Bareboat Charter Can End On Valid Termination Notice Without Physical Repossession Of Vessel: Supreme Court Vacates Arrest Of Vessel

The Court consequently vacated the arrest of a vessel, M.V. Nereus Progress, after finding that the former charterer held it only as a gratuitous bailee when the arrest was effected.

The Court was hearing an appeal by the registered owner against a Madras High Court judgment affirming the vessel’s arrest under Sections 5(1)(b) and 5(2) of the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017 at the instance of a creditor of the former demise charterer.

A Bench of Chief Justice Surya Kant, Justice Joymalya Bagchi and Justice V. Mohana observed: “The deeming provision that the Vessel shall be deemed repossessed upon the boarding of the Owners’ representative merely fixes the point from which the Owners resume operational responsibility for the Vessel. It does not determine when the demise charter itself comes to an end. To hold otherwise would permit a clause designed to regulate the handover of an already-terminated charter to instead dictate the survival of that very charter, a result the parties could not have intended.”

The Bench further added: “If a charterer’s demise status were held to continue for as long as the charterer chooses or is able to withhold physical possession, despite a validly issued termination notice, the owner’s contractual right of termination would be held hostage to the very default that occasioned its exercise. Such a construction, in our opinion, cannot have been the intention of the parties to a commercial instrument such as the underlying BBC.”

Senior Advocates Atmaram Nadkarni and Shikhil Suri appeared for the appellant. Advocate Ashwin Shanker appeared for the respondent.

Background

The registered owner let M.V. Nereus Progress to a shipping operator under a Bareboat Charterparty executed on the BIMCO BARECON 2017 form. Under a separate agreement, the respondent had also let its own vessel, M.V. Bharadwaj, to the same operator.

The operator repeatedly defaulted on the hire payable to the appellant. After issuing several demand notices, the appellant served an anti-technicality notice granting a three-day grace period to cure the default. When no payment was made, the appellant invoked Clause 31 and terminated the charter. It subsequently issued a repossession notice under Clause 32.

The operator informed the appellant that the vessel was experiencing an engine problem and later stated that it had reached Tuticorin. It sought instructions for its redelivery.

Meanwhile, the operator had also defaulted on its obligations to the respondent under the separate charter involving M.V. Bharadwaj. The respondent instituted an admiralty suit and obtained an ex parte order arresting M.V. Nereus Progress as a sister vessel before the appellant could complete physical repossession.

The Single Judge sustained the arrest, holding that the operator’s status as demise charterer continued until actual physical possession was returned to the registered owner. The Division Bench affirmed that decision.

The appellant contended before the Supreme Court that the charter had already ended through a valid termination notice and that Clause 32 expressly provided that, pending repossession, the operator would hold the vessel only as a gratuitous bailee. The respondent maintained that the operator remained in physical and commercial control of the vessel and therefore continued to be its demise charterer.

Court’s Observations

The Supreme Court examined the demand notices, the anti-technicality notice and the termination notice issued under Clause 31(a)(i). It found that the operator had been given successive opportunities over nearly two months to cure its admitted default in payment of hire.

The operator neither disputed the default nor alleged non-compliance with the charter’s termination mechanism. Instead, it acknowledged the termination notice and sought an additional month to pay, while undertaking to arrange an orderly handover if payment was not made.

The Court observed: “Where the language employed by the parties is clear and their conduct consistent with such language, the court’s task is to give effect to the bargain struck, not to rewrite it.”

Referring to M/s Tomorrowland Limited v. Housing and Urban Development Corporation Limited (2025), the Court reiterated that commercial documents must be interpreted to give effect to the parties’ original intention and commercial bargain.

It held that the termination was preceded by compliance with Clause 31(a) and the charter’s anti-technicality mechanism and was therefore proper and valid.The Court noted two divergent lines of foreign authority on whether physical repossession is necessary to terminate a demise charter. The Chem Orchid (2015), relied upon by the High Court, treated the demise charterer’s status as continuing until actual repossession. Conversely, The Hako Fortress (2013) and Mv Trident Dawn (1992) treated termination and repossession as distinct events.

Since none of the foreign decisions was binding and the contractual forms considered in those cases had not been placed before it for comparison, the Court held that the issue had to be decided from the language of the parties’ contract and the facts of the case.

