IBC and Admiralty Law

INTRODUCTION.

In rem admiralty proceedings and the insolvency of a ship owner is fraught with tension. The advantage of arresting a ship, which elevates a maritime claimant to the status of a secured creditor, sits uncomfortably with principles of insolvency law, which do not contemplate an action in rem and the peculiar consequences that follow from it.

Interaction Between Admiralty Courts And Company Courts: A Critical Analysis Of Raj Shipping Case

DETAIL ANALYSIS.

The conflict between these two special jurisdictions came to a head before the Bombay High Court, which in a recent judgement in Raj Shipping Agencies Vs Barge Madhwa and Anr, attempted to reconcile the irreconcilable.

FACTS OF THE CASE.

Arrest orders were passed by the Bombay High Court against vessels, whose owners were insolvent. The High Court issued a winding up order against one of the ship owners under the Companies Act, 1956 (“Companies Act”). In parallel, insolvency proceedings were commenced against another ship owner by the National Company Law Tribunal and a moratorium ordered against commencement or continuation of all proceedings against that owner and its assets under the Insolvency and Bankruptcy Code, 2016 (IBC).

The official liquidator in the winding up proceedings objected to the continuation of the admiralty actions without the leave of the Company Court under Section 446 of Companies Act, 1956. As regards the insolvency proceedings against the other vessel owner, the maritime claimants argued that the moratorium under the IBC would not prevent continuation of the admiralty actions in the Bombay High Court.

The questions of law that arose for consideration were: –

Is there a conflict between actions in rem filed under the Admiralty Act and IBC and if so, how is the conflict to be resolved?
Whether leave under Section 446(1) of the Companies Act is required for continuation of an Admiralty action where a winding up order has been made or the Official Liquidator has been appointed?

Issue 1: Is there a conflict between actions in rem filed under the Admiralty Act and IBC and if so, how is the conflict to be resolved?

The Court after hearing elaborate submissions, observed that its endeavour would be to give effect to both statutes and their objectives so as to avoid conflict. The judgement proceeded to analyse the distinction between an action in rem under the Admiralty Act and an action in personam under IBC. The Court reasoned that an action in rem is not an action against the corporate debtor/owner of the ship or the assets of the corporate debtor/owner. It accordingly concluded that the moratorium under the IBC would not apply to an action in rem under the Admiralty Act for arrest of the ship and consequently would not prevent the commencement of admiralty proceedings.

However, with a view to avoiding a clash between the two jurisdictions, it ruled that an action in rem could be commenced but not continued, as this would defeat the moratorium and the very purpose of the insolvency process under the IBC. The Court held that a maritime claimant had a statutory right in rem that could not be subordinated to the IBC, which entitled it to arrest the ship, but not to continue proceedings, so as to give the corporate debtor the time and opportunity to be rescued/rehabilitated. Those maritime claimants who arrested the ship according to the Court, would be characterized as secured creditors for insolvency purposes.

According to the court, maritime claimants apart from being treated as secured creditors, should ordinarily be ascribed full value for their claim and the scheme of priorities under the Admiralty Act should be adopted in the resolution plan. The Court ruled that vessels arrested before the moratorium can only be released by the Admiralty Court, upon full payment of security.

The Court similarly reasoned that Section 33(5) of the IBC which bars the commencement or continuation of proceedings in liquidation, would not apply to an action in rem, as the claim is against the res and not against the corporate debtor.

Issue 2: Whether leave under Section 446(1) of the Companies Act is required for the continuation of an Admiralty action where a winding up order has been made or the Official Liquidator has been appointed that owned the ship?

The Court observed that the Admiralty Act, 2017 is a consolidating enactment dealing with arrest of ships, maritime claims, judicial sale of ships and determination of priorities. The jurisdiction of the Admiralty Court was found to be special, unlike that of regular civil courts. A judicial sale of a ship by an Admiralty Court in a public auction is free from all prior claims, liens and encumbrances and the purchaser at the auction acquires a clean title free from any maritime liens, claims or encumbrances. This is unlike a sale of property conducted by the Company Court. The Court accordingly held that no leave of the Company court was required as the Admiralty Act, 2017 being a special enactment, would prevail over Companies Act, 1956.

INTRODUCTION

“The safety of the people shall be the highest law” – Marcus Tullius Cicero

Ship Arrest Warrantied. Maritime Lawyers on Ship Arrest in Spain - GMM Law | Maritime Class Net

India has a long-standing history in dealing with the sea and has had a distinguished tradition for several years with trade and commerce, both within the region and beyond its territorial borders. India’s maritime history dates back to the 3rd millennium BCE, and since then many ships have sailed from India and, to India. Therefore, though there was no codified law as the one which exists today, the customs and regulations concerning sea and maritime activities have been in existence since time immemorial.

This article analyses the Maritime Law of India and the Law relating to ship arrests, including the jurisdiction, permissible claims and procedural aspects of ship arrests in India.

Before Independence, the laws relating to maritime laws in India were governed under the British government. The Coasting Vessels Act, 1838, Inland Steam Vessels Act, 1917, Admiralty Offences (Colonial) Act, 1849, Indian Registration of Ships Act, 1841, Indian Ports Act, 1908, Control of Shipping Act, 1947 are some of the regulations which deal with various aspects of maritime in India.

