Tag Offshore Limited vs Barge Madhwa And Anr

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V/s. Barge Madhwa And Anr. ....Defendants

WITH ADMIRALTY SUIT NO.17 OF 2015

Raj Transport & Trading Company ....Plaintiff

V/s. Barge Madhwa And Anr. ....Defendants WITH COMMERCIAL SUIT NO.73 OF 2016

Sumayla Marine Service ....Plaintiff

V/s. Dlb Nand Gaurav And Another ....Defendants

WITH ADMIRALTY SUIT NO.20 OF 2015

Transtar Offshore Services Pvt. Ltd. ....Plaintiff

V/s. Dlb Nand Gaurav And Another ....Defendants

WITH COMMERCIAL NOTICE OF MOTION NO.74 OF 2015 IN COMMERCIAL ADMIRALTY SUIT NO.284 OF 2015

Raj Shipping Agencies Limited ....Plaintiff

V/s. Barge Madhwa And Anr. ....Defendants

WITH NOTICE OF MOTION NO.1162 OF 2015 IN ADMIRALTY SUIT NO.1 OF 2015

Atlantic Shipping Pvt. Ltd. ....Plaintiff

V/s. Barge Madhwa And Anr. ....Defendants

WITH COMMERCIAL NOTICE OF MOTION NO.75 OF 2015 IN COMMERCIAL ADMIRALTY SUIT NO.285 OF 2015

Tag Offshore Limited ....Plaintiff

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V/s. Barge Madhwa And Anr. ....Defendants

WITH NOTICE OF MOTION NO.1721 OF 2015 IN ADMIRALTY SUIT NO.17 OF 2015

Raj Transport & Trading Company ....Plaintiff

V/s. Barge Madhwa And Anr. ....Defendants

WITH NOTICE OF MOTION NO.1161 OF 2015 IN ADMIRALTY SUIT NO.6 OF 2015

Raj Shipping Agencies ....Plaintiff

V/s. Barge Madhwa And Anr. ....Defendants

WITH NOTICE OF MOTION NO.1166 OF 2015 IN ADMIRALTY SUIT NO.17 OF 2015

Raj Transport & Trading Company ....Plaintiff

V/s. Barge Madhwa And Anr. ....Defendants

WITH COMMERCIAL NOTICE OF MOTION NO.73 OF 2015 IN COMMERCIAL ADMIRALTY SUIT NO.284 OF 2015

Raj Shipping Agencies Limited ....Plaintiff

V/s. Barge Madhwa And Anr. ....Defendants

WITH NOTICE OF MOTION NO.1715 OF 2015 IN ADMIRALTY SUIT NO.1 OF 2015

Atlantic Shipping Pvt. Ltd. ....Plaintiff

V/s. Barge Madhwa And Anr. ....Defendants

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WITH COMMERCIAL NOTICE OF MOTION NO.76 OF 2015 IN COMMERCIAL ADMIRALTY SUIT NO.285 OF 2015

Tag Offshore Limited ....Plaintiff

V/s. Barge Madhwa And Anr. ....Defendants

WITH NOTICE OF MOTION NO.1717 OF 2015 IN ADMIRALTY SUIT NO.6 OF 2015

Raj Shipping Agencies ....Plaintiff

V/s. Barge Madhwa And Anr. ....Defendants

WITH COMMERCIAL SUIT NO.319 OF 2016

M/s. Supreme Hydro Engineering Pvt. Ltd. ....Plaintiff

V/s. M.V. Tag 7 [IMO No.9379002] And Anr. ....Defendants

WITH NOTICE OF MOTION (L) NO.180 OF 2016 IN ADMIRALTY SUIT NO.20 OF 2015

Transtar Offshore Services Pvt. Ltd. ....Plaintiff

V/s. Dlb Nand Gaurav And Anr. ....Defendants

WITH NOTICE OF MOTION (L) NO.181 OF 2016 IN COMMERCIAL SUIT NO.73 OF 2016

Sumayla Marine Service ....Plaintiff

V/s. Dlb Nand Gaurav And Anr. ....Defendants

WITH NOTICE OF MOTION NO.757 OF 2017 IN ADMIRALTY SUIT NO.41 OF 2015

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Dvb Group Merchant Bank (Asia) Ltd. ....Plaintiff

V/s. M.V. Malaviya Twenty Three (IMO No.9299082) And Ors. ....Defendants

WITH COMMERCIAL NOTICE OF MOTION NO.743 OF 2019 IN COMMERCIAL ADMIRALTY SUIT NO.36 OF 2018

IDBI Bank Ltd. ....Plaintiff

V/s. M.V. Malaviya Thirty Three (IMO No.7809118) And Ors. ....Defendants

WITH NOTICE OF MOTION NO.1095 OF 2019 IN ADMIRALTY SUIT NO.41 OF 2015

Dvb Group Merchant Bank (Asia) Ltd. ....Plaintiff

V/s. M.V. Malaviya Twenty Three (IMO No.9299082) And Ors. ....Defendants

WITH NOTICE OF MOTION NO.1718 OF 2015 IN ADMIRALTY SUIT NO.11 OF 2015

Integr8 Fuels Inc. ....Plaintiff

V/s. Madhwa And Anr. ....Defendants

WITH ADMIRALTY SUIT NO.1 OF 2017

Barkat Hiring Co. ....Plaintiff

V/s. Malaviya Thirty Three And Anr. ....Defendants

WITH ADMIRALTY SUIT NO.28 OF 2017

Vipu Thazhathupulikkal Purushothaman Nair ....Plaintiff

V/s. Sale Proceeds of M.V. Malaviya 28 And Ors. ....Defendants

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WITH ADMIRALTY SUIT NO.33 OF 2017

Durva Engineering Works ....Plaintiff

V/s. M.V. Malaviya Thirty Six (IMO No.8519083) ....Defendant

WITH COMMERCIAL ADMIRALTY SUIT NO.482 OF 2017

Mars Petrochem Pvt. Ltd. ....Plaintiff

V/s. Sale Proceeds of M.V. Malaviya 23 (IMO No.9299082) And Ors. ....Defendants

WITH COMMERCIAL ADMIRALTY SUIT NO.121 OF 2017

Unique Marine Service ....Plaintiff

V/s. Malaviya Thirty (IMO No.9333515) And Anr. ....Defendants

WITH NOTICE OF MOTION NO.800 OF 2018 IN ADMIRALTY SUIT NO.41 OF 2015

Dvb Group Merchant Bank (Asia) Ltd. ....Plaintiff

V/s. M.V. Malaviya Twenty Three (IMO No.9299082) And Ors. ....Defendants

WITH NOTICE OF MOTION NO.1158 OF 2015 IN ADMIRALTY SUIT NO.11 OF 2015

Integr8 Fuels Inc. ....Plaintiff

V/s. Madhwa And Anr. ....Defendants

WITH NOTICE OF MOTION NO.726 OF 2019 IN ADMIRALTY SUIT NO.41 OF 2015

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Dvb Group Merchant Bank (Asia) Ltd. ....Plaintiff

V/s. M.V. Malaviya Twenty Three (IMO No.9299082) And Ors. ....Defendants

WITH NOTICE OF MOTION NO.1805 OF 2019 IN ADMIRALTY SUIT NO.6 OF 2015

Raj Shipping Agencies ....Plaintiff

V/s. Barge Madhwa And Anr. ....Defendants

WITH COMMERCIAL ADMIRALTY SUIT NO.142 OF 2016

Raj Shipping Agencies ....Plaintiff

V/s. M.V. Malaviya Thirty And Ors. ....Defendants

WITH NOTICE OF MOTION NO.1215 OF 2019 IN ADMIRALTY SUIT NO.65 OF 2015

Solitaire Marine And Offshore Pvt. Ltd. ....Plaintiff

V/s. M.V. Pristine Gv (IMO No.9118422) And Anr. ....Defendants

WITH NOTICE OF MOTION NO.2447 OF 2019 IN ADMIRALTY SUIT NO.41 OF 2015

Dvb Group Merchant Bank (Asia) Ltd. ....Plaintiff

V/s. M.V. Malaviya Twenty Three (IMO No.9299082) And Ors. ....Defendants

WITH NOTICE OF MOTION NO.1974 OF 2018 IN ADMIRALTY SUIT NO.18 OF 2017

Melayi Kandi Jayarajan ....Plaintiff

V/s.

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Ahtv Sangita And Anr. ....Defendants

WITH ADMIRALTY SUIT NO.18 OF 2017

Melayi Kandi Jayarajan ....Plaintiff

V/s. Ahtv Sangita And Anr. ....Defendants

WITH ADMIRALTY SUIT NO.38 OF 2018

Amit Sharma ....Plaintiff

V/s. M.V. Malaviya Thirty And Ors. ....Defendants

WITH COMMERCIAL ADMIRALTY SUIT NO.36 OF 2018

IDBI Bank Ltd. ....Plaintiff

V/s. M.V. Malaviya Thirty Three (IMO No.7809118) And Ors. ....Defendants

WITH COMMERCIAL ADMIRALTY SUIT NO.8 OF 2019

Sagar Yadav And Ors. ....Plaintiffs

V/s. MSV Malaviya 36 (IMO No.8519083) And Anr. ....Defendants

WITH COMMERCIAL ADMIRALTY SUIT NO.39 OF 2018

Capt. Jitendra Sama And Ors. ....Plaintiffs

V/s. M.T. Maharshi Bhavatreya ....Defendant ---- Mr. Prashant Pratap, Senior Advocate - Amicus Curiae/Assisted by Mr. Nishaan Shetty. Mr. V. K. Ramabhadran, Senior Advocate, Amicus Curiae. Dr. Abhinav Chandrachud, Amicus Curiae assisted by Mr. Saurish Shetye and Mr. Shailendra A. Singh. Mr. Rahul Narichania, Senior Advocate a/w. Ms. Pratiksha Avhad i/b. Mulla and Mulla and Craigie Blunt and Caroe for Plaintiff in ADMS/41/2015. Mr. Sharan Jagtiani, Senior Advocate a/w. Ms. Surabhi Agrawal, Advocates for Official Liquidator.

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Mr. Prasad Shenoy a/w. Mr. Prashant Ashar, Mr. Naishadh Bhatia, Ms. Bulbul Singh- Rajpurohit and Mr. Niraf Shroff i/b. Crawford Bayley and Co. for Plaintiff in ADMS/6/2015, ADMS/1/2015, ADMS/17/2015, COMAS/284/2015, ADMS/1/2017 and COMAS/121/2017. Mr. Prathamesh Kamat, Advocate for Official Liquidator. Mr. Ajai Fernandes a/w. Ms. Sneha B. Pandey for Applicant in CHS/66/2018 and for Defendant No.3 in ADMS/18/2017. Mr. Ashwini Sinha i/b. Mr. Harsh G. Pratap for Plaintiff in ADMS/11/2015. Ms. S. Priya a/w. Ms. Aparna Sinha, Advocates for Official Liquidator. Mr. Kunal Naik i/b. Mr. Ashwin Shanker for Plaintiff in ADMS/20/2015, COMAS/73/2016 and ADMS/28/2017. Mr. Kunal Naik i/b. Mr. Bimal Rajasekhar for Plaintiff in COMAS/142/2016. Mr. Shrey Sancheti i/b. Theba and Associates for Plaintiff in COMAS/36/2018. Mr. Kundanlal Patil i/b. Vyas and Bhalwal for Plaintiff in ADMS/18/2017. Mr. Osama Butt i/b. Ganesh and Co. for Plaintiff in COMS/319/2016 and COMAS/8/2019. Mr. R. P. Shirole a/w. Ms. Kunjita Shah i/b. Khare Legal Chambers for Plaintiff in ADMS/38/2018. Dr. Shrikant Hathi a/w. Mr. Pritish Das i/b. Brus Chambers for Plaintiff in ADMS/33/2017. Ms. Aneesa Cheema i/b. Charles De Souza for Respondent (EXIM Bank) in NMS/800/2018. Ms. Lakshmi Bussa i/b. M. V. Kini and Co. for Defendant No. 9 in COMAS/36/2018. Mr. Mahendhar Aithe, Company Prosecutor present. ---- CORAM : K.R. SHRIRAM, J. RESERVED ON : 12th FEBRUARY 2020 PRONOUNCED ON: 19th MAY 2020

JUDGMENT:

1 These Admiralty Suits were filed and Orders of Arrest obtained from this

Court in all or most of the suits. By Orders dated 05 May 2017 this Court, however, was

pleased to admit Company Petition No. 119 of 2015 as well as Company Petition No. 756

of 2014 against GOL Offshore Ltd., the owner of Defendant Vessels in Admiralty Suit

No. 1 of 2017 and Commercial Admiralty Suit No. 121 of 2017. Further, by its Order

dated 04 December 2017, this Court was pleased to order GOL Offshore Ltd. (Company

in liquidation), be wound up.

2 On 09 March 2018, when Admiralty Suit No. 1 of 2017 was listed and

taken up for directions/orders, the Official Liquidator of GOL Offshore Ltd. (Company in

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liquidation), through his assistant, objected to the Suit proceeding further without

obtaining leave under S. 446 of the Companies Act, 1956 (hereinafter referred to as

Companies Act). In response to the objection, it was submitted on behalf of Plaintiff in

Adm. Suit no. 1 of 2017 that in light of the decision in Shanmugam Rajashekhar V/s.

Owners and parties interested in the vessel m.t. Pratibha Cauvery 1, no leave under S.

446 was required to be obtained. As this would be repetitive issue, this Court, therefore,

by its Order dated 09 March 2018, was pleased to direct listing of all such suits together,

to hear and decide upon the question as to whether leave under S. 446 of the Companies

Act was required. This will be relevant in Adm. Suit no. 1 of 2017, Commercial Adm.

Suit no. 121 of 2017, Adm. Suit no. 11 of 2015, Adm. Suit no. 20 of 2015, Commercial

Adm. Suit no. 73 of 2016, Commercial Adm. Suit no. 142 of 2016, Adm. Suit 28 of 2017,

Adm. Suit 33 of 2017, Commercial Adm. Suit no. 319 of 2016, Adm. Suit no. 41 of 2015,

Commercial Adm. Suit no. 36 of 2018, Commercial Adm. Suit no. 482 of 2017, Ad. Suit

65 of 2015, Adm. Suit no. 18 of 2017, Adm. Suit no. 38 of 2018, Commercial Adm. Suit

no. 8 of 2019, and Commercial Adm. Suit no. 39 of 2018 listed.

3 By an order dated 08 March 2019, in C.P. No. IB-731(PB)/ 2018, the

National Company Law Tribunal, New Delhi, in the meanwhile, was pleased to admit a

Petition under S. 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to

as IBC) against Punj Lloyd Ltd., the owner of Defendant Vessels in Admiralty Suit No. 1

of 2015, Admiralty Suit No. 6 of 2015, Admiralty Suit No. 17 of 2015, Commercial

Admiralty Suit No. 284 of 2015, and Commercial Admiralty Suit No. 285 of 2015.

Consequently, a Moratorium under S. 14 of the IBC was also declared by the said Order

dated 08 March 2019. The moratorium period came to be extended from time to time, the

last of which came to be passed on 31 January 2020 extending the period of moratorium

by 60 days. However, on being questioned by this Court of the effect of the same upon

the present Admiralty Suits, it was submitted on behalf of Plaintiffs in Adm. suit no. 6 of

1. 2018 SCC Online Madras 13

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2015 that an Order of Moratorium under S. 14 of the IBC has no bearing whatsoever

upon admiralty proceedings, which are prosecuted in rem. Issues as to the effect of other

provisions of the IBC, on rights under the Admiralty (Jurisdiction and Settlement of

Maritime Claims) Act, 2017 (hereinafter referred to as Admiralty Act) such as those with

respect to statutory dues, crew wages etc. also came to be raised. As this would also be

repetitive issue, this Court, therefore, was pleased to direct listing together such suits to

hear and decide upon the applicability, effect and consequences of the proceedings under

IBC as well, on the Admiralty Suits before this Court. This will be relevant in Adm. Suit

no. 1 of 2015, Adm. Suit no. 6 of 2015, Adm. Suit no. 17 of 2015, Commercial Adm. Suit

no. 284 of 2015 and Comm. Adm. Suit no. 285 of 2015 listed.

4 As very important questions of law were involved, this Court was pleased

to appoint Dr. Abhinav D. Chandrachud as Amicus Curiae. Mr. Prashant S. Pratap, Senior

Advocate and Mr. V. K. Ramabhadran, Senior Advocate, who regularly appear in

admiralty matters also offered to assist the Court. Their gracious offer, and I say gracious

because this was a very time-consuming matter, was welcomed by the Court and they were

also appointed as Amicus Curiae. All counsels who were appearing for a contesting party

and addressed the Court went beyond their brief at the request of the Court in order to

assist the Court on the important questions of law. Most were concerned only with the

provisions of Companies Act but made submissions even on the overlap between IBC and

Admiralty Act. I must express my appreciation for the distinguished assistance by

Dr. Chandrachud, Mr. Pratap and Mr. Ramabhadran, learned Amicus Curiae. So also, all

the counsels who addressed the Court rendered distinguished assistance. The endeavour

put forth by each counsel has been of immense value in rendering the judgement.

5 Two very interesting but complex questions have arisen in these groups of

matters in the context of Admiralty Act and the provisions of the IBC and also the

provisions of the Companies Act. These are crystallized as below:

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Question No. 1

Is there a conflict between actions in rem filed under the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017 and the provisions of Insolvency and Bankruptcy Code, 2016 and if so, how is the conflict to be resolved?

Question No. 2 Whether leave under Section 446(1) of the Companies Act, 1956 is required for the commencement or continuation of an Admiralty action in rem where a winding up order has been made or the Official Liquidator has been appointed as Provisional Liquidator of the company that owned the ship?

6 As both questions involve a consideration of the Admiralty Act, the

discussions and observations in regard to the said act in general and actions in rem in

particular under Question No.1 shall apply equally when it comes to Question No. 2.

Question No. 1

Is there a conflict between actions in rem filed under the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017 and the provisions of Insolvency and Bankruptcy Code (IBC), 2016 and if so, how is the conflict to be resolved?

7 To answer this, we will have to first consider the objective of the two

statutes and the purpose for which they have been enacted and then some of the relevant

provisions of both acts to examine the nature of the conflict and how it can be resolved.

8 Insolvency and Bankruptcy Code, 2016 (IBC)

8.1 The preamble to IBC states "This Act is to consolidate and amend the laws

relating to re-organization and insolvency resolution of corporate persons, partnership

firms and individuals in a time bound manner for maximization of value of assets of such

persons, to promote entrepreneurship, availability of credit and balance the interests of

all stakeholders." It is an exhaustive Code on the subject matter of insolvency in relation

to corporate entities (Innoventive Industries Ltd. V/s. ICICI Bank & Anr. 2). As also held

2. (2018) 1 SCC 407

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in Duncans Industries Ltd. V/s. A.J. Agrochem 3 IBC is a special statute devoted entirely

to resolution of insolvency, liquidation and bankruptcy of corporate persons and firms

and individuals.

8.2 The following observations of the Hon'ble Supreme Court in Swiss

Ribbons Pvt. Ltd. V/s. Union of India4 in para 27 and 28 make it clear as to what is

sought to be achieved by the Code:

27: "As is discernible, the Preamble gives an insight into what is sought to be achieved by the Code. The Code is first and foremost, a Code for reorganization and insolvency resolution of corporate debtors. Unless such reorganization is effected in a time-bound manner, the value of the assets of such persons will deplete. Therefore, maximization of value of the assets of such persons so that they are efficiently run as going concerns is another very important objective of the Code. This, in turn, will promote entrepreneurship as the persons in management of the corporate debtor are removed and replaced by entrepreneurs. When, therefore, a resolution plan takes off and the corporate debtor is brought back into the economic mainstream, it is able to repay its debts, which, in turn, enhances the viability of credit in the hands of banks and financial institutions. Above all, ultimately, the interests of all stakeholders are looked after as the corporate debtor itself becomes a beneficiary of the resolution scheme - workers are paid, the creditors in the long run will be repaid in full, and shareholders/investors are able to maximize their investment. Timely resolution of a corporate debtor who is in the red, by an effective legal framework, would go a long way to support the development of credit markets. Since more investment can be made with funds that have come back into the economy, business then eases up, which leads, overall, to higher economic growth and development of the Indian economy. What is interesting to note is that the Preamble does not, in any manner, refer to liquidation, which is only availed of as a last resort if there is either no resolution plan or the resolution plans submitted are not up to the mark. Even in liquidation, the liquidator can sell the business of the corporate debtor as a going concern. [See Arcelor Mittal (supra) at paragraph 83, footnote 3]."

28: "It can thus be seen that the primary focus of the legislation is to ensure revival and continuation of the corporate debtor by protecting the corporate debtor from its own management and from a corporate death by liquidation. The Code is thus a beneficial legislation which puts the corporate debtor back on its feet, not being a mere recovery legislation for creditors. The interests of the corporate debtor have, therefore, been bifurcated and separated from that of its promoters / those who are in management. Thus, the resolution process is not adversarial to the corporate debtor but, in fact, protective of its interests. The moratorium

3. (2019) 9 SCC 725

4. (2019) 4 SCC 17

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imposed by Section 14 is in the interest of the corporate debtor itself, thereby preserving the assets of the corporate debtor during the resolution process. The timelines within which the resolution process is to take place again protects the corporate debtor's assets from further dilution, and also protects all its creditors and workers by seeing that the resolution process goes through as fast as possible so that another management can, through its entrepreneurial skills, resuscitate the corporate debtor to achieve all these ends."

8.3 It is quite clear from the above observations of the Apex Court that the

primary focus of the IBC is to ensure revival and continuation of the Corporate Debtor

within the framework of the IBC and only if no Resolution Plan is approved for revival of

the Corporate Debtor, liquidation would follow. It is thus considered to be a beneficial

legislation not only for the Corporate Debtor but also for all stakeholders including

secured creditors.

9 Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017

9.1 The Admiralty Act came into force on 01 April 2018. The preamble to the

Admiralty Act provides "to consolidate the laws relating to Admiralty Jurisdiction, legal

proceedings in connection with vessels, their arrest, detention, sale and other matters

connected therewith or incidental thereto."

It is settled law that a consolidating act forms a Code complete in itself and

is exhaustive of matters dealt with therein (Innoventive Industries5). The Admiralty Act

operates in a completely different sphere but is nonetheless a special act vesting

Admiralty Jurisdiction in certain High Courts.

9.2 As can be seen from the preamble and the provisions of the Admiralty Act,

it is a complete Code in itself as regards legal proceedings in connection with vessels

(otherwise called actions in rem), their arrest, detention, sale and determination of

priorities in respect of the sale proceeds of the vessels that were ordered to be arrested.

Once the jurisdiction under the Admiralty Act is invoked by an action in rem, the

5. Supra

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machinery of the act is set in motion. The arrest of the vessel leads to a sale of the vessel

which leads to determination of priorities in respect of sale proceeds and payment to the

successful Claimants from out of sale proceeds in the order of priorities as determined.

This process is only halted by the appearance of the owner and provision of security or

bail for release of the ship from arrest. If this happens and until this happens, the action

continues as an action in rem with the consequences as provided in the act.

9.3 The rules framed by the High Court governing the exercise of admiralty

jurisdiction set out the procedure to be followed in the matter of arrest of ships, sale of

ships and determination of priority of claims.

9.4 The purpose of the Admiralty Act is to vest certain very valuable rights in

respect of identified maritime claims. These are called rights in rem and a mechanism is

provided in the Admiralty Act as to the manner of enforcement of such rights by arrest of

a ship.

9.5 Under the Admiralty Act, jurisdiction is conferred on certain specified

High Courts and impliedly, no other High Court has or is entitled to exercise Admiralty

jurisdiction under the Admiralty Act. In this regards the following provisions may be

seen:

Section 2(1)

(a) "'admiralty jurisdiction' means the jurisdiction exercised by a High Court under section 3, in respect of maritime claims specified under this Act;"

(b) "'admiralty proceeding' means any proceeding before a High Court, exercising admiralty jurisdiction;"

(e) "'High Court', in relation to an admiralty proceeding, means any of the High Court of Calcutta, High Court of Bombay, High Court of Madras, High Court of Karnataka, High Court of Gujarat, High Court of Orissa, High Court of Kerala, High Court of Judicature at Hyderabad for the State of Telangana and the State of Andhra Pradesh or any other High Court, as may be notified by the Central Government for the purposes of this Act;"

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Section 3 : "Admiralty jurisdiction - Subject to the provisions of sections 4 and 5, the jurisdiction in respect of all maritime claims under this Act shall vest in the respective High Courts and be exercisable over the waters up to and including the territorial waters of their respective jurisdictions in accordance with the provisions contained in this Act:

Provided that the Central Government may, by notification, extend the jurisdiction of the High Court up to the limit as defined in section 2 of the Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zones Act, 1976 (80 of 1976).

9.6 Therefore, admiralty jurisdiction in respect of maritime claims shall vest in

respective High Courts, subject to provisions of section 4 and section 5 of the Act. It will

extend up to and including the territorial waters limits of India within their respective

jurisdiction. The Central Government may notify any other High Court in line with limits

defined in section 2 of the Admiralty Act.

9.7 At this stage, for a better understanding of what an action in rem under the

Admiralty Act entails and the special jurisdiction vested in the High Court, a few salient

features of actions in rem, maritime liens and maritime claims may be noticed.

10 Action in rem is against the ship and not the owner

10.1 A ship or a vessel as commonly referred to is a legal entity that can be sued

without reference to its owner. The purpose of an action in rem against the vessel is to

enforce the maritime claim against the vessel and to recover the amount of the claim from

the vessel by an admiralty sale of the vessel and for payment out of the sale proceeds. It is

the vessel that is liable to pay the claim. This is the fundamental basis of an action in rem.

The Claimant is not concerned with the owner and neither is the owner a necessary or

proper party. The presence of the owner is not required for adjudication of Plaintiff's

claim. That is why no writ of summons is required to be served on the owner of the

vessel. The service of the warrant of arrest on the vessel is considered sufficient.

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10.2 For the purpose of an action in rem under the Admiralty Act, the ship is

treated as "a separate juridical personality, an almost corporate capacity, having not

only rights but liabilities (sometimes distinct from those of the owner)" - (M.V. Elisabeth

and Ors. V/s. Harwan Investments and Trading Pvt. Ltd.6).

