The Interplay of IBC and Admiralty Law
The Indian Admiralty and Insolvency regime are effectively revamped over the last few years. Prior to 2016, there were a multitude legislations dealing with the insolvency process which failed to provide an efficient and time bound resolution to stakeholders.
In 2016, following a comprehensive public consultation and recommendations process, the India Legislature introduced the Insolvency and Bankruptcy Code, 2016 (IBC Code). The Code formed a separate Adjudicating Authority i.e., the National Company Law Tribunal for dealing with the Insolvency process.
The IBC caused a revival mechanism for Companies such just in case a corporation is unable to pay its debts, it might first need to undergo a resolution process, through which best efforts would be made to urge the corporate afloat and running by way of maximum asset utilization and restructuring the corporate. In 2017, the Legislature also promulgated and passed the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017. The Admiralty Act was a primary codified legislation post-independence, concerning to the admiralty jurisdiction in India. It caused some significant changes to the way during which adjudication of maritime disputes would happen .
Although originally it had been believed that both the legislations are in no way pertinent to at least one another, the promulgation of the IBC and therefore the Admiralty Act bought with it an excellent dichotomy which remained unresolved. Since the inception of the Admiralty Act, 2017 in various in rem actions under the admiralty jurisdiction of the High Courts, an issue arose of the likely overlap with provisions of the IBC and/ or the businesses Act. Particularly issues with reference to the effect and consequences of the proceedings under IBC and issues concerning the necessity to hunt leave of the corporate Court, arose.
THE GUIDING LIGHT: PRINCLIPLES OF INTERPRETATION OF STATUTES
One of the important objectives of the IBC is to bring the insolvency law in India under one unified umbrella with the thing of speeding up the insolvency process. The IBC deals with a proceeding in rem during which the main target is that the rehabilitation of the company debtor. The Admiralty Act, on the opposite hand, consolidates the previous British era laws on civil matters of admiralty jurisdiction of courts, admiralty proceedings on maritime claims, arrest of vessels and related issues in line with modern trends within the maritime sector, and in uniformity with prevalent international practices. The Admiralty Act provides for both, in rem and in personam proceedings, for the aim of recovering and enforcing the maritime claims. The claimant features a right in rem to proceed against the ship or cargo as distinguished from a right in personam to proceed against the possessor.
Both the enactments evidently operate in several spheres and are essentially special laws. However, regarding the actual aspect of liquidation, it’s going to be argued that, while IBC may be a general law handling liquidation of all assets and distribution of proceeds to all or any creditors, the Admiralty Act may be a special law handling the liquidation and sale of the vessel and disbursement of proceeds to parties having maritime lien or claim over the vessel.
The Bombay supreme court during a judgment dated 19th May 2020 in Raj Shipping Agencies v. Barge Madhwa and Anr., considered the character and provisions of proceedings under the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017 (Admiralty Act) and harmonised the provisions of the Admiralty Act with the Insolvency and Bankruptcy Code, 2016 (IBC) and therefore the Companies Act, 1956 (Companies Act) respectively. The Bombay supreme court in considering the varied provisions of law, confirmed and guarded the rights of claimants under the Admiralty Act.
This is a crucial judgment as there has been an excellent deal of uncertainty on whether or not, a celebration can effectively enforce its rights under the Admiralty influence the commencement of a moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 for the principal debtor.
Findings of the case:
The Admiralty Act may be a legislative act , passed on a later date, and deals with Admiralty matters whilst the IBC may be a general act handling corporate insolvency. Since the Admiralty Act confers Admiralty jurisdiction on certain High Courts only which are empowered to entertain an action in rem, it impliedly bars the jurisdiction of all other Civil Courts. Thus, the Admiralty Act, which may be a later Act would prevail over the IBC, which is that the earlier Act, albeit it were to even be treated as a legislative act .
