The Dichotomy of Demurrage and Detention in Indian Law: An Analysis of Custodial Rights and Importer Liabilities

I. Introduction

Demurrage and detention charges represent a critical, yet frequently contentious, aspect of maritime and logistics law in India. Conceived as commercial instruments to ensure the efficient turnover of cargo and prevent congestion at ports and terminals, these charges have evolved into a significant source of legal disputes. The conflict typically arises from the triangular relationship between the importer/consignee, the custodian of the goods (such as a Port Trust or container freight station), and the Customs authorities. When goods are detained by Customs for investigation, prolonged delays can lead to the accrual of substantial demurrage charges, raising complex questions of liability. This article provides a scholarly analysis of the legal framework governing demurrage and detention charges in India. It examines the statutory authority of custodians to levy such charges, the principles determining the liable party, and the critical legal exception that arises when detention by Customs is deemed unlawful. By synthesizing landmark Supreme Court judgments and relevant statutory provisions, this analysis seeks to delineate the contours of a legal doctrine that balances the operational necessities of custodians with the rights of importers subjected to state action.

II. The Legal and Conceptual Foundations of Demurrage

A. The Evolving Definition of Demurrage

The term "demurrage" has a dual connotation in legal parlance. In its classical maritime sense, rooted in charter-party agreements, demurrage is a form of liquidated damages paid by a charterer for detaining a vessel beyond the stipulated lay-time for loading or unloading.^[1] This traditional view distinguishes demurrage from unliquidated "damages for detention" that may accrue for further delays.^[2]

However, within the Indian statutory framework, particularly under the Major Port Trusts Act, 1963, the expression has acquired a distinct meaning. Here, demurrage is not merely damages for delay but a charge levied by a port authority for the use of its transit sheds, yards, or other premises beyond a specified "free period."^[3] The Gujarat High Court in Shah Raichand Amulakh v. Union Of India clarified that demurrage and wharfage are "station terminal" charges for providing accommodation and facilities, not services incidental to conveyance.^[4] They are, in essence, a charge for storage and safe custody, compensating the custodian for the occupation of valuable space and serving as a deterrent against tardy clearance of goods.^[5] This characterisation as a charge for services rendered, rather than a penalty, is fundamental to understanding the authority of custodians to levy it.

III. The Statutory Authority of Custodians to Levy Charges

A. The Unassailable Right of Port Trusts and Custodians

The authority of Port Trusts and other custodians, such as the International Airports Authority of India (IAAI) and the Container Corporation of India (CONCOR), to levy demurrage is firmly grounded in their respective parent statutes. The Supreme Court, in Trustees of the Port of Madras v. Aminchand Pyarelal, affirmed that the power to frame scales of rates and conditions for services under the Madras Port Trust Act, 1905, was a valid exercise of statutory authority.^[6] The Court held that these rates were contractual in nature, not bye-laws, and were essential for preventing port congestion and ensuring operational efficiency.

This principle was decisively cemented in the landmark case of International Airports Authority Of India v. Grand Slam International. The Supreme Court held that custodians possess an independent statutory right to levy demurrage charges, and this right is not contingent upon the actions or permissions of the Customs authorities.^[7] Consequently, a "detention certificate" issued by Customs, which may indicate that the delay in clearance is not attributable to the importer's fault, does not obligate the custodian to waive its demurrage charges. The Court reasoned that Customs authorities lack the statutory power to direct a custodian to forgo its legitimate dues, and any such directive would be ultra vires.^[8] This judgment establishes a clear demarcation between the regulatory role of Customs and the commercial-statutory rights of custodians.

B. Identifying the Liable Party: The Expansive Definition of "Owner"

Once the right to levy demurrage is established, the question turns to who is liable for its payment. The liability rests with the "owner" of the goods. The Port Trust Acts define "owner" expansively. In Sun Export Corporation v. Board Of Trustees Of The Port Of Bombay, the Supreme Court held that the definition includes not only the legal title holder but also the consignor, consignee, and any agent for the sale or custody of the goods.^[9] An agent who obtained an endorsement on the Bill of Lading and acted on behalf of the consignee was thus held liable for the accrued demurrage.

Furthermore, in Rasiklal Kantilal And Company v. Board Of Trustee Of Port Of Bombay, the Court clarified that the port authority's statutory lien on the goods for unpaid charges is paramount. This lien attaches to the goods themselves, and the port can recover its dues from any party seeking their delivery, regardless of when the title to the goods was transferred.^[10] The liability is tied to the obligation to clear the goods, not the timing of ownership transfer.