MEANING OF MARITIME LAW

In simple words, Maritime Law is a set of rules and regulations which govern the matters relating to sea and ships. It is also known as admiralty law. Numerous legal luminaries have provided their definition of the term ‘maritime law.’ Some of them are as follows:

Professor Grant Gilmore and Charles L. Black, in their ‘Law of Admiralty’, define maritime or Admiralty Law as the following:

”A corpus of rules, concepts and legal practices governing certain centrally important concerns of the business of carrying goods and passengers by water.”

Black’s Law dictionary defines maritime Law as- “the body of law governing marine commerce and navigation, the carriage at of persons and property, and marine affairs in general; the rules governing contract, tort and workers’ compensation claims or relating to commerce on or over water.”

The definitions, given above covers a wide range of activities concerning the sea, however now with the evolution of Law, the Maritime Law is comprehensive, and it is that branch of jurisprudence which covers all the matters relating to sea and ships.

SHIP ARREST

Ship arrest is a process in which a ship is prevented from trading or moving until the matter in question is decided. It is an exclusive jurisdiction that is granted to an admiralty court to detain a vessel to secure a maritime claim.

Article 2 of the International Convention Relating to the Arrest of Sea-Going Ships, 1952 defines the term arrest as the following:

“(2) “Arrest” means the detention of a ship by judicial process to secure a maritime claim, but does not include the seizure of a ship in execution or satisfaction of a judgment.”

The main purpose of arrest is to obtain security for satisfaction of judgment in the action in rem and it is necessary to arrest the ship in order to establish jurisdiction. Merchant ships of different nationalities travel from port to port carrying goods or passengers. They incur liabilities in the course of their voyage and they subject themselves to the jurisdiction of foreign States when they enter the waters of those States. They are liable to be arrested for the enforcement of maritime claims, or seized in execution or satisfaction of judgments in legal actions arising out of collisions; salvage, loss of life or personal injury, loss of or damage to goods and the like. They are liable to be detained or confiscated by the authorities of foreign States for violating their customs, regulations, safety measures, rules of the road, health regulations, and for other causes. The coastal State may exercise its criminal jurisdiction on board the vessel for the purpose of arrest or investigation in connection with certain serious crimes. In the course of an international voyage, a vessel thus subjects itself to the public and private laws of various countries. A ship travelling from port to port stays very briefly in any one port. A plaintiff seeking to enforce his maritime claim against a foreign ship has no effective remedy once it has sailed away and if the foreign owner has neither property nor residence within jurisdiction. The plaintiff may therefore detain the ship by obtaining an order of attachment whenever it is feared that the ship is likely to slip out of jurisdiction, thus leaving the plaintiff without any security.

RATIONALITY

A ship arrest may be exercised under the authority of a court having admiralty jurisdiction, for the following reasons:

Loss of life
Loss of property
Salvage
Collision
Execution of a decree
Violation of customs, usages, regulations or norms

JURISDICTION OF INDIAN COURTS

Before India gained Independence, under The Colonial Court of Admiralty Act, 1890, the High Court of Bombay, Madras and Calcutta were the only judicial authorities competent to deal with matters relating to Admiralty. The other courts of justice were restricted from dealing with issues concerning the Admiralty. Under the Admiralty Courts Act, 1861, the three presidency courts were vested with the same powers as that of the High Court of England.

Section 35 of the Admiralty Courts Act, 1861 deals with the jurisdiction of Admiralty court, and it reads as the following:

“35. The jurisdiction conferred by this Act on the High Court of Admiralty may be exercised either by proceedings in rem or by proceedings in personam.”

The Law relating to Admiralty jurisdiction is relevant even today under Article 372 of the Constitution of India.

Therefore, in M.V. Elisabeth vs Harwan Investment and Trading, 1993 AIR SC 1014, the question was whether a court having no admiralty jurisdiction could entertain a case relating to Admiralty. The Supreme Court, in this case, widened the scope of admiralty jurisdiction in India.

The Court held

“Although statutes now control the field, much of the admiralty law is rooted in judicial decisions and influenced by the impact of Civil Law, Common Law, and equity. The ancient maritime codes like the Rhodian Sea Law, the Basilika, the Assizes of Jerusalem, the Rolls of Oleron, the Laws of Visby, the Hanseatic Code, the Black Book of the British Admiralty, Consolato del Mare, and others are, apart from statute, some of the sources from which the Law developed in England. Any attempt to confine Admiralty or maritime Law within the bounds of statutes is not only unrealistic but incorrect.”

THE SUPREME COURT MADE THE FOLLOWING OBSERVATION

“The High Courts in India are superior courts of record. They have original and appellate jurisdiction. They have inherent and plenary powers. Unless expressly or impliedly barred, and subject to the appellate or discretionary jurisdiction of this Court, the High Courts have unlimited jurisdiction, including the jurisdiction to determine their powers.”

Further, in this case, the International Convention for the unification of some rules regarding Arrest of Sea-going Ships (The Arrest Convention), 1952 was also made applicable to India, although it was not ratified.