An action in rem isn’t a proceeding against the company debtor within the meaning of the IBC and therefore the moratorium under Section 14(1)(a) to 14(1)(d) doesn’t apply to the Admiralty suits. Similarly, Section 33(5) of IBC also doesn’t operate as a bar to an action in rem against the vessel but only applies to the company debtor. The action in rem is against the vessel and therefore the vessel is treated as an individual and a wrong doer and is susceptible to satisfy the claim. An action in rem isn’t against the property of the company Debtor but an action against a juristic person, namely, the vessel.
A sale by an Admiralty Court will always fetch a better price for the vessel than sale under the IBC because the sale by the Admiralty Court are going to be free from encumbrances. Only a sheriff’s sale by an Admiralty Court is recognized the planet over as extinguishing all maritime liens against the res thereby giving a transparent title to the customer. Thus, within the event of liquidation, it’s within the interest of the Liquidator that the vessel is sold by the Admiralty Court. it’s also within the interest of any financial creditor who features a mortgage registered on the vessel to possess the vessel sold by the Admiralty Court as this is able to maximise the worth received for the vessel.
It can’t be argued that a maritime lienee, like a salvor, who has salvaged a vessel and saved it from sinking or being irretrievably lost, be told that Section 53 of the IBC will gain advantage over Section 9 of the Admiralty Act on priorities of claims.
If there’s a conflict or inconsistency between the provisions of two special enactments an effort should be made to realize a harmonious construction of the two.
After an in-depth discussion on the principles of harmonious construction of both the statutes, the elemental principles of in rem proceedings and exploring all the possible scenarios, the court consideration and efforts was to guard the interest of both the legislations, which might not defeat the aim of either legislation. The Court however concluded that an action in rem are often filed and therefore the ship are often arrested before the moratorium under Section 14 of the IBC comes into force or during the moratorium period or maybe when the company debtor is ordered to be liquidated.
The Court also focused on the state of affairs during a number of cases wherein the Resolution Professional or Liquidator was appointed but did not take any steps to man, preserve and maintain the vessel during the insolvency resolution process or liquidation process (CIRP). The crew members were left abandoned on board the ship and for all practical purposes were abandoned by the Owners. The Court observed that regardless of the non-obstinate clause within the IBC, Admiralty Act being a special Legislation takes under consideration all such relevant factors and thus exercise of Admiralty jurisdiction would in such cases are going to be beneficial and assist, instead of hinder, insolvency proceedings/process. it might protect the ship and successively the safety of a mortgagee who may be a financial creditor as per the provisions of the IBC. Further, this is able to also inform the mortgagee that they need to take steps to guard and preserve their security and if they are doing not then the Admiralty Court will step in.
Section 446 of the businesses Act deals with the staying of the suits while the corporate is within the process of completing . The Court held that maritime law may be a special enactment while the businesses Act is quite a general enactment. maritime law deals with actions in rem and it had been enacted for a special purpose. Thereby it’ll override the overall law. The court further asserted that under the admiralty jurisdiction, the action is against the ship and not the corporate nor the owner of the corporate . Section 3 of the maritime law confers admiralty jurisdiction exclusively to the High Courts and no other court of jurisdiction. Thus, the Court concluded that section 446 of the businesses Act 1956 won’t apply to Admiralty suits.
The Court has thus extensively analysed and explained the scope of the Admiralty Act and therefore the IBC, after an in-depth assessment on the principles of harmonious construction and therefore the fundamentals of in rem proceedings. Given the incongruity having arisen, due to the overlap of the Admiralty Act with provisions of the IBC and/or the businesses Act, Hon’ble Court within the said judgment has taken note of the intention of the legislature behind the Admiralty Act and therefore the IBC and has sought to harmoniously interpret and construct their provisions. This successively will make sure that the sanctity of the provisions remains intact and therefore the rights of the person having a maritime claim also because the corporate debtor remain unaffected. While taking into consideration the special nature of Admiralty Jurisdiction, the court has distinguished a ship/vessel from the other asset and emphasized on the legal personality of the vessel as distinct from its owner. this is often move is very appreciated and may be a breakthrough in protecting the interest of the parties having a bonafide maritime claim to prosecute its claim through an action in rem.
ILS Law College, Pune
(intern at Bhatt & Joshi Associates)