10.3 The Hon'ble Supreme Court of India, in M. Siddiqi V/s. Mahant Suresh

Das & Ors.7 (referred to as "The Ram Janmabhumi Temple case"), whilst considering

independent legal personalities, made a reference to the conferment of legal personality

on a ship. The following passages deserve to be reproduced:

"117. A more pertinent example for the present purposes is the conferment of legal personality on a ship. The concepts of a maritime lien and of actions in rem are established precepts of maritime law. A maritime lien may arise in the case of a wrongdoing or damage caused by a ship which gives the claimant a charge on the 'res' of the ship. The charge is crystallised by an action in rem under which the ship is directly proceeded against, as a legal person. In 1881, Sir George Jessel MR explained this in The City of Mecca45, where he observed:

'You may in England and in most countries proceed against the ship. The writ may be issued against the owner of such a ship, and the owner may never appear, and you get your judgement against the ship without a single person being named from beginning to end. That is an action in rem, and it is perfectly well understood that the judgement is against the ship.'

118. D.R. Thomas in his book titled Maritime Liens [ D.R. Thomas, Maritime Liens in British Shipping Laws, Vol. 14 (Steven & Sons, London 1980).] traces the history of the judicial conferment of legal personality on ships. He speaks of two theories-- the "personification theory" and the "procedural theory" in explaining the evolution of the concept:

"The first [theory], commonly coined as the personification theory, traces the historical origin and development of maritime liens to the juristic technique, which has obtained since medieval times, of ascribing personality to a ship. Under this theory a ship is personified and regarded as a distinct juristic entity with a capacity to contract and commit torts. The ship is both the source and limit of liability."

*** The second theory, known as the procedural theory, is based on the premise that maritime liens evolved out of the process of arrest of a vessel in order to compel the appearance of the res owner and to obtain a security."

***

6. 1993 Supp (2) SCC 433

7. (2020) 1 SCC 1

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Although the point is not free of uncertainty it is probably the case that a maritime lien is a substantive right whereas a statutory right of action in rem is in essence a procedural remedy. The object behind the availability of a statutory right of action in rem is to enable a claimant to found a jurisdiction and to provide the res as security for the claim." [ D.R. Thomas, Maritime Liens in British Shipping Laws, Vol. 14 (Steven & Sons, London 1980) at pp. 7 and 38.]

119. There is a direct nexus between the conferral of a limited legal personality and the adjudicative utility achieved by the conferral. Courts treat the physical property of the ship as a legal person against which certain actions may be taken. Conferring legal personality on the ship allows for actions to be taken independent of the availability or presence of the ship's owners, who in a great many cases may be in other parts of the world. As a ship may only be in port for a brief period, an action in rem allows the claimant to ensure pre-judgement security. Thus, even absent an express personification, actions against the ship as a legal person ensure the effective adjudication of admiralty disputes.

120. In M V Elisabeth v Harwan Investment and Trading Pvt. Ltd., this Court noticed the underlying basis of this principle of Admiralty law. Justice Thommen, speaking for a two judge Bench traced the exercise of admiralty jurisdiction by English Courts:

44. ...The vital significance and the distinguishing feature of an admiralty action in rem is that this jurisdiction can be assumed by the coastal authorities in respect of any maritime claim by arrest of the ship, irrespective of the nationality of the ship or that of its owners, or the place of business or domicile or residence of its owners or the place where the cause of action arose wholly or in part.

...In admiralty the vessel has a juridical personality, an almost corporate capacity, having not only rights but liabilities (sometimes distinct from those of the owner) which may be enforced by process and the decree against the vessel, binding upon all interested in her and conclusive upon the world, for admiralty in appropriate cases administers remedies in rem, i.e., against the property, as well as remedies in personam, i.e., against the party personally...‖ (Benedict, The Law of American Admiralty, 6th ed., Vol. I p. 3.)

45. Admiralty Law confers upon the claimant a right in rem to proceed against the ship or cargo as distinguished from a right in personam to proceed against the owner. The arrest of the ship is regarded as a mere procedure to obtain security to satisfy judgment.... (Emphasis supplied)

121. In this view, the conferral of legal personality on a ship sub-served the purpose of business certainty and expediency. The decree against the ship binds all interested in her, and despite her nomadic nature, satisfies the requirement of ensuring pre-judgment security. Besides the UK and India, the attribution of legal personality to ships has been used extensively across jurisdictions. Illustrating the approach of American Courts, Professor Douglas Lind traces the evolution of the concept:

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As the United States entered its first century, the greater part of the nation's trade and commerce, as well as much of the general transportation of persons, occurred on the high seas or along the country's abundant inland navigable waterways. The constitution had extended the federal judicial power to all cases of admiralty and maritime jurisdiction. ...

The Brig James Wells v United States case raised what was quickly becoming a common issue: whether an American registered vessel should be condemned for violating a federal law. The Court held the Brig's condemnation inevitable. Noteworthy is the fact that while the case was styled in the name of the vessel, neither the term 'maritime lien' nor 'in rem, appears, and there is no suggestion that the ship itself, rather than those in charge of it, was the offender ... The practice of naming an action against a vessel did not, however, attest to the idea of vessel personification. The Court treated actions styled against a vessel as including everyone with an interest in her as "a party to the suit".

Numerous cases had troubled the federal Courts regarding enforcement of liens when the principals (owners, masters) with interests in a ship had no active role or prior knowledge of the wrongdoing alleged. Traditional law of agency, with the ship as agent, worked against a coherent rule of responsibility and recovery ... Given the peculiar vitalism of the ship in lore, literature, and poetry, it took only a slight conceptual shift in the legal mind for the federal Courts to assume the "mental mode"l of adaptation to [the] reality of the vitalism of the ship. The doctrine gave the Courts the "control of the environment" over maritime law that they had been lacking ... with the doctrine of the personality of the ship, the Supreme Court inverted the relationship of agency, making the ship the principal rather than the agent. In this way, the desirable consequences of a coherent, workable admiralty jurisdiction seemed possible. The doctrine of the personality of the ship, that is, became a central hallmark of nineteenth century American admiralty law because it appeared to the Supreme Court ―to be good in the way of belief ... The idea originated in the practical efforts of the Supreme Court, especially Justices Marshall and Story, to meet critical social and political needs of the new American republic.49 (Emphasis supplied)

122. The experience of American Courts was that owners of offending ships regularly avoided the jurisdiction of Courts. The existing law of the day was inadequate to address the situation. The judges of the American Supreme Court therefore utilised the existing non-legal practice of anthropomorphising the ship and gave it legal significance by conferring legal personality on vessels within their jurisdiction. Significantly, the existing law of agency was ill equipped to deal with the unique features of Admiralty Law. Allowing actions against ships then created a vehicle through which the obligations of those with an interest in the ships and her actions, though outside the jurisdiction of Courts, would be fulfilled by the recognition by the law of the personality of the maritime vessel. Perhaps even more so than in the case of English admiralty Courts, the American experience demonstrates that the conferral of legal personality

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on ships was a result of historical circumstances, shortcomings in the existing law and the need of Courts to practically and effectively adjudicate upon maritime claims. Over the course of several cases, the American Supreme Court solved the practical difficulties of attribution and agency by making the ship a distinct legal person for the purposes of adjudicating maritime claims."

10.4 The fundamental legal nature of an action in rem as distinct from its

eventual object is that it is a proceeding against res. Thus, when a ship represents such

res as is frequently the case, the action in rem is an action against the ship itself. The

action is a remedy against the corpus of the offending ship. It is distinct from an action in

personam which is a proceeding inter-partes founded on personal service on Defendant

within jurisdiction, leading to a judgment against the person of the Defendant. In an

action in rem no direct demand is made against the owner of the res personally (Maritime

Liens by D R Thomas, Volume 14, British Shipping Laws).

10.5 The distinction between an action in rem and an action in personam is

therefore a matter of substance and not of mere form (Maritime Liens by D R Thomas,

Volume 14, British Shipping Laws).

11 Maritime Liens

11.1 The maritime lien came to jurisprudential maturity in the first half of the

19th Century. It has since then been a part of English law and common law and

consequently the law in India ever since Admiralty jurisdiction was vested in the three

chartered High Courts of Bombay, Calcutta and Madras pursuant to the Colonial Courts

of Admiralty Acts, 1890 and 1891.

11.2 The maritime lien represents one of the most striking features of

contemporary maritime law and has, in recent times, been described as one of the first

principles of the law of the sea. The expression "maritime lien" was probably first coined

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in English law by Sir John Jervis when delivering the judgment of the Privy Council in

The Bold Buccleugh.8 In the Learned Judge's opinion "It is inchoate from the moment

the claim or privilege attaches and when carried into effect by legal process by a

proceeding in rem, relates back to the period when it first attached"( Maritime Liens by

D R Thomas, Volume 14, British Shipping Laws.).

11.3 A maritime lien is a concept of international familiarity and is recognized

in most of the principal maritime jurisdictions. A maritime lien arises by operation of law

and without any formal requirement, from the moment the circumstances which gave rise

to the claim occur.

11.4 The fundamental principle is that a maritime lien attaches only to the res in

respect of which the claim arises. No other property is capable of being charged, not even

other property which is in the same ownership as the res in respect of which the claim

arises.

11.5 The Supreme Court of India, in O. Konavalov V/s. Commander, Coast

Guard Region & Ors9 has, in paras 22 to 28 and para 43, in great detail discussed the

significance of Maritime Liens. It reads as under:

"22. The most unique concept of all in admiralty law is the maritime lien. It is a concept which is sui generis, but for practical purposes it may be considered as a charge upon maritime property, arising by operation of law and binding the property even in the hands of a bona fide purchaser for value and without notice, but which can only be enforced by an admiralty claim in rem.

23. A maritime lien: "adheres to the ship from the time that the facts happened which gave the maritime lien, and then continues binding on the ship until it is discharged, either by being satisfied or from the laches of the owner, or in any other way which, by law, it may be discharged. It commences and there it continues binding on the ship until it comes to an end."

8. (1852) 7 Moo PC 267

9. (2006) 4 SCC 620

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24. Admiralty jurisdiction all over the world recognise the existence of maritime liens which have evolved over years of State and judicial practice. The existence and enforceability of such liens outside statute law is well established. The statutory law in regard to admiralty or maritime claims is not exhaustive of the subject.

25. Judicial opinion and textbook writers hold that a maritime lien such as seamen's wages is a right to a part of property in the res and a privileged claim upon a ship, aircraft or other maritime property and remains attached to the property travelling with it through changes of ownership. It is also acknowledged that it detracts from the absolute title of the "res" owners [see (1) Maritime liens by D.R. Thomas; British Shipping Laws, Vol. 14 at pp. 51-67; (2) Maritime Law by Christopher Hill, 2 nd Edn. 1985 at pp. 107-11; and (3) Principles of Maritime Law by Susan Hodges and Christopher Hill, 2001].

26. The seamen's right to their wages have been put on a high pedestal. It is said that a seaman had a right to cling to the last plank of the ship in satisfaction of the wages or part of them as could be found in Neptune10 and also Ruta.11

27. Having regard to the universally recognized status of maritime liens and, in particular, the position accorded to seamen's wages, and having due regard to the constitutional and statutory protection of such wages there can be no extinction of loss of such lien owing to the act of confiscation under Section 115 read with Section 126 of the Customs Act, 1962.

28. Seamen who have a right to wages, which right is enforceable against the ship can legitimately lay a claim to the payment of such wages out of the proceeds of the ship obtained by its sale. In our view, it is immaterial as to why and what process brings up the ship for sale either by way of proceedings in rem or otherwise. What is material is that the proceeds of the sale of the ship are available for satisfaction of the maritime liens. The absolute character of vesting, following confiscation can be absolute only against persons having proprietary right in the ship or goods and more particularly denoting a suspension or abeyance of such rights, till the confiscation is lifted in accordance with law. It would be misconceived to extend the scope of such vesting to the point of extinction of maritime liens particularly seamen's wages. It is equally well settled that public undertaking such as the port, dock or a harbour possessing statutory power to detain and sell a ship cannot sell the res free of the liens which have attached prior to the sale [See Corps & Corps vs. Queen of South [1968] 1 LLR 182]. The seamen's lien will follow the ship and its proceed in whatsoever hand they may come by title or purchase from the owner and the lien reattaches to the thing after sale and to whatever is substituted for it. [see James Sheppard vs. Lemuel Taylor 8 Led 269. See also Halsbury Laws of England para 1907 Vol.43 (2), 4th Edn. Re-issue] Obtaining jurisdiction to the res in pursuance of statutory powers should be put on the same footing as acquisition of the title following the transfer of res.

.......

10. 166 ER 81: 1 Hagg 227

11. (2000) 1 LLR 359

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43. There exists a maritime lien on the vessel of its crew as established by judgments and authorities earlier cited. And also as understood maritime lien is a concept that evolved through the ages by way of customs prevailing in the law of the seas, no legislation specifically provides for maritime lien to the crew on the vessel. And it is very clear in judicial practice that no statutory rule can ever come in the way of the implementation of any customary practice which has the force of law. The requirement for any customary practice to have force of law is its practice for a long time and the absence of any statutory provision expressly prohibiting the implementation of that particular custom in force: the customary practice of the exercise of maritime lien by the crew members satisfies both these requirements. Thus Section 115 of the Customs Act which talks about confiscation will not operate to disentitle the crew of the lien that they can exercise on the vessel for the recovery of their wages which is an established practice in the law of the seas."

11.6 Thus a maritime lien is a concept which is Sui Generis, can only be

enforced by an Admiralty action in rem against the ship, adheres to the ship and

continues to bind the ship until discharged, is not defeated by a transfer or sale of the

Ship - res (except a judicial sale by an Admiralty Court), has the highest priority amongst

all claims and there can be no loss of such lien in the absence of any statutory provision

expressly prohibiting the exercise or implementation of such lien. This is an established

practice in the law of the seas and is universal in nature. Personal liability of the owner

of the ship is not necessary for a maritime lien to attach to the res and it follows the res

even in the hands of a bonafide purchaser who may have no notice of the lien. Judicial

opinion and textbook writers hold that a maritime lien such as seamen's wages is a right

to a part of property in the res and a privileged claim upon a ship, aircraft or other

maritime property and remains attached to the property travelling with it through changes

of ownership. It is also acknowledged that it detracts from the absolute title of the "res"

owners. As noted in O. Konavalov12, the seamen's right to their wages have been put on a

high pedestal. It is said that a seaman had a right to cling to the last plank of the ship in

satisfaction of the wages or part of them as could be found.

12. Supra

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11.7 Section 9 of the Admiralty Act lists as under, the following claims as

maritime liens in order of inter se priority:

Section 9: Inter se priority on maritime lien:

1. Every maritime lien shall have the following order of inter se priority, namely:

a. Claims for wages and other sums due to the master, officers and other members of the vessel's complement in respect of their employment on the vessel, including costs of repatriation and social insurance contributions payable on their behalf;

b. Claims in respect of loss of life or personal injury occurring, whether on land or on water, in direct connection with the operation of the vessel;

c. Claims for reward for salvage services including special compensation relating thereto;

d. Claims for port, canal, and other waterway dues and pilotage dues and any other statutory dues related to the vessel; e. Claims based on tort arising out of loss or damage caused by the operation of the vessel other than loss or damage to cargo and containers carried on the vessel.

12 Statutory rights in rem (Maritime Claims)

12.1 A right to invoke the Admiralty jurisdiction by an action in rem in respect

of a maritime claim, which is not a maritime lien, is also known as a statutory right in

rem. Such rights are also described as statutory liens. A closed list of maritime claims is

set out in Section 4 of the Admiralty Act. Maritime liens are also included in this as they

are also maritime claims.

12.2 Although the owner must be liable in personam in respect of a maritime

claim (which is not a maritime lien), the action in rem can proceed against the res

independently of the owner and the claim can be adjudicated and decided without having

to sue the owner in personam. The fundamental legal nature of an action in rem is that it

is against the res and not the owner of the res. The personal liability of the owner of the

res is not an essential characteristic of an action in rem.

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12.3 Both maritime liens and statutory rights in rem entail the accrual of

security by way of a charge. A charge of a maritime lienee accrues from the moment the

maritime lien arises or attaches: It is inchoate from the moment the claim or privilege

attaches. In case of a statutory lien the charge accrues upon the arrest of the res. Thus, the

crystallization of a statutory lien would occur when the Admiralty jurisdiction in rem is

invoked against the res and the warrant of arrest is executed. Under English law the

security of a maritime Claimant is inchoate until either the writ in rem was served or the

res arrested. Later judicial opinion, however, is in favour of equating the date of the

creation of a secured creditor with the date of issue of a writ in rem. However, in the

context of Indian law and procedure, this would be the date of service of the warrant of

arrest on the res.

12.4 Although maritime liens attach to the vessel the moment the event giving

rise to the claim arises and thereby a charge or encumbrance is created on the res, these

are perfected only by an arrest of the vessel. All maritime claims against the vessel are

only crystallized and perfected in the event they are enforced by an action in rem by arrest

of the vessel. Thus, for both types of claims, arrest of the vessel is the only means of

perfecting the lien or claim which may have arisen.

12.5 A person who has a maritime claim, and that would include maritime lien

against a vessel, has a right in rem conferred by the Admiralty Act, to arrest the vessel to

perfect his claim. It is a right provided by law. This is a very valuable right which cannot

be taken away or destroyed by implication or inference unless there is an express

provision in any law to this effect.

13 Section 10 of the Admiralty Act provides for the order of priority of

maritime claims as follows:

Section 10: Order of priority of maritime claims:

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1. The order of maritime claims determining the inter se priority in an admiralty proceeding shall be as follows:

a. A claim on the vessel where there is a maritime lien; b. Registered mortgages and charges of same nature on the vessel;

c. All other claims.

2 ........

13.1 In order of priority, maritime claims (excluding maritime lien and

mortgages) fall in the category of "All Other Claims" appearing in Section 10 (1)(c) and

rank below maritime liens and also below mortgages. Thus a financial creditor who has a

registered mortgage on the ship would recover in priority over all parties who have

maritime claims but not maritime liens. A vast majority of the claims are maritime claims

(18 out of 23) which are listed in Section 4 of the Admiralty Act and which will rank

below a mortgagee. Only those who have a maritime lien get priority over a registered

mortgage. The reason why a maritime lien holder is given priority over a registered

mortgage is to accord highest priority to crew wages and thereafter to claims involving

loss of life or personal injury in connection with the operation of a ship and to Salvors but

for whose efforts the ship would have been irretrievably lost or damaged thus destroying

the security of a mortgagee. After these, rank statutory dues of a port, canal and other

statutory dues related to the vessel and claims based on tort if the ship causes physical

damage to another ship or property because the ship is considered to be the wrong doer.

We need to highlight that even port dues are given priority only after crew wages and

salvage claims are paid.

14 Action in rem is distinct from an action in personam

14.1 The nature of an action in rem as distinct from an action in personam is set

out in several judgments. Notable amongst these is The Nordglimt13 and the following

excerpts are instructive of the nature of an action in rem.

"In England, since the Judicature Acts, the means by which the judicial arrest of a ship has been obtained is by the commencing of an action in rem and the issue, by the Court in that action, of a warrant of arrest.

13. [1988] 1 Q.B. 183

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Therefore as a matter of English procedure there has to be an action before there can be an arrest and subject not to section 26 of the Civil Jurisdiction and Judgments Act 1982, the arrest has to be in aid of a judgment capable of being obtained in that action. The form of the writ in an Admiralty action in rem is one which describes the action as an action in rem against the ship but which also refers to parties as plaintiffs and defendants. No problem arises about the identity of the plaintiffs which equates with the 'claimant' in the 1952 Convention and is, in essence, the same as a plaintiff in an action in personam. But the defendants are customarily described as 'the owners of the ship' and the writ is addressed to 'the defendants and other persons interested in the hip'. Since the later part of the last century, the form of the writ has been used to support an argument that an action in rem is an action against the owners of the ship, but in every case the argument has been rejected. The most convenient statement is that of Fletcher Moulton L.J. in The Burns [1970] P. 137, 149-150:

'I am, therefore, of opinion that the fundamental proposition of the argument of the appellants' counsel fails, and that the action in rem is an action against the ship itself. It is an action in which the owners may take part, if they think proper, in defence of their property, but whether or not they will do so is a matter for them to decide, and if they do not decide to make themselves parties to the suit in order to defend their property, no personal liability can be established against them in that action. It is perfectly true that the action indirectly affects them. So it would if it were an action against a person whom they had indemnified...

Unless and until anyone appears to defend an action in rem the action proceeds solely as an action in rem and any judgment given is solely a judgment given against the res. It is determinative and conclusive as against all the world in respect of the rights in the res but does not create any rights that are enforceable in personam. An action in rem may be defended by anyone who has a legitimate interest in resisting the plaintiffs' claim on the res. Such a person may be the owner of the res but equally it may be someone who has a different interest in the res which does not amount to ownership, or again it may be imply someone who also has a claim in rem against the res and is competing with the plaintiff for a right to the security of a res of an inadequate value to satisfy all the claims that are being made upon it. It will also be appreciated both from what I have said and from a general understanding of the law of maritime liens that the owner or other person defending the action may be under no personal liability to the plaintiff.

In the present case it is alleged that the owners of the Nordglimt are under a personal liability to the plaintiffs, but that is not part of the essential character of an action in rem as such. Unless and until a person liable in personam chooses to defend an action in rem the action in rem will not give rise to any determination as against such person of any personal liability on his part, nor will it give rise to any judgment which is enforceable in personam against any such person.

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The consequence of this is that in my judgment on the correct interpretation of article 21 an Admiralty action in rem is not at the time of its inception an action between the same parties as an action in personam. It will only become an action between the same parties when and if a shipowner, liable in personam, chooses to appear in the action and defend it. It is from that moment and not before that the action first acquires the character of an action between the plaintiff and the shipowner; it will also be appreciated that it only acquires that character as the result of an act of the shipowner and that such a consequence does not inevitable follow from the act of the plaintiff in starting the action in rem.

A similar conclusion might be arrived at by a slightly different route adopting the reasoning of Brandon J. in The Rena K [1979] Q.B. 377, 405:

'It has, however, been held that a cause of action in rem, being of a different character from a cause of action in personam, does not merge in a judgment in personam, but remains available to the person who has it so long as, and to the extent that, such judgment remains unsatisfied...'

Brandon J. is thus distinguishing between a cause of action in rem and a cause of action in personam.

In The Cella (1888) 13 P.D. 82, 85; Sir James Hannen P said 'an unsatisfied judgment in personam is no bar to proceedings in rem'. It is of the character of proceedings in rem that they are not alternative to proceedings in personam; they are cumulative. The cause of action in rem does not merge with a judgment in personam given in respect of a cause of action in personam arising from the same facts. However, proceedings in rem to which the shipowner has entered an appearance, although they can continue as proceedings in personam, are not deprived of their character as proceedings in rem and can still give rise to a judgment in rem against the res."

(Emphasis Supplied)

14.2 The observations of the English Court of Appeal in the case of The "Anna

H"14 are also illustrative:

"The right being enforced in an action in rem is a right against the res. It may be a proprietary right; it may be a maritime lien to the existence of which the current ownership of the res is wholly irrelevant; or it may be analogous 'statutory' lien where the ownership of the vessel at the time of the issue of the writ (though not at the time of her arrest) is relevant.

The problem for the application of the Judgments Convention arises from the historic rule of English procedural law that, if a party who is liable in personam enters an appearance in an action in rem, he is liable to have judgment given against him in personam. Thus, the result of such an

14. 1995 (1) LLR 11

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appearance will be that, although the action proceeds as an action in rem and may give rise to a judgment in rem against the res (The Nordglimt:

The Maciej Rataj, [1992] 2 Lloyd's Rep 552), the person who has entered an appearance is liable to have judgment given against him in the full amount of the claim notwithstanding the fact that the res may be of a lesser value.

After conflicting earlier decisions, this rule of English procedural law was only finally settled by Mr. Justice Jeune in 1892 in The Dictator, [1892] P. 304 and subsequently by the Court of Appeal in The Gemma, [1899] P.

285. The origins of this rule derive from a medieval doctrine that jurisdiction could be founded and an appearance before the Court compelled by the arrest of the defendant himself or the seizure of his property. This procedure had become obsolete by the end of the 18th Century (see The Beldis, (1935) 53 Ll.L. Rep. 255 at p. 274; [1936] P. 51 at p. 85 per Lord Justice Scott) but nevertheless provided the historical basis for the law as declared in The Dictator. In that case Mr. Justice Jeune, in discussing the various decisions of Dr. Lushington, commented (at p. 319):

'I cannot help thinking that the fallacy lies in considering that to enforce a judgment beyond the value of the res, against owners who have appeared and against whom a personal liability, enforceable by Admiralty process, exists, is the grafting of one form of action on to another. The change, if it be a change, in the action is effected at an earlier stage, namely when the defendant by appearing personally introduces his personal liability.'

On the following page (p. 320) he said:

'It may well be that, if the owners do not appear, the action only enforces the lien on the res, but that, when they do, the action in rem not only determines the amount of the liability, and in default of payment enforces it upon the res, but is also a means of enforcing against the appearing owners, if they could have been made personally liable in the Admiralty Court, the complete claim of the plaintiff so far as the owners are liable to meet it ... If the owners appear to contest or reduce their liability, they should be placed in the same position as if they had been brought before the Court by a personal notice.'

He is thus identifying a special rule of Admiralty procedure which makes such a person, by virtue of his appearance, liable in personam as if a writ in personam had been issued against him and served upon him within the jurisdiction notwithstanding that the original action did not make any in personam claim against him."

14.3 The observations in the judgment in Republic of India and Anr. V/s.

Indian Steamship Co. Ltd. (The Indian Grace No.2)15 have been explained in a later

15. [1997] 3 WLR 818

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judgment of the English Court of Appeal in the case of Stolt Kestrel B.V. & Sener Petrel

Denizcilik Ticaret AS (Stolt Kestrel)16 where the observations in respect of actions in rem

and actions in personam in the judgment in The Indian Grace No.217 have been held to be

of limited effect and only for the purpose of consideration and interpretation of Section 34

of the Civil Jurisdiction and Judgments Act, 1982. It does not change the legal position

that prevailed in England for over a century and set out succinctly in The Nordglimt18 and

the Anna H.19

14.4 The nature of an action in rem has also been explained by a Division

Bench of this Court in the case of Sparebanken SOGN OG FJORDANE V/s. M.V.

