MARITIME CLAIMS AND MARITIME LIENS: REALISATION UNDER

ADMIRALTY ACT AND INTERPLAY WITH IBC

(Submission of project towards fulfilment of mid-term assessment in the subject of

International Maritime Law)

SUBMITTED BY: SUBMITTED TO:

RISHABH KUMAR (1575), MS. KRITIKA SINGH

SEMESTER VII, B.A. LL.B. (HONS.), FACULTY OF LAW

NATIONAL LAW UNIVERSITY JODHPUR

SUMMER SESSION (AUGUST, 2020-NOVEMBER, 2020)

 TABLE OF CONTENTS

Introduction ................................................................................................................................ 3

Maritime Claims & Maritime Liens .......................................................................................... 4

Maritime Claims ................................................................................................................ 4

Maritime Liens ................................................................................................................... 4

Jurisdiction in cases of admiralty proceedings .......................................................................... 5

Action in rem ..................................................................................................................... 5

Treatment of ships as separate juridical entity ................................................................... 6

Arrest of ship and incidents thereafter ....................................................................................... 6

Meaning of arrest and the purpose it serves....................................................................... 6

Procedure of arrest ............................................................................................................. 7

Proceedings after arrest .............................................................................................................. 8

When the owner enters appearance.................................................................................... 8

When the owner fails to enter appearance ......................................................................... 9

Sale of the vessel and rights of the purchaser ........................................................................ 9

Distribution of the proceeds of sale and satisfaction of claims thereof ................................. 9

Order of priorities under the Admiralty Act ........................................................................ 10

The interface between Admiralty Act and IBC ....................................................................... 11

Harmonious construction and Court‟s findings ................................................................... 11

An analysis of various scenarios of interplay between Admiralty Act and IBC ................. 12

Scenario I: A proceeding under the Admiralty Act is initiated prior to the proceeding
under the IBC ................................................................................................................... 12

Scenario II: A proceeding under the Admiralty Act is initiated when the moratorium as
imposed under IBC is in place ......................................................................................... 13

Scenario III: A proceeding under the admiralty act is initiated at the time of liquidation
of the corporate debtor ..................................................................................................... 15

Conclusion ............................................................................................................................... 16

2
 INTRODUCTION

In the year 2017, the Indian Parliament brought to life the Admiralty (Jurisdiction and
Settlement of Maritime Claims) Act, 2017, with the intent to consolidate the existing laws on
civil matters of admiralty jurisdiction of courts, admiralty proceedings on maritime claims,
and arrest of ships. The legislation is laudable, for it assures a definite way to maritime
claimants for realisation of their claims. It has the best interests of maritime claimants as its
central objective. While usually the Admiralty Act experiences a smooth sailing in sorting out
claims through High Courts, it may at times land in a conflict with the operation of other
legislations. Recently, the High Court of Bombay had to deal with one of such conflicts
which arose between the proper functioning of Admiralty Act and the Insolvency and
Bankruptcy Code, 2016.

The project extensively deals with ship arrests and realisation of maritime claims under
Admiralty law. Moving further, a recent instance of conflict between Admiralty Act and IBC
and its resolution by the High Court of Bombay has been discussed. The author concludes the
paper with a concluding remark.

3
 MARITIME CLAIMS & MARITIME LIENS

MARITIME CLAIMS
Maritime claims are those claims which arise out of the incident of shipping.1 Section 4 of the
Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017 (hereinafter
“Admiralty Act” or “Act”) sets out a list of maritime claims in respect whereof, the High
Courts can exercise their Admiralty Jurisdiction.2 It includes dispute regarding vessel
ownership, possession, mortgage or any other security created on the vessel, construction,
repair of the vessel, claims regarding the loss of life or personal injury, etc.3 The Admiralty
Act prescribes an order of priority while materialising of maritime claims through admiralty
proceedings.4 This order of priority has to be adhered to whilst distributing proceeds of sale
on account of realisation of maritime claims. Maritime liens rank the highest in this list of
priority. “Maritime liens” shall not be confused with “maritime claims” for maritime liens
constitute only one category of maritime claims.5

MARITIME LIENS
A maritime lien has been defined as a privileged claim or charge upon maritime property for
services rendered to it or damage done by it, accruing from the moment the event out of
which the cause of action arises occurs, travelling with the property secretively and
unconditionally and enforced by an action in rem.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.7 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.8

