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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 ..... e 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. Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. - CHAMBER SUMMONS NO.66 OF 2018 WITH ADMIRALTY SUIT NO.1 OF 2015, 285 OF 2015, 6 OF 2015, 11 OF 2015, 284 OF 2015, 17 OF 2015, 73 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. Kundanlal Patil i/b. Vyas and Bhalwal for Plaintiff in ADMS/18/2017. Mr. Osama Butt i/b. Ganesh and Co. for Plaintiff in COMS/319/2016 and COMAS/8/2019. Mr. R. P. Shirole a/w. Ms. Kunjita Shah i/b. Khare Legal Chambers for Plaintiff in ADMS/38/2018. Dr. Shrikant Hathi a/w. Mr. Pritish Das i/b. Brus Chambers for Plaintiff in ADMS/33/2017. Ms. Aneesa Cheema i/b. Charles De Souza for Respondent (EXIM Bank) in NMS/800/2018. Ms. Lakshmi Bussa i/b. M. V. Kini and Co. for Defendant No. 9 in COMAS/36/2018. Mr. Mahendhar Aithe, Company Prosecutor present. JUDGMENT: 1. These Admiralty Suits were filed and Orders of Arrest obtained from this Court in all or most of the suits. By Orders dated 05 May 2017 this Court, however, was pleased to admit Company Petition No. 119 of 2015 as well as Company Petition No. 756 of 2014 against GOL Offshore Ltd., the owner of Defendant Vessels in Admiralty Suit No. 1 of 2017 and Commercial Admiralty Suit No. 121 of 2017. Further, by its Order dated 04 December 2017, this Court was pleased to order GOL Offshore Ltd. (Company in liquidation), be wound up. 2. On 09 March 2018, when Admiralty Suit No. 1 of 2017 was l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hatsoever upon admiralty proceedings, which are prosecuted in rem. Issues as to the effect of other provisions of the IBC, on rights under the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017 (hereinafter referred to as Admiralty Act) such as those with respect to statutory dues, crew wages etc. also came to be raised. As this would also be repetitive issue, this Court, therefore, was pleased to direct listing together such suits to hear and decide upon the applicability, effect and consequences of the proceedings under IBC as well, on the Admiralty Suits before this Court. This will be relevant in Adm. Suit no. 1 of 2015, Adm. Suit no. 6 of 2015, Adm. Suit no. 17 of 2015, Commercial Adm. Suit no. 284 of 2015 and Comm. Adm. Suit no. 285 of 2015 listed. 4. As very important questions of law were involved, this Court was pleased to appoint Dr. Abhinav D. Chandrachud as Amicus Curiae. Mr. Prashant S. Pratap, Senior Advocate and Mr. V. K. Ramabhadran, Senior Advocate, who regularly appear in admiralty matters also offered to assist the Court. Their gracious offer, and I say gracious because this was a very time-consuming matter, was welcomed by the Court and they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laws relating to re-organization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximization of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all stakeholders. It is an exhaustive Code on the subject matter of insolvency in relation to corporate entities ( Innoventive Industries Ltd. V/s. ICICI Bank Anr . (2018) 1 SCC 407). As also held in Duncans Industries Ltd. V/s. A.J. Agrochem (2019) 9 SCC 725 IBC is a special statute devoted entirely to resolution of insolvency, liquidation and bankruptcy of corporate persons and firms and individuals. 8.2 The following observations of the Hon ble Supreme Court in Swiss Ribbons Pvt. Ltd. V/s. Union of India (2019) 4 SCC 17 in para 27 and 28 make it clear as to what is sought to be achieved by the Code: 27: As is discernible, the Preamble gives an insight into what is sought to be achieved by the Code. The Code is first and foremost, a Code for reorganization and insolvency resolution of corporate debtors. Unless such reorganization is effected in a time-bound manner, the value of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debtor during the resolution process. The timelines within which the resolution process is to take place again protects the corporate debtor s assets from further dilution, and also protects all its creditors and workers by seeing that the resolution process goes through as fast as possible so that another management can, through its entrepreneurial skills, resuscitate the corporate debtor to achieve all these ends. 8.3. It is quite clear from the above observations of the Apex Court that the primary focus of the IBC is to ensure revival and continuation of the Corporate Debtor within the framework of the IBC and only if no Resolution Plan is approved for revival of the Corporate Debtor, liquidation would follow. It is thus considered to be a beneficial legislation not only for the Corporate Debtor but also for all stakeholders including secured creditors. 9. Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017 9.1 The Admiralty Act came into force on 01 April 2018. The preamble to the Admiralty Act provides to consolidate the laws relating to Admiralty Jurisdiction, legal proceedings in connection with vessels, their arrest, detention, sale and ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dmiralty proceeding, means any of the High Court of Calcutta, High Court of Bombay, High Court of Madras, High Court of Karnataka, High Court of Gujarat, High Court of