondent.

..
OM SHANK.AR BIYANI v. BOARD OF TRUSTEES, PORT OF CALCUTTA [S.N. VARIAVA, J.] 23

Taking advantage of the order dated 15th December, 1989 the Appellant A
sought to remove the goods and put them into the bonded warehouse without
payment of the charges due to the Isl Respondent. This was not allowed by
the lst Respondent. The Appellant then joined the Isl Respondent as a parly
to the Writ Petition. On 2nd February, 1990 the High Court passed an Order,
in the presence of the 1st Respondent, permitting the Appellant to remove the B
goods to the bonded warehouse without payment of the port charges. The I st
Respondent was directed not to raise any objection. The High Court merely
accepted an undertaking from the Appellants to pay all charges as well as the
custom duty upon an effective adjudication of the matter.

At this stage it would be appropriate to note certain provisions of the C
Major Port Trusts Act. Section 58 of the said Act reads as follows:

"58. Time for payment of rates on goods.- Rates in respect of goods
to be landed shall be payable immediately on the landing of the
goods and rates in respect of goods to be removed from the premises

- of a Board, or to be shipped for export, or to be transhipped, shall be
payable before the goods are so removed or shipped or transhipped.
(emphasis supplied)"

Thus the charges of the 1st Respondent are to be paid before the goods are
D

removed. The High Court seriously erred in permitting removal of the goods
without payment of the port charges. To be noted that it was never disputed E
that the charges were payable. The I st Respondent was not concerned with
the dispute as to who had to pay the charges. It was the Appellant who was
interested in clearance of the goods. It was for him to have paid the charges
and cleared the goods. Even if it was the Appellants' case that the Customs
Authority had to pay the charges, the Appellant should have first cleared the F
goods by p~ying charges due to the 1st Respondent and then claimed
reimbursement from the Customs Authority.

Now Section 59 of the Major Port Trusts Act may be noted. It reads as
follows:

"59. Board's lien for rates.- (I) For the amount of all rates leviable
G
by a Board under this Act in respect of any goods, and for the rent
due to the Board for any building, plinths, stacking areas, or other
premises on or in which any goods may have been placed, the Board
shall have a lien on such goods, any may seize and detain the sa~e
until such rates and rents are fully paid. H
24 SUPREME COURT REPORTS . (2002] 2 S.C.R.

A (2) Such lien shall have priority over all other liens and claims, except
for general average and for the ship-owner's lien upon the said goods ,,· -
for freight and other charges where such lien. exists and has been
preserved in the manner provided in sub-section (1) of section 60,
and for money payable to the Central Government under any law for
the time being in force relating to customs, other than by way of
B penalty or fine."

Thus, l st Respondent has a statutory lien. It is entitled to retain the goods
until all amounts payable to it are paid. By directing removal of goods from
the custody of the l st Respondent without payment of their charges, the High
C Court was also setting at naught the statutory lien.

Being aggrieved the l st Respondents field an Appeal against the Order
dated 2nd February, 1990. The Appellate Court rightly stayed the Order
dated 2nd February, 1990.

D The Customs Authority withdrew the seizure Order on 19th

December, 1989. Now the Appellant was free to clear the goods by
payment of all charges to the 1st Respondent. The Appellant made no efforts
to clear the goods by payment of the charges. Thus the Appellant allowed the
goods to remain with the l st Respondent knowing full well that further
E demurrage charges would be incurred.

On 16th September, 1991 a single Judge of the Calcutta High Court
disposed of the Writ Petition filed by the Appellant. By this Order the Customs
Authorities were directed to complete adjudication proceedings within a
particular time. It was directed that if the adjudication proceedings were
F decided in favour of the Appellant, then the Customs Authorities would pay
the demurrage charges for the period of detention. It was held that as the 1st ,,.
Respondent had opposed removal of the goods into the bonded warehouse, \