1
D.R. Thomas, Maritime Liens in British Shipping Laws, pg. 91, Vol. 14 (Steven & Sons, London 1980).
2
Section 4, the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017.
3
Section 4, the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017.
4
Section 10, the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017.
5
D.R. Thomas, Maritime Liens in British Shipping Laws, pg. 91, Vol. 14 (Steven & Sons, London 1980).
6
Shrikant Hathi & Binita Hathi, Maritime Practice in India, pg. 52, Ed. 7th (BRUS CHAMBERS 2012).
7
O. KonavaloV V/s. Commander, Coast Guard Region & Ors, (2006) 4 SCC 620.
8
Raj Shipping Agencies vs. Barge Madhwa & Anr., Chamber Summons No. 66 of 2018 in Admiralty Suit No. 6
of 2015, Bombay High Court, Judgement dated 19 May 2020.

4
Only a limited class of maritime liens are recognised under the Admiralty Act. 9 For the
purposes of the Act, Maritime lien means a maritime claim as recognised under section 4 (1)
(w) of the Admiralty Act (2017) against the owner, demise charterer, manager or operator of
the vessel referred to in clauses (a) to (e) of sub-section (1) of section 9, which shall continue
to exist under sub-section (2) of that section.

JURISDICTION IN CASES OF ADMIRALTY PROCEEDINGS

The starting point in the process of realisation of various maritime claims is the subject of
admiralty jurisdiction. Section 3, provides, “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 are the courts of specific jurisdiction 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”.10 Therefore, it can be inferred from the provision that High
Courts exercise exclusive jurisdiction to hear and determine any questions with regard thereto
the claims as set out in Section 4 (1) of the Act.11 The jurisdiction applies in relation to all
ships, irrespective of their nationality, place of residence of their owner; in relation to all
claims, wherever arising, and so far as they relate to mortgages and charges, to all mortgages
or charges, whether registered or not and whether legal or equitable, including mortgages and
charges created under foreign law.

Section 5 and 6 of the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017
sets out the mode of exercise of the admiralty jurisdiction. As per the said provisions, the
exercise of jurisdiction may either take the form of action in rem or action in personam

ACTION IN REM
The fundamental legal nature of an action in rem is that it is a proceeding against the res and
not the owner of the res.12 The essence of the in rem procedure is that the res itself becomes
the defendant, and ultimately the res (i.e. the ship) may be arrested by legal process and be
sold by the court to meet the plaintiff's claim, always provided, of course, the validity of the
claim is eventually proved to the satisfaction of the court. The primary object, therefore, of
the action in rem is to satisfy the claimant out of the res. Hence, when an action in rem is
9
Section 9(1), the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017.
10
Section 3, the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017.
11
Section 4(1), the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017.
12
Raj Shipping Agencies vs. Barge Madhwa & Anr., Chamber Summons No. 66 of 2018 in Admiralty Suit No.
6 of 2015, Bombay High Court, Judgement dated 19 May 2020.

5
brought against a ship under the Admiralty Act, the ship shall be liable to satisfy the claims
made thereunder and no one else is needed to be involved. 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.13

TREATMENT OF SHIPS AS SEPARATE JURIDICAL ENTITY

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 which
sometimes may be distinct from that of its owner‟s.14 This practice is known as the
personification theory. 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.15
ARREST OF SHIP AND INCIDENTS THEREAFTER

MEANING OF ARREST AND THE PURPOSE IT SERVES

Section 2(1)(c) of the Admiralty Act 2017 defines „arrest‟ as, detention or restriction for
removal of a vessel by order of a High Court to secure a maritime claim including seizure of
a vessel in execution or satisfaction of a judgment or order.16 The main purpose of arrest is to
obtain security for satisfaction of judgment in the action in rem and it is necessary to arrest
the ship in order to establish jurisdiction.17 The security so needed is furnished by the owner
of the ship after he makes appearance in the matter. One of the other important purpose than
an arrest of a vessel serves is that, it crystalizes the maritime claim or lien of the maritime
claimants.18

13
Raj Shipping Agencies vs. Barge Madhwa & Anr., Chamber Summons No. 66 of 2018 in Admiralty Suit No.
6 of 2015, Bombay High Court, Judgement dated 19 May 2020.
14
M.V. Elisabeth and Ors. V/s. Harwan Investments and Trading Pvt. Ltd 1993 Supp (2) SCC 43.
15
M. Siddiqi V/s. Mahant Suresh Das & Ors., 1993 Supp (2) SCC 433.
16
Section 2(1)(c), the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017.
17
Shrikant Hathi & Binita Hathi, Ship Arrest in India and Admiralty Laws of India, pg. 107, ed. 12th (BRUS
CHAMBERS 2019).
18
Raj Shipping Agencies vs. Barge Madhwa & Anr., Chamber Summons No. 66 of 2018 in Admiralty Suit No.
6 of 2015, Bombay High Court, Judgement dated 19 May 2020.

