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2020 (5) TMI 450 - HC - Companies LawAdmiralty 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.
Issues Involved:
1. Conflict between actions in rem under the Admiralty Act and the Insolvency and Bankruptcy Code (IBC). 2. Requirement of leave under Section 446(1) of the Companies Act for Admiralty actions in rem during winding up. Detailed Analysis: Issue 1: Conflict between actions in rem under the Admiralty Act and the IBC Question: Is there a conflict between actions in rem filed under the Admiralty Act, 2017 and the provisions of the IBC, 2016, and if so, how is the conflict to be resolved? Objective of the Statutes: - IBC: Aims to consolidate and amend laws relating to reorganization and insolvency resolution of corporate persons, partnership firms, and individuals in a time-bound manner for maximization of value of assets, to promote entrepreneurship, availability of credit, and balance the interests of all stakeholders. - Admiralty Act: Consolidates laws relating to Admiralty jurisdiction, legal proceedings in connection with vessels, their arrest, detention, sale, and other related matters. Key Observations: 1. Admiralty Act: Provides a mechanism for enforcing maritime claims by arrest of ships, leading to their sale and distribution of proceeds based on priorities. 2. IBC: Focuses on the revival and continuation of the corporate debtor, with liquidation as a last resort. Analysis: - Actions in rem: These are proceedings against the ship itself, not the owner, and can proceed without the owner's presence. The ship is treated as a separate legal entity. - Maritime Liens: These attach to the ship from the moment the claim arises and continue to bind the ship until discharged. - Statutory Rights in rem: These arise upon the arrest of the vessel and are perfected by such arrest. Resolution of Conflict: - Harmonious Construction: Attempts should be made to reconcile the provisions of both statutes to give effect to both. - Admiralty Act Prevails: In case of irreconcilable conflict, the Admiralty Act, being a special and later Act, prevails over the IBC, especially in matters of maritime claims and priorities. Practical Scenarios: 1. Before Moratorium: If Admiralty proceedings are initiated before the declaration of a moratorium under the IBC, the suit will not proceed further during the moratorium period. 2. During Moratorium: If the moratorium is declared before the Admiralty suit, the action in rem can be filed but will be stayed until the moratorium ends. 3. Liquidation: If the company is liquidated, the Admiralty suit will proceed, and the ship will be sold with priorities determined under the Admiralty Act. Issue 2: Requirement of Leave under Section 446(1) of the Companies Act Question: 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? Key Observations: 1. Companies Act: General law relating to companies, providing for the winding up of companies and distribution of their assets. 2. Admiralty Act: Special law dealing with Admiralty jurisdiction and actions in rem against ships. Analysis: - General vs. Special Law: The Admiralty Act, being a special and later Act, prevails over the Companies Act, a general law. - Exclusive Jurisdiction: Admiralty jurisdiction is vested exclusively in certain High Courts, implying the exclusion of other courts, including the Company Court. - Action in rem: Not a suit against the company but against the ship as an independent legal entity. Conclusion: - No Leave Required: No leave under Section 446(1) of the Companies Act is required for commencing or continuing an Admiralty action in rem against a ship, even if a winding up order has been made or the Official Liquidator appointed. - Priorities: The priorities for payment out of the sale proceeds of the ship will be determined under the Admiralty Act, not the Companies Act. Summary: - Admiralty Act vs. IBC: The Admiralty Act prevails in matters of maritime claims and priorities, with actions in rem being distinct from actions against the corporate debtor. - Leave under Companies Act: No leave is required under Section 446(1) for Admiralty actions in rem, as these are not suits against the company but against the ship, an independent legal entity.
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