they had exercised their right of lien. It was held that once they exercised
their right of lien they were not entitled to claim any demurrage charges. It
G was held that the 1st Respondent could claim demurrage charges only up to
2nd February, 1990. It was further held that if the Appellant had, by that
time, paid the demurrage charges upto 2nd February, 1990 the Customs
Authorities would reimburse the Appellant for the same. Mr. Nageshwar
Rao, produces letters dated 25th September, 1991 and 1 lth October, 1991
and submits that the Appellants had offered to pay charges till 2nd February,
H 1990.
OMSHANKARBIYANI "·BOARD OF TRUSTEES, PORT OF CALCUTTA [S.N. VARIAVA,J.] 25
The lst Respondent filed an Appeal. By an interim Order dated 16th A
November, 1991 the Appellants were permitted to clear the goods on payment
of demurrage up to 2nd February, 1990 and on furnishing a Bank Guarantee
in the name of the Chairman of the I st Respondent. The Bank Guarantee was
to be for the charges of the !st Respondent from 3rd February, 1990 till the
date of Bank Guarantee. The Appellants now did not pay the charges up to B
2nd February, 1990 nor furnished the Bank Guarantee. They allowed the
goods to remain with the !st Respondent knowing full well that further
demurrage charges were being incurred.

The Appeal of the 1st Respondents was disposed of by the impugned
Order dated 27th July, 2000. The directions of the learned single Judge C
directing the !st Respondent to recover only till 2nd February, 1990 has been
set aside. It is held that the 1st Respondent can recover charges for the entire
period the goods remain with it.

Mr. Nageshwar Rao s.ubmits that the order of the learned single Judge
was absolutely correct. He submits that the right of lien under Section 59 of D
the Major Port Trusts Act is similar to a lien exercised by a bailee under
Section 171 of the Indian Contract Act. He submits that once a right of lien
has been exercised the bailee cannot charge rent for storage of goods.

Mr. Nageshwar Rao relies upon the case of Board of Trustees of the
Port of Bombay v. Sriyanesh Knitters reported in (1999] 7 SCC 359. In this E
case the Port Trust Authorities were claiming lien not under Section 59 of the
Major Port Trusts Act but under Section 171 of the Indian Contract Act. The
question before the Court was whether the Port Trust Authorities could claim
a lien both under Section 59 of the Major Port Trusts Act and under Section
171 of the Indian Contract Act. This Court held that when the Port Trust

- Authorities stored the goods a relationship of bailer and bailee came into F
existence. It was held that the Port Trust Authorities could claim a lien under
Section 171 of the Indian Contract Act also. In our view, this authority does
not support the proposition that principles which apply to a lien under Section
171 would also apply to the statutory lien under Section 59.
~ G
Statutorily the 1st Respondent is entitled to claim payment of all
demurrage charges before the goods wer"'-cleared. The Appellants never
offered to pay the demurrage charges. They sought to misuse the Order of the
Court and take the goods out of the custody of the I st Respondent without
payment of their charges. The 1st Respondent was fully justified in refusing
. to allow such clearance. The Appellate Court was right in concluding that the H
26 SUPREME COURT REPORTS [2002] 2 S.C.R.

A 1st Respondent was entitled to recover all charges till the date the goods
remained with it.