6
 PROCEDURE OF ARREST
When an action in rem is filed by a maritime claimant, the High Court before which such
claim is brought has the authority to pass an order for the arrest of the vessel against which
such claim stands.19 After an order of arrest has been passed by the court, the port, custom
and other authorities act upon the order passed, not allowing the vessel to sail outward from
its jurisdiction.20 A ship is arrested by the Sheriff or the Marshal or the other officer acting as
an officer of the court. The Marshal or Sheriff, before he proceeds to effect the arrest will
require an initial deposit of a sum towards such expenses as may be incurred by him in
connection with the custody and care of the ship while under arrest; he will also require a
personal undertaking from the plaintiff's advocate to make further deposits towards such
expenses as and when required. Before giving such an undertaking, the plaintiff's advocate
should ensure that he himself is placed in sufficient funds by his client who may not be
resident within the jurisdiction. The plaintiff will have a first charge in respect of the said
expenses on the sale proceeds of the ship. After arresting the ship the Marshal or Sheriff will
issue intimations in writing to the customs and harbour authorities of the arrest, enjoining
them against the grant of customs and port clearance to the ship until they have received
further intimations from him that the arrest has been lifted. It is advisable for the plaintiff's
advocate to ensure that such intimations reach the said authorities expeditiously.21

The effect of arrest is that it constitutes the ship or other property as security in the hands of
the court for the claim in the action and this security cannot be defeated by the subsequent
insolvency of the owner of the arrested property. The arrest enables the Court to keep the
property as security to answer the judgment, and unaffected by chance events which may
happen between the arrest and the judgment. Once arrested, the ship remains in the custody
of the court until released upon the provision of alternative security or sale by the court.22

19
Section 5, the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017.
20
M.V. Elisabeth and Ors. V/s. Harwan Investments and Trading Pvt. Ltd 1993 Supp (2) SCC 43.
21
Shrikant Hathi & Binita Hathi, Ship Arrest in India and Admiralty Laws of India, pg. 134, ed. 12 th (BRUS
CHAMBERS 2019).
22
Shrikant Hathi & Binita Hathi, Ship Arrest in India and Admiralty Laws of India, pg. 140, ed. 12 th (BRUS
CHAMBERS 2019).

7
 PROCEEDINGS AFTER ARREST

After a ship is arrested and is in the custody of the admiralty court, there are two scenarios
which may arise: (i) The owner of the ship enters appearance and defend the case; (ii) The
owner of the ship fails to enter appearance to defend the case.

WHEN THE OWNER ENTERS APPEARANCE

There are two situations which may arise when the owner enters appearance to defend the
case in an admiralty court: (i) The owner enters appearance to defend the case and furnishes
security for release of the vessel; (ii) The owner enters appearance to defend the case but fails
to furnish the requisite security for release of the vessel.

i. The owner enters appearance to defend the case and furnishes security for release
of the vessel
After a ship is arrested, it stays in the custody of the court until the owner of the ship or a
party having legitimate interest in it enters appearance and furnishes security to get the ship
released. The amount of security is set by the court in its discretion, but the general principle
is a sum sufficient to cover the claimant's “reasonably arguable best case”, together with
interest and costs, not exceeding the value of the arrested vessel.23 Once the owner enters
appearance and furnishes the security, the ship is released and the action continues to proceed
against the owner in personam.24 Therefore, the owner becomes personally liable to abide by
any judgment or decree passed by the admiralty court when the proceedings end.

ii. The owner enters appearance but fails to furnish the requisite security for release
of the vessel
When the owner enters appearance to contest the claim but fails to furnish the security
required to have the vessel released, 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.

