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Informist, Friday, Sept. 25, 2026

 

NEW DELHI – In a first ruling by any apex court on the issue, the Supreme Court Friday held that a validly issued notice of termination is sufficient to bring the status of demise charter to an end, and that physical repossession of the charter thereafter is only to complete the practical transfer of control of the vessel. A demise charter, also known as a bareboat charter, is a shipping arrangement through which the shipowner leases an empty vessel to a charterer who takes complete possession, operational control, and management of the ship for a set period.

 

The court said termination of contract takes effect immediately upon service of notice and such termination then alters the legal character of the charterers' possession from that of a 'demise charterer' to that of a 'gratuitous bailee'. A gratuitous bailee is a person who holds or cares for someone else's personal property without receiving any payment, reward, or compensation. There can be no doubt that once the charterparty designates the charterers as 'gratuitous bailees' upon termination, it necessarily displaces any continuing status as 'demise charterer', said the court.

 

The top court said that it cannot lose sight of the practical consequences of treating physical repossession of a vessel as a precondition for termination, rather than its consequence. Physical repossession of a vessel in the control of a defaulting charterer may be delayed or frustrated for reasons entirely outside the owner's control, said the court. The vessel's location at any given time, genuine or contrived technical difficulties, non- cooperation of the charterer's crew, and the practical exigencies of berthing at a particular port are all matters that lie beyond the owner's hands, said the court. 

 

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 default that occasioned its exercise, said the court. Such a construction cannot be the intention of the parties to a commercial instrument, it said.

 

The top court set aside the arrest of vessel M.V. Nereus Progress by Om Freight Forwarders Ltd. The owners had let out the vessel to Nereides Marine Services, also a creditor of Om Freight Forwarders. The owners of the vessel had issued a termination notice to Nereides, after which its status was shifted from being a demise charter to gratuitous bailee. However, due to certain technical issues with the engine of the vessel, the owners were not able to take its physical possession. Om Freight Forwarders, to whom Nereides had also defaulted under a separate contract, sought arrest of the vessel on the footing that Nereides continued to be its demise charterer, for securing its payment. The owners of the vessel challenged this in the Madras High Court and, thereafter, the Supreme Court.  End

 

Reported by Surya Tripathi

Edited by Avishek Dutta

 

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