IV. The Critical Interplay with Customs Law and Detention

A. The General Rule: Importer Bears the Cost of Lawful Detention

The intersection of the custodian's right to charge demurrage and the Customs Department's power to detain goods creates the most significant area of legal friction. Following the precedent set in Grand Slam International, the general rule is that the importer remains liable for demurrage charges even when the delay is caused by a Customs investigation. The rationale is that the custodian is an independent entity providing a bailment service (storage) and is entitled to compensation for the use of its facilities, irrespective of the reason for the goods' extended stay. The custodian is not a party to the dispute between the importer and Customs and should not be made to suffer a financial loss.

B. The Exception: Unlawful Detention by Customs

A critical exception to this general rule was carved out by the Supreme Court in Shipping Corpn. Of India Ltd. v. C.L Jain Woollen Mills And Others. The Court held that where the detention of goods by Customs is subsequently declared to be *illegal* or *unlawful* by a court of law, the importer cannot be saddled with the resulting demurrage and detention charges.^[11] The Court reasoned that an importer should not be made to bear the financial consequences of an unlawful act committed by a state authority. While the carrier or custodian retains its contractual and statutory right to be paid, the liability for such payment in cases of illegal detention shifts away from the innocent importer.

This principle creates a triangular conundrum. The custodian is entitled to payment, the importer is absolved of liability, and the Customs Department is the cause of the loss. In such scenarios, courts have often directed the Customs authorities to bear the demurrage charges. For instance, in Mumbai Port Trust v. M/S. Shri Lakshmi Steels, the High Court directed that detention charges demanded by the shipping line be borne by the DRI/Customs, a decision later appealed to the Supreme Court.^[12] This judicial intervention aims to ensure that the innocent party (the importer) is protected, while the party at fault (the state agency acting unlawfully) bears the financial responsibility.

C. The Ambiguity of Detention Certificates and Modern Regulations

Importers frequently seek waivers of demurrage by relying on the Handling of Cargo in Customs Areas Regulations, 2009. Regulation 6(1) lists the responsibilities of Customs cargo service providers, which has been interpreted by some as a basis for waiving charges during customs-induced delays. However, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) in cases like Lumix Export & Import v. Commissioner Of Customs has consistently held that this regulation does not create an obligation for Customs to bear demurrage charges, nor does it override the custodian's right to levy them.^[13] This indicates a continuing tension in the interpretation of these regulations, with a definitive Supreme Court ruling on their precise effect in this context still awaited. The existence of administrative instructions, such as CBEC Circular No. 84/95, which acknowledges the hardship caused by long detentions, further highlights the recognized need for a balanced approach, even if it does not carry the force of law to override statutory rights.^[14]

V. Procedural Hurdles and Practical Implications

The legal framework surrounding demurrage is complicated by procedural challenges. In Collector Of Customs, New Delhi v. Margra Industries Ltd., CESTAT held that the Customs appellate mechanism is not the proper forum for adjudicating claims for reimbursement of demurrage, as these charges are not levied under the Customs Act, 1962.^[15] This forces importers to seek remedy through writ petitions in High Courts, a more arduous and expensive process.

The commercial implications of these disputes are also significant. As seen in LCL Logistix India Pvt Ltd v. Waaree Energies Ltd before the National Company Law Appellate Tribunal, a dispute over liability for demurrage charges can be considered a "pre-existing dispute." This can be sufficient to defeat an application to initiate insolvency proceedings against the importer under the Insolvency and Bankruptcy Code, 2016, thereby demonstrating how these charges impact broader commercial relationships.^[16]

VI. Conclusion

The jurisprudence on demurrage and detention charges in India is a testament to the judiciary's effort to balance competing interests: the custodian's statutory right to compensation for its services, the state's sovereign power to regulate imports, and the importer's right to be protected from the consequences of unlawful administrative action. The law is clear that custodians possess a robust, independent right to levy demurrage, a right that is not automatically defeated by customs-induced delays. However, this right is not absolute. The crucial exception established in C.L. Jain Woollen Mills provides a vital safeguard for importers, shifting the financial burden to the Customs authorities when their actions are found to be illegal.

Despite this foundational clarity, ambiguities persist, particularly concerning the interpretation of recent regulations and the precise mechanism for allocating liability. The ongoing litigation in this area underscores the need for a harmonized approach that respects the commercial realities of port operations while upholding the principles of administrative fairness. Ultimately, the law of demurrage remains a dynamic field, reflecting the complex interplay between contract, statute, and public law in the governance of India's international trade.