23
Shrikant Hathi & Binita Hathi, Ship Arrest in India and Admiralty Laws of India, pg. 157, ed. 12 th (BRUS
CHAMBERS 2019).
24
Raj Shipping Agencies vs. Barge Madhwa & Anr., Chamber Summons No. 66 of 2018 in Admiralty Suit No.
6 of 2015, Bombay High Court, Judgement dated 19 May 2020.

8
 WHEN THE OWNER FAILS TO ENTER APPEARANCE
If the owner fails to enter appearance to contest the claim and no security is furnished on his
behalf, then in rem proceedings will continue against vessel with the vessel in custody of the
admiralty court.25 The court will have the power to order the sale of the vessel for satisfying
the claims made by the claimant.26

SALE OF THE VESSEL AND RIGHTS OF THE PURCHASER

On failure of the owner of the vessel to furnish security and have the vessel released, the
admiralty court has the power to order an interlocutory sale of the vessel to satisfy the claims
raised by the plaintiff. An interlocutory sale means a sale prior to the completion of the
27
litigation and the entering of a judgment. Even when the owner contests the claim, the
court is vested with the power to sell the vessel if it finds it essential for the purpose of
justice.28 As a general rule the court will allow sale of the vessel at the earliest within
reasonable time. The High Court is vested with the power to cause the vessel to be auctioned
and the proceeds appropriated and dealt with in such manner as the court may deem fit within
a period of forty-five days from the date of arrest or abandonment.29 This period can be
extended further for thirty days and the reasons for the same have to be recorded in writing.30
The purchaser of the vessel in an auction doesn‟t get a right in the vessel until after such sale
is confirmed by the court.31 Once confirmation is received, the buyer receives a title which
extinguishes all other liens and provided him with a clear title.32 An “in rem” action resolves
claims of the entire world against the vessel and no lien for past debts can be created or
asserted.33 This means that the purchaser of the vessel will have an unencumbered right to
enjoy the vessel, post the confirmation of the sale by the court of competent jurisdiction.

DISTRIBUTION OF THE PROCEEDS OF SALE AND SATISFACTION OF CLAIMS THEREOF

25
International Transportation Service Inc. V/s. The Owners and / or Demise Charterers of the ship or Vessel
“Convenience Container 2006 (2) LLR 556.
26
Section 8, the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017.
27
Shrikant Hathi & Binita Hathi, Ship Arrest in India and Admiralty Laws of India, pg. 105, ed. 12 th (BRUS
CHAMBERS 2019).
28
M.V. Elisabeth and Ors. V/s. Harwan Investments and Trading Pvt. Ltd 1993 Supp (2) SCC 43.
29
Section 11(3), the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017.
30
Section 11, the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017.
31
Raj Shipping Agencies vs. Barge Madhwa & Anr., Chamber Summons No. 66 of 2018 in Admiralty Suit No.
6 of 2015, Bombay High Court, Judgement dated 19 May 2020.
32
Section 8, the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017.
33
Shrikant Hathi & Binita Hathi, Ship Arrest in India and Admiralty Laws of India, pg. 107, ed. 12 th (BRUS
CHAMBERS 2019).

9
After the judicial sale of the vessel is complete, the proceeds of the sale are paid into the
court and are used to satisfy any expenses incurred by the keeping of the vessel and fees to
the marshal or sheriff or the custodian. Subsequent to this, 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. All those who have maritime
liens and claims are required to file an action in rem against the sale proceeds for realisation
of their claims. 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.34 If the claims filed thereafter
exceed the amount received from the sale of the vessel, claimants are to be paid in
accordance with the priority that they hold. The determination of priorities will 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.
ORDER OF PRIORITIES UNDER THE ADMIRALTY ACT

In order of priority for distribution of sale proceeds amongst various maritime claims,
maritime liens hold the highest rank, followed by registered mortgages and charges of the
same nature and the claims which come under neither of the aforementioned categories.35
While settling all the claimants in a ranking order, heed has to be paid to Section 10 of the
Admiralty Act, read with Section 9. Section 9 provides an order of priority amongst the
various maritime liens. 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.36
After the proceeds of sale are distributed among all the maritime claimants, the amount left, if
any, is to be handed over to the owner of the ship.

34
International Transportation Service Inc. V/s. The Owners and / or Demise Charterers of the ship or Vessel
“Convenience Container”, 2006 (2) LLR 556.
35
Section 10, the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017.
36
Raj Shipping Agencies vs. Barge Madhwa & Anr., Chamber Summons No. 66 of 2018 in Admiralty Suit No.
6 of 2015, Bombay High Court, Judgement dated 19 May 2020.