It observed: “We find ourselves confronted with two divergent streams of persuasive authority, neither of which is binding on this Court. We are of the view that in such a situation, the resolution of the issue must turn upon the express language of the contract between the parties and the facts relevant to the instant case, rather than upon a mechanical importation of the ratio of one foreign precedent over the other.”

The Court found that the Madras High Court had not considered the contrary foreign authorities or the specific language of Clause 32. It further noted that the foreign decisions relied upon by the High Court did not concern a BIMCO BARECON contract containing the same clause.

Clause 32 provided that, upon early termination, the owner could repossess the vessel and that, pending physical repossession, the charterer would hold it as a gratuitous bailee. It further stated that the vessel would be deemed repossessed when the owner’s representative boarded it.

The Court held that the opening words of Clause 32 treated repossession as a consequence of an already completed termination, rather than an event upon which termination depended.

It explained that a gratuitous bailee held another person’s property without an independent right to use or commercially employ it. A demise charterer, in contrast, possessed and controlled the vessel as though it were the temporary owner. The operator could not simultaneously occupy both legal positions.

The Court held: “Clauses 31 and 32 of the BBC, read together, unfold a coherent and internally consistent contractual scheme in which each clause performs a distinct function while operating in tandem with the other. Termination takes effect immediately upon service of notice under Clause 31, and such termination then alters the legal character of the charterers’ possession from that of a ‘demise charterer’ to that of a ‘gratuitous bailee’. Clause 32 thereafter regulates the practical mechanics by which the Owners recover physical control of the Vessel from a bailee who, at that stage, has no independent right of user left to assert.”

Accordingly, the boarding of the owner’s representative fixed the point at which operational responsibility resumed. It did not determine when the charter ended.

The Court found that the appellant had persistently pursued repossession after terminating the charter. It sought the vessel’s location, issued a repossession notice and repeatedly requested information regarding its arrival and berthing.

The operator initially referred to technical problems, later gave a revised arrival time for Colombo and eventually informed the appellant that the vessel was at Tuticorin. The Court therefore attributed the delay in physical repossession to the operator rather than the owner.

It observed: “It is writ large that the delay in physical repossession was attributable to Nereides, and not the Appellant. Nereides first cited an unresolved technical issue, then a revised time of arrival of the Vessel to Colombo, and finally the Vessel’s presence at Tuticorin Port without completion of repairs. In these circumstances, the Appellant cannot be penalised for a state of affairs brought about entirely by the party whose own default had forced the termination.”

The operator’s communications also acknowledged that the charter had been terminated and sought directions for repossession. The Court found that these communications supported the conclusion that it held the vessel only as a gratuitous bailee awaiting handover.

The respondent’s maritime claim arose from the separate charter of M.V. Bharadwaj. It sought the arrest of M.V. Nereus Progress as a sister vessel under Section 5(2), read with Section 5(1)(b), of the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017.

The Court held that Section 5(1)(b) required the person liable for the maritime claim to be the demise charterer when the claim arose and to remain either the demise charterer or the owner of the vessel when the arrest was effected. Section 5(2) made a sister-vessel arrest subject to these jurisdictional conditions.

The Court observed: “The effect of this qualification is that the jurisdictional pre-conditions of Section 5(1)(b) must be independently satisfied qua the vessel sought to be arrested.”

Since the bareboat charter had already been validly terminated and the former charterer held M.V. Nereus Progress only as a gratuitous bailee, it was no longer the vessel’s demise charterer when the arrest was effected.

The Court concluded: “It follows that the foundational premise on which the arrest of the Vessel had proceeded at the behest of the Respondent, namely, that Nereides continued to be the demise charterer of the Vessel on 04.12.2025, stands displaced. As a logical corollary, the order of arrest resting on a contrary and unsustainable footing cannot be sustained and is liable to be vacated.”

Conclusion

The Supreme Court allowed the appeal and set aside the Madras High Court judgment.

It held that the termination notice complied with the contractual preconditions under Clause 31 and validly brought the demise charter to an end. Physical repossession thereafter only completed the practical transfer of control.

The Court concluded that the former charterer had ceased to hold that status before the arrest and possessed the vessel only as a gratuitous bailee under Clause 32. Consequently, the statutory conditions for arresting M.V. Nereus Progress as a sister vessel were not satisfied, and the arrest order was vacated.

Cause Title: Owners and Parties Interested in M.V. Nereus Progress v. Om Freight Forwarders Ltd. (Neutral Citation: 2026 INSC 1055)

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