IBC and Admiralty Act: Intersection and Harmonious Coexistence in Indian Maritime Jurisprudence

Introduction

The contemporary Indian legal landscape witnessed transformative legislative reforms in maritime and insolvency sectors through the enactment of two crucial statutes – the Insolvency and Bankruptcy Code, 2016 (IBC) [1] and the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017 [2] (Admiralty Act). These parallel legal frameworks introduced distinct mechanisms for debt resolution and maritime claim enforcement, yet their simultaneous operation created unprecedented jurisdictional challenges when shipping companies faced insolvency while maritime claimants sought vessel arrests. The Bombay High Court’s landmark judgment in Raj Shipping Agencies v. Barge Madhwa [3] established foundational principles for harmonizing these seemingly conflicting statutes, creating a balanced framework that respects both maritime traditions and modern insolvency principles.

The Insolvency and Bankruptcy Code, 2016: Framework and Moratorium Provisions

The Insolvency and Bankruptcy Code represents a comprehensive restructuring of India’s insolvency regime, consolidating fragmented legislation including the Sick Industrial Companies Act, 1985, the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, and provisions under the Companies Act, 2013. The Code established the National Company Law Tribunal as the adjudicating authority for corporate insolvency matters and introduced time-bound resolution processes to maximize asset value and protect creditor interests.

Central to the Code’s operation is the moratorium mechanism prescribed under Section 14, which declares upon admission of an insolvency application that all legal proceedings against the corporate debtor shall be stayed [1]. The moratorium prohibits the institution or continuation of suits, prevents asset transfers by the corporate debtor, bars enforcement of security interests including actions under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, and prevents recovery of property occupied by the corporate debtor. This comprehensive stay remains effective throughout the Corporate Insolvency Resolution Process, typically lasting 180 days with possible extension to 270 days, until a resolution plan receives approval or liquidation proceedings commence.

The legislative intent behind this moratorium is preserving the corporate debtor’s assets as a going concern while providing breathing space for orderly resolution. The Supreme Court in Innoventive Industries Ltd. v. ICICI Bank established that once the adjudicating authority admits an insolvency application, the moratorium becomes mandatory and automatic, requiring immediate suspension of all pending proceedings and prohibiting fresh litigation [4]. This robust protection mechanism ensures collective creditor action through the Committee of Creditors rather than individual enforcement efforts that might dissipate corporate assets.

The Admiralty Act, 2017: Maritime Claims and In Rem Proceedings

The Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017 replaced archaic colonial-era legislation including the Admiralty Court Act, 1861, the Colonial Courts of Admiralty Act, 1890, and provisions under the Letters Patent, 1865 [2]. Coming into force on April 1, 2018, the Act modernized India’s admiralty framework by extending jurisdiction from three chartered High Courts (Bombay, Calcutta, and Madras) to eight coastal High Courts including Karnataka, Gujarat, Orissa, Kerala, and Hyderabad.

The Act’s fundamental innovation lies in recognizing the vessel as an independent juridical entity separate from its owner, enabling actions in rem – proceedings directed against the ship itself rather than its owner. Section 4 enumerates maritime claims including disputes arising from ship operations, cargo damage, salvage operations, mortgages, necessaries supplied to vessels, port dues, and collision damages. Section 5 empowers High Courts to order vessel arrests when the person who owned the vessel when the maritime claim arose remains liable and owns the vessel at arrest, when the demise charterer is liable, when claims are based on mortgages or charges, or when maritime liens exist.

The Supreme Court in M.V. Elisabeth v. Harwan Investment and Trading established that Indian High Courts possess broad inherent admiralty jurisdiction over vessels within territorial waters [5]. The Court held that admiralty jurisdiction encompasses all maritime claims enforceable against foreign ships through arrest and detention mechanisms, rejecting arguments that jurisdiction remained frozen at historical colonial legislation levels. This expansive interpretation recognized that maritime claimants require effective remedies against transient vessels that may quickly depart jurisdiction, justifying the in rem arrest mechanism.

The Conflict IBC and Admiralty Act: Actions In Rem versus Moratorium

The intersection of these parallel legal regimes created substantial uncertainty when shipping companies facing insolvency had vessels arrested through admiralty proceedings. The fundamental tension arose from Section 14’s comprehensive moratorium prohibiting all proceedings against the corporate debtor conflicting with admiralty claimants’ rights to pursue in rem actions against arrested vessels. This dichotomy raised critical questions about whether admiralty proceedings could continue during insolvency moratoriums, whether vessels could be sold through admiralty courts when owners faced liquidation, and how maritime liens would be prioritized against claims under the Code’s waterfall distribution mechanism.

