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TMI Blog2020 (5) TMI 450X X X X Extracts X X X X X X X X Extracts X X X X ..... 284 OF 2015, 1715 OF 2015, 1 OF 2015, 76 OF 2015, 285 OF 2015, 1717 OF 2015, 6 OF 2015, 319 OF 2016, 180 OF 2016, 20 OF 2015, 181 OF 2016, 73 OF 2016, 757 OF 2017, 41 OF 2015, 743 OF 2019, 36 OF 2018, 1095 OF 2019, 41 OF 2015, 1718 OF 2015, 11 OF 2015, 1 OF 2017, 28 OF 2017, 33 OF 2017, 482 OF 2017, 121 OF 2017, 800 OF 2018, 41 OF 2015, 1158 OF 2015, 11 OF 2015, 726 OF 2019, 41 OF 2015, 1805 OF 2019, 6 OF 2015, 142 OF 2016, 1215 OF 2019, 65 OF 2015, 2447 OF 2019, 41 OF 2015, 1974 OF 2018, 18 OF 2017, 38 OF 2018, 36 OF 2018, 8 OF 2019, 39 OF 2018 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. Mr. Prasad Shenoy a/w. Mr. Prashant Ashar, Mr. Naishadh Bhatia, Ms. Bulbul SinghRajpurohit and Mr. Niraf Shroff i/b. Crawford Bayley and Co. for Plaintiff in ADMS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istance. 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: 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 file ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordered to be arrested. Once the jurisdiction under the Admiralty Act is invoked by an action in rem, the 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 Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orce 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. 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. 1993 Supp (2) SCC 433). 10.3 The Hon'ble Supreme Court of India, in M. Siddiqi V/s. Mahant Suresh Das & Ors. (2020) 1 SCC 1 (referred to as "The Ram Janmabhumi Temple case"), whilst considering independent legal personalities, made a reference to the conferment of lega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh 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 anadmiralty action in rem is that this jurisdiction can be assumed by the coastal autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 in English law by Sir John Jervis when delivering the judgment of the Privy Council in The Bold Buccleugh. (1852) 7 Moo PC 267 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"( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) Maritime Law by Christopher Hill, 2nd 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. Itis 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 Neptune 166 ER 81: 1 Hagg 227 and also Ruta. (2000) 1 LLR 359 27. Having regard to the universally recognized status of maritime liensand, 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 againstthe 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 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. Konavalov, 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lization 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 ves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e commencing of an action in rem and the issue, by the Court in that action, of a warrant of arrest. 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arties 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 proceedi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 brou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 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) 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 AIR 2002 Bom 371. 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 enter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rson. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars 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 Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch of the Apex Court in Ashoka Marketing Ltd. & Anr. V/s. Punjab National Bank & Ors. 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) Rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emaining 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. 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 Others 2019 SCC online SC 1508 the Supreme Court has set aside the auction of an immoveable 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. , 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceeds 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.). 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at owns the ship. 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. 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" 2006 (2) LLR 556, Sparebanken V/s. MV Bos Angler, The Engedi (2010) 3 SLR 409). 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceeds 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: 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vent 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ium 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 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perations 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; (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 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 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 liq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions 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 - (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 real ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ass 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 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s. Official Liquidator of Esskay Pharmaceuticals Ltd. (2011) 10 SCC 727. 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 Kerala (2009) 4 SCC 94 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 157162; The Myrto [1977] 2 Lloyds's Rep 243, 259-261.) 62: "The correct analysis of this well known admiralt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 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 sit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orporate 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 proceed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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 Company (1875) LR 20 Eq 325 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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. 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 ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 registe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 marit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny 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 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 ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt, 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. Concl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 incu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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, wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eding 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 Shah. In the case of International Coach Builders Ltd. V/s. Karnataka State Financial Corporation also (2003) 10 SCC 482, the Supreme Court took the view that the Companies Act is general law. 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al 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. 70.1 Relying upon Damji Valji Shah, Dr. Chandrachud submitted that no leave under S.446 (1) of the Companies Act was required. In Damji Valji Shah 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onfers 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 Bank 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 case, held that the LIC Act prevailed over the Companies Act and Section 34 of the RDDB Act provided "34. Act to have overriding 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...... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... panies 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) 2017 SCC Online Bom 665, in which this Hon'ble Court took the view that the leave of the Company Court would be required in order to institute or continue s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 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. 1929 Allahabad Series Vol. LI 695; Sudarsan Chits (I) Ltd. V/s. O. Sukumaran Pillai and Ors. (1984) 4 SCC 657 and S.V. Kandeakar V/s. V.M. Deshpande & Anr. (1972) 1 S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on and thus ought not to be written off as 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 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 Chits. 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 SA has to be faulted as it does not provide any re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Company Court whilst ordering distribution of sale proceeds would have to accord higher priority to claimants 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 Ors (1999) 7 SCC 76. 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 Calcut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct 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, 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. the Bombay High Court h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passed, leave is required. Once the Provisional Liquidator/ Official Liquidator is 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" [1907] P 137 (CA) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m 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. Bolivia , 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 on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in Praxis Energy Agents SA V/s. M.T. Pratibha Neera 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 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; iii. It does not take into consideration the Judgments of Supreme Court in Elmot Engg. Ltd., Hari Har Nath and the Judgments on Section 446 which hold that leave is necessary if the Suit or Le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 Shah. The Companies Act is general la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds 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 ofdealing 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 workon a ship are workmen in every sense and their wages get the highest priority under the Admiralty Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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 subsection (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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ralty 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 Valji 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 Compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de 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 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot 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-àvis 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(1996) 4 SCC 165. 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 Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 En ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 arre ..... X X X X Extracts X X X X X X X X Extracts X X X X
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