10
 THE INTERFACE BETWEEN ADMIRALTY ACT AND IBC

The Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017 was introduced
with the intent to consolidate the existing laws on civil matters of admiralty jurisdiction of
courts, admiralty proceedings on maritime claims, and arrest of ships, and the Insolvency and
Bankruptcy Code, 2016 (hereinafter “IBC” or “Code”) was introduced with the main aim to
facilitate a corporate faltering in its debt obligations and to protect the interests of all the
stakeholders with equity. It may seem that there is no probability of any conflict between the
two enactments as they are on entirely different subjects of law with hardly any perceivable
overlap. However, that is not true. The conflict arises when a shipping company, being the
owner of the vessel, comes under the ambit of insolvency proceeding under IBC and
simultaneously claims are filed in an admiralty court for the arrest of the vessel of the
company.

One such conflict arose in a recent case, Raj Shipping Agencies vs. Barge Madhwa &
Another37. In this case, the Bombay High Court passed an order for arrest against vessels of
Raj Shipping Agencies. At the time such orders were passed, insolvency proceedings were
commenced against the ship owner by the National Company Law Tribunal and a
moratorium was imposed barring the commencement or continuation of all proceedings
against that owner and its assets under the Insolvency and Bankruptcy Code, 2016. This
raised certain issues regarding operation of the moratorium over the admiralty proceedings
that were brought against the vessels of the corporate debtor in the proceedings.

The main question that arose for consideration before the court was; “Whether there exists a
conflict between actions in rem filed under the Admiralty Act and the proceedings under IBC
and if so, how is the conflict to be resolved?”

HARMONIOUS CONSTRUCTION AND COURT’S FINDINGS

The Court embarked upon giving a harmonious construction to the provisions of the two acts.
A peculiar feature of the admiralty jurisdiction is that action in rem is only against a ship
which is considered to be a legal personality independent of its owner. Once the ship is
arrested, the maritime claimant becomes a secured creditor. If the owner of the ship enters
appearance and furnishes security, the action in rem gets converted into an action in

37
Raj Shipping Agencies vs. Barge Madhwa & Anr., Chamber Summons No. 66 of 2018 in Admiralty Suit No.
6 of 2015, Bombay High Court, Judgement dated 19 May 2020.

11
personam. Hence, a ship against whom a maritime claimant can initiate an action in rem does
not fall within the definition of a „corporate debtor‟ as defined under the IBC.

AN ANALYSIS OF VARIOUS SCENARIOS OF INTERPLAY BETWEEN ADMIRALTY ACT AND

IBC

SCENARIO I: A PROCEEDING UNDER THE ADMIRALTY ACT IS INITIATED PRIOR TO THE

PROCEEDING UNDER THE IBC

If a maritime claimant (hereinafter “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, the following two situations
may arise: (i) The owner enters appearance and security is provided to the Admiralty Court
for release of the vessel prior to the declaration of moratorium; (ii) The owner fails to enter
appearance and furnish security for release of the vessel at the time when the moratorium
under the code is declared.

iii. The owner enters appearance and security is provided to the Admiralty Court for
release of the vessel prior to the declaration of moratorium
In this case, the Suit filed no longer remains an action in rem; it is in personam against the
corporate debtor who has furnished security. For this reason, the suit will not proceed against
the corporate debtor in the light of Section 14(1)(a) of the IBC. However, the plaintiff will be
considered to be a secured creditor having obtained security in respect of his claim.

Now, 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 and the Adjudicating Authority in determining the entitlement of
Plaintiff.

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 realize its security
interest as provided in Section 52(4) of the IBC38. In this case, the law as applicable would be

38
Section 52(4), the Insolvency and Bankruptcy Code, 2016.

12
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 realize its security.

iv. The owner fails to enter appearance and furnish security for release of the vessel at
the time when the moratorium under the code is declared
In this case, the suit filed by the plaintiff will continue to be a suit in rem however, it will not
proceed further. This is because to do so would defeat the reorganization and the 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 corporate insolvency resolution process is bound to be
frustrated and will fail. This, however, does not prejudice the maritime claimant or affect his
right in rem and entitlement to recover his claim from the res. Plaintiff‟s maritime lien or
claim will be a perfected claim by virtue of the arrest of the ship and he will be considered as
a secured creditor to that extent.39

Section 33(5) of the IBC40 does not prohibit the continuation of pending suits. If the company
is liquidated, plaintiff‟s action being an action in rem will continue to proceed and the vessel
will be sold by way of an Admiralty sale to maximize its realization value.