Bos

Angler and Others20, where in paragraph 12 the Court observes:

"Now before we construe the provisions contained in the Rules, it would be at the outset necessary to revisit some of the fundamental principles in regard to the exercise of the jurisdiction in rem in admiralty proceedings. When an action is brought against the vessel in rem, the Court exercises its jurisdiction treating the vessel which is sued as an entity in itself. When the Court orders the sale of the vessel, it has the inherent power in the exercise of its Admiralty jurisdiction to convey upon the purchaser a valid title to the res that is sold free of all charges and encumbrances. This principle was established in common law as one fundamental to public policy since it would be manifestly contrary to the evolution of maritime law if a Court of competent jurisdiction which effected the sale of a ship were unable to convey a valid title to an innocent purchaser. Consequently, once a vessel has been sold in the exercise of the jurisdiction in rem, all claims against the vessel have to be enforced against the proceeds of the sale and before the Court which exercises jurisdiction to arrest and thereafter sell the vessel. Equally, it is a matter of settled principle that the Court which holds the proceeds of the sale holds them not merely for the benefit of the plaintiff who moves the Court in the jurisdiction in rem but for and on behalf of all persons who may have claims in respect of the property of the vessel and, after the sale, in respect of the sale proceeds......." (Emphasis supplied)

16. (2015) EWCA Civ 1035

17. Supra

18. Supra

19. Supra

20. (2013) 3 Mh. L.J. 898

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14.5 Reference may also be made to the judgment of a learned Single Judge of

this Court in the case of ICICI Ltd. V/s. MFV Shilpa 21. This case concerned an

Admiralty Suit filed by ICICI Ltd., a financial institution, for recovery of their loan which

was secured by a mortgage on the ship. ICICI Ltd. sought an arrest of the ship and its sale

by filing proceedings in rem. An objection was raised that the provisions of the Recovery

of Debts Due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as

RDDB Act) was applicable and in view of section 18 of the said act the jurisdiction of the

High Court was barred and it was only the tribunal under the said act which had the

jurisdiction to entertain and decide the Bank's application. This contention was rejected

by the Court, which in paragraph 7 held as follows:

"It is thus clear that under admiralty law, a vessel or ship itself is treated as a person and a suit can be instituted only against the vessel against which the plaintiff has a claim and its owner who may not be named. Thus, under the admiralty law, the ship or vessel itself can be held liable for a claim and it is a peculiar feature of the admiralty jurisdiction that a vessel or ship is treated as a person against which a civil suit can be filed which is capable of being arrested for satisfying the claim of the plaintiff. When a plaintiff brings an action against a vessel for recovery of his claim, the suit is called as an action in rem and in such a suit, an application is made for arrest of the ship. Thus for the purpose of admiralty jurisdiction, the vessel itself is treated as a person from whom an amount is due to the plaintiff. Perusal of the provisions of S. 17 shows that jurisdiction has been conferred on the Tribunal constituted under the D.R.T. Act to entertain and decide applications from the Banks and financial institutions for recovery of debts due to such Banks. Sub-sec. (1) of Sec. 17 of the D.R.T. Act reads as under:-

17. Jurisdiction, powers and authority of Tribunals (1) A Tribunal shall exercise, on and from the appointed day, the jurisdiction, powers and authority to entertain and decide applications from the banks and financial institutions for recovery of debts due to such banks and financial institutions."

The term 'Debt' has been defined by Sec. 2(g) of the D.R.T. Act which reads thus:

"(g) 'debt' means any liability (inclusive of interest) which is alleged as due from any person by a bank or a financial institution or by a consortium of banks or financial institutions during the course of any business activity undertaken by the bank or the financial institution or the bank or the financial institution or the consortium under law for the time being in force, in cash or otherwise, whether secured or unsecured, or whether payable under a decree or order of the civil Court or otherwise and

21. AIR 2002 Bom 371

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subsisting on, and legally recoverable on the date of the application."

It is clear from the definition of the term 'Debt' that debt means any liability which is claimed as due by Bank or financial institution from any person. The D.R.T. Act does not define the term 'Person' but the term is defined by the General Clauses Act. The definition is to be found in Section 3(42) of the General Clauses Act which reads as under:

"3(42) 'person' shall include any company or association or body of individuals, whether incorporated or not."

It is thus clear that a person is a living person as also a company or association or body of individuals can also be treated as person. Thus, in my opinion, for the purpose of the provisions of the D.R.T. Act, a vessel cannot be treated as a person and therefore, when a financial institution brings an action in rem in the admiralty Court against a vessel, it cannot be said that the claim that Bank or financial institution is making in the admiralty suit in so far as the vessel is concerned, is a debt within the meaning of S. 2(g) of the said Act. Thus, a suit instituted by a Bank or financial institution for recovery of its claim against a vessel in the admiralty jurisdiction of the High Court, cannot be termed as a debt and therefore, the D.R.T. will not have jurisdiction to entertain that suit in terms of the provisions of S. 17 of the Act."

(Emphasis Supplied)

14.6 As regards the non-obstante provision contained in Section 34 of the

RDDB Act which provided that the provisions of the act shall have effect notwithstanding

anything inconsistent contained in any other law, the Court held in paragraph 8, that this

is a general provision and it is not an express provision made to curtail or exclude the

operation of Section 51 of the Merchant Shipping Act, 1958 which empowered a High

Court to entertain a claim by a mortgagee for recovery of his dues by sale of the

mortgaged ship. The jurisdiction of the High Court to entertain the suit would not be

ousted by the provisions of the RDDB Act.

14.7 As regards sale of the vessel, the High Court observed in paragraph 11

that:

"It is further to be seen here that S.51 of the Merchant Shipping Act makes a specific provision for recovery of the mortgage money by the mortgagee by sale of the vessel, which is mortgaged. Perusal of the provisions in Part II of the Rules and Forms of the high Court of Judicature at Bombay on the Original Side, shows that when a person has a claim against a vessel, he can bring an action in rem and there is a special and effective procedure provided for recovering the claim of the person in such a suit. It

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is further to be seen here that the rules provide a special procedure for sale of a ship or vessel pursuant to its arrest. It provides for determination of various claims that may be lodged against the vessel and distribution of the sale proceeds amount the claimants, with the result any person who buys a vessel sold in the admiralty jurisdiction gets a clear title and he gets the vessel free from all encumbrances. By virtue of the provisions of S. 41 of the Evidence Act, the sale certificate issued by this Court in favour of the purchaser is a conclusive proof of his title to the ship and any person who may have a claim against that vessel cannot make any claim against the purchaser or the vessel in his hand. On the contrary when a vessel would be sold in execution of a certificate issued by the D.R.T. the sale certificate may not confer a clear title on the purchaser. It is further to be seen that in admiralty jurisdiction, the plaintiff can proceed against the vessel itself and can get the vessel arrested in the first instance and the Court can proceed to sell the vessel after its arrest immediately unless within a stipulated time, the owner appears and furnishes security and get the vessel released. Thus, in admiralty jurisdiction, the claim of the plaintiff is secured firstly by arrest of the ship and secondly, when the ship is released from arrest by the security furnished. Thus, the procedure that is followed by this Court in its admiralty jurisdiction is efficacious and effective procedure than the procedure provided by the D.R.T Act. It is clear from the preamble of that Act that that Act has been enacted for providing speedy recovery of the claims of the Banks and financial institutions. Thus, it cannot be said that in enacting the D.R.T Act, it was the intention of the Legislature to deprive the Banks and financial institutions of an existing more effective and efficacious remedy, in my opinion, therefore, requiring the Banks and financial institutions to go to the D.R.T. for recovering of their claims against the vessels would defeat the purpose for which the D.R.T. Act has been enacted and therefore, in my opinion, it cannot be said that the suit of the Plaintiffs is not maintainable." (Emphasis Supplied)

15 Having noted the salient features of the Admiralty Act and the special

jurisdiction vested in certain High Courts under the said act and the nature of actions in

rem and maritime claims, I now proceed to summarize the various submissions made by

the parties.

Submissions of the parties: Elaborate submissions were made by the counsels, which

are summarized below.

16 Dr. Abhinav Chandrachud, the amicus curiae submitted that the

moratorium under the IBC will not apply to Admiralty suits for the following reasons:

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a) According to the principles laid down in Damji Valji Shah & Ors. V/s. Life

Insurance Corporation of India & Ors.22, Allahabad Bank V/s. Canara Bank

and Anr.23, Indorama Synthetics (I) Ltd., Nagpur V/s. State of Maharashtra

and Ors.24, Ashoka Marketing Ltd. & Anr. V/s. Punjab National Bank 25 and

Jotun India P. Ltd. V/s. PSL Ltd26, the Admiralty Act will be a special act which

deals with Admiralty matters whilst the IBC is a general act which deals with

corporate insolvency. Thus, in accordance with the principle of interpretation

that the special act overrides the general act, the Admiralty Act will prevail. In

the event both are considered special acts, Admiralty Act being the later one, the

Admiralty Act will prevail.

b) The fact that section 238 of the IBC contains a non-obstante clause giving

overriding effect to the provisions of the Code is no ground to hold that the IBC

will prevail over the Admiralty Act. This is because the jurisdiction of civil

Courts is impliedly barred by the Admiralty Act and therefore there is an implied

non-obstante clause in the Admiralty Act.

c) A proceeding in rem is not a proceeding against the corporate debtor within the

meaning of the IBC and Section 14(1) (a) to 14(1) (d) does not apply to the

Admiralty suits.

16.1 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. Dr. Chandrachud relied upon the judgment of the

Supreme Court in the case of Damji Valji Shah27 and in particular paragraph 19 thereof

and submitted that a later act which impliedly excluded the jurisdiction of Civil Courts

would prevail over an earlier special act which also contained a non-obstante clause and a

22. AIR 1966 SC 135

23. (2000) 4 SCC 406

24. 2016 (4) Mh. L. J. 249

25. (1990) 4 SCC 406

26. (2019) 213 Comp Cas 61 Bom

27. Supra

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clause barring the jurisdiction of Civil Courts. He also relied upon a judgment of the

Constitution bench of the Apex Court in Ashoka Marketing Ltd. & Anr. V/s. Punjab

National Bank & Ors.28 and submitted that if there are two special acts, then the later act

shall prevail as even though the prior act contains a non-obstante clause, the later act

impliedly bars the jurisdiction of Civil Courts and vests exclusive jurisdiction in certain

High Courts to entertain actions in rem.

17 Mr. Prasad Shenoy, Advocate, appearing for a contesting party, to a large

extent supported the submissions of Dr. Chandrachud. Mr. Shenoy also submitted that a

moratorium under Section 14 of the IBC would not affect an action in rem filed under the

Admiralty Act. According to Mr. Shenoy, if the owner of the ship who may be the

Corporate Debtor deposits security and obtains release of the ship, then, on a declaration

of moratorium under Section 14 of the IBC, the proceedings would have to be stayed but

in the event of liquidation, Plaintiff in such a suit would be allowed to realise his security

under Section 52 of the IBC.

17.1 The procedure for sale of a Defendant Vessel and distribution of proceeds

thereof, is entirely different under the Admiralty Act read with The Bombay High Court

(Original Side) Rules, 1980. It is ex facie impossible to reconcile the procedure with the

one set out under Reg. 37 (Realisation of security interest by secured creditor) of the

Liquidation Process Regulations, 2016 of the IBC.

17.2 A sale by an Admiralty Court will always fetch a higher price for the

vessel than sale under the IBC as the sale by the admiralty Court will be free from

encumbrances, as section 8 of the Admiralty Act codifies the traditional position in

Admiralty Law that on the sale of a vessel under the Admiralty Act by the High Court in

exercise of its admiralty jurisdiction, the vessel shall vest in the purchaser free from all

28. Supra

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encumbrances, liens, attachments, registered mortgages and charges of the same nature on

the vessel.

18 Mr. Rahul Narichania, Senior Advocate, appearing for a contesting party

also submitted that the provisions of the Admiralty Act will override and prevail over the

IBC where there is a conflict, as the Admiralty Act is a special statute dealing with

special claims which are recognized as maritime claims and maritime liens. The

Admiralty Act operates in a separate and distinct field to confer Admiralty jurisdiction on

High Courts of coastal States for enforcement of a closed list of maritime claims

including liens, arrest of vessels for security of maritime claims / liens. The action in rem

is against the ship and the ship is treated as a person and a wrong doer and is liable to

satisfy the claim. An action in rem is not against the property of the Corporate Debtor but

an action against a juristic person, namely, the ship.

18.1 According to Mr. Narichania:

a) Section 238 of the IBC does not override the Admiralty Act and an express

provision is required to oust the applicability of the Admiralty Act. He also relied

upon the judgment of this Court in the case of ICICI Ltd. vs. MFV Shilpa & Ors.29

wherein it was held that Section 34 of the RDDB Act which contained a non-

obstante clause did not override the provisions of Section 51 of Merchant

Shipping Act in regard to the sale of a ship by a financial institution to recover a

debt due to it which was secured by a mortgage of the vessel.

b) Neither Section 14(1)(a) nor Section 14(1)(c) of IBC operates as a bar to the

institution of an action in rem and even if they do, at best the action must be

stayed until the period of the moratorium. Similarly, Section 33(5) of IBC also

does not operate as a bar to an action in rem against the ship but only applies to

the corporate debtor. In any event it is subject to Section 52(4) of IBC which

29. Supra

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permits a secured creditor to enforce and realise his security in accordance with

the applicable law which in this case would be the Admiralty Act.

c) Can it be argued that a maritime lienee, such as a salvor, who has salvaged a ship

and saved it from sinking or being irretrievably lost, be told that Section 53 of the

IBC will prevail over Section 9 of the Admiralty Acton priorities of claims? Mr.

Narichania submitted,

(i) The Priorities under the IBC essentially relate to an action brought against

the corporate debtor (company) whereas priorities under the Admiralty Act

invariably relate to an action in rem brought against the ship. The nature of

these claims operate in separate and distinct fields and consequently

claimants such as secured creditors and those having maritime claims/liens

against the ships cannot be considered to be subservient to claimants who

have claims under the IBC.

(ii) Maritime claimants have a right to proceed against particular res, i.e., ship,

as opposed to a general creditor who has no such right against particular

res. This distinction is very important when one considers the interplay

between the two statutes, i.e., the IBC and the Admiralty Act. If the IBC is

to prevail, a salvor who has saved property may lose his priority altogether

even though he has preserved valuable property of the company which is

available for the benefit of several other claimants. He would also be at the

mercy of financial creditors who despite having benefitted from the salvage

service may claim higher priority over the salvors claim. Therefore, whilst

determining priorities, the IBC cannot prevail over the Admiralty Act. It

must be borne in mind that prior to the Admiralty Act, in India priorities

were determined following common law and precedence. It is for the first

time that the Admiralty Act actually specifies the order of priorities of

maritime liens and claims. This being a special statute and later in point of

time to the IBC, priorities under the Admiralty Act must necessarily prevail

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vis-a- vis maritime claims/liens in the event of a conflict on the issue of

priorities. Therefore, distribution of sale proceeds of the ship and the order

of priorities will have to be considered under the Admiralty Act and not in

accordance with the priorities to be determined under the IBC. Surplus, if

any, shall be paid over to the Liquidator.

d) The claim of a party who has a maritime claim against a ship is to be

distinguished from that of an ordinary creditor who has a claim against the

corporate debtor but not against particular res. In the event the ship is sold and the

proceeds paid into the Court, the interest of the owner is only to the extent of

receiving the balance of the proceeds of sale after satisfaction of the claims of all

maritime claimants. Mr. Narichania relied on Re: David Lloyd and Company30

and the judgment of a single Judge of this Court in the case of Corporation Bank

V/s. M.V. Pratibha Indrayani31 as also the judgment in Re: Lineas Navieras

Bolivianos SAM32( m.v. Bolivia) which holds that once the vessel is arrested and

the ship enters the custody of the Admiralty Marshall on behalf of the Admiralty

Court, the company's interest in the ship is limited to a right to receive the balance

of the proceeds of sale remaining after satisfaction of the various maritime

claimants.

19 Per contra Mr. V.K. Ramabhadran, Senior Advocate, Amicus Curiae,

submitted that:

a. The Apex Court in Swiss Ribbons (P) Ltd.33 has exhaustively dealt with the

objects and the purpose of IBC Code and moratorium under section 14 of IBC.

b. In Anand Rao Korada, Resolution Professional V/s. Varsha Fabrics (P) Ltd.

And Others34 the Supreme Court has set aside the auction of an immoveable

30. (1877) 6 Ch. D. 339

31. Notice of Motion No. 8 of 2014 in Commercial Suit No.15 of 2014 Order dated 17 April 2017

32. (1995) B.C.C. 666 (Chancery Division)

33. Supra

34. 2019 SCC online SC 1508

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property of a corporate debtor during the period of moratorium after

considering the scope of S. 231 and S. 238 of the IBC because S. 231 of IBC

bars Civil Court from exercising jurisdiction in respect of any matter over

which adjudicating authority is empowered to pass any order.

c. In Duncans Industries Ltd.35, the Supreme Court has held that the provisions of

IBC will have an overriding effect over the Tea Act, 1953 and consequently

upheld the right of an operational creditor to initiate proceedings u/s. 9 of the

IBC without the consent of the Central Government as required under the Tea

Act, 1953.

d. The entire object and scheme of IBC is to ensure revival and continuation of

corporate debtor from corporate death by liquidation.

e. It is the obligation of the resolution professional to take custody and control of

all the assets of the corporate debtor and to preserve and protect the assets of

the corporate debtor under S. 25 of the IBC.

f. Even though Admiralty Act is a later enactment, even assuming it is a special

Act, the question as to which Act shall prevail must be considered with respect

to the purpose of enactment as held in KSL & Industries Ltd. V/s. Arihant

Threads Limited & Ors36, wherein the Court held that Sick Industrial

Companies Act, 1985 (SICA) (though an earlier enactment) would prevail over

RDDB Act which is a later enactment. The object and purpose of the IBC is

clear in that it is a Code for re-organisation and insolvency resolution of

corporate debtors as against which Admiralty Act is like any other Act

confined to enforcement of certain restricted claims through a special method.

It would therefore be obvious that the IBC is enacted for re-organisation and

insolvency resolution of corporate debtors with an emphasis being laid on the

recovery of money by the secured creditor. The purposes of two enactments

are completely different. It matters not that Admiralty Act is a later enactment.

35. Supra

36. (2015) 1 SCC 166

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Indeed, looking into the purpose, the IBC Code would prevail over the

proceedings in the form of Suits under the Admiralty Act.

g. If the admiralty action against the vessel in rem is allowed to be pursued, the

entire scheme and object of the IBC would come to a naught. Therefore,

applying the ratio in State Bank of Travancore V/s. Mohammed Mohammed

Khan37 on the principles of interpretation of statutes, there is a need for

purposive interpretation of the words "corporate debtor" to include not only the

suits against corporate debtor but also against the assets of the corporate debtor.

It is trite law that such interpretation is to be adopted, which advances the

object sought to be achieved by the legislation rather than the one which

defeats the object. If the suit against the vessel being in rem proceeding is

excluded, the whole object of moratorium under Section 14 of the IBC would

stand defeated.

h. The unsecured creditors who have obtained order of arrest against the vessel

prior to moratorium under S. 14 of the IBC would equally stand along with

other operational creditors as defined in the IBC. S. 14 (1) (c) of the IBC would

apply not only to secured creditor but also to unsecured creditors. If the

application of S. 14 (1) (c) of the IBC is restricted to financial creditor as

defined in IBC, it would create an anomalous situation, in that, while financial

creditor is prohibited from enforcing his security, unsecured creditor would not

be. Unsecured creditors will not have any priority since by arrest of the vessel

no lien is created in favour of the unsecured creditor.

i. However, if the amount to secure the claim of the unsecured or secured creditor

is deposited in Court, (prior to order granting moratorium) such amount would

inure to the benefit of such claimant(s) alone and it would not form part of the

assets of the corporate debtor. This is so because the corporate debtor, prior to

the order of moratorium under S. 14 of the IBC, can be said to have discharged

37. (1981) 4 SCC 82

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its liability by depositing the amount in Court. Since it is no longer a liability

of the corporate debtor, such unsecured / secured creditor is not bound by the

approval of the resolution plan under S. 31 of the IBC. Moreover, such claim

of unsecured / secured creditor would not form part of "claims" as enumerated

in S. 25 (2) (e) of the IBC.

j. If a secured creditor (financial creditor as defined in the IBC) has obtained

order of arrest of the vessel prior to grant of moratorium and if security in the

form of deposit of the amount in Court or bank guarantee is not furnished, his

position would be same as other financial creditors and he shall be bound in the

event of the resolution plan being approved as envisaged under S. 31 of the

IBC.

k. However, any expenses incurred towards maintenance of the vessel could be

treated as "the insolvency resolution process costs" in terms of S. 30 (2) (a) of

the IBC.

l. Therefore, in so for as claims as defined as maritime lien under S. 2 (g) of the

Admiralty Act and statutory dues of the Harbour authority in respect of which

they have a lien over the vessel, considering the special nature of its claim the

resolution plan as envisaged under S. 30 of the IBC could provide for their

entire claim and not restrict it to the amount which is otherwise required to be

paid to the operational creditor under S. 53 of the IBC. This is so because, in

respect of claim in the nature of maritime lien, if they do not make such

provision, the vessel is liable to be arrested in a foreign jurisdiction. Similarly,

the Harbour authority that has a lien over the vessel would refuse to release,

following the ratio in Board of Trustees of Port of Mumbai V/s. Indian Oil

Corporation Ltd. And Anr. 38.

m. Similarly, the Liquidator while considering the distribution of assets under

Section 53 of the IBC shall ensure payment in respect of the entire claim in the

38. 1998 (4) SCC 302

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nature of maritime lien and the dues of the Harbour authorities by following the

dictum of the Supreme Court in ICICI Bank Ltd. V/s. SIDCO Leathers Ltd. &

Ors. 39. S. 53 of the IBC would stand overridden to that extent.

19.1 The summary of Mr. Ramabhadran's submissions is:

i. Admiralty suit filed either against the vessel or against the owner or against

both gets interdicted once an order is passed under S. 14 of the IBC by which

moratorium come into force.

ii. Arrest of a vessel prior to moratorium setting in would not create lien in favour

of the Claimant (unsecured creditor) and consequently such Claimant would be

treated as operational creditor under the IBC and he is bound by the resolution

plan as envisaged under S. 31 of the IBC. However, if the amounts are

deposited, in such event, such amount would be to the benefit of that Claimant

alone and he would not be bound by the order of the adjudicating authority

approving the resolution plan under Sec. 31 of the IBC.

iii. Expenses incurred towards the vessel under arrest could be treated as "the

insolvency resolution process costs" in terms of S. 30 (2) (a) of the IBC.

iv. A claim in the nature of maritime lien, though may not fall under the definition

of "secured creditor" as defined under S. 2 (30) of the IBC, nevertheless

considering the nature of the claim the corporate resolution plan as envisaged

under S. 30 of the IBC shall necessarily have to make provision for its entire

claim.

v. Similarly, if the adjudicating authority passes an order requiring the corporate

debtor to be liquidated, the liquidator while undertaking distribution of assets

shall ensure the highest priority to the claim in the nature of maritime lien and

to that extent S. 53 of the IBC would stand overridden.

39. 2006 (10) SCC 452

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20 Mr. Sharan Jagtiani, Advocate, appearing for a contesting party (Official

Liquidator), would submit that:

a) Principles of insolvency would apply even to Admiralty law and therefore a

solution to protect a maritime claimant would have to be found within the

umbrella of the IBC and not de-hors the IBC. The IBC as understood by the

Hon'ble Supreme Court is an all-encompassing and a comprehensive code.

Therefore, whilst maintaining that the sanctity of the sui generis nature of the

Admiralty Act should be preserved and not be rendered meaningless by the

operation of the IBC, it has to be seen as to how an admiralty action can retain its

provisions within the scope of the IBC. While interpreting the IBC viz-a-vis the

Admiralty law there are provisions in the IBC which permit the secured creditor

under the Admiralty law to protect their security and to realize their security.

Therefore, the status of an admiralty creditor or a maritime lien holder would have

to be found within the umbrella of the IBC and not de hors the IBC.

b) Section 14 of the IBC provides for Declaration of moratorium and public

announcement. Where at any time during the corporate insolvency resolution

process period, if the Adjudicating Authority approves the resolution plan under

sub-section (1) of section 31 or passes an order for liquidation of corporate debtor

under section 33 of the IBC, the moratorium shall cease to have effect from the

date of such approval or liquidation order, as the case may be.

The moratorium under Section 14 of the IBC is wide and puts a complete bar

against the institution or continuation of suits or any legal proceedings against the

corporate debtor. Therefore, during the period of the moratorium, the Admiralty

claimant will not proceed with the suit for sale of the vessel.

c) Section 31 of the IBC effectively speaks about the approval of resolution plan.

Once the resolution plan is approved the moratorium comes to an end. If the

restructuring fails, Section 33 of the IBC automatically provides for liquidation

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process. This occurs when the process of restructuring of the Corporate Debtor

fails.

An enforcement of security interest is prohibited by Section 14 of the IBC and

there is no provision in the IBC for seeking leave of the National Company Law

Tribunal (NCLT) or the Company Court to proceed as available under Section 446

of the Companies Act. However, Section 52 provides a mechanism for realizing

the secured creditor's security outside the process of liquidation and under

Admiralty law a maritime lien holder acquires security interest by operation of law

which falls within the IBC definition of security interest. Thus, in the event of

liquidation, a secured creditor under the Admiralty Act can stand outside

liquidation and is not subject to Section 53 which provides for distribution of assets

consequent upon liquidation. Such a secured creditor who wants to stand outside

liquidation, however, has to inform the liquidator of his intention along with details

of his security interest so as to enable the liquidator to identify the same. Once this

condition is satisfied the maritime claimant would be entitled to realise its security

under the applicable law which would be the Admiralty Act. Sections 3(31), 35(f),

52 and 53 of IBC suggest this.

d) Thus, the IBC cannot be ignored by invoking the principle of the Admiralty Act

being a later and special act. A solution, however, has to be found within the

framework of the IBC so as to permit Admiralty claimants to exercise their rights.

21 Ms. S. Priya, Advocate appearing for a contesting party, submitted that

even though an action in rem is against the ship it includes in personam liability of the

owner and consequently the owner would be a de facto Defendant in the action. The

Claimant is required to establish in personam liability of the owner and therefore the

action is really a claim against the owner and his property. Ms. Priya relied upon a

judgment of the House of Lords in the case of Republic of India & Anr. V/s. India

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Steamship Co. Ltd. (The Indian Grace No.2)40, which was primarily concerned with

interpretation of section 34 of the Civil Jurisdiction and Judgment Act, 1982 in the

context of an Admiralty action in rem. The submissions of Ms. Priya seem to suggest that

according to her in the event of a conflict the provisions of the IBC would prevail and the

moratorium under Section 14 of the IBC would apply equally to an action in rem as it

would to a suit in personam.

22 Mr. Prathamesh Kamat, Advocate appearing for one of the parties

submitted that if a Plaintiff in an action in rem has arrested the vessel and obtained

security prior to the order of liquidation, that Plaintiff is a secured creditor and stands

outside liquidation and is entitled to continue the suit under the provisions of the

Admiralty Act, in view of section 52(4) of the IBC.

22.1 Even if liquidation is ordered there is no bar in proceedings against the

vessel in rem as section 33(5) of the IBC does not bar any suit or in rem proceedings

initiated against the assets of the company nor does it bar continuation of any proceedings

initiated prior to Corporate Insolvency Resolution Process (CIRP).

23 Mr. Ajai Fernandes, Advocate appearing for the Board of Trustees for the

Port of Mumbai, a contesting party, made the following submissions:

a) Admiralty Act is a later act and will prevail over the IBC;

b) Non-obstante clause in Section 238 of IBC only applies to existing enactment and

not to future enactment. Mr. Fernandes relying upon State of West Bengal and

others V/s. Madan Mohan Ghosh and others41 submitted that non-obstante clause

has overriding effect only on rules which were in existence at the time when the

said rule was brought into force and it cannot be construed so as to mean that all

future rules and notifications will be subject to such a non-obstante clause;

40. Supra

41. (2002) 9 SCC 177

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c) Sections 9 and 10 of the Admiralty Act give effect to the provisions of the

International Convention on Maritime Liens and Mortgages, 1993 and ought to

prevail over the provisions of Section 52 of the IBC when it comes to determining

priorities in regard to the sale proceeds of a ship. If it were otherwise then it would

be contrary to the position in most countries which have ratified this Convention

and which give priority to maritime liens in respect of a company in liquidation.

Thus, a person who has a maritime lien against an Indian ship would be

disadvantaged as the same person would be better placed if the maritime lien was

against a foreign ship.

24 Mr. Prashant S. Pratap, Senior Advocate, who was also an Amicus

Curiae made the following submissions, which I must admit, impressed me the most. Mr.

Pratap submitted that a harmonious construction between IBC and Admiralty Act can be

arrived at and that will not hurt anybody. His submissions were as under:

i. The IBC has been held to be a special law and held to be an exhaustive code on

the subject of insolvency in relation to corporate entities (Innoventive

Industries Ltd.42). It contains a non-obstante provision (section 238) and also a

provision barring the jurisdiction of Civil Courts (section 231). The Admiralty

Act came into force on 1 April 2018. It is a special act vesting admiralty

jurisdiction in certain High Courts to the exclusion of all others. It is also a

consolidating act in connection with vessels, their arrests, detention, sale and

other matter connected therewith or incidental thereto. Once the jurisdiction of

the Admiralty Court under the Admiralty Act is invoked, the machinery

prescribed under the said act applies and once the ship is arrested all other

consequences flow as provided in the said act.

ii. Where there are two special enactments, one of which contain a non-obstante

provision and bars the jurisdiction of Civil Court and the other which does not

42. Supra

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contain a non-obstante provision, the legal position is that in the event of

conflict the former act will prevail. However, an attempt should be made to

achieve a harmonious construction in the case of conflict or inconsistency

between the provisions of two enactments. The Constitution Bench of the

Supreme Court in the case of Ashoka Marketing Ltd. & Anr. V/s. Punjab

National Bank43, after reviewing the law on the subject of conflict between the

provisions of two enactments both of which can be regarded as special in

nature, held that the conflict has to be resolved by reference to the purpose and

policy underlying the two enactments and the clear intendment conveyed by the

language of the relevant provisions therein.

iii. The Admiralty Act vests very valuable rights in regard to identified maritime

claims in respect of a vessel and their enforcement by arrest and sale of the

vessel. These rights are enforced by actions in rem against the vessel. A

maritime claim is crystallized and perfected by arrest of the vessel. Certain

categories of maritime claims which are given the status of maritime liens, are

sui generis and attach to the vessel at the time when the incident giving rise to

the claim arises.

iv. A claimant having a maritime claim becomes a secured creditor when he

causes the ship to be arrested and the vessel is effectively encumbered with the

claim. His security, however, is limited to the value of the res and subject to

other competing maritime claims.

v. The distinction between an action in rem under the Admiralty Act and an action

in personam is of considerable significance when considering the provisions of

the IBC. An action in rem operates only against the res, which is considered to

be a legal person and having a personality independent from that of the

corporate owner. In this manner, an action in rem is not against the owner of or

the company that owns the ship. If a ship is arrested in an action in rem and no

43. Supra

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appearance is entered by the owner the action proceeds in rem, the ship is sold

and the proceeds are paid out to the successful claimant after determination of

priorities if there are multiple claims. If the owner enters appearance but no

security is furnished the action will still proceed as an action in rem against the

ship and an action in personam against the owner. Thus, even when the owner

is contesting the claim, it is still open to the Admiralty Court to sell the vessel if

circumstances require it to do so and no security is furnished for its release. The

action will then proceed in rem against the sale proceeds which represent the

vessel. It will also proceed in personam against the owner, if he has entered

appearance . (See International Transportation Service Inc. V/s. The Owners

and / or Demise Charterers of the ship or Vessel "Convenience Container" 44,

Sparebanken V/s. MV Bos Angler45, The Engedi46).

vi. On the other hand, proceedings under IBC are proceedings against a corporate

debtor who is defined as a corporate person meaning a company or any other

person incorporated with limited liability. A ship against whom a maritime

claimant can proceed in an action in rem does not fall within the definition of a

corporate debtor under the IBC and neither is the ship being proceeded against

as an asset of the corporate debtor. It is the ship itself which is liable as an

independent juridical entity de-hors the status of its owner and without

reference to its owner. The ship is arrested for perfecting the maritime claim

which is in respect of the ship. Thus, an action in rem filed under the Admiralty

Act for arrest of a ship would not amount to an institution of a suit against a

corporate debtor as defined under the IBC nor would continuation of an action

in rem amount to continuation of a suit against the corporate debtor.

Consequently, the declaration of a moratorium under section 14 of the IBC will

not prohibit the institution of an action in rem or continuation of a pending

44. 2006 (2) LLR 556

45. Supra

46. (2010) 3 SLR 409

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action in rem. However, in the event a moratorium is declared under section 14

of the IBC then an action in rem if instituted prior to or after the declaration of

the moratorium, cannot be continued during the corporate insolvency

resolution process as this would defeat the very purpose of insolvency

resolution under the IBC.

vii. In the event an order for liquidation of the corporate debtor is made under

Section 33 of the IBC and a Liquidator is appointed, this by itself will not bar

institution of an action in rem against the ship as it is not a suit instituted

against the corporate debtor which is barred under Section 33(5) of the IBC.

The Liquidator is empowered under Section 35(1)(k) of the IBC to defend the

proceedings. If the ship is sold by the Admiralty Court then the sale proceeds

will be available to satisfy the maritime claims in respect of that ship. The

priorities of maritime claims will be decided in accordance with the provisions

of the Admiralty Act. Any surplus will be paid over to the liquidator.

viii. Section 33(5) of the IBC is subject to Section 52 of the IBC. Section 52(1)(b)

of the IBC permits a secured creditor to realise its security interest in the

manner specified in this section and Section 52(4) of the IBC permits a secured

creditor to enforce, realise, settle, compromise or deal with the secured assets in

accordance with such law as applicable to the security interest being realised

and to the secured creditor and apply the proceeds to recover the debts due to it.

Thus, even on this score a secured creditor by virtue of having obtained an

order of arrest will be entitled to proceed with the suit in accordance with the

Admiralty Act as that is the applicable law. Consequently, determination of

priorities will also be in accordance with the Admiralty Act.

ix. Based on the above, the following would be the position if an action in rem is

filed before or after the declaration of a moratorium under the IBC or after a

Liquidator is appointed:

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a) If a Plaintiff has commenced Admiralty proceedings in rem and

obtained an order of arrest of a ship from an Admiralty Court subsequent to

which insolvency proceedings are filed against the corporate owner of the

ship and a moratorium is declared, the suit will not proceed in the light of

Section 14(1)(a) of the IBC. If security has already been provided for release

of the vessel prior to declaration of moratorium then Plaintiff will be

considered as a secured creditor and the security will be exclusively for the

Plaintiff's claim. On the other hand, if security has not been furnished at the

time when the moratorium is declared, the Admiralty Court will not proceed

further with the suit. The vessel will remain arrested until the end of the

corporate insolvency resolution process period. Plaintiff's maritime lien or

maritime claim which is a perfected claim against the vessel by virtue of the

arrest will operate as a charge on the vessel and Plaintiff will be considered

as a secured creditor qua the vessel.

b) If a resolution plan is approved then all parties who have arrested

the ship would be considered as secured creditors who will be accorded

priority in respect of the value ascribed to the vessel in the resolution plan

and paid on a proportionate basis in accordance with the priorities qua the

value of the vessel as per the provisions of section 10 of the Admiralty Act.

Such parties will, however, count as unsecured creditors to the extent of the

unrealized portion of their claim.

c) On the other hand, if the company is liquidated, the suit in rem will

proceed and the vessel will be sold by way of an admiralty sale to maximize

its realisation value. Since the sale proceeds will represent the res, the

Admiralty Court will be entitled to invite claims against the sale proceeds by

following the Admiralty procedure prescribed by the Rules under the act and

determination of priorities will also be done in accordance with section 10 of

the Admiralty Act. In short, the machinery of the Admiralty Act will apply

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and section 53 of the IBC which refers to distribution of assets of the

corporate debtor will not apply. All those maritime claimants who are

unable to recover their claim from the sale proceeds will have to pursue their

claim in liquidation as unsecured creditors.

d) In a case where a moratorium has been declared under section 14 of

the IBC before any Admiralty suit in rem is filed for enforcement of a

maritime lien or a maritime claim then also the action in rem would be

permissible as it is for arrest of a vessel and is not against the corporate

debtor. However, once an order of arrest is made and the warrant of arrest

executed, the suit will not proceed in rem so as not to defeat the objective of

the IBC which is for insolvency resolution of the corporate debtor. The

action in rem will be stayed till such time as the insolvency resolution

process is completed or a liquidator appointed. Plaintiff will be considered

as a secured creditor and the submissions in paragraphs (b) and (c) above

will apply in the event the corporate insolvency resolution process is

successful or a Liquidator is appointed. If the vessel is a trading vessel it

will be permitted to trade under arrest with appropriate safeguards.

x. The entire purpose of the rights conferred under the Admiralty Act is to enable

a maritime claimant to have his claim perfected in law by arrest of the ship. If a

claimant is not permitted to do so, then his right in rem may stand extinguished

and be lost forever. On the other hand, care must be taken so that the objectives

of the IBC are not defeated.

The above interpretation would achieve the objectives of the IBC and

facilitate the CIRP. It would, at the same time, protect and preserve the rights

in rem made available to maritime claimants by the Admiralty Act in a manner

so as not to jeopardize the CIRP under the IBC.

xi. Under the Admiralty Act, a mortgagee has priority over all other maritime

claims. It is only a very limited category of claims which are considered as

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maritime liens that get priority over a mortgagee, e.g., crew wages. Thus, a

financial creditor who has a registered mortgage on a ship will get priority even

under the Admiralty Act.

xii. Only a judicial sale by an Admiralty Court is recognized the world over as

extinguishing all maritime liens against the res thereby giving a clear title to the

buyer. A sale by the Liquidator will not extinguish maritime liens and therefore

the vessel will not attract a bidder or will fetch a lower value as it would not be

free of all liens and encumbrances. Thus, in the event of liquidation, it is in the

interest of the Liquidator that the vessel is sold by the Admiralty Court. It is

also in the interest of any financial creditor who has a mortgage registered on

the ship to have the vessel sold by the Admiralty Court.

25 Mr. Ashwini Sinha, Advocate, for one of the contesting parties adopted

the submissions of Dr. Chandrachud, Mr. Rahul Narichania, Mr. Pratap, Mr. Shenoy and

Mr. Fernandes.

Relevant provisions of IBC

26 I would now turn to the provisions of the IBC and the nature of conflict if

any, with the provisions of the Admiralty Act and the manner in which it can be resolved.

27 Some of the provisions of the IBC that are required to be noted are as

follows:

Section 3(8) : "'corporate debtor' means a corporate person who owes a debt to any person;"

Section 3(7) : "'corporate person' means a company as defined in clause (20) of section 2 of the Companies Act, 2013 (18 of 2013), a limited liability partnership, as defined in clause (n) of sub-section (1) of section 2 of the Limited Liability Partnership Act, 2008 (6 of 2009), or any other person incorporated with limited liability under any law for the time being in force but shall not include any financial service provider;"

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Section 3(30) : "'secured creditor' means a creditor in favour of whom security interest is created;"

Section 3(31) : "'security interest' means right, title or interest or a claim to property, created in favour of, or provided for a secured creditor by a transaction which secures payment or performance of an obligation and includes mortgage, charge, hypothecation, assignment and encumbrance or any other agreement or arrangement securing payment or performance of any obligation of any person:

Provided that security interest shall not include a performance

guarantee;"

Section 13 :"Declaration of moratorium and public announcement - (1) The Adjudicating Authority, after admission of the application under section 7 or section 9 or section 10, shall, by an order-

(a) declare a moratorium for the purposes referred to in section 14;

(b) cause a public announcement of the initiation of corporate insolvency resolution process and call for the submission of claims under section 15; and

(c) appoint an interim resolution professional in the manner as laid down in section 16.

(2) The public announcement referred to in clause (b) of sub-section (1) shall be made immediately after the appointment of the interim resolution professional."

Section 14 : "Moratorium - (1) Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Officer shall by order declare moratorium for prohibiting all of the following, namely:

(a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any Court of law, tribunal, arbitration panel or other authority;

(b) transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein;

(c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002);

(d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor.

(2) The supply of essential goods or services to the corporate debtor as may be specified shall not be terminated or suspended or interrupted during moratorium period.

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(3) The provisions of sub-section (1) shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator.

(4) The order of moratorium shall have effect from the date of such order till the completion of the corporate insolvency resolution process:

Provided that where at any time during the corporate insolvency resolution process period, if the Adjudicating Authority approves the resolution plan under sub-section (1) of section 31 or passes an order for liquidation of corporate debtor under section 33, the moratorium shall cease to have effect from the date of such approval or liquidation order, as the case may be."

Section 25: "Duties of resolution professional - (1) It shall be the duty of the resolution professional to preserve and protect the assets of the corporate debtor, including the continued business operations of the corporate debtor.

(2) For the purposes of sub-section (1), the resolution professional shall undertake the following actions, namely:

(a) take immediate custody and control of all the assets of the corporate debtor, including the business records of the corporate debtor;

(b) represent and act on behalf of the corporate debtor with third parties, exercise rights for the benefit of the corporate debtor in judicial, quasi-judicial or arbitration proceedings;

(c) raise interim finances subject to the approval of the committee of creditors under section 28;

(d) appoint accountants, legal or other professionals in the manner as specified by Board;

(e) maintain an updated list of claims;

(f) convene and attend all meetings of the committee of creditors.

(g) prepare the information memorandum in accordance with section

29;

(h) invite prospective resolution applicants, who fulfil such criteria as may be laid down by him with the approval of committee of creditors, having regard to the complexity and scale of operations of the business of the corporate debtor and such other conditions as may be specified by the Board, to submit a resolution plan or plans;

(i) present all resolution plans at the meetings of the committee of creditors;

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(j) file application for avoidance of transactions in accordance with Chapter II, if any; and

(k) such other actions as may be specified by the Board.

Section 31: "Approval of resolution plan - (1) If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under sub-section (2) of section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan.

(2) Where the Adjudicating Authority is satisfied that the resolution plan does not confirm to the requirements referred to in sub-section (1), it may, by an order, reject the resolution plan.

(3) After the order of approval under sub-section (1),-

(a) the moratorium order passed by the Adjudicating Authority under section 14 shall cease to have effect; and

(b) the resolution professional shall forward all records relating to the conduct of the corporate insolvency resolution process and the resolution plan to the Board to be recorded on its database."

Section 33 : Initiation of liquidation -(1) Where the Adjudicating Authority -

(a) before the expiry of the insolvency resolution process period or the maximum period permitted for completion of the corporate insolvency resolution process under section 12 or the fast track corporate insolvency resolution process under section 56, as the case may be, does not received a resolution plan under sub-section (6) of section 30;

(b) rejects the resolution plan under section 31 for the non-compliance of the requirements specified therein, it shall -

(i) pass an order requiring the corporate debtor to be liquidated in the manner as laid down in the Chapter;

(ii) issue a public announcement stated that the corporate debtor is in liquidation; and

(iii) require such order to be sent to the authority with which the corporate debtor is registered.

(2) Where the resolution professional, at any time during the corporate insolvency resolution process but before confirmation of resolution plan, intimates the Adjudicating Authority of the decision of the committee of creditors to liquidate the corporate debtor, the Adjudicating Authority shall pass a liquidation order as referred to in sub-clauses (i), (ii) and 9iii) if clause (b) of sub-section (1).

(3) Where the resolution plan approved by the Adjudicating Authority is contravened by the concerned corporate debtor, any person other than the corporate debtor, whose interests are prejudicially affected by such

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contravention, may make an application to the Adjudicating Authority for a liquidation order as referred to in sub-clauses (i), (ii) and (iii) of clause

(b) of sub-section (1).

(4) On receipt of an application under sub-section (3), if the Adjudicating Authority determines that the corporate debtor has contravened the provisions of the resolution plan, it shall pass a liquidation order as referred to in sub-clauses (i), (ii) and (iii) of clause (b) of sub-section (1).

(5) Subject to section 52, when a liquidation order has been passed, no suit or legal proceeding shall be instituted by or against the corporate debtor:

Provided that a suit or other legal proceeding may be instituted by the liquidator, on behalf of the corporate debtor, with the prior approval of the Adjudicating Authority.

(6) The provisions of sub-section (5) shall not apply to legal proceedings in relation to such transactions as may be notified by the Central Government in consultation with any financial sector regulator.

(7) The order for liquidation under this section shall be deemed to be a notice of discharge to the officers, employees and workmen of the corporate debtor, except when the business of the corporate debtor is continued during the liquidation process by the liquidator."

Section 35 : "Powers and duties of liquidator - (1) Subject to the directions of the Adjudicating Authority, the liquidator shall have the following powers and duties, namely:

(a) to verify claims of all the creditors;

(b) to take into his custody or control all the assets, property, effects and actionable claims of the corporate debtor;

(c) to evaluate the assets and property of the corporate debtor in the manner as may be specified by the Board and prepare a report;

(d) to take such measures to protect and preserve the assets and properties of the corporate debtor as he considers necessary;

(e) to carry on the business of the corporate debtor for its beneficial liquidation as he considers necessary;

(f) subject to section 52, to sell the immovable and movable property and actionable claims of the corporate debtor in liquidation by public auction or private contract, with power to transfer such property to any person or body corporate, or to sell the same in parcels in such manner as may be specified:

[Provided that the liquidator shall not sell the immovable and movable property or actionable claims of the corporate debtor in liquidation to any person who is not eligible to be a resolution applicant;]

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(g) to draw, accept, make and endorse any negotiable instruments including bill of exchange, hundi or promissory note in the name and on behalf of the corporate debtor, with the same effect with respect to the liability as if such instruments were drawn, accepted, made or endorsed by or on behalf of the corporate debtor in the ordinary course of its business;

(h) to take out, in his official name, letter of administration to any deceased contributory and to do in his official name any other act necessary for obtaining payment of any money due and payable from a contributory or his estate which cannot be ordinarily done in the name of the corporate debtor, and in all such cases, the money due and payable shall, for the purpose of enabling the liquidator to take out the letter of administration or recover the money, be deemed to be due to the liquidator himself;

(i) to obtain any professional assistance from any person or appoint any professional, in discharge of his duties, obligations and responsibilities;

(j) to invite and settle claims of creditors and claimants and distribute proceeds in accordance with the provisions of this Code;

(k) to institute or defend any suit, prosecution or other legal proceedings, civil or criminal, in the name of on behalf of the corporate debtor;

(l) to investigate the financial affairs of the corporate debtor to determine undervalued or preferential transactions;

(m) to take all such action, steps, or to sign, execute and verify any paper, deed, receipt documents, application, petition, affidavit, bond or instrument and for such purpose to use the common seal, if any, as may be necessary for liquidation, distribution of assets and in discharge of his duties and obligations and functions as liquidator;

(n) to apply to the Adjudicating Authority for such orders or directions as may be necessary for the liquidation of the corporate debtor and to report the progress of liquidation process in a manner as may be specified by the Board; and

(o) to perform such other functions as may be specified by the Board.

(2) The liquidator shall have the power to consult any of the stakeholders entitled to a distribution of proceeds under section 53;

Provided that any such consultation shall not be binding on the liquidator:

Provided further that the records of any such consultation shall be made available to all other stakeholders not so consulted, in a manner specified by the Board."

Section 52 : "Secured creditor in liquidation proceedings - (1) A secured creditor in the liquidation proceedings may -

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(a) relinquish its security interest to the liquidation estate and receive proceeds from the sale of assets by the liquidator in the manner specified in section 53; or

(b) realise its interest in the manner specified in this section.

(2) Where the secured creditor realises security interest under clause (b) of sub-section (1), he shall inform the liquidator of such security interest and identify the asset subject to such security interest to be realised.

(3) Before any security interest is realised by the secured creditor under this section, the liquidator shall verify such security interest and permit the secured creditor to realise only such security interest, the existence of which may be proved either -

(a) by the records of such security interest maintained by an information utility; or

(b) by such other means as may be specified by the Board.

(4) A secured creditor may enforce, realise, settle, compromise or deal with the secured assets in accordance with such law as applicable to the security interest being realised and to the secured creditor and apply the proceeds to recover the debts due to it.

(5) If in the course of realising a secured asset, any secured creditor faces resistance from the corporate debtor or any other person connected therewith in taking possession of, selling or otherwise disposing off the security, the secured creditor may make an application to the Adjudicating Authority to facilitate the secured creditor to realise such security interest in accordance with law for the time being in force.

(6) The Adjudicating Authority, on receipt of an application from a secured creditor under sub-section (5) may pass such order as may be necessary to permit a secured creditor to realise security interest in according with law for the time being in force.

(7) Where the enforcement of the security interest under sub-section (4) yields an amount by way of proceeds which is in excess of the debts due to the secured creditor, the secured creditor shall -

(a) account to the liquidator for such surplus; and

(b) tender to the liquidator any surplus funds received from the enforcement of such secured assets.

(8) The amount of insolvency resolution process costs, due from secured creditors who realise their security interests in the manner provided in this section, shall be deducted from the proceeds of any realisation by such secured creditors, and they shall transfer such amounts to the liquidator to be included in the liquidation estate.

(9) Where the proceeds of the realisation of the secured assets are not adequate to repay debts owed to the secured creditor, the unpaid debts of such secured creditor shall be paid by the liquidator in the manner specified in clause € of sub-section (1) of section 53.

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Section 53 : Distribution of assets - (1) Notwithstanding anything to the contrary contained in any law enacted by the Parliament or any State Legislature for the time being in force, the proceeds from the sale of the liquidation assets shall be distributed in the following order of priority and within such period and in such manner as may be specified, namely:

(a) the insolvency resolution process costs and the liquidation costs paid in full;

(b) the following debts which shall rank equally between and among the following:-

(i) workmen's dues for the period of twenty-four months preceding the liquidation commencement date;

(ii) debts owed to a secured creditor in the event such secured creditor has relinquished security in the manner set out in section 52;

(c) wages and any unpaid dues owed to employees other than workmen for the period of twelve months preceding the liquidation commencement date;

(d) financial debts owed to unsecured creditors;

(e) the following dues shall rank equally between and among the following:

(i) any amount due to the Central government and the State Government including the amount to be received on account of the Consolidated Fund of India and the Consolidated Fund of a State, if any, in respect of the whole or any part of the period of two years preceding the liquidation commencement date;

(ii) debts owed to a secured creditor for any amount unpaid following the enforcement of security interest;

(f) any remaining debts and dues;

(g) preference shareholders, if any; and

(h) equity shareholders or partners, as the case may be.

(2) Any contractual arrangements between recipients under sub-

section (1) with equal ranking, if disrupting the order of priority under the sub-section shall disregarded by the liquidator.

(3) The fees payable to the liquidator shall be deducted proportionately from the proceeds payable to each class of recipients under sub-section (1), and the proceeds to the relevant recipient shall be distributed after such deduction.

Explanation - For the purpose of this section-

(i) it is hereby clarified that at each stage of the distribution of proceeds in respect of a class of recipients the rank equally, each of

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the debts will either be paid in full, or will be paid in equal proportion within the same class of recipients, if the proceeds are insufficient to meet the debts in full; and

(ii) the term 'workmen's dues' shall have the same meaning as assigned to it in section 326 of the Companies Act, 2013 (18 of 2013)."

Section 54 : Dissolution of corporate debtor - (1) Where the assets of the corporate debtor have been completed liquidated, the liquidator shall make an application to the Adjudicating Authority for the dissolution of such corporate debtor.

(2) The Adjudicating Authority shall on application filed by the liquidator under sub-section (1) order that the corporate debtor shall be dissolved from the date of that order and the corporate debtor shall be dissolved accordingly.

(3) A copy of an order under sub-section (2) shall within seven days from the date of such order, be forwarded to the authority with which the corporate debtor is registered."

Section 63 : "Civil Court not to have jurisdiction - No Civil Court or authority shall have jurisdiction to entertain any suit or proceedings in respect of any matter on which National Company Law Tribunal or the National Company Law Appellate Tribunal has jurisdiction under this Code."

Section 231 :"Bar of jurisdiction - No civil Court shall have jurisdiction in respect of any matter in which the Adjudicating Authority is empowered by, or under, this Code to pass any order and no injunction shall be granted by any Court or other authority in respect of any action taken or to be taken in pursuance of any order passed by such Adjudicating Authority under this Code."

Section 238 : "Provisions of this Code to override other laws - The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law."

Findings on Conflict

28 Section 238 of the IBC contains a non-obstante provision giving the Code

overriding effect over any other law. Section 63 of the IBC bars the jurisdiction of Civil

Courts. Section 231 of the IBC also bars the jurisdiction of Civil Courts in respect of any

matter in which the Adjudicating Authority is empowered under the Code to pass an order

and no injunction shall be granted by any Court in respect of any action taken or to be

taken in pursuance of any order passed by the Adjudicating Authority under the Code. On

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the other hand, civil Courts do not have jurisdiction to entertain an action in rem. This

jurisdiction has been vested specifically in certain High Courts only. However, the

Admiralty Act does not contain a non-obstante clause.

29 Thus, where there are two special enactments, one of which contains a

non-obstante provision and bars the jurisdiction of the Civil Court and the other which

does not contain a non-obstante provision, the clear legal position is that in the event of

conflict the former Act will prevail. The principal of interpretation that the later Act

overrides the earlier Act is not applicable in such a situation. It applies only where both

special acts contain non-obstante provision and there is a conflict. In Solidaire India Ltd.

V/s. Fairgrowth Financial Services Ltd. 47, the Apex Court noted that Sick Industrial

Companies (Special Provisions) Act, 1985 contained in Section 32 a non-obstante clause.

A similar non-obstante provision was also contained in Section 13 of the Special Court

Act, 1992. The Apex Court then held in paragraph 9 that "It is clear that both these Acts

are special Acts. This Court has laid down in no uncertain terms that in such an event it

is the later Act which must prevail."

30 In a case where each enactment is a special Act the Apex Court in the case

of Ram Narain V/s. Simla Banking and Industrial Company Ltd.48, observed as follows:

"7. ...Each enactment being a special Act, the ordinary principle that a special law overrides a general law does not afford any clear solution in this case. ... It is, therefore, desirable to determine the overriding effect of one or the other of the relevant provisions in these two Acts, in a given case, on much broader considerations of the purpose and policy underlying the two Acts and the clear intendment conveyed by the language of the relevant provisions therein."

31 A similar view was expressed by the Constitution Bench of the Supreme

Court India in Ashoka Marketing Ltd. V/s. Punjab National Bank 49 where, in paragraph

61, after reviewing the law on the subject the Court stated:

47. (2001) 3 SCC 71

48. AIR 1956 SC 614

49. Supra

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"The principle that emerges from these decisions is that in the case of inconsistency between the provisions of two enactments both of which can be regarded as special in nature, the conflict has to be resolved by reference to the purpose and policy underlying the two enactments and the clear intendment conveyed by the language of the relevant provisions therein."

Both these passages are extracted in Employees Provident Fund

Commissioner V/s. Official Liquidator of Esskay Pharmaceuticals Ltd.50.

32 The non-obstante clause in the IBC gives overriding effect to the provision

of the IBC only if there is anything inconsistent contained in any other law for the time

being in force or any instrument having effect by virtue of any such law. Consequently, if

there is no provision in the Admiralty Act which is inconsistent with the IBC then the

provisions contained in the IBC cannot override the provisions of the Admiralty Act. See

Central Bank of India V/s. State of Kerala51 paragraph 116:

"The non-obstante clauses contained in Section 34(1) of the DRT Act and Section 35 of the Securitisation Act gives overriding effect to the provisions of those Acts only if there is anything inconsistent contained in any other law or instrument having effect by virtue of any other law. In other words, if there is no provision in the other enactments which are inconsistent with the DRT Act or the Securitisation Act, the provisions contained in those Acts cannot override other legislations."

33 In other words what is required is to first attempt a harmonious

construction which is intended to give effect to both statutes bearing in mind the purpose

and policy underlying them. Only in the event there is a conflict and the conflict cannot

be resolved, the IBC will prevail because even though the Admiralty Act is a later Act, it

does not contain a non-obstante clause and the Parliament is presumed to have had

knowledge of the non-obstante clause contained in the IBC when it enacted the later Act.

Harmonious Construction

50. (2011) 10 SCC 727

51. (2009) 4 SCC 94

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34 With this principle in mind an attempt should be made to resolve the

traditional conflict between Admiralty and Insolvency so as not to defeat the intendment

and objectives of the IBC which is essentially corporate insolvency resolution and at the

same time give full play to the rights in rem created and conferred by the Admiralty Act.

Only in the event there is a conflict and the conflict cannot be resolved then due regard

will be given to the conflicting provision to understand the nature of the conflict and

which provision must prevail bearing in mind the above principles.

35 The distinction between an action in rem under the Admiralty Act and an

action in personam is of vital importance when considering the provisions of the IBC. An

action in rem is only against the ship which is considered as having a legal personality

independent of that of the corporate owners. This allows an action to be maintained

against the ship as a legal person. If a ship is arrested in an action in rem and no

appearance is entered by the owner, the action proceeds in rem, the ship is sold and the

proceeds are paid out to the successful Claimant after determination of priorities if there

are multiple claims against the ship. If the owner enters appearance but no security is

furnished the action will still proceed as an action in rem against the ship. It will also

proceed as an action in personam against the owner. Thus, even when the owner is

contesting the claim it is still open to the Admiralty Court to sell the vessel if

circumstances require it to do so and the action will proceed in rem against the sale

proceeds which represent the vessel. In m.v. Convenience Container52, in paragraphs 59 to

63, the Court observed:

59: "In admiralty law and practice, there is no difference in nature between action in rem against an unsold ship and action in rem against the proceeds of sale of that ship. The writ is issued against the ship and when the ship is not yet sold by the Court, the writ can be served on the ship, but after the sale by the Court then service of the ship is effected on the Registrar as provided by Order 75 rule 8(1)(b) which reads:

(b)where the property has been sold by the bailiff, the writ may not be served on that property but a sealed copy of it must be

52. (2006) 2 L.L.R 556

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filed in the Registry and the writ shall be deemed to have been duly served on the day on which the copy was filed."

60: "The service of the writ on the registrar representing the proceeds of sale of the ship (as the registrar was the custodian of the proceeds of sale of the ship) is merely the modern development of a long-standing admiralty procedure where the proceeds of sale of a ship is to stand in the place of the ship once the ship has been sold by the Court."

61: "The power of the Court to order a sale of the ship pendent lite (before judgment is entered against the ship) is derived from the inherent jurisdiction of the Court where property held by the Court is perishable. (See Meeson on Admiralty Practice and Procedure, 3rd ed., pages 157- 162; The Myrto [1977] 2 Lloyds's Rep 243, 259-261.)

62: "The correct analysis of this well known admiralty practice is that the proceeds of sale of the ship and her appurtenance including bunkers become the res. All claims against the ship, upon the sale of the res, are transferred to the fund in Court being the proceeds of sale of the ship. (See McGuffie on Admiralty Practice (1964) para 6; Halsbury's Laws of Hong Kong, volume 18(1), para 250.145; The Queen of the South [1968] 1 Lloyd's Rep 182, 191-192; The Leoborg (No 2) [1963] 2 Lloyd's Rep 441; The Silia [1981] 2 Lloyd's Rep 534, 538.)

63: "The Leoborg (No 2) is particularly revealing as it shows how the admiralty judge, Hewson J. regarded as accepted law and practice in admiralty that writs can be issued subsequent to the sale of the ship by the Court. The unspoken but universal assumption underlying such acceptance by Hewson J is that such writ (so issued after the sale) will be directed against the proceeds of sale of the ship which stands in for the ship sold." It was also observed in paragraph 64 that "Maritime claims are brought by different claimants at different times against a ship, both before as well as after sale and that the proceeds of sale has always been regarded in Admiralty as standing in for the ship."

36 So also, the Privy Council in The August 853 held at 456:

"By the law of England, once a defendant in an Admiralty action in rem has entered an appearance in such action, he has submitted himself personally to the jurisdiction of the English Admiralty Court, and the result of that is that, from then on, the action continues against him not only as an action in rem but also as an action in personam: The Gemma [1899] P. 285, 292 per A.L. Smith L.J. There is no reason to suppose that the Admiralty law of Singapore differs from the Admiralty law of England so far as this important principle is concerned. On the contrary there is every reason to suppose that it is the same. If then that principle is applied in the present case, the situation is that, from the time when the shipowners entered an appearance in the Master's action, as they did on February 2, 1978, the action continued not only in rem against the property proceeded against, viz., the ship, but also in personam against the shipowners themselves."

53. (1983) 2 AC 450

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37 Also, in the case of Bos Angler54, a Division Bench of this Court observed

in paragraph 12 that:

"......Consequently once a vessel has been sold in the exercise of the jurisdiction in rem all claims against the vessel have to be enforced against the proceeds of the sale and before the Court which exercises jurisdiction to arrest and thereafter sell the vessel. Equally it is a matter of settled legal principle that the Court which holds the proceeds of the same holds them not merely for the benefit of the Plaintiff who moves the Court in the jurisdiction in rem but for and on behalf of all persons who may have claims in respect of the property of the vessel and after the sale, in respect of the sale proceeds. Consequently, even if in a given case the claim of the plaintiff were to fail, that would not obviate the fundamental duty and obligation of the Court in the exercise of the admiralty jurisdiction to ensure that the monies which it holds are properly distributed to persons whose claims have been adjudicated upon for realization. Upon the process of adjudication, the issue of determining priorities would arise. The issue of determining priorities comes up before the Court in a situation where the amount representing the aggregate of the claims against the vessel exceeds the amount which has been realized upon the sale of the vessel. Obviously in a situation where the aggregate of the claims is equal to or less than the amount which lies deposited with the Court every one of the claims can be paid in full and it is in a situation where the aggregate of the claims represents a value in excess of what is realized upon the sale of the vessel that the determination of priorities assumes importance. These principles of law have been consistently followed and reiterated in the exercise of the admiralty jurisdiction in common law countries."

Thus, the Court is duty bound to invite claim against the sale proceeds in

accordance with the Admiralty rules framed in this regard.

38 Speaking of the difference between an action in rem and an action in

personam, the Singapore High Court in the case of "The Engedi"55 stated in paragraph 17

that:

"The action in rem operates only against the res, but once the defendant enters an appearance, he submits to the jurisdiction of the Court and from then onwards the action continues as an action in rem against the res and in personam against the shipowner defendant (see The Damavand [1963] 2 SLR® 136 at [18]; The Fierbinti [1993] SGHC 319; The August 8 [1983] 2 AC 450). While an action in personam and an action in rem may involve the same cause of action, it must be stressed that the defendants of the respective actions are regarded as different parties. In Kuo Fen Ching v Dauphin Offshore Engineering & Trading pte Ltd [1999] 2 SLR® 793 at [23], the Court of Appeal specifically rejected the proposition of the house

54. Supra

55. Supra

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of Lord in Republic of India v India Steamship Co Ltd (No 2) [1998] 1 AC 878 that in substance the owner of the res, and not the res itself, was the defendant to an action in rem." (Emphasis Supplied)

39 Once this fundamental distinction between an action in rem against a

vessel which is a distinct and separate entity dehors its owner is recognized, it is easy to

reconcile the ostensible conflict between Admiralty and Insolvency. Thus, an action in

rem against the ship is not an action against the owner of the ship who may be the

corporate debtor as defined under the IBC. Neither is the action in rem considered as a

proceeding against the asset of the owner / corporate debtor. It is a proceeding against the

ship to recover the claim from the ship, not an action against the owner / corporate debtor

to recover the claim by attachment of the asset of the owner / corporate debtor.

40 Also, to be borne in mind is the principle that an action in rem continues as

an action in rem notwithstanding that the owner may have entered appearance, if security

is not furnished for release of the vessel. The action will continue in rem against the ship

which will be sold and the sale proceeds paid out to the successful claimants after

determination of priorities amongst the various maritime claimants. As the sale proceeds

represent the ship, the action continues in rem against the sale proceeds and a notice is

published inviting claims against the sale proceeds as per established Admiralty rules or

procedure. Thus, whilst the judicial sale by the Admiralty Court extinguishes all maritime

liens and the claims, thus giving a free and clear title to the purchasers, all those who have

maritime liens and claims can still enforce them by filing an action against the sale

proceeds.

41 Another feature of an action in rem is that once a ship is arrested, it is

custodia legis and if it is sold by the Admiralty Marshall / Sheriff under the orders of the

Admiralty Court, the interest of the owner is limited to the extent of receiving the balance

of the sale proceeds after satisfaction of all maritime claims in the order of priorities

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provided in Section 10 of the Admiralty Act. The Chancery Division in England in the

case of m.v. Bolivia56 held:

In my judgment, a critical feature of this case was that on 18 March 1994 Tramp Oil obtained an order for the sale of the ship. Once that happened, the proceeds of sale were held by the Admiralty Court to be applied in ac- cordance with its procedures...The effect of the order for sale made by the Admiralty Court on the assets of the company must, it seems to me, have been to convert the company's interest in the ship into a right to receive the balance of the proceeds of sale remaining after satisfaction of the prior claimants. As a result of conversion it would appear that the present applicants do not in fact require leave under s. 130(2) because they are not proceeding against either the company or the company's property. Furthermore, if it is necessary so to hold to avoid the effect of s. 129(2), I hold that such conversion must, in the event of an order for sale, be deemed in law to have taken effect from the execution of the warrant for arrest, when the ship entered the custody of the Admiralty Marshal on be- half of the Admiralty Court . (Emphasis supplied)

42 The authorities also are unanimous in stating that once a ship is arrested in

respect of a maritime lien or a maritime claim, the Claimant becomes a secured creditor

qua that arrested vessel and the vessel is effectively encumbered with the Plaintiff's

claim. In In re ARO Company Ltd.57 it was held that Plaintiffs having arrested the ship

and perfected the security of their claim were thus secured creditors with the result that

the vessel was effectively encumbered with their claim. In the book Admiralty

Jurisdiction and Practice by Nigel Meeson and John A. Kimbell, (5th Edition)

(hereinafter referred to as Meeson), paragraphs 3.89 and 3.90, the authors say in

paragraph 3.89 that "The holder of a maritime lien is also a secured creditor from the

moment the maritime lien arises which is simultaneously with the claim". And in

paragraph 3.90, "A claimant having only a statutory right of action in rem becomes a

secured creditor at the latest when he causes the ship to be arrested." The Claimant is

not a secured creditor of the owner but only that of the particular ship and to the extent of

the value of the ship. This also meets with the definition of "secured creditors" as per

Section 3(30) and "security interest" as per Section 3(31) of the IBC.

56. Supra

57. (1980) 1 Ch 196 (C.A.)

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43 Also, to be borne in mind is the difference between an arrest and an

attachment. An arrest cannot be equated to an attachment. A maritime claimant has a right

in rem which he is entitled to exercise by an arrest of the ship. The only test he has to

satisfy is to show that he has prima facie a maritime claim and identify the ship. As

against this, an attachment before judgment is a discretionary interim order that any type

of Claimant would be entitled to apply upon satisfying the requirements of the Code of

Civil Procedure (CPC). He is not entitled to an attachment as a matter of right or as a

manner of enforcement of a right.

44 The arrest of a ship in an Admiralty claim in rem is "sequestration" and not

an "execution". In Meeson paragraph 3.81 refers to the judgment in In re Australian

Direct Steam Navigation Company58 where the Master of the Rolls Sir George Jessel said

"The term 'sequestration' has no particular technical meaning; it simply means detention

of property by a Court of Justice for the purpose of answering a demand which is made.

That is exactly what the arrest of a ship is ......".

45 Once these salient features of the Admiralty law and jurisdiction are

appreciated, it will be seen from a reading of the IBC that there is little conflict between

them. The provisions of the two acts can be read and construed harmoniously so as to

give effect to both.

46 The IBC defines a corporate debtor in Section 3(8) to mean "corporate

person who owes a debt to any person". Corporate person is defined in Section 3(7) to

mean "a company .... a limited liability partnership .... or any other person incorporated

with limited liability under any law for the time being in force". A ship against whom a

maritime Claimant can proceed in an action in rem does not fall within the definition of a

corporate debtor under the IBC. Neither is the ship being proceeded against as an asset of

58. (1875) LR 20 Eq 325

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the corporate debtor. It is the ship itself which is liable and which is arrested for

crystallizing the maritime claim which is in respect of the ship. The ship is an

independent juridical entity which is sued in its own name dehors the status of its owner

(who may be the corporate debtor) and without reference to its owner.

47 Thus, an action in rem filed under the Admiralty Act for arrest of the ship

would not amount to an institution of a suit against a Corporate Debtor as defined under

the IBC nor would continuation of an action in rem amount to continuation of a suit

against the Corporate Debtor. Consequently, declaration of moratorium under Section 14

of the IBC will not prohibit the institution of an action in rem or continuation of a

pending action in rem. However, in the event a moratorium is declared under Section 14

of the IBC, then an action in rem, if instituted prior to the declaration of the moratorium,

will not be continued during the CIRP as this would defeat the very purpose of insolvency

resolution under the IBC. Institution of an action in rem even after a moratorium is

declared would also be permitted as the action in rem is not against the corporate debtor.

However, the action will not be allowed to proceed after the arrest of the ship so as to

allow for the CIRP to be effective.

48 In the event an order for liquidation of the corporate debtor is made under

Section 33 of the IBC and a Liquidator is appointed, this by itself will not bar institution

of an action in rem against the ship as it is not a suit instituted against the corporate debtor

which is barred under Section 33(5) of the IBC. The Liquidator is empowered under

Section 35(1) (k) of the IBC to defend the proceedings. If the ship is sold then the sale

proceeds will be available to satisfy the maritime claims including maritime liens. The

priorities of maritime claims will be decided in accordance with the provisions of the

Admiralty Act.

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49 It may also be noted that Section 33(5) of the IBC is subject to Section 52.

It may be seen that Section 52(1)(b) of the IBC permits a secured creditor to realise its

security interest in the manner specified in that section and Section 52(4) permits a

secured creditor to enforce, realise, settle, compromise or deal with the secured assets in

accordance with such law as applicable to the security interest being realised and to the

secured creditor and apply the proceeds to recover the debts due to it. Thus, even on this

score the suit will proceed in accordance with the Admiralty Act as that is the applicable

law. Consequently, determination of priorities will also be in accordance with the

Admiralty Act. This will be the position in case the action in rem is instituted before or

after the order of liquidation.

50 Considering the above features of Admiralty law in general and the

Admiralty Act in particular and the definition of corporate debtor under the IBC, various

possible scenarios are now considered where the provisions of both statutes get involved

and will play out.

51 Scenario I

If a Plaintiff has commenced Admiralty proceedings in rem and obtained an order of

arrest of a ship from an Admiralty Court, subsequent to which insolvency

proceedings are filed against the owner of the vessel and the adjudicating authority

declares a moratorium under Section 14 of the IBC.

51.1 If in such a situation security has been provided to the Admiralty Court for

release of the vessel prior to the declaration of moratorium then the Suit is no longer an

action in rem. It is in personam against the corporate debtor who has furnished security.

The Suit will not proceed against the corporate debtor in the light of Section 14(1)(a) of

the IBC. However, Plaintiff will be considered to be a secured creditor having obtained

security in respect of his claim. That security will be exclusively for Plaintiff's claim.

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51.2 If the CIRP is successful and a Resolution Plan is approved, then the claim

of Plaintiff for which he has obtained security, will be determined in accordance with the

resolution plan approved by the COC and the adjudicating authority. Plaintiff's status as a

secured creditor who is entitled exclusively to the security provided for release of the

vessel will be considered by the COC / Adjudicating Authority (AA) in determining the

entitlement of Plaintiff. In such a situation Plaintiff should ordinarily be entitled to realise

his claim to the full extent of the security provided. To this extent the Admiralty Court

will protect the interest of Plaintiff and its right to the security provided to the Admiralty

Court for release of the ship.

51.3 If the CIRP is not successful and the company is ordered to be liquidated,

the security provided for Plaintiff's claim will inure to the benefit of Plaintiff alone. In

such a case Plaintiff will be a secured creditor in liquidation and will be entitled to realise

its security interest as provided in Section 52(4) of the IBC which provides "A secured

creditor may enforce, realise, settle, compromise or deal with the secured assets in

accordance with such law as applicable to the security interest being realised and to the

secured creditor and apply the proceeds to recover the debts due to it." The law as

applicable would be the Admiralty Act. Consequently, upon an order of liquidation being

made and a liquidator being appointed, the Suit will proceed in personam under the

Admiralty Act and Plaintiff will be entitled to realise its security. It will be open to the

Liquidator to defend the suit which right is available to him as provided in Section 35(1)

(k) of the IBC.

51.4 If security has not been furnished at the time when the moratorium is

declared by the adjudicating authority under the IBC, then the Admiralty Court will not

proceed further with the Suit in rem because to do so would defeat the reorganization and

insolvency resolution of the corporate person which is the objective of the Code. In such a

situation if the Suit is allowed to proceed in rem, the CIRP is bound to be frustrated and

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will fail. Hence the Admiralty process will have to yield to the objective of the IBC. This,

however, does not prejudice the maritime claimant or affect his right in rem and

entitlement to recover his claim from the res. Since the vessel will remain under arrest, it

would be up to the Resolution Professional to decide whether security ought to be

furnished for release of the vessel. If no security is furnished, the vessel will remain under

arrest until the end of the CIRP period. In that event, Plaintiff's maritime lien or claim

which is a perfected claim against the vessel by virtue of the arrest, will operate as a

charge on the vessel and Plaintiff will be considered as a secured creditor.

51.5 If the company is liquidated then Plaintiff's action being an action in rem

will proceed and the vessel will be sold by way of an Admiralty sale to maximize its

realisation value. Section 33(5) of the IBC does not prohibit the continuation of pending

suits and the liquidator will be entitled to defend it as this power is expressly provided in

Section 35(1)(k) of the IBC. Viewed at from another angle, Plaintiff and any other

claimant who has a maritime claim or a maritime lien and has obtained an order of arrest

before liquidation, will be considered a secured creditor and will be entitled to enforce

and realize his security interest in accordance with the applicable law, viz., Admiralty

Act, as provided in Section 52(4) of the IBC.

51.6 Since the sale proceeds represent the res, the Admiralty Court will be

entitled to invite claims against the sale proceeds by following the Admiralty procedure

prescribed in the Rules. In admiralty law there is no difference between an action in rem

against a ship and an action in rem against the proceeds of sale of that ship (See m.v. The

Convenience Container59). Parties having a maritime lien or a maritime claim will be

entitled to file an action in rem against the sale proceeds. The determination of priorities

will also be done in accordance with Section 10 of the Admiralty Act and inter se

priorities of maritime liens will be decided in accordance with Section 9 of the said Act.

59. Supra

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Section 53 of the IBC which refers to distribution of assets will not apply. If the ship is

sold by the Admiralty Court in exercise of its jurisdiction in rem then the machinery of

the Admiralty Act will apply and the sale proceeds will be distributed on the basis of

priorities determined under the Admiralty Act.

51.7 All those claimants who are unable to recover their claim from the sale

proceeds will have to pursue their claim in the liquidation as unsecured creditors.

51.8 If on the other hand a Resolution Plan is approved then the Plaintiff's

claim together with that of all other Claimants who have obtained an order of arrest and

have become secured creditors qua the ship will be determined in accordance with the

approved plan. Being secured creditors their rights and claims in respect of the vessel

under arrest shall be considered by the COC / Adjudicating authority whilst approving the

Resolution Plan when it comes to payments to be made to them from the amounts made

available to secured creditors by the successful Resolution applicant. As guidance, the

claim of Plaintiff and all other maritime Claimants who have arrested the vessel before a

moratorium was declared shall be accorded priority in respect of the value ascribed to the

vessel in the Resolution Plan. The principle to be applied would be as if, but for the

Resolution Plan, the assets would have been liquidated and the vessel would have been

sold by the Admiralty Court and the priorities would have been determined in accordance

with the Admiralty Act. Consequently, the same priority as per Section 10 of Admiralty

Act will be applied inter se amongst all secured creditors including any registered

mortgagee who has a charge on the vessel. However, the ship value for the purpose of

ascertaining the proportionate and priority entitlements of the maritime claimants will be

the liquidation value assigned to that particular vessel.

51.9 Since the ship was arrested before the declaration of moratorium under

section 14 of the IBC, the Admiralty Court will protect the interests of Plaintiff and

release the ship from arrest only upon being satisfied that the claim of Plaintiff has been

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accorded priority as required under the Admiralty Act in respect of the value ascribed to

the ship and paid accordingly.

51.10 All those claimants who had arrested the vessel but are unable to recover

their claim under the Resolution Plan in part or in full because the value ascribed to the

ship is not sufficient to pay all claims against the vessel in full, will rank as operational

creditors of the corporate debtor as regards their unrecovered claim and may recover

depending on what payment is offered to operational creditors in the resolution plan.

They are not secured creditors of the corporate debtor's other assets.

51.11 If security has not been furnished and the vessel remains under arrest, the

Admiralty Court will not order the sale of the vessel during the moratorium period in

order to allow the insolvency resolution process to fructify, unless an application for sale

is made by the Resolution Professional or if the vessel is not being manned, equipped and

maintained by the Resolution Professional during the moratorium and all charges for the

same are not being paid by the Resolution Professional including port charges or if the

vessel becomes a navigational hazard. In such a case the Admiralty Court will have the

discretion to sell the vessel at the instance of any party who has filed an Admiralty Suit

and has a maritime claim. The order of sale is made to ensure that the value of the vessel

is not put at risk and the vessel is preserved and / or is not allowed to waste and

deteriorate and further encumbered with claims and liabilities during the moratorium

period. This is done with a view to maximize the value of the ship (asset) and also to

secure the interests of the secured creditors qua the ship in question which is also the

objective of the IBC. This will be a matter entirely in the discretion of the Admiralty

Court.

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51.12 In all such cases notice will be given to the owner who may be represented

by the Resolution Professional before any sale of the ship is carried out by the Admiralty

Court.

51.13 In all cases of sale of the vessel during the moratorium period in view of

exigencies mentioned in the preceding paragraph, the proceeds will not be distributed but

will be retained by the Admiralty Court to await the outcome of the CIRP or liquidation,

as the case may be. Once either of these events happen, the procedure laid down in the

preceding paragraphs 51.5, 51.6 and 51.8 will apply as regards distribution of the sale

proceeds and priorities.

51.14 All expenses incurred for preservation and maintenance of the vessel

during the period of arrest with the permission of the admiralty Court will be treated as

sheriff's expenses in Admiralty and Resolution Process costs under the IBC and paid out

in priority from the sale proceeds of the ship if the company is liquidated or be accorded

priority in the resolution plan as resolution process costs.

52 Scenario II

If a moratorium has been declared under Section 14 of the IBC before any

Admiralty Suit in rem is filed for enforcement of a maritime lien or maritime claim.