In our view the proposition that the bailee, who exercises a lien, is not
entitled to charge rent for storage of goods can never apply to a case where
the lien is exercised for non-payment of rent or storage charges. If such a
B proposition were to be accepted it would lead to catastrophic results. It is
well known that in most cities, particularly port cities like Calcutta and
Mumbai, storage space is at a premium. If such a proposition were accepted
then all that a person need to do is to make a demand for removal of the
goods without offering to pay the storage charges. If the bailee were to refuse
C to allow clearance and exercise his right of lien, as he is bound to do, the
bailor's purpose would be served. He would thereafter have rent free storage
space. He could then continue to store the goods free of rent. On the other
hand, if the bailee were to permit clearance, in almost all cases, his charges
would not be subsequently paid and he would have to then pursue the bailor
for recovery of his charges. This could never be the law.
D
Faced with this situation, Mr. Nageshwar Rao sub~its that the 1st
Respondent should have exercised their power of sale under Section 62 of
the Major Port Trusts Act. He submits that it was the duty of the 1st Respondent
to sell off the goods. He submits that the 1st Respondent cannot be permitted
E to continue to levy demurrage charges when they themselves do not sell off
the goods. He submits that after they obtained a stay on 1lth May, 1990 the
1st Respondent should have sold off the goods. He submits that the 1st
Respondent should not be allowed to claim demurrage charges after 11th
May, 1990. We are unable to accept this submission. Till 19th December,
1989 the goods were under a seizure Order. Thus they could not have been
F sold. Before 19th December, 1989 the Appellant had already obtained Orders
dated 27th September, 1989 and 15th December, 1989. These Orders permitted
clearance or' the goods. Thus the 1st Respondent could not sell the goods.
......
The 1st Respondents were further directed by Order dated 2nd February,
1990 no·i: to raise any objection to the goods being cleared. Even though they
G obtained an Order of stay of clearance they could not have sold off the goods
when the subject matter of clearance of goods was before the Court. Thereafter
by Order dated 16th September, 1991 the High Court again permitted clearance
of goods. The interim Order dated 16th November, 1991, in the Appeal filed ·
by the 1st Respondents, also permitted clearance on furnishing a Bank
Guarantee. At no stage did the Appellant inform the 1st Respondent that they..
H were not going to furnish a Bank Guarantee. Thus the 1st Respondent could
OM SHANKAR BIYANI v. BOARD OF TRUSTEES, PORT OF CALCUTTA [S.N. VARIAVA, J.) 27

not have sold the goods. A
Mr. Nageshwar Rao then submits that the I st Respondent had applied
to the Appellate Court for permission to sell the goods. He points out that by
Order dated 10th January, 1992 it was held as follows :-

" ................ After hearing the Counsel for the parties, it is not B
possible for this Court to specify as to what consequential action the
Board of Trustees for the Port of Calcutta is entitled to take in view
of non-furnishing of .the Bank Guarantee by .the writ petitioner/
respondents. That course of action has to be decided by the appellant
itself. However, we direct that the appeal shall appear in the list for
hearing on 31.1.1992 at the top of the list subject to part- C
heard ............ "

Mr. Nageshwar Rao submits that now the 1st Respondents could have
sold the goods. He submits that it was the duty of the 1st Respondent to have
sold the goods so that further demurrage charges are not incurred. Mr. Jaideep D
Gupta does not deny that such an application was made by the I st Respondent. '
He admits that in the Order dated 10th January, 1992 it was held that the 1st
Respondent could decide what course of action they should adopt. He submits
that as, on 10th January 1992, the Court directed the matter to be listed on
31st January 1992, the I st Respondent could not have sold the goods.
E
In our view, the !st Respondent should have sold off the goods at that
stage. They are a statutory body. Merely because there is no obligation to sell
does not mean that they can allow the goods to lie around. By this time the
I st Respondent well knew that the Appellant was not paying the charges.
Now the Court had permitted them to take recourse to such action as was
available in law. Sale is contemplated in the Major Port Trusts Act itself. In F
our view the. I st Respondent should have now sold the goods. Apart from the
fact that demurrage charges would have stopped running, valuable godown
space would also have become available to them. On facts of this case, we
feel that it would be just and proper that the 1st Respondent not be allowed
to charge demurrage charges after I 0th January, 1992. G
Mr. Nageshwar Rao next submits that the adjudicadon proceedings
have ended in favour of the Appellant. He submits that under the Order of
the learned single Judge the Customs Authorities have to pay the demurrage
·charges. As against this Ms. Bagchi submits that under the Order of the
learned single Judge the Customs Authorities have to pay demurrage only for H
28 SUPREME COURT REPORTS (2002] 2 S.C.R.

A the period of detention. These are not matters with which we are concen:ied
in this Appeal. This does not form part of the subject matter of the impugned
Judgment. We, therefore, express no opinion on this aspect.

We clarify that if the Appellant wants clearance of the goods he has to
pay all charges of the lst Respondent till 10th January, 1992. In the event of
B the Appellant not clearing the goods after paying all charges within 30 days
from today the lst Respondent will be at liberty to take action under Section
62 of the Major Port Trusts Act and also, if permissible in law to do so, to
make a claim against the Appellant for recovery of the balance amount due
after sale. of the goods.
c The Appeal stands disposed of accordingly. There will be no order as
to costs.

S.K.S. Appeal disposed of.