SCENARIO II: A PROCEEDING UNDER THE ADMIRALTY ACT IS INITIATED WHEN THE

MORATORIUM AS IMPOSED UNDER IBC IS IN PLACE

As discussed earlier, for the purposes of 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 which sometimes may be distinct from that of its owner‟s.41 Therefore, an
action in rem for arrest of a vessel is not against the corporate debtor. Consequently, such an
action shall not be barred from filing and shall not be considered to be hit by the moratorium
provisions of Section 14(1)(a) of the IBC. If after filing of such an action, an order of arrest
is passed by the court, two situations may arise: (i) the Resolution Professional enter
appearance on behalf of the owner/corporate debtor; (ii) the Resolution Profession does not
enter appearance on behalf of the owner/corporate debtor.

39
In re Aro Co Ltd., (1980) 1 Ch 196 (C.A.).
40
Section 33(5), the Insolvency and Bankruptcy Code, 2016.
41
M.V. Elisabeth and Ors. V/s. Harwan Investments and Trading Pvt. Ltd 1993 Supp (2) SCC 43.

13
 i. The Resolution Professional enter appearance
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
the admiralty proceeding is stayed in view of the conflict, till such time as the insolvency
resolution process is completed or a Liquidator is appointed. The appearance of the resolution
professional results in the maritime claimant being considered as a secured creditor for the
purposes of the resolution proceedings and the observations made in Scenario I shall 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. During the period
in between, as prescribed under Section 25(1)(a) of IBC42, the resolution professional will be
looking after the vessel 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 above interpretation harmonizes the provisions of the IBC vis-avis 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.

ii. The Resolution Profession does not enter appearance

If the resolution profession fails to enter appearance on behalf of the owner/corporate debtor,
the suit filed for the arrest of the vessel will continue and the proceedings in rem as envisaged
by the Admiralty Act, 2017 will be held. This may even result in selling off the vessel of the
corporate debtor, hampering the total assets count during the insolvency resolution process.

42
Section 25(1)(a), the Insolvency and Bankruptcy Code, 2016.

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 SCENARIO III: A PROCEEDING UNDER THE ADMIRALTY ACT IS INITIATED AT THE TIME
OF LIQUIDATION OF THE CORPORATE DEBTOR

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.”43 Applying the
principle of personification, i.e. the vessel having a separate juridical entity, an action in rem
against the vessel of the corporate debtor will not be barred. 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. This will not affect other secured creditors of the corporate
debtor. 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.

Seeing it 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
IBC44. 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.

In this judgment, the High Court of Bombay has dealt in detail with the issues involved and
put to rest this war of laws by applying the golden rule of harmonious construction. It is
pertinent to note that the High Court of Bombay, while dealing with the various aspects of the
interaction between the Admiralty Act and the IBC, has not distinguished between maritime
lien holders and other general maritime claimants. Rather, it has held that since the action in
rem is against the vessel, the bar under Section 33(5) of the IBC will not operate even though
the general maritime claimants failed to obtain arrest prior to the order of liquidation.
Nonetheless, the underlying principle which is pertinent for the determination of issues is that
an attempt must be made to harmoniously construe the laws.

43
Section 33(5), the Insolvency and Bankruptcy Code, 2016.
44
Section 52(4), the Insolvency and Bankruptcy Code, 2016.

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 CONCLUSION

The Admiralty Act is a special statute which deals with matters, as defining various maritime
claims and maritime liens, arrest of vessels, proceedings in admiralty courts, and,
subsequently, realisation of various claims. It is a complete code in itself for resolution of
matters concerning realisation of claims incidental to shipping. Like every other laws that
exist, the Admiralty Act occasionally is involved in interplay with another statute. One such
interplay with the IBC code and the conflicts incidental thereof has been very finely resolved
in the case discussed in the paper. The directive of the court has strengthened the vulnerable
position that the maritime claimants might have landed in due to the face-off between the
Admiralty Act and IBC. The judgment will hold considerable importance in future, while
deciding upon the standing of the Admiralty Act in conflict with another statute.

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