52.1 An action in rem for arrest of a vessel is not against the corporate debtor.

Consequently, there is no bar to filing such an action and it is not hit by the moratorium

provisions of Section 14(1)(a) of the IBC. If an order of arrest is made, the warrant of

arrest will be executed against the vessel. Upon the Resolution Professional entering

appearance on behalf of the owner/corporate debtor, the Suit will not proceed in rem so as

not to defeat the objective of the insolvency resolution of the corporate debtor and the

objective sought to be achieved by the IBC. Hence in view of the conflict which would

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occur and frustrate the objectives of the IBC if the Suit in rem were to proceed, the

Admiralty action in rem will have to be stayed and not proceeded with after the vessel has

been arrested, till such time as the insolvency resolution process is completed or a

Liquidator is appointed.

52.2 If the vessel is trading during the moratorium period the vessel will be

permitted to trade under arrest once the Resolution Professional enters appearance on

behalf of the corporate debtor and appropriate undertakings are provided in respect of the

vessel. This will ensure that trading of the vessel is not impaired or affected, if this is in

the interest of the corporate debtor or the CIRP.

52.3 The Claimant will be considered as a secured creditor and the observations

set out above in paragraphs 51.5, 51.6 and 51.8 will apply if the insolvency resolution

process is successful and a resolution plan is approved or if the resolution process fails

and the liquidator is appointed, as the case may be. At all stages, in such a situation it

would be open to the Resolution Professional acting on behalf of the owner to furnish

security for release of the vessel if he deems fit. The Resolution Professional, however,

will be under an overriding obligation to maintain the vessel in any event and if this is not

being done by making payment of crew wages, necessary costs, charges and expenses it

will be open to the Admiralty Court to consider an application for sale of the vessel at any

stage during the CIRP. The sale is in fact to preserve and maximize the value of the vessel

and protect the interests of all secured creditors to ensure that the vessel does not waste or

deteriorate or is put at risk and is not further encumbered with claims during the CIRP.

The sale proceeds will, however, not be distributed and will be retained by the Admiralty

Court to await the outcome of the CIRP or liquidation as the case may be.

52.4 All expenses incurred with the permission of the Court for preservation

and maintenance of the vessel during the period of arrest will be treated as sheriff's

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expenses in Admiralty and Resolution Process costs under the IBC and paid out in

priority from the sale proceeds of the ship if the company is liquidated or be accorded

priority in the resolution plan as resolution process costs.

53 The above interpretation would harmonize the provisions of the IBC vis-à-

vis the Admiralty Act in the matter of protecting the right in rem given to maritime

claimants and at the same time giving effect to the moratorium provisions of the IBC

which have been enacted to facilitate the CIRP. The purpose of the moratorium would be

served and this takes care of the apprehensions expressed that the object of the

moratorium would stand defeated if actions in rem against ships are permitted. This

would also ensure that the assets of the corporate debtor are made available for the CIRP.

At the same time, the rights available to a person who has a maritime lien or maritime

claim are protected and preserved such that during the CIRP and / or liquidation he will

be able to maintain his position as a secured creditor and as a maritime claimant who has

a right in rem against the ship and is entitled to recover his claim from the ship and / or its

sale proceeds.

54 It was submitted by Mr. Narichania that the moratorium under section 14

of the IBC would come in the way of any suit that a mortgagee would file in regard to a

registered mortgage of a ship and such a suit would fall under section 14(1)(c) of the IBC.

This, in my view, is not so.

54.1 Section 14(1) (c) of the IBC is as follows:

"any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002)"

54.2 Sub-section (c) refers to "any action" and thereafter refers to "including

any action under the Securitization and Reconstruction of Financial Assets and

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Enforcement of Security Interest Act, 2002". Sub-section (c) uses the word "action" in

contradistinction to the word "suits" which appears in sub-section (a) of section 14(1) of

the IBC. Thus, sub-section (c) refers to any action other than by way of a suit and this is

made clear by reference to an action under the Securitization Act, 2002 which does not

involve filing of a suit. Similarly, a mortgagee of a ship is also entitled to take possession

of the ship and sell it without intervention of the Court by exercising rights under section

51(1) of the Merchant Shipping Act, 1958 without approaching the High Court. It is such

an action without intervention of the Court that would fall under section 14(1) (c) of the

IBC to which the moratorium declared by the adjudicating authority would apply.

Section 14 (1) (c) of the IBC does not come in the way of a maritime claimant filing an

action in rem

54.3 An action in rem against a ship under the Admiralty Act is by way of a suit

but it is not against the corporate debtor. A mortgage on a ship also gives rise to a

maritime claim under the Admiralty Act. An action in rem by a mortgagee to enforce any

security interest would be considered as any other action in rem by way of a suit under

the Admiralty Act and the same consequences would follow as an action in rem filed by

any other maritime claimant for arrest of the ship. Such an action in rem filed by a

mortgagee of a ship to foreclose, recover or enforce its security interest in the ship would

not be affected by the bar under section 14(1)(c) of the IBC.

54.4 The purposive interpretation suggested by counsel Shri Ramabhadran is

not warranted given the clear distinction between an action in rem against a ship and an

action in personam against the corporate debtor (owner). An action in rem against a ship

cannot be equated to an action against the asset of the corporate debtor. Merely because

the corporate debtor (owner) of the ship is also liable in personam does not detract from

the essential characteristic of an action in rem which is only against the ship and the sale

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proceeds of which will be used to satisfy the claim. A judgement in rem against the ship

does not bind the owner (corporate debtor).

55 Scenario III

If the owner of the vessel (corporate debtor) is in liquidation at the time the Plaintiff

commences Admiralty proceedings in rem for arrest of the vessel.

55.1 Section 33(5) of the IBC provides that when a liquidation order is passed,

"no Suit or other legal proceedings shall be instituted by or against the corporate debtor."

Unlike the Companies Act, there is no provision in the IBC for obtaining leave to institute

a Suit against the Company in liquidation. Hence there is a complete bar. This bar,

however, applies to Suits against the corporate debtor and this necessarily means a Suit in

personam. An action in rem is not against the corporate debtor for reasons already

explained. The vessel is a distinct juridical entity and the action proceeds without

reference to the owner who is not a party to the Suit when filed. Liquidation of the

corporate debtor does not affect the ownership of the res so as to defeat a maritime claim

in respect of the ship. The res continues to be in the ownership of the corporate debtor

and the Liquidator merely acts as a Custodian. The status of the res does not change

(Rikhabchand Mohanlal Surana V/s. The Sholapur Spinning and Weaving Company

Ltd.60).

55.2 Thus, an action in rem can be entertained even at the stage of liquidation of

the corporate debtor as the claim is against the res and not against the corporate debtor.

By arrest of the ship, Plaintiff would become a secured creditor to the extent of the value

of the res only but not a secured creditor of the corporate debtor's other assets. Hence,

this will not affect other secured creditors of the corporate debtor. However, by not

permitting the action in rem and arrest of the vessel, the rights in rem given to a maritime

claimant under the Admiralty Act (whether a maritime lien or a maritime claim) would be

60. (1978) 76 Born. L.R. 748

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defeated and denied. The entire purpose of these rights is to enable such a claimant have

his claim perfected in law by arrest of the ship. If a claimant is not permitted to do so then

his right in rem may stand extinguished and be lost forever.

55.3 Once a Plaintiff obtains an order of arrest, the vessel can then be sold by

the Admiralty Court in order to realize maximum value as it is only a judicial sale by an

Admiralty Court that is recognized the world over as extinguishing all maritime liens

against the res and thereby giving a clear title to the buyer. A sale by the Liquidator will

not extinguish maritime liens and therefore the vessel may not attract any bidders and

even if it does, will fetch a lower value as it would not be free of all liens and

encumbrances. Once the sale proceeds are realized and deposited in Court, the

Submissions set out in paragraph 51.6 will apply and the matter will proceed on that

basis. The Liquidator will be entitled to defend the suit as this power and duty is

expressly conferred on the Liquidator by Section 35(1)(k) of the IBC.

55.4 This may also be seen from another perspective. Once Plaintiff obtains an

order of arrest, Plaintiff would then become a secured creditor and enforce / realize the

security interest in accordance with the applicable law which would be the Admiralty Act,

as provided in Section 52(4) of the IBC. Plaintiff would, in accordance with Section 52(4)

of the Code, be entitled to apply for sale of the ship and realise his claim in accordance

with the provisions of the law applicable to the security interest and Plaintiff. The

applicable law would be the Admiralty Act.

55.5 Viewed in this manner, there is no conflict in allowing a maritime claimant

to perfect his right in rem by arrest of the ship even if the corporate debtor is in

liquidation and ensure that the vessel is sold by the Admiralty Court in a manner such as

to maximize its value which is in the interest of all creditors and consistent with the intent

and purpose of the IBC.

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Conclusion

56 Thus, an action in rem can be filed and the ship arrested before the

moratorium under Section 14 of the IBC comes into force or during the moratorium

period or even when the corporate debtor is ordered to be liquidated. A maritime claimant

ought to be permitted to enforce his right in rem and obtain an order of arrest of the ship

in question. This will enable him to perfect and / or crystallize his maritime lien or

maritime claim as available to him under the Admiralty Act. The action in rem will not

proceed till the moratorium is in place. This will ensure that the rights under the

Admiralty Act are not defeated and at the same time this does not create any conflict with

the provisions of the IBC. The action in rem will proceed if the corporate debtor is

ordered to be liquidated. As the action in rem will proceed in accordance with the

applicable law namely the Admiralty Act, the priorities for payment out of the sale

proceeds will also be determined in accordance with the said Act. Section 53 of the IBC

will not apply.

57 Instances have been seen in cases involving a fleet of vessels owned by

Varun Resources Ltd. and GOL Offshore Ltd. where the Resolution Professional took no

steps to man, preserve and maintain the ships during the CIRP. Some of the ships of

Varun Resources Ltd. were arrested before declaration of moratorium under Section 14 of

the IBC. The crew members were left stranded on the ships and without adequate food,

drinking water and essential fuel for survival on board. The owners had practically

abandoned the ships. All of this was noted in an order dated 12 October 2017 passed by a

learned single judge of this Court in Comm. Adm. Suit no. 499 of 2017 which also

recorded that the sale of the vessel was opposed by COC who contended that the vessel

may not be sold in the Admiralty Jurisdiction of the High Court. The Court was

constrained to observe that "despite this plea, strangely, the Committee of Creditors is

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not in a position to indicate as to whether and in what manner the arrested vessel ought

to be maintained. Apparently, the crew of the vessel must fend for themselves and suffer

whilst the Committee of Creditors takes its own time to take a call on these issues which

required urgent attention."61. Whilst the Court gave the COC further time to decide on

the maintenance of the ships and crew as well as essential supplies, it directed the

managers of the ships to continue to pay wages and provide essential supplies which

would be accorded top priority in regard to payment whether in the insolvency

jurisdiction or the Admiralty jurisdiction. Even after several months this situation

continued and the COC did not take any steps to maintain the ships despite the fact that

all of these ships were mortgaged to various banks which formed a part of the COC and it

was their duty to protect their own security. It was also the duty of the Resolution

Professional to preserve and protect the assets of the corporate debtor as expressly

provided in Section 25(1) of the IBC. Eventually the crew on board the various ships

refused to stay any longer and left the vessels. The Resolution Professional entered into

fresh agreement with another manager to employ new crew on board and provide

essential supplies for the maintenance of the ships and crew. Eventually after six months

the banks requested the Admiralty Court to sell all the ships and gave their No Objection.

By this time a huge amount of expenses had been incurred in maintenance of the ships

and the value of the ships had also considerably eroded. The ships were eventually sold

at scrap value by the Admiralty Court. The sale proceeds were deposited in Court. The

corporate debtor was ordered to be liquidated. All costs and expenses incurred by the new

managers in respect of the crew and for essential supplies made to the vessel during this

period pursuant to contracts entered into by the Resolution Professional, were not paid

despite these obviously forming a part of the insolvency resolution process costs and

liquidation costs and considered as Sheriff's expenses in the Admiralty proceedings.

Payment was opposed by the various banks and this led to more litigation.

61. Order dated 12th October 2017 in Notice of Motion (L) No. 608 of 2017 in Commercial Suit (L) No. 499 of 2017

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58 The above is a stark example as to how banks which are secured creditors

function once it is clear to them that the corporate debtor is insolvent. They do not wish to

spend any money in protecting their own mortgaged ships and leave the crew on board

these ships to fend for themselves without even providing for essential supplies to be

made to the vessels for the crew to stay on board and look after the ships, let alone pay

their wages. This has been noticed in a few matters where ships have been arrested before

and during insolvency proceedings and even in cases involving appointment of the

Official Liquidator as Provisional Liquidator under the Companies Act, 1956. In these

situations the Admiralty Court must have the discretion to step in and protect not only the

ship but also the rights of crew members who continue to remain on board these ships in

order to maintain and preserve the ships and ensure that the ships remains safe and are not

involved in any incident which may cause damage or jeopardize other property and also

are not the cause of any oil pollution or other incident which may damage the

environment. Abandoned ships pose a great risk not only to the port where they are lying

but also to the environment as any accident or incident involving such ships would cause

colossal damage. To say that the Admiralty Court is powerless and cannot take steps to

protect the ships and ensure that they realise maximum value, would be detrimental to the

interest of stakeholders and contrary to the objectives of the IBC.

59 This solution that has come about in the process of interpretation of the

provisions of the IBC and the Admiralty Act would, in the opinion of this Court, serve the

interests of all stakeholders under both statutes and would be consistent with the

objectives of both acts and give effect to the same. Exercise of Admiralty jurisdiction

would in such cases will be beneficial and assist rather than hinder insolvency resolution.

It would protect the ship and in turn the security of a mortgagee who is a financial

creditor. At the same time this would also indicate to the mortgagee that they must take

steps to protect and preserve their security and if they do not then the Admiralty Court

will step in.

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60 I hasten to add that the above analysis only applies to actions in rem filed

under the Admiralty Act for arrest of ships in respect of maritime claims. In a suit in rem,

however, if the Owner enters appearance and furnishes security for release of the ship

then the suit will proceed in personam against the owner and the provisions of section 14

of the IBC would apply and also section 33 if a liquidator is appointed. Until this

happens, the suit proceeds as an action in rem. The Admiralty Act also permits actions in

personam against the owner of the ship. Such suits which are in personam, as against the

owner, would have to abide by the provisions of section 14 of the IBC in the event a

moratorium is declared by the NCLT or a liquidator is appointed under section 33 of the

IBC.

Question No.2

Whether leave under Section 446(1) of the Companies Act, 1956 is required for the commencement or continuation of an Admiralty action in rem where a winding up order has been made or the Official Liquidator has been appointed as Provisional Liquidator of the company that owned the ship?

61 This question needs to be resolved on a consideration of whether the

Companies Act, 1956 is a general act relating to companies and whether the Admiralty

Act is a special act dealing with Admiralty jurisdiction and actions in rem, such that, the

Admiralty Act being a Special and later act prevails over the Companies Act. It also

needs to be considered whether a Company Court would be entitled to exercise Admiralty

jurisdiction in rem and entertain and dispose of a suit in rem by virtue of Section 446(2)

of the Companies Act.

62 Section 446 of the Companies Act, 1956 provides as follows:

Section 446 : "Suits stayed on winding up order -

(1) When a winding up order has been made or the Official Liquidator has been appointed as provisional liquidator, no suit or other legal

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proceeding shall be commenced, or if pending at the date of the winding up order, shall be proceeded with, against the company, except by leave of the Court and subject to such terms as the Court may impose.

(2) The Court which is winding up the company shall, notwithstanding anything contained in any other law for the time being in force, have jurisdiction to entertain, or dispose of

(a) any suit or proceeding by or against the company;

(b) any claim made by or against the company (including claims by or against any of its branches in India);

(c) any application made under section 391 by or in respect of the company;

(d) any question of priorities or any other question whatsoever, whether of law or fact, which may relate to or arise in course of the winding up of the company;

whether such suit or proceeding has been instituted, or is instituted, or such claim or question has arisen or arises or such application has been made or is made before or after the order for the winding up of the company, or before or after the commencement of the Companies (Amendment) Act, 1960 (65 of 1960).

(3) Any suit or proceeding by or against the company which is pending in any Court other than that in which the winding up of the company is proceeding may, notwithstanding anything contained in any other law for the time being in force, be transferred to and disposed of by that Court.

(4) Nothing in sub-section (1) or sub-section (3) shall apply to any proceeding pending in appeal before the Supreme Court or a High Court."

Companies Act and the Admiralty Act

63 The Companies Act is an act relating to companies in general as held by

the Apex Court in Damji Valji Shah62. In the case of International Coach Builders Ltd.

V/s. Karnataka State Financial Corporation 63 also, the Supreme Court took the view that

the Companies Act is general law.

62. Supra

63. (2003) 10 SCC 482

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64 On the other hand, the Admiralty Act is a consolidating act and a complete

Code as regards the matters dealt with by it. It is a special law as regards Admiralty

jurisdiction, legal proceedings in connection with vessels, their arrest, detention, sale and

other matters connected therewith and incidental thereto. Determination of priorities is a

matter connected to and / or incidental to the sale of ships.

65 The Admiralty act concerns a special type of proceedings, viz., an action

in rem against a ship which is treated as a separate juridical entity, distinct from its owner.

An action in rem is not an action against the Company but a suit against the vessel and

recovery of the claim from the sale proceeds of the vessel. It is not a recovery action

against the Company nor is an arrest of a ship an attachment of the asset of the Company.

The distinctive features of the Admiralty Act and an action in rem are referred to and

explained in the preceding paragraphs pertaining to the IBC.

66 Since an action in rem is against the ship and not against the company

which may be the corporate debtor, the same considerations apply as under the IBC when

it comes to considering the provisions of Section 446(1) of the Companies Act. The said

section refers to suit or other legal proceeding against the company. An Admiralty action

in rem is not a suit against the company. It is a suit against a ship which is a legal

personality independent of the owner and is proceeded against not as an asset of the

owner who may be a company but as an independent juridical entity.

67 An action in rem can only be filed in certain specified High Courts that

have been vested with Admiralty jurisdiction pursuant to Section 3 of the Admiralty Act.

The corollary to this is that no other High Court and no Civil Court can exercise

Admiralty jurisdiction under the act. Certain specific High Courts have been given

exclusive jurisdiction over matters specified in the Admiralty Act.

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68 The Admiralty Act, thus, is a Special Act and a later act whereas the

Companies Act is a general act. The Admiralty Act is also a consolidating act and a

complete code as regards Admiralty jurisdiction, arrest of ships, maritime claims, sale of

ships and determination of priorities.

69 Considering the aforesaid features of both acts, I now propose to set out

the submissions of the counsels on the question of whether leave under Section 446(1) is

required.

Summary of the submissions of the Counsels: Elaborate submissions were made by the

counsels, as summarized below.

70 Dr. Abhinav D. Chandrachud, the Amicus Curiae, submitted that no

leave is required of the Company Court under Section 446 of the Companies Act for

either instituting or continuing a suit under the provisions of the Admiralty Act for the

following reasons:

a) The Admiralty Act being a special enactment will prevail over the Companies

Act.

a) Even if both the Admiralty Act and Companies Act are considered to be special

enactments, the Admiralty Act will prevail over the Companies Act as the former

is a later enactment to the latter.

b) The Company Court cannot exercise Admiralty jurisdiction under Section 446(2)

of the Companies Act as the jurisdiction of the Civil Courts is impliedly barred by

the Admiralty Act.

c) In any event a proceeding for arresting the ship in rem under the Admiralty Act

(so long as the company which owns the ship does not enter appearance) is not

against the company as contemplated under Section 446(1) of the Companies Act.

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70.1 Relying upon Damji Valji Shah64, Dr. Chandrachud submitted that no leave

under S.446 (1) of the Companies Act was required. In Damji Valji Shah65 the question

was whether leave of the company Court was required for proceeding with an application

before the Life Insurance Tribunal, Nagpur, under the provisions of the Life Insurance

Corporation Act, 1956 ("LIC Act") against a company which had gone into liquidation.

Under Section 7 of the LIC Act, the life insurance business of all insurance companies

was transferred to the Life Insurance Corporation of India ("LIC"). Under Section 15 of

the LIC Act, LIC could apply to the tribunal to set aside a transaction by which the life

insurance business of a company was transferred to another department within that

company. While answering this question in the negative, the Court held that no leave of

the company Court was required for two reasons: (i) Section 41 of the LIC Act barred the

jurisdiction of civil Courts which indicated that the tribunal constituted under the LIC Act

had exclusive jurisdiction to hear and decide the applications in question; and (ii) the LIC

Act was a special act which overrode the provisions of the Companies Act which was a

general act.

70.2 Dr. Chandrachud further submitted that the Court's reasoning in Damji

Valji Shah66 applies in the instant case as well, for the reason, though there is no specific

bar of jurisdiction clause in the Admiralty Act, akin to Section 41 of the LIC Act, the

jurisdiction of civil Courts is impliedly barred under the Admiralty Act. An ordinary civil

Court in, say, Pune or Daman, does not have the power to exercise jurisdiction in rem

under the Admiralty Act over disputes involving maritime claims.

70.3 In Allahabad Bank V/s. Canara Bank67, where the question before the

Supreme Court was : "After a winding-up order is passed under Section 446(1) of the

Companies Act or a provisional liquidator is appointed, whether the Company Court can

64. Supra

65. Supra

66. Supra

67. Supra

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stay proceedings under the RDDB Act, transfer them to itself and also decide questions

of liability, execution and priority under Section 446(2) and (3) read with Sections 529,

529-A and 530 etc. of the Companies Act or whether these questions are all within the

exclusive jurisdiction of the Tribunal?". The judgment of the Supreme Court in Allahabad

Bank vs. Canara Bank68 applies in the instant case for the following reasons:

a. As held by the Court in its judgment, if the leave of the Company Court

is required under Section 446(1) of the Companies Act in admiralty suits,

it would follow that the company Court in, say, Jabalpur or Gauhati would

be able to withdraw admiralty suits filed before one of the eight High

Courts designated as Courts having admiralty jurisdiction under the

Admiralty Act and decide such suits themselves, under Section 446(2) of

the Companies Act. This would be contrary to the intent of the Admiralty

Act which confers exclusive admiralty jurisdiction over only eight High

Courts in India and impliedly excludes the jurisdiction of other Courts.

It may be contended that Allahabad Bank's vs. Canara Bank69 is

distinguishable from the instant case because the Admiralty Act contains

no provision akin to Section 34 of the RDDB Act, which gives the RDDB

Act overriding effect over all other laws. However, the answer to this

argument is that the LIC Act did not contain a provision akin to Section 34

of the RDDB Act either, and despite this, the Supreme Court, in Damji

Valji Shah's case70, held that the LIC Act prevailed over the Companies

Act and Section 34 of the RDDB Act provided "34. Act to have over-

riding effect.--(1) Save as provided under subsection (2), the provisions

of this Act shall have effect notwithstanding anything inconsistent

therewith contained in any other law for the time being in force or in any

instrument having effect by virtue of any law other than this Act......

68. Supra

69. Supra

70. Supra

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b. Like the RDDB Act which is a special law which applies to banks, the

Admiralty Act is a special law which applies to admiralty matters. It

therefore prevails over the Companies Act, which is a general law.

70.4 In Indorama Synthetics 71, a Division Bench of the Bombay High Court

was considering whether leave of the Company Court would be required under Section

446 of the Companies Act to institute or proceed with a case under Section 138 of the

Negotiable Instruments Act, 1881 ("NI Act"). Answering this question in the negative,

the Court held the predominant purpose of the provisions empowering the Court to stay

actions against the Companies in liquidation or to seek permission of the Company Court

before proceeding with any action launched against the Company, which is already

wound-up, is to ensure that the ultimate distribution of the assets of an insolvent company

is pari passu among its creditors.

70.5 However, while dealing with the above question in Indorama Synthetics72,

the Court also referred to (i) S.V. Kondaskar, Official Liquidator and Liquidator of the

Colaba Land and Mills Co. Ltd. (In Liquidation) V/s. V.M. Deshpande, Income Tax

Officer, Companies Circle I (8), Bombay73; (ii) Joshi Trading Co. (P.) Ltd. V/s. Essa

Ismail Sait74; and (iii) B.V. John V/s. Coir Yam and Textiles Ltd.75. Relying on these and

other judgments, the Court, in Indorama Synthetics76 held, 'Thus, the sum and substance

of all these judicial decisions is that the provisions of section 446(1) of the Companies

Act are to be invoked judiciously only when it has got any concern with either the

winding-up proceedings or with the assets of the Company. The expression "suit or other

proceedings", therefore, as used in section 446(1) of the Companies Act, has to be

construed accordingly and not to be interpreted so liberally and widely so as to include

71. Supra

72. Supra

73. (1972) 1 SCC 438

74. (1980) 50 Kerala 801

75. [1960] 30 Comp Cas 162 (Ker)

76. Supra

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each and every proceeding of whatsoever nature initiated against the Company,

including even the criminal proceedings like for the offence under section 138 of N.I. Act,

which has got no bearing on the winding-up proceedings of the Company and are not

concerned with, directly with the assets of the Company, but are mainly dealing with the

penal and personal liability of the Directors of the Company.'

70.6 The judgment of this Hon'ble Court in Indorama Synthetics77 applies to the

instant case for the following reasons:

a. The judgments of the Supreme Court and Kerala High Court make it

clear that leave of the company Court will not be required under Section

446 of the Companies Act if the company Court is not the appropriate

forum for withdrawing the proceeding in question and hearing the case

itself. In the instant case, the Admiralty Act confers exclusive jurisdiction

on eight High Courts in India. It impliedly excludes the jurisdiction of civil

Courts and it will therefore not be appropriate for the Company Court to

withdraw such a case and hear it before itself.

b. This Court has made it clear that the provisions of Section 446 of the

Companies Act are not to be construed liberally to include each and every

kind of proceeding.

c. The Court has also applied the principle that since the NI Act was

amended in 1988, it is a subsequent enactment which will therefore

override the Companies Act which is a general enactment. The Admiralty

Act, being a subsequent and special act, must therefore also override the

Companies Act, which is an earlier and general enactment.

70.7 As regards, reliance by the counsel appearing on behalf of the Official

Liquidator In Re: Modi Stone Ltd. (in liquidation) 78, in which this Hon'ble Court took

77. Supra

78. 2017 SCC Online Bom 665

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the view that the leave of the Company Court would be required in order to institute or

continue such proceedings before the Small Causes Court, Dr. Chandrachud submitted

and rightly so that the said view taken by this Hon'ble Court was based on a concession

made by counsel appearing on behalf of the parties, and can therefore not be considered.

70.8 As regards the judgment of a Single Judge of the Madras High Court in

Shanmugam Rajasekar V/s. Owners and Parties interested in the vessel M.T. Pratibha

Cauvery79, Dr. Chandrachud submitted that though the Court was correct in holding that

the provisions of a special enactment will prevail over the provisions of a general

enactment, the said judgement does not lay down the correct position in law because the

Court wrongly identified the Merchant Shipping Act, 1958 as the special enactment

instead of the Admiralty Act. He also submitted that the finding of the Court that even

when an owner enters appearance the proceedings continue to be in rem is incorrect.

70.9 However, according to Dr. Chandrachud, the judgment of the Division

Bench of the Madras High Court in Pratibha Shipping Company Ltd. V/s. Praxis

Energy Agents SA80 lays down the correct position of law except that it erroneously holds

that "such maritime claims deserve to be adjudicated and proceeded further without any

intervention of the official liquidator attached to the Bombay High Court." According to

the Learned Amicus the Admiralty Court would have to issue notice to the Official

Liquidator prior to distributing the proceeds of the sale.

71 Mr. Sharan Jagtiani, Advocate, appearing for the Official Liquidator in

Company Petition No.756 of 2014, submitted as follows:

71.1 It is clear from the plain and unambiguous language of Section 446 that it

is extremely wide in its scope. Every sub-part of Section 446 uses expressions that are

79. A. nos 2997/2013 in C.S. No. 89 of 2013- (2018) 1 High Court Cases (Mad) 133

80. (Unreported) Dt. 9.8.2019 in OSA Nos. 20, 317 to 349, 363 & 264 of 2018 & W.A. Nos 738 to 751 of 2013

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unqualified and unconditional. Section 446(1), uses the expression "no suit or other legal

proceeding". These are expressions without any qualifications. It cannot be read into this

language that certain suits which are filed before certain Courts of special jurisdiction are

outside the purview of Section 446(1). If a particular action fits within the plain meaning

of the words suit or other legal proceedings, it falls within the ambit of Section 446(1).

71.2 Similarly, Section 446(2) which was subsequently introduced by an

amendment in 1960 bolsters the wide import of Section 446 by introducing a non-

obstante clause. It clearly states that it will operate notwithstanding anything contained in

any other law for the time being in force. Section 446 (2) of the Companies Act invests a

special jurisdiction in a company Court to entertain or dispose of "any suit or

proceeding". This leads to the unmistakable conclusion that the legislature intended to

confer special jurisdiction on the company Court in the widest possible terms.

71.3 Therefore, leave under Section 446 of the Companies Act would be

required to be obtained by the claimants / plaintiff in Admiralty action even if such action

is against the vessel or the res alone and regardless of whether the claimant is a maritime

lien holder or secured creditor / mortgagee of the vessel. Mr. Jagtiani relied upon

Hansraj and Ors. V/s. The Official Liquidators, Dehra Dun Mussoorie Electric

Tramway Company Ltd.81 ; Sudarsan Chits (I) Ltd. V/s. O. Sukumaran Pillai and Ors.82

and S.V. Kandeakar V/s. V.M. Deshpande & Anr.83 in support of these submissions. Mr.

Jagtiani also submitted as to why Corona Ltd. V/s. Sumangal Holdings84; Bangur

Brothers Ltd. (in liquidation) V/s. Official Liquidator 85 and K.R. Steel Union Ltd. V/s.

Poysha Industrial Company Ltd.86 relied upon by Dr. Chandrachud, won't be applicable

in the facts and circumstances of the case.

81. 1929 Allahabad Series Vol. LI 695

82. (1984) 4 SCC 657

83. (1972) 1 SCC 438

84. 2007 (4) Mh. L.J. 551

85. (2013) SCC Online 1175

86. 2007(4) Mh. L.J 280

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71.4 Meeson has, upon consideration of statutory provisions of the English law

in Insolvency Act, 1986 and the Admiralty laws, stated that the commencement of an

insolvency proceeding itself prevents legal proceedings from being continued against the

vessel of the company in liquidation. Moreover, when a claim gives rise to a statutory

action in rem, the effect of this action results in encumbering the res against which the

claim is brought amounting to creation of security interest in the ship. This appears to be

'disposition of company's assets' and would be void under Section 536 of the Companies

Act unless otherwise ordered. From the reading of Meeson it also becomes clear that the

Admiralty claimant's claim being secured creditor will rank pari passu, with the claim of

the workmen, however, the priorities of the Admiralty claimants are to be determined by

applying the principles of Admiralty law. It was therefore submitted that, this is the

underlying principle of Section 446 (2) wherein once the Court hearing company matters

assumes jurisdiction, the priorities shall be determined under Admiralty Act, 2017 and not

the Companies Act.

71.5 Therefore, even in an action against the res which is the asset of the

company undergoing liquidation, leave of Company Court is required to be taken. Leave

in such a case may be ordinarily granted depending upon the facts and circumstances of

the case, however, in case the Court refuses to grant such leave then the Court under

Section 446(2) would assume jurisdiction as laid down in Admiralty Act and accordingly

adjudicate the lis. This view was also taken by this Court in Praxis Energy Agents SA V/

s. M.T. Pratibha Neera87 wherein it was held leave was required. This is in consonant

with the position in law in England that it is mandatory to apply for leave under Section

446. Although, this judgment does not consider the law under Section 446 at length, but

does give a finding based on a specific submission and thus ought not to be written off as

87. 2018 SCC Online 957

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obiter. In any view of the matter, this judgment respectfully lays down the correct legal

position.

71.6 Mr. Jagtiani also analysed the judgment of a learned single judge of the

Madras High Court in the case of Shanmugam Rajasekar V/s. Owners and Parties

Interested in the vessel M.T. Pratibha Cauvery 88 where the primary question was whether

leave under section 446 is necessary for proceeding for a maritime claim in rem. He

submitted that this judgement is per incuriam on various accounts primarily because it

does not consider the wide import of Section 446 as laid down in the plain reading of

Section 446 of the Companies Act as well as in Sudarsan Chits89. The Madras High Court

in this judgment completely overlooks the existence of Admiralty Act and proceeds on

the basis that Admiralty law in India is governed by the Merchant Shipping Act, 1958.

Moreover, it fails to consider the specific non-obstante provision in Section 446 the

Companies Act. According to Shri Jagtiani even the judgment of the Division Bench of

the Madras High Court in Pratibha Shipping Company Ltd. vs. Praxis Energy Agents SA90

has to be faulted as it does not provide any reasoning as to why the Admiralty Act is to be

treated as a special law in a situation of winding up. Therefore, the law laid down in these

judgments ought not to be relied upon whilst deciding the present case.

71.7 Relying upon Principal Commissioner of Income Tax, Central V/s.

Income Tax Settlement Commission91 Mr. Jagtiani submitted that in a situation where the

later or special legislation does not provide for a specific non-obstante clause, it would

not be for the Court to read within the act any such provision only to provide for an

overriding effect. Clear provision must specifically exist in the later legislation as held

by the Supreme Court in Kerala State Financial Enterprises Ltd. V/s. Official

Liquidator, High Court of Kerala92 .

88. Supra

89. Supra

90. Supra

91. R/Special Civil Application No. 9883 of 2019; Decided on 22.10.2019

92. (2006) 10 SCC 709

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71.8 There is no inconsistency when the Company Court under Section 446(2)

transfers the proceeding to itself. Transferring the proceeding to itself only means that

that Court which hears the Winding up matter will now adjudicate the lis as opposed to

the Courts identified in Section 3 of the Admiralty Act. It is, however, very important to

note that, the rights of Plaintiff, whether in rem against the res or in personam or hybrid,

are not taken away. Therefore, no part of this result in a situation of inconsistency as, both

legislations are perfectly capable of being given full effect. In a situation where pursuant

to rejecting leave under Section 446, if the company Court transfers to itself a suit, it is

not that the Company Court is hearing the Admiralty action. Once it transfers to itself a

Suit, it then hears it as a civil Court. Thus, in absence of any specific non-obstante clause

in the Admiralty Actthe act cannot be said to have an overriding effect on the Companies

Act only on the ground that it is a special and later Act.

71.9 From the above position it is clear that even in a case where the later act

explicitly provides for a non-obstante clause, there has to be a direct conflict and

inconsistency between two enactments to give an overriding effect. In the present case

there is no such inconsistency between the provisions of the Admiralty Act and

Companies Act. Moreover, assuming one has to cull out any inconsistency, the

Admiralty Act does not provide for a non-obstante clause for it to give an overriding

effect. Therefore, if two legislations can be harmonized, all the sui generis aspects of the

Admiralty Act shall remain intact. All that changes is the venue where such proceeding is

carried out.

71.10 In the circumstances, though the Admiralty Act is a later act it does not

contain a non-obstante clause or any overriding provision. Consequently Section 446

would apply to an Admiralty action for arrest of a ship.

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71.11 The whole purport of the winding up is realisation and distribution of the

assets of the company and the same would be defeated if an Admiralty action is allowed

to be proceeded against the ship which is an asset of the company.

71.12 When a maritime lien holder applies for leave under Section 446, the

Company Court would, almost always, if not invariably, grant such leave subject to

appropriate conditions.

71.13 Leave may be applied for specifically during the pendency of the suit and

does not per se invalidate the suit filed.

71.14 Even if Admiralty law is a special law, Section 446 and companion

provisions under the Companies Act are themselves also special law in respect of matters

pertaining to liquidation of a company.

71.15 A company Court which is seized of a winding up of a company that owns

any vessel which is the subject matter of an Admiralty action may exercise powers under

Section 446(2). However, in deciding the suit, the Court that is winding up the company

will continue to apply the body of substantive law that would otherwise apply to such suit

or proceeding.

72 Mr. V. K. Ramabhadran, Senior Advocate, Amicus Curiae, supported the

submissions of Mr. Jagtiani. In addition, Mr. Ramabhadran submitted that:

a. A bare reading of S. 446 of the Companies Act would reveal that

"when a winding up order has been made or official Liquidator has

been appointed as Provisional Liquidator, "leave of the Company Court is

mandatorily required to be obtained either for instituting the suit or

proceedings with the suit where the company Court is empowered to deal

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with such proceedings, unless the company Court's jurisdiction is ousted as

was held S. V. Kandeakar V/s V. M. Desphande & Anr.93, Damji Valji Shah94

and

Allahabad Bank V/s. Canara Bank95.

b. Leave of the Company Court would be required as even though the subject

matter is dealt with under a Special Act namely the Admiralty Act, the

jurisdiction of the Civil Court is not ousted and consequently the Court that is

winding up the company will have the necessary power and jurisdiction to

decide the Admiralty suit by virtue of Section 446(2). Moreover, there is no

overriding provision in the Admiralty Act to oust the jurisdiction of the Civil

Court.

c. The words "against the company" in Section 446 of the Companies Act

must be interpreted to mean "against the Company and its assets". An action

in rem being an action against the asset of the company would be covered by

Section 446. He relied upon Rajasthan State Financial Corporation V/s.

Official Liquidator96; Bank of Maharashtra V/.s Pandurang Keshav

Gorwardkar & Ors.97; The Governor General In Council V/s. Shiromani

Sugar Mills Ltd. (In Liquidation)98; and M. K. Ranganathan V/s.

Government of Madras & Ors99.

d. An arrest of a ship is analogous to attachment before judgment and any

such arrest would be void as per Section 537 of the Companies Act.

e. The Admiralty Act is general law insofar as enforcement of maritime claim

is concerned but can be considered special law for enforcement of a maritime

lien, a concept which is sui generis. Hence the Company Court whilst ordering

distribution of sale proceeds would have to accord higher priority to claimants

93. Supra

94. Supra

95. Supra

96. (2005) 8 SCC 190

97. (2013) 7 SCC 754

98. 1946 8 FCR 40 page 55 of the Federal Court

99. AIR 1955 SC 604

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whose claim is maritime lien as defined in the Admiralty Act. This does not,

however, mean that the person who has a maritime lien does not require leave

under Section 446 but would only get priority in the distribution of sale

proceeds by the winding up Court.

73 Mr. Rahul Narichania, Senior Advocate, appearing for a contesting party

submitted the Admiralty Act is a special act whereas the Companies Act is not a special

act and does not contain any provision which overrides any other law. Section 446(2) of

the Companies Act does not make it a special act. Relying upon Gobind Sugar Mills Ltd.

V/s. State of Bihar and Ors100. Mr. Narichania submitted that while determining the

question whether a statute is a general or a special one, focus must be on the principal

subject-matter coupled with particular perspective with reference to the intendment of the

Act.

73.1 Admiralty Act is special because,

(i) Admiralty jurisdiction is restricted to only certain Courts. Section 2(e) of

the Admiralty Act confers admiralty jurisdiction only on the High Court of

Calcutta, Bombay, Madras, Karnataka, Gujarat, Orissa, Kerala, Hyderabad and

the State of Andhra Pradesh or any other High Court, as may be notified by the

Central Government. Therefore, no other Courts will have admiralty

jurisdiction and No Civil Court will have jurisdiction.

(ii) Only specific claims are recognised as maritime claims under Section 4 of

the Admiralty Act. Maritime claims are thus of a special character and special

rights are conferred on maritime claimants.

(iii) Priorities of Claims are stipulated under the Admiralty Act. Section 9 of

the Admiralty Act for the first time under Indian law stipulates the order of

100. (1999) 7 SCC 76

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priority of competing maritime claims and liens. Prior to this, priorities of rival

claims were decided under common law and precedents.

(iv) The Jurisdiction of the Admiralty Court is special unlike the Civil

jurisdiction of a Court. Admiralty jurisdiction is not dependent on the presence

of the Defendant within the jurisdiction of the Court or the cause of action

arising within the jurisdiction of the Court. The Admiralty jurisdiction is

dependent only on the presence of the ship within its jurisdiction as held in

m.v. Elizabeth101.

(v) Unlike the Companies Act or the IBC, a sale of the property viz., 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 lines or encumbrances. This has been so held in ICICI Ltd.,

Bombay V/s. M.F.V. 'SHILPA' And Ors. 102 AND in M.V. Bos Angler and

Ors.103

(vi) Maritime claims and liens are enforceable by an action in rem as well as

an action in personam. However, the distinctive feature of an admiralty action

is one in the nature of an action in rem and as such jurisdiction is specially

conferred by the statute.

(vii) Only an Admiralty Court can exercise jurisdiction in an action in rem.

An action in rem is directed against the ship.

(ix) The ship is treated as a person and is treated as a wrong doer liable to pay

for the wrong.

(x) The ship is made a Defendant in the suit and a decree of condemnation

and sale is passed against the ship.

(xi) A vakalatnama is required to be filed on behalf of the ship.

101. Supra

102. Supra

103. Supra

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(xii)In an action in rem, if the ship is served with a warrant of arrest, a writ of

summons is not required to be served on the owner of the ship.

73.2 The Admiralty Act is later in point of time to the Companies Act.

Consequently, the later special act prevails over the earlier special or general act

especially in the context of the Admiralty Court exercising in rem jurisdiction. Even

though there is no express provision in the Admiralty Act which overrides the jurisdiction

of other Courts or statutes, impliedly it has an overriding effect. It is not necessary that

there must be an express provision to override an earlier statute such as the Companies

Act and the IBC.

73.3 Furthermore, in the context of precedence between the Companies Act and

Admiralty jurisdiction, the Madras High Court in the case of Shanmugam Rajasekar V/s.

Owners and Parties Interested in the vessel m.t. Pratibha Indrayani 104, has, inter alia, held

the proceedings could neither be stayed under Section 446(2) of Companies Act nor the

applicants will be directed to obtain leave of the Company Court to proceed with the

Applications. It is therefore evident that the Admiralty jurisdiction is treated to be on a

different footing and will prevail over the Companies Act.

73.4 In Rikhabchand Mohanlal Surana V/s. The Sholapur Spinning and Weaving

Company Ltd.105 the Bombay High Court held that the property of a company does not

vest in the Official Liquidator on winding up. The property if at all continues to remain as

the property of the company and the Official Liquidator is only given custody thereof

(under Section 456). Once property or money comes into the possession of the Court at

the instance of a Plaintiff then it would follow that they are constructively held by the

Court for the judgment creditor. The Official Liquidator cannot just take away the money

from the Court. The Plaintiff, on monies coming into Court becomes a secured creditor.

104. Supra

105. Supra

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The same principle applies when a ship owner furnishes security in the Admiralty Court.

The Official Liquidator cannot touch these monies if the company goes into winding up

subsequently. This may also apply to a situation where a ship has been sold and the sale

proceeds are lying in Court. As held in Chidambaram Chettiar V/s. The Tinnevelly

Sarangapani Sugar Mills106, a lien holder does not lose his right of lien on making of a

winding up order as long as his possession continues. He stands in the position of a

secured creditor against the properties. Thus, the Official Liquidator cannot deprive the

creditor of his security.

73.5 If a Company Court were to exercise powers under Section 446(2) over

Admiralty proceedings, it would have to decide it under Admiralty law as the Companies

Act cannot and does not override the law applicable to the subject matter of the suit.

73.6 Mr. Narichania analyzed four situations and submitted:

i. If a Suit for arrest is filed before presentation of a winding up petition, so also

an Order of arrest is obtained before presentation of a winding up petition, then,

in that case no leave is required under Section 446 because there are no

proceedings pending at all.

ii. If a Suit for arrest is filed after presentation of a winding up petition and

Order of arrest is obtained before appointment of a Provisional

Liquidator/Official Liquidator, no leave is required. Mere pendency of

winding up proceedings do not bar the filing of an admiralty suit for arrest of a

ship as it is possible that even a winding petition though presented may be

withdrawn or dismissed.

iii. Suit for arrest is filed after the Provisional Liquidator/Official Liquidator is

appointed and Order of arrest is obtained before final winding up Order is

passed, leave is required. Once the Provisional Liquidator/ Official Liquidator is

106. ILR (1908) 31 Mad 123 = 1907 SCC OnLine Mad 49

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appointed, though property continues to be beneficially owned by the company,

the Provisional Liquidator is in custody.

iv. Suit for arrest filed and Order of arrest is obtained after final winding up

Order is passed, the assets remain with the Official Liquidator who is in custody

of the assets and therefore leave would be required. It is the Official

Liquidator's responsibility to distribute the assets by liquidating it and by

paying of the creditors, etc.

74 Mr. Prasad Shenoy, Advocate, appearing for a contesting party submitted

that an attempt to equate an action in rem with an action in personam or to suggest that

they were in no 'real' way different was rejected as early as 1907, by the Court of Appeal

in The "Burns"107 in which the issue in question was whether section 1(a) of the Public

Authorities Protection Act, 1893 , applied to an Admiralty action in rem so as to preclude

such an action being instituted against a vessel belonging to a public authority after the

expiration of six months from the default complained of. The Court of Appeal upheld the

decision of the Court below that an action in rem is not an action in personam against the

owners. The observations of Fletcher Moulton L.J. therein,

"..... and that the action in rem is an action against the ship itself. It is an action in which the owners may take part, if they think proper, in defence of their property, but whether or not they will do so is a matter for them to decide, and if they do not decide to make themselves parties to the suit in order to defend their property, no personal liability can be established against them in that action. It is perfectly true that the action indirectly affects them."

have now long been considered as a precise articulation of the nature of an action in rem

This proposition has been affirmed and reiterated by the Court of Appeal in The

Nordglimt108, The Anna H109 and The Stolt Kestrel110.

107. [1907] P 137 (CA)

108. Supra

109. Supra. The Hon'ble Hobhouse LJ's analysis of "the relationship between the Admiralty jurisdictions in rem and in personam" shows that an exclusion of jurisdiction generally is to be interpreted as an exclusion of the in personam jurisdiction and not the in rem one.

110. [2016] 1 LLR125

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74.1 The said position and the aforesaid authorities have also been cited by

Meeson as laying down the present position of law today. 111 However, the distinction

drawn by Meeson as to quasi in rem claims has been drawn on the basis of decision of the

House of Lords in Indian Grace (No.2)112. The said distinction does not exist in Indian

Admiralty jurisprudence (statutory and case law). It is therefore wholly irrelevant to the

issues at hand.

74.2 This Court in Crescent Petroleum Ltd. V/s. M.V. Monchegorsk & Anr. 113

also recognised this position that the plaintiffs are entitled to maintain action in personam

and action in rem simultaneously in different jurisdictions. In the case of m.v. Altus

Uber114 a learned single judge of this Court after tracing the aforesaid century long

jurisprudence of both the Indian and English Courts inter alia observed that another facet

of the use of an action in rem for the purpose of obtaining security for a claim which is

the subject matter of in personam proceedings turns on the well settled distinction

between in rem and in personam proceedings. The Court also held that commencement

of in personam proceedings is no bar to an action in rem. This is because the two sets of

proceedings are cumulative and not in the alternative. It is only after the owner enters

appearance and submits to jurisdiction and furnishes security that the action in rem gets

converted into an action in personam. Until such time as the owner has entered

appearance and submitted to jurisdiction and furnished security, the action in rem remains

an action in rem and the vessel is available to Plaintiff as security in respect of its

maritime claim which is the subject matter of in personam proceedings against the owner

or the party liable in personam. Furnishing of security is also essential for the action in

rem to be converted to an action in personam because until such time security is

furnished, the vessel remains under arrest and the action against the vessel continues in

rem. The Court also observed that the admiralty jurisdiction of the Court is invoked by

111. Para 3.5, 3.7, 3.8 and 3.11.

112. Supra

113. AIR 2000 Bom 161.

114. 2018 SCC Online BOM 2730

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an action in rem when the Court arrests the vessel for securing a maritime claim. It is only

when the owner of the vessel enters appearance and gives security that the action

becomes an action in personam. The clause for arbitration is not between Plaintiff and the

vessel but between Plaintiff and the owner of the vessel. This clause for arbitration will be

given effect to after the Court exercises its jurisdiction to arrest a ship. It is from that

stage that the provisions pertaining to arbitration have to be considered. The Court added

a right in rem is a valuable right that a party has for the purpose of obtaining security in

respect of a maritime claim. To debar a party from approaching the Court on the ground

that the party has agreed to arbitration would tantamount to depriving a party of his

vested right to file an action in rem under the Admiralty Act. This right cannot be taken

away unless there is a statutory bar or an express provision denying such a right to a

Claimant. There is no such bar or prohibition under existing law. Neither is there any bar

to the exercise of this right merely because in personam proceedings have been

commenced by way of arbitration or in Court. On the contrary considering the distinction

between in rem and in personam proceedings, it is manifestly clear that a right in rem is

available to a Claimant notwithstanding commencement of in personam proceedings in

respect of the same claim and cause of action. This is because a right in rem in admiralty

jurisdiction is essentially available to secure a maritime claim by arrest of a ship. It is

only after the owner of the ship enters appearance and submits to jurisdiction and

provides security that the action in rem would proceed as an action in personam. In

Appeal, a Division Bench of this Court has upheld the findings of the Learned Single

Judge, reinforcing the distinction between in rem and in personam proceedings115. The

aforesaid observations of the Hon'ble Supreme Court of India in m.v. Elisabeth116 as well

as of this Hon'ble Court in m.v. Altus Uber117 are also enlightening with respect to the

question as to when a proceeding initiated in rem can be said to have also become a

115. (2019) 5 Bom CR 256

116. Supra

117. Supra

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proceeding in personam, i.e., on the appearance of the owner and deposit of security in

lieu of Defendant Vessel.

74.3 Mr. Shenoy summarized by submitting:

a) Since the suit is commenced as an action in rem against the res alone, no leave

under Section 446 is required.

a) In the event appearance is entered by the company claiming to be the owner of the

ship, no leave under Section 446 would be required in the event Plaintiff is

enforcing a maritime lien as ownership of the vessel is immaterial for enforcement

of the same.

b) If Plaintiff limits its claim to the value of the res and does not claim any amount

against the owner in personam, leave under Section 446 would not be required.

c) In all cases if the owner deposits security in order to obtain release of the ship,

then leave under Section 446 would be required for continuing such an action

which would be an action in personam.

d) In the event an action in rem is instituted before the presentation of a winding up

Petition under the Companies Act and the vessel is arrested, the vessel ceases to

be a property of the owner and the owner's only surviving right, as held in m.v.

Bolivia118, would be to receive the residual proceeds of sale after satisfaction of all

claimants. In such a case no leave under Section 446 would be required to proceed

with the suit.

75 Ms. Priya, Advocate, for the Official Liquidator of GOL Offshore Ltd.

supports the submissions made by Mr. Sharan Jagtiani and submits that leave is required

under Section 446 of the Companies Act before commencing an action in rem or to

proceed with the action already commenced if the Official Liquidator has been appointed

as Provisional Liquidator of the company. In order to assert an action in rem and liability

118. Supra

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on the res, the claimant is required to establish in personam liability of the owner as set

out in Section 5(1) of the Admiralty Act. Thus, even though it is only the vessel which is

the Defendant in the proceedings, the owner is also included as a Defendant in the suit

even though not expressly named and joined.

76 Mr. Prathamesh Kamath, Advocate, supported the submissions of Mr.

Sharan Jagtiani and in addition submitted as follows:

a) Obtaining leave under section 446 of the Companies Act is mandatory

when the suit or legal proceedings are filed against the assets of the company. The

main purpose or object behind section 446 is to ensure that the assets of the

company are not recklessly given away or frittered but are utilized to meet the debts

of the company's secured or unsecured creditors as also to its shareholders

irrespective of whether the suit is an action in rem or in personam. The assets are

deemed to be in the custody of the company Court through the official liquidator

who acts as a guardian of the assets as provided under section 456 of the Companies

Act.

b) Even if it is an in rem action only against the vessel, grant of leave under

section 446 will still be required as it is against the asset of the company (in

liquidation).

c) In the alternative, an admiralty suit against a vessel would be a blended

action in rem as well as in personam. Thus, even assuming that the requirement of

leave is restricted to in personam action against the company and does not apply to

an action in rem against a vessel, such leave will have to be obtained before

continuing such a blended action.

d) The Admiralty Act does not have any non-obstante clause and does not

exclude or prohibit the applicability of the mandatory provisions of the Companies

Act.

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For his submissions of point (a) and (b) above Mr. Kamat relied upon Central Bank of

India V/s. Elmot Engineering Pvt. Ltd. & Ors.119; Central Bank of India V/s. Elmot

Engineering Pvt. Ltd. & Ors.120; Harihar Nath & Ors. V/s. State Bank of India &

Ors121; Erach Boman Khavar V/s. Tukaram Shridhar Bhat and Another 122; Indorama

Synthetics123.