Similarly, In the M.V Sea Success case, the Supreme Court held that the principles laid down in 1999 Geneva Arrest Convention could be applied in India on matters concerning Admiralty.

In India, The Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017 was enacted on 9 August 2017 to consolidate the laws relating to Admiralty. The Act implemented, repeals all the outdated provisions relating to Admiralty.

As per Section 3 of the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017, the jurisdiction concerning admiralty matters shall be vested in the respective High Courts, and the courts shall exercise their authority within the territorial waters of their jurisdiction.

Therefore, now the scope of admiralty jurisdiction has been widened, and apart from the presidency courts, the following courts (coastal regions) have jurisdiction to deal with admiralty matters:

High Court of Gujarat
High Court of Andhra Pradesh
High Court of Orissa
High Court of Kerala

PERMISSIBLE CLAIMS

The High Courts’ as discussed earlier, has the jurisdiction to entertain claims as provided under Article 1 of the Arrest Convention, 1952 and Article 1 of the Geneva Arrest Convention, 1999. Therefore, before the enactment of the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017, the claims were as provided under the conventions as discussed earlier. However, now the Law relating to Maritime claim is provided under section 4 of the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017.

Section 4 of the Act reads as the following:

“The High Court may exercise jurisdiction to hear and determine any question on a maritime claim, against any vessel, arising out of any

a dispute regarding the possession or ownership of a vessel or the ownership of any share therein
dispute between the co-owners of a vessel as to the employment or earnings of the vessel
mortgage or a charge of the same nature on a vessel;
loss or damage caused by the operation of a vessel
loss of life or personal injury occurring whether on land or on water, in direct connection with the operation of a vessel
loss or damage to or in connection with any goods
agreement relating to the carriage of goods or passengers on board a vessel, whether contained in a charter party or otherwise
salvage services, including, if applicable, special compensation relating to salvage services in respect of a vessel which by itself or its cargo threatens damage to the environment
Pilotage
goods, materials, perishable or non-perishable provisions, bunker fuel, equipment (including containers), supplied or services rendered to the vessel for its operation, management, preservation or maintenance including any fee payable or leviable;
construction, reconstruction, repair, converting or equipping of the vessel;
dues in connection with any port, harbour, canal, dock or light tolls, other tolls, waterway or any charges of similar kind chargeable under any law for the time being in force
claim by a master or member of the crew of a vessel or their heirs and dependents for wages or any sum due out of wages or adjudged to be due which may be recoverable as wages or cost of repatriation or social insurance contribution payable on their behalf or any amount an employer is under an obligation to pay to a person as an employee, whether the obligation arose out of a contract of employment or by operation of a law (including operation of a law of any country) for the time being in force, and includes any claim arising under a manning and crew agreement relating to a vessel, notwithstanding anything contained in the provisions of sections 150 and 151 of the Merchant Shipping Act, 1958 (44 of 1958)
disbursements incurred on behalf of the vessel or iparticular average or general average
dispute arising out of a contract for the sale of the vessel
insurance premium (including mutual insurance calls) in respect of the vessel, payable by or on behalf of the vessel owners or demise charterers
commission, brokerage or agency fees payable in respect of the vessel by or on behalf of the vessel owner or demise charterer
damage or threat of damage caused by the vessel to the environment, coastline or relate interests; measures taken to prevent, minimize, or remove such damage; compensation for such damage; costs of reasonable measures for the restoration of the environment actually undertaken or to be undertaken; loss incurred or likely to be incurred by third parties in connection with such damage; or any other damage, costs, or loss of a similar nature to those identified in this clause
costs or expenses relating to raising, removal, recovery, destruction or the rendering harmless of a vessel which is sunk, wrecked, stranded or abandoned, including anything that is or has been on board such vessel, and costs or expenses relating to the preservation of an abandoned vessel and maintenance of its crew; and
maritime lie

PROCEDURE FOR ARREST

The Law relating to the arrest of a vessel in rem is provided under Section 5 of the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017.

Under the section, the High Court may order for the arrest of any vessel within its jurisdiction, where there is a reason to believe:

The owner of the vessel is liable for the claim, or
The demise charterer of the vessel is liable for the claim, or
The claim is based on a mortgage or similar charge, or
The claim relates to possession or ownership, or
The claim is against the owner, demise charterer, manager or operator of the vessel.

Once the claim has been decided, the claimant has to state the detailed facts, along with the other particulars and must make an application for the substantive suit. The Admiralty suit should specify:

The name of the claimant
The name of the vessel
Flag of the Vessel
Details of the owner of the ship
Facts relating to the dispute
Grounds and
Prayer

Once an arrest warrant is issued upon a vessel, the owner of the vessel has to appear and settle the claim or challenge the arrest made. The vessel may be allowed to sail subject to furnishing of security for the claim. At the default of the owner, the ship can be sold, and the sale proceeds may be used to settle the claim.

Therefore, the Law relating to ship arrest is now well settled in India. The admiralty law is an area of development, and it plays an inevitable role in protecting the citizens as well as ensuring that no organization or individual violates the Law of the sea.

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