The Bombay High Court confronted this conflict directly in Raj Shipping Agencies v. Barge Madhwa, consolidating multiple admiralty matters involving vessels owned by companies undergoing insolvency resolution or liquidation [3]. The Court framed two fundamental questions: whether conflict existed between in rem actions under the Admiralty Act and IBC provisions, and whether Companies Act provisions requiring court leave for proceedings applied to admiralty in rem actions.

The Raj Shipping Judgment: Harmonious Construction

Justice K.R. Shriram’s comprehensive judgment established that in rem proceedings against vessels constitute actions against the res itself rather than proceedings against the corporate debtor who owns it. The Court held that vessels possess distinct legal personality under maritime law, making in rem proceedings fundamentally different from ordinary asset attachment. Therefore, admiralty actions targeting the vessel do not violate the moratorium under Section 14 of the Code, which protects the corporate debtor rather than specific assets treated as independent juridical entities [3].

The judgment outlined detailed scenarios harmonizing both statutes. When maritime claimants obtain arrest orders before insolvency proceedings commence and subsequently moratorium is declared, if security has been furnished for vessel release, the proceeding transforms from in rem to in personam against the corporate debtor, requiring suspension under moratorium provisions. However, the maritime claimant acquires secured creditor status by virtue of the furnished security. If security has not been furnished when moratorium is declared, the vessel remains under arrest without further admiralty proceedings, but the perfected maritime lien operates as a charge on the vessel, conferring secured creditor status on the claimant.

Critically, the Court held that if the corporate debtor enters liquidation without security being furnished under the IBC, admiralty proceedings under the Admiralty Act continue and the vessel may be sold through admiralty court mechanisms to maximize realization. The admiralty court retains jurisdiction to order vessel sales during moratorium periods if Resolution Professionals fail to maintain vessels, endangering their value or creating navigational hazards. This exceptional jurisdiction ensures that deteriorating assets receive prompt disposition rather than value erosion during prolonged resolution processes.

The judgment also addressed priority issues, holding that maritime lien holders achieving vessel arrests become secured creditors for distribution purposes. However, distribution of vessel sale proceeds follows statutory priorities under the Admiralty Act and Merchant Shipping Act, 1958 rather than the IBC’s waterfall mechanism. Maritime liens for crew wages, salvage claims, and collision damages receive top priority, superseding mortgage claims and general secured creditor status under the Code. This prioritization recognizes international maritime law principles embedded in India’s legislative framework.

Maritime Liens: Superior Priority Status

Maritime liens represent privileged claims attached to vessels regardless of ownership changes, recognized as tacit hypothecations arising from the vessel’s role as security. The Merchant Shipping Act establishes hierarchical priority for maritime claims, placing crew wage claims and salvage operations at the apex, followed by damage claims from collisions, port dues, and mortgage claims in descending order. These liens travel with the vessel through ownership transfers, maintaining enforceability against subsequent purchasers.

The Raj Shipping judgment confirmed that when admiralty courts sell vessels, maritime lien priorities govern distribution rather than the Code’s provisions. This principle stems from the special legislation doctrine whereby specific maritime statutes override general insolvency provisions for vessel-related assets. The Supreme Court in Commercial Tax Officer, Rajasthan v. Ajmer Chamber of Commerce established that special statutes addressing particular subject matters prevail over general legislation when conflicts arise [3].

Practical Implications for Maritime Stakeholders

The harmonized framework established by Raj Shipping provides crucial clarity for maritime commerce participants operating at the intersection of the IBC and the Admiralty Act. Shipowners facing financial distress must recognize that vessels remain vulnerable to admiralty arrest despite insolvency moratoriums under the IBC, though Resolution Professionals can prevent judicial sales by maintaining vessels and furnishing security. Maritime lenders structuring ship mortgages understand that their security remains enforceable through proceedings under the Admiralty Act even during insolvency, though such claims rank below maritime liens for crew wages and salvage.

Crew members benefit from superior priority protection, ensuring wage recovery through vessel sales regardless of insolvency proceedings affecting owners. Salvors undertaking rescue operations receive assurance that their maritime liens will be honored through admiralty enforcement mechanisms. Port authorities and suppliers of ship necessaries can pursue maritime claims through in rem proceedings without moratorium impediments.