For his submissions on point (c) above, Mr. Kamat relied upon (a) THE AUGUST 8124

delivered by the Privy Council and (b) THE GEMMA125 of the English Court of Appeal.

76.1 A learned single judge of this Court in Praxis Energy Agents SA V/s. M.T.

Pratibha Neera126 while dismissing a Chamber summons to add sale proceeds of sister

vessels, inter alia, held that leave of company Court under Section 446 is mandatory.

The Madras High Court has, however, given a contrary finding in the case of Shanmugam

Rajasekar V/s. Owners and Parties Interested in the vessel m.t. Pratibha Indrayani 127 by

holding that no leave under S. 446 of the Companies Act was required. The said

Judgment with respect is per incuriam and does not lay down the correct position for

various reasons, inter alia,:

i. It does not consider Section 456 of the Companies Act and its effect, more

particularly with respect to the custody of all the assets of the Company (in

Liquidation) vesting in the Company Court;

ii. It proceeds on the basis that Admiralty law in India is governed by the Merchant

Shipping Act 1958. It ignores Admiralty Act and fails to consider the absence of

any non-obstante clause which is present in the Companies Act;

119. (1993) 1 Mh. L.J. 671

120. (1994) 4 SCC 159

121. (2006) 4 SCC 457

122. (2013) 15 SCC 655

123. Supra

124. Supra

125. 1899 PD 285 (C.A.)

126. Supra

127. Supra

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iii. It does not take into consideration the Judgments of Supreme Court in Elmot

Engg. Ltd.128, Hari Har Nath129 and the Judgments on Section 446 which hold that

leave is necessary if the Suit or Legal proceedings is against the asset of the

company (in Liquidation);

iv. It fails to appreciate that the exclusion of Jurisdiction of any Court has to be

express and cannot be implied. There cannot be an implied exclusion of Courts

unless the statute so specifically mentions;

v. It does not consider that there is no repugnancy between the Admiralty Act and

the Companies Act, as the Admiralty Act, does not contemplate a situation of

winding up of a company.

77 Mr. Ajai Fernandes, Advocate, appearing for the Board of Trustees for the Port

of Mumbai submitted that as far as the statutory claim of the Port Trust towards their rates

and penalties is concerned, there is no question of the Port having to obtain leave under

Section 446 of the Companies Act. Section 64 of the Major Port Trusts Act, 1963 gives

the power to the Board to distraint or arrest the vessel and detain the same until the

amount due to the Board is paid and to sell the vessel and appropriate the sale proceeds in

satisfaction of their dues and pay the surplus if any to the master of such vessel on

demand. He submitted that the Apex Court in Board of Trustees, Port of Mumbai V/s.

Indian Oil Corporation and Anr.130 has, in paragraphs 13, 17 and 19, held as follows:

13: "Therefore, the lien of a harbour authority over the vessel is a paramount lien and realization of its dues by the harbour authority by the sale of the vessel is above the priorities of secured creditors. In other words, the statutory lien of a harbour authority has paramountcy even over the claims of secured creditors in a winding up. In exercise of its right under Section 64 the appellant is, therefore, entitled to sell the vessel without the intervention of the Court. In exercise of that paramount right which overrides the claims of all other creditors including secured creditors, the appellant has a right to arrest the vessel and sell it. Without the consent of the appellant, this right cannot be transferred to the sale proceeds of the vessel."

......

128. Supra

129. Supra

130. Supra

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17: "The appellant has a supervening priority in respect of its claims against the vessel. It has a right to sell that vessel and realise the sale proceeds. The appellant cannot be divested of this statutory right without its consent or be subjected to other priorities under the Companies Act."

.....

19: "The appellant shall be entitled to realise its statutory dues as per law from the sale proceeds of the said vessel and the balance, if any, of the sale proceeds shall be deposited by the appellant with the Official Liquidator in winding up. The appellant shall also file an account of its dues and the realisation of the same from the sale proceeds of the vessel in the winding up proceedings before the Official Liquidator. The appellant has no objection to doing so. In respect of any shortfall in the realisation of dues, the appellant may file its claim for the balance in winding-up proceedings in accordance with law.

78 Mr. Shrikant Hathi, Advocate, did not make any oral submissions but with

the leave of the Court tendered written submissions. In short, Mr. Hathi also supported

the view that no leave under S. 446 of the Companies Act was required. Mr. Hathi also

submitted that the sale proceeds or security should be distributed as per the priorities

prescribed under the Admiralty Courts Act.

79 The submissions of Mr. Prashant S. Pratap, Senior Advocate, Amicus

Curiae, could be summarized as under:

i. The Companies Act is an act relating to companies in general as held by the

Apex Court in Damji Valji Shah131. The Companies Act is general law as held

in International Coach Builders Ltd. vs. Karnataka State Financial

Corporation132 .

ii. The Admiralty Act is a consolidating act and a complete Code as regards the

matters dealt with by it. It is a special law as regards Admiralty jurisdiction,

legal proceedings in connection with vessels, their arrest, detention, sale and

other matters connected therewith and incidental thereto. Determination of

priorities is a matter connected to and / or incidental to the sale of ships.

131. Supra

132. Supra

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iii. The Companies Act is a general act relating to companies and refers to suits

against the company in general. The Admiralty Act is a special act concerning

suits in rem against a ship and vests Admiralty jurisdiction exclusively in

certain High Courts only to entertain such actions in rem. Applying the

principle of interpretation that special overrides the general the Admiralty Act

will prevail over the Companies Act. Even if the Companies Act is considered

as a special act in relation to Companies, the Admiralty Act being a later

special Act will prevail over the Companies Act. Thus, no leave is required

under Section 446(1) of the Companies Act for commencement or continuation

of an action in rem against a vessel.

iv. Section 446(1) of the Companies Act refers to suit against the company. Under

Section 446(2), jurisdiction is given to the Court to entertain or dispose of any

suit against the company. An action in rem is against the ship which is an

independent legal entity and distinct from the company owning it. It is not a

suit against the company. Hence by this reasoning also no leave is required

under Section 446(1) of the Companies Act as the Court which is winding up

the company may not have jurisdiction to entertain and dispose of an action in

rem filed against a ship (and not against the company owning it) under the

Admiralty Act which is conferred only on certain specified High Courts under

the said act.

v. As regards Sections 529 and 529A of the Companies Act although these have

been held by the Apex Court in International Coach Builders133 as conferring

special rights on workmen and must be treated as special law made by the

Parliament, these amendments were introduced in 1985. The Admiralty Act is

also a special Act and a later enactment of the year 2017. Section 10 of the

Admiralty Act which deals with priorities in the matter of distribution of sale

133. Supra

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proceeds of a ship sold by the Admiralty Court will prevail over the priorities

as regards to payments under section 529A of the Companies Act.

vi. Section 10 of the Admiralty Act is a special provision enacted for the purpose of

dealing with priorities in respect of certain identified maritime claims against

particular ship. This arises only when in an action in rem the ship is arrested

and sold and the sale proceeds are deposited with the Admiralty Registrar in the

High Court and are within the control of the Admiralty Court. Sections 529 and

529A of the Companies Act give priority to workmen in respect of the general

assets of the company. Hence Section 10 of the Admiralty Act is special law

relating to priorities in respect of the sale proceeds of a particular ship vis-à-vis

Sections 529 and 529A which is general law in regard to priorities over the

general assets of the company. Consequently, the special law must prevail in

the matter of priorities of claimants to the sale proceeds of a ship.

vii. Even applying the principles of what is just and fair, crew members who work

on a ship are workmen in every sense and their wages get the highest priority

under the Admiralty Act. This is consistent with the objectives of section 529

and section 529A of the Companies Act which is to give priority to dues of

workmen. Crew wages rank higher than the dues of all other creditors

including secured creditors.

Conflict, Interpretation and Analysis

80 It is clear from the submissions of the parties that the first question to be

examined is whether the provisions of the Admiralty Act have an overriding effect and

prevail over the provisions of the Companies Act such that no leave under Section 446(1)

would be required for the commencement of an action in rem against a ship or

continuation of the action once commenced, where a winding up order has been made or

if the Official Liquidator is appointed as Provisional Liquidator of the company which

owns the ship.

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81 The case of Damji Valji Shah134 dealt with a conflict between Section 41 of

the LIC Act, which conferred exclusive jurisdiction on the tribunal constituted under the

said Act in respect of certain matters and Section 446(2) of the Companies Act which

conferred exclusive jurisdiction on the Company Court to entertain or dispose of any suit

or proceeding by or against a Company where a winding up order has been made or the

Official Liquidator is appointed as Provisional Liquidator of the Company. The Apex

Court held that the provisions of the special act, i.e., the LIC Act will override the

provisions of the general act, viz., the Companies Act, which is an Act relating to

Companies in general. Paragraphs 16 to 19 of the said judgment read as under:

16. "Sub-section (1) of Section 446 of the Companies Act provides that when a winding-up order has been made or the Official Liquidator has been appointed as Provisional Liquidator. no suit or other legal proceeding shall be commenced or, if pending at the date of the winding-

up order, shall be proceeded with against the company except by leave of the Court and subject to such terms as the Court may impose. Sub-section (2) provides. inter alia, that the Court which is winding-up the company shall, notwithstanding anything contained in any law for the time being in force, have jurisdiction to entertain or dispose of any suit or proceeding and any claim made by or against the company. Sub-section (3) provides that any suit or proceeding by or against the company which is pending in any Court other than that in which the winding-up is proceeding may, notwithstanding anything contained in any other law for the time being in force, be transferred to and disposed of by that Court. The question is whether these provisions would affect the proceedings of the Tribunal."

17. "In this connection, reference may be made to Section 41 of the LIC Act which provides that no civil Court shall have jurisdiction to entertain or adjudicate upon any matter which a Tribunal is empowered to decide or determine under that Act. It is not disputed that the Tribunal had jurisdiction to entertain the application of the Corporation and adjudicate on the matters raised thereby. The Tribunal is given the exclusive jurisdiction over this matter.

18. "It is in view of the exclusive jurisdiction which sub-section. (2) of Section 446 of the Companies Act confers on the company Court to entertain or dispose of any suit or proceeding by or against a company or any claim made by or against it that the restriction referred to in sub- section (1) has been imposed on the commencement of the proceedings or proceeding with such proceedings against a 'company after a winding-up order has been made. In view of Section 41 of the LIC Act the company Court has no jurisdiction to entertain and adjudicate upon any matter

134. Supra

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which the Tribunal is empowered to decide or determine under that Act. It is not disputed that the Tribunal has jurisdiction under the Act to entertain and decide matters raised in the petition filed by the Corporation under Section 15 of the LIC Act. It must follow that the consequential provision of sub-section (1) of Section 446 of the Companies Act will not operate on the proceedings which be pending before the Tribunal or which may be sought to be commenced before it."

19: "Further, the provisions of the special Act, i.e., the LIC Act, will override the provisions of the general Act viz., the Companies Act which is an Act relating to companies in general.

(Emphasis Supplied)

82 Applying the ratio of the judgment in Damji Valji135, in view of Section 3

of the Admiralty Act which confers Admiralty jurisdiction exclusively on certain High

Courts as defined in Section 2(1) (e) to the exclusion of all other High Courts and Civil

Courts, the Company Court does not have jurisdiction to entertain and adjudicate upon

any matter which the High Court vested with Admiralty jurisdiction is empowered to

decide or determine under the Act. It must follow that provisions of Section 446(1) of the

Companies Act will not operate on the proceedings which are pending before the High

Court or which may be sought to be commenced before it.

83 When one statute is a general statute covering a large number of matters in

general and another covering only some of them the intention is that the latter should

prevail as regards these matters whilst as regards the rest the earlier should have effect. In

this context the following passage in para 47 in Commercial Tax Officer, Rajasthan V/s.

Binani Cements Ltd. & Anr136 is relevant:

47: "Having noticed the aforesaid, it could be concluded that the rule of statutory construction that the specific governs the general is not an absolute rule but is merely a strong indication of statutory meaning that can be particularly applicable where the legislature has enacted comprehensive scheme and has deliberately targeted specific problems with specific solutions. A subject-specific provision relating to a specific, defined and descriptable subject is regarded as an exception to and would prevail over a general provision relating to a broad subject."

135. Supra

136. (2014) 8 SCC 319

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84 In the Admiralty Act, the Parliament has enacted a comprehensive Code in

relation to the Admiralty jurisdiction of High Court, arrest of ships, maritime claims and

determination of priorities. Hence, it is a subject specific provision relating to specific,

defined and descriptable subject and is therefore regarded as an exception to and would

prevail over a general provision relating to a broad subject as found in the Companies

Act.

85 Having noted that the Companies Act is a general Act relating to

companies and refers to suits against the company in general and having also noted that

the Admiralty Act is a special act concerning suits in rem against a ship and vests

Admiralty jurisdiction exclusively in certain High Courts only to entertain such actions in

rem, it is quite clear that applying the principle of interpretation that special overrides the

general, the Admiralty Act will prevail over the Companies Act. This also accords with

the observations of the Apex Court in the case of Damji Valji137 wherein the provisions of

the special Act, i.e., the LIC Act were held to override the provisions of the general Act.

Even if the Companies Act is considered as a special act in relation to Companies as

contended by some of the appearing parties, the Admiralty Act being a later special Act

will prevail over the Companies Act.

Company Court's jurisdiction under Section 446

86 The historical evolution as well as the present setting of Section 446(2) has

been traced by a three Judge Bench of the Apex Court in Sudarsan Chits (I) Ltd. V/s.

O. Sukumaran Pillai138. The need for S. 446(2) was felt because the predecessor Act had

provided only for stay of suits and proceedings pending at the commencement of winding

up proceeding, along with the embargo against the commencement of any suit or other

legal proceedings against the company except by the leave of the Court. There was no

137. Supra

138. Supra

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specific provision conferring jurisdiction on the winding up Court analogous to the one

conferred by Section 446(1) of the Companies Act. Thus, a liquidator who would have to

realise and recover various claims on behalf of the company would be required to file

suits in different Courts which would be prolix and expensive. Thus Section 446(2) of the

Companies Act provided a cheaper and summary remedy by conferring required

jurisdiction on the Company Court.

87 The object and purpose of Section 446 of the Companies Act has been set

out succinctly by the various judgments referred to in a judgment of a Division Bench of

this Court in Indorama Synthetics139 and in particular paragraph 20:

20. "In the case of Joshi Trading Co. (P.) Ltd. Vs. Essa Ismail Sait, [1980] 50 Kerala 801, the Kerala High Court, while dealing with the issue as to whether for continuing with the proceeding for eviction filed before the Rent Controller, leave of the Company Court under Section 446 (1) of the Companies Act was essential, was pleased to hold that,

'The object of Section 446 of the Companies Act, 1956, is to see that the assets of the company are brought under the control of the winding up Court; to avoid wherever possible expensive litigation and to see that all matters in dispute which are capable of being expeditiously disposed of by the winding up Court are taken up by that Court. This does not, however, mean that all disputes wherein a company is involved should be proceeded with only by the company Court or that if they are pending with other statutory bodies, leave of the company Court should be obtained. Matters where collection or distribution of assets are not involved, those which are outside the purview of the winding up Court and other Courts of law and those which are within the exclusive jurisdiction of other statutory bodies may not come under the purview of Section 446.

A proceeding for eviction not being a proceeding which can be appropriately dealt with by the winding up Court, does not come under the category of "other legal proceeding" in Section 446(1) and, therefore, leave of the winding up Court is not necessary for proceeding with a petition filed against a company in liquidation.

A similar reasoning was adopted in B.V. John Vs. Coir Yarn and Textiles Ltd., [1960] 30 Comp Cas 162 (Ker), which related to proceedings under the Industrial Disputes Act. Raman Nayar J., as he then was, held that a suit or proceeding for which leave is necessary under Section 446 (1) must be a suit or proceeding

139. Supra

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capable of being withdrawn and disposed of by the winding-up Court.

88 It is apparent from the above that a suit or proceeding for which leave is

necessary under Section 446(1) of the Companies Act must be a suit or proceeding

capable of being withdrawn and disposed of by the winding up Court. The object is no

doubt to avoid expensive litigation and ensure that all assets of the company are brought

under the control of the winding up Court so as to ensure fair and equitable treatment of

all secured creditors.

89 The question therefore is - whether the winding up Court has jurisdiction

to entertain or dispose of an action in rem filed in a Court vested with Admiralty

jurisdiction under the Admiralty Act? An action in rem is against the ship which is an

independent legal entity and distinct from the company owing it. It is not a suit against

the company. Consequently, the Court which is winding up the company will not have

jurisdiction to entertain or dispose of a suit in rem against a ship under the Admiralty Act

by taking recourse to the provisions of Section 446(2) of the Companies Act. The Court

which is winding up the company may not possess admiralty jurisdiction to entertain an

action in rem which is conferred only on certain specified High Courts of Coastal States.

Hence by this reasoning also no leave is required under Section 446(1) of the Companies

Act as the Court which is winding up the company may not have jurisdiction to entertain

and dispose of an action in rem filed against a ship under the Admiralty Act.

90 As regards avoiding expensive litigation, this is not really a concern as

Admiralty jurisdiction is vested in only a limited number of High Courts and confined to

the territorial waters of the state. Thus, all actions in rem in respect of a particular ship

will have to be filed in one High Court only within whose territorial waters the ship is

located. Thus, it would not be that proceedings in various Courts are required to be

defended. It would be just one High Court in respect of a ship.

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91 As regards ensuring equal distribution of assets amongst secured creditors,

the priorities set out in the Admiralty Act do to a large extent ensure that all those persons

who have maritime claims against the ship are paid in the order of priorities provided. No

maritime creditor gets any special treatment in regard to payment out of the sale proceeds

of that particular ship. It may be remembered that such a claimant is only a secured

creditor to the extent of the value of the ship. He is not a secured creditor in respect of the

other assets of the company in liquidation. This principle of payment to a maritime

creditor in the order of priorities set out in the Admiralty Act is just and equitable and

does not give preference to one creditor over another. Maritime claimants stand on a

completely different footing as far as the ship and its sale proceeds are concerned vis-à-

vis the general secured creditors of the company.

92 It was observed by the apex Court in Industrial Credit and Investment

Corporation of India Ltd. V/s. Srinivas Agencies & Ors. 140 that the integrity of a secured

creditor who has taken recourse to an independent proceeding to realise his debt cannot

be preserved at the cost of another secured creditor. The integrity of both has to be of

equal concern. This is one of the reasons why leave of the Company Court under Section

446(1) has been mandated so that the Company Court can consider grant of leave or deny

the same depending on the facts of each case. The position is completely different when it

comes to proceedings under the Admiralty Act. A maritime claimant who may have filed

proceedings in rem and obtained an order of arrest thereby becoming a secured creditor

who has a charge on the ship would not be stealing a march over other similarly placed

creditors. The integrity of both types of creditors would be preserved because the

Admiralty Court seized of the matter would invite claims from all such claimants who

will then also become secured creditors in respect of the sale proceeds of the vessel.

Maritime lien holders being a special class of maritime claimants have been given priority

140. (1996) 4 SCC 165

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under the Admiralty Act and within these maritime lien holders, the crew have been given

highest priority in respect of their wages. Other secured creditors of the company who do

not have a specific charge in the form of a maritime claim over any vessel would

nonetheless be secured creditors of the other assets of the Company. The differentiation is

between a class of claimants who have a maritime claim and thereby become secured

creditors and other secured creditors of the assets of the Company. This differentiation is

based upon the nature of their claims and does not amount to preserving the integrity of

one creditor at the cost of the other. It is the law which differentiates between the two

categories.

Sections 529 and 529A of the Companies Act

93 As regards Sections 529 and 529A of the Companies Act although these

have been held by the Apex Court in International Coach Builders141 as conferring

special rights on workmen and must be treated as special law made by the Parliament,

these amendments were introduced in 1985. The Admiralty Act is also a special Act and a

later enactment of the year 2017. Section 10 of this act which deals with priorities in the

matter of distribution of sale proceeds of a ship sold by the Admiralty Court will prevail

over the priorities as regards to payments under section 529A.

94 There is another way of looking at this. It may be seen that the provisions

of Section 10 of the Admiralty Act which deal with priorities is a special provision

enacted for the purpose of dealing with priorities in respect of certain identified maritime

claims against a particular ship. This arises only when, in an action in rem, the ship is

arrested and sold and the sale proceeds are deposited with the Admiralty Registrar in the

High Court and are within the control of the Admiralty Court. As against this, the

general class of workmen have been given priority under Sections 529 and 529A in

141. Supra

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respect of the general assets of the company. Hence Section 10 of the Admiralty Act is

special law relating to priorities in respect of the sale proceeds of a particular ship vis-à-

vis Sections 529 and 529A which is general law in regard to priorities over the general

assets of the company. Consequently, even on this basis applying the principle that a

general provision should yield to a specific provision, the priorities in Section 10 of the

Admiralty Act will prevail over Section 529 and Section 529 A of the Companies Act.

95 In any event, this interpretation does not produce an unjust result as

regards dues of workmen. Crew members are also considered to be workmen in a

broader sense and their claims indeed get topmost priority and rank the highest in the

order of priorities under Section 10 of the Admiralty Act which provides for a special

right given to this category of workmen and special machinery for recovery of their

wages. In fact, they rank higher than other secured creditors under the Admiralty Act as

against a mere pari passu change given to them under Section 529 of the Companies Act.

The workmen's priority in the matter of payment from the general non-maritime assets of

the Company is not affected.

The Madras High Court judgment

96 I also refer to the judgment of the Division Bench of the Madras High

Court in Pratibha Shipping Co. Ltd. (in liquidation) V/s. Praxis Energy Agencies S.A. and

others142 where the Court framed a question of law as follows:

"Whether in Admiralty suits filed in the original jurisdiction of this Court, the leave of the High Court / Tribunal under Section 446 of the Companies Act, 1956 (now Section 279 of new Companies Act, 2013) to file or proceed with such a suit is required to be obtained by the plaintiffs or not, after the Winding Up Order is passed by the Court and an Official Liquidator or Provisional Liquidator is appointed by that Court / Tribunal?".

97 After considering the provisions of the Admiralty Act and the Companies

Act and rival submissions the Court held that:

142. Supra

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(a) "The Admiralty Act 2017 is special law governing the adjudication of maritime claims by various coastal High Courts."

(a) "No leave is required under Section 446(1) of the Companies Act even though the Bombay High Court has passed a winding up order against the owner of the ship and that the maritime claim deserves to be adjudicated and proceed further without intervention of the Official Liquidator in pursuance of the winding up order made by the Bombay High Court. It is further held that only if the decree holders / plaintiffs are unable to satisfy their claim out of the sale proceeds in accordance with the priorities of their inter se claims as stipulated under the Admiralty Act, 2017 and shall wish to recover the balance amount from the owner company, they will be at liberty to approach the Official Liquidator in the winding up proceedings in accordance with the provisions of the Companies Act, 1956.".

(b) In view of the subsequent developments of law, in the field of recovery of dues from the corporate entities, we are of the opinion that putting the requirement of obtaining prior leave to undertake these proceedings under these enactments or Special Laws from the winding up Court or Company Court, is not envisaged in the Scheme of the development of laws and therefore, any contra opinion on that would lead to unnecessary obstacles and hindrance in the exercise of special jurisdictions by the special Tribunals or Courts under these special recovery laws as well as the special law like the Admiralty jurisdiction of this Court."

(c) "We, therefore, answer the aforesaid question of law in negative and hold that the leave of the Company Court / Tribunal under the provisions of Section 446 of the Companies Act, 1956 or Section 279 of the new Companies Act, 2013, is not required to institute or proceed with the suit / trial under the Special Law like under Admiralty Jurisdiction of this Court."

98 I agree with the conclusion reached by the Division Bench of the Madras

High Court though my reasons are different. In my view, however, notice must be given

to the Official Liquidator prior to the sale of the ship in an action in rem under the

Admiralty Act, unless the Official Liquidator has already entered appearance.

99 In the case of Praxis Energy Agents SA V/s. Pratibha Neera143 the Court

had no occasion to consider the Admiralty Act as the said act had not come into force

when the matter was reserved for judgment on 21 February 2018. The act came into force

on 1 April 2018. Consequently, the observations made in paragraph 26 of the said

judgment can no longer apply when considering the position in the light of the coming

into force of the Admiralty Act with effect from 1 April 2018. This Court is now required

143. Supra

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to examine the issue afresh on the touchstone of the new act which is a special act that

vests Admiralty jurisdiction in certain High Courts and codifies the law in respect of

arrest and sale of ships and maritime claims and determination of priorities. This is

precisely what this Court has done and articulated its views in the light of the position that

emerges on a consideration of actions in rem and the new Admiralty Act which

consolidates and codifies the law on the subject.

Conclusion

100 In this view of the matter on a macro basis the Admiralty Act which is a

special act prevails over the Companies Act which is a general act and no leave is

required under Section 446(1) of the Companies Act for commencing a suit under the

Admiralty Act or proceeding with a pending suit against the Company under the

Admiralty Act when a winding up order has been made or the Official Liquidator has

been appointed as Provisional Liquidator. Likewise, on a micro basis Section 10 of the

Admiralty Act will prevail over Sections 529 and 529A of the Companies Act in the

matter of determination of priorities.

101 Further, the Court which is winding up the Company would not have

jurisdiction to entertain or dispose of an action in rem against a ship filed in a High Court

which has been conferred with Admiralty jurisdiction under the Admiralty Act. Such a

suit in rem is not against the company and can only be entertained by the High Court

under the provisions of the special Act, viz., the Admiralty Act.

102 The submission of counsel that in an action in rem the owner is also

included as a defendant though not named or joined is not correct. The true legal position

is that an action in rem can proceed to judgement against the ship or its sale proceeds

without the presence of the Owner. The resultant decree does not bind the Owner unless

he has entered appearance and submitted to jurisdiction.

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103 Likewise the true nature of an action in rem against a ship is that it is not

an action against the Owner (company) or asset of the Owner (company).

104 If leave is not required under Section 446(1) of the Companies Act then

Section 537 of the Companies Act is not applicable and the sale of the vessel by the

Admiralty Court cannot be treated as void.

105 Similarly, the powers of the Court to stay or restrain proceedings against

the company as provided under Section 442 of the Companies Act, do not affect the

question of leave under Section 446 of the Companies Act.

106 I would therefore answer Question No.2 in the negative and hold that no

leave is required under Section 446 of the Companies Act, 1956 for the commencement

or continuation of an Admiralty Suit in rem where a winding up order has been made or

the Official Liquidator has been appointed as Provisional Liquidator of the company.

(K.R. SHRIRAM, J.)

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