2020 (5) TMI 450 - BOMBAY HIGH COURT

Admiralty Act - action in rem - 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? - HELD THAT:- 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 - 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.

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 - 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 - 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.

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? - HELD THAT:- 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 - 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.

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 - 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 - thus, 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.