The framework requires Resolution Professionals managing shipping company insolvencies to coordinate with admiralty courts when vessels face arrest proceedings. They must assess whether furnishing security to release vessels serves resolution interests or whether allowing admiralty sales maximizes value. The judgment imposes affirmative obligations on Resolution Professionals to maintain arrested vessels during moratoriums, preventing value deterioration that might necessitate judicial intervention for emergency sales.

Challenges and Considerations

Despite the Raj Shipping judgment’s comprehensive framework, certain ambiguities persist. The definition of “secured creditor” under the Code traditionally requires registration of security interests, yet the judgment treats maritime claimants obtaining arrests as secured creditors based on vessel charges. This creates potential conflicts with Committee of Creditors composition and voting rights under the Code, where secured creditors hold significant decision-making authority over resolution plans.

The practical coordination between admiralty courts and insolvency tribunals requires careful navigation. Resolution Professionals must obtain admiralty court directions when taking custody of vessels subject to arrest proceedings, creating dual supervision that may complicate decision-making. The judgment’s allowance for admiralty sales when Resolution Professionals fail maintenance obligations introduces discretionary judicial intervention potentially conflicting with the Code’s emphasis on creditor-in-control mechanisms through Committees of Creditors.

Time charterers and voyage charterers face particular uncertainty as the Admiralty Act lacks provisions for arresting vessels owned by these parties despite their operational control, contrasting with international conventions like the 1999 Geneva Convention on Arrest of Ships. This gap leaves certain maritime claimants without effective enforcement mechanisms when dealing with charterer defaults.

Conclusion

The intersection of the Insolvency and Bankruptcy Code, 2016 (IBC) and the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017 (Admiralty Act) presented significant challenges requiring judicial innovation to harmonize seemingly conflicting statutory regimes. The Bombay High Court’s judgment in Raj Shipping Agencies v. Barge Madhwa established foundational principles recognizing vessels as independent juridical entities capable of in rem proceedings independent of corporate debtor moratoriums. By distinguishing actions against the res from proceedings against the corporate debtor, the judgment preserved maritime law traditions while respecting insolvency resolution objectives.

The framework created through this harmonious construction enables maritime commerce to function effectively by maintaining creditor enforcement mechanisms through vessel arrests while simultaneously allowing shipping companies to pursue resolution through the Code’s time-bound processes. Maritime lien holders receive priority protection recognizing the special nature of maritime security interests, while Resolution Professionals retain authority to manage shipping company assets during insolvency proceedings subject to admiralty court coordination.

This balanced approach reflects judicial wisdom in adapting overlapping modern statutory frameworks to achieve legislative objectives without sacrificing either regime’s core principles. As Indian maritime commerce expands and shipping companies increasingly face financial distress, the Raj Shipping framework provides essential guidance for all stakeholders navigating the complex intersection of admiralty jurisdiction and insolvency resolution processes.

References

[1] The Insolvency and Bankruptcy Code, 2016, available at https://www.indiacode.nic.in/handle/123456789/2154 

[2] The Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017, available at https://www.indiacode.nic.in/handle/123456789/2256 

[3] Raj Shipping Agencies v. Barge Madhwa and Anr., 2020 SCC OnLine Bom 651, available at https://indiankanoon.org/doc/190648846/ 

[4] Innoventive Industries Ltd. v. ICICI Bank, (2018) 1 SCC 407

[5] M.V. Elisabeth v. Harwan Investment and Trading Pvt. Ltd., AIR 1993 SC 1014, available at https://indiankanoon.org/doc/1515069/ 

[6] Commercial Tax Officer, Rajasthan v. Ajmer Chamber of Commerce, (2009) 15 SCC 168

[7] The Merchant Shipping Act, 1958, available at https://www.indiacode.nic.in 

[8] Bar & Bench, “Interplay between maritime lien and insolvency: Collision or co-existence?” available at https://www.barandbench.com/view-point/interplay-between-maritime-lien-and-insolvency-collision-or-co-existence 

[9] LiveLaw, “Interaction Between Admiralty Courts And Company Courts: A Critical Analysis Of Raj Shipping Case,” available at https://www.livelaw.in/news-updates/interaction-between-admiralty-courts-and-company-courts-a-critical-analysis-of-raj-shipping-case-159992 

Published and Authorized by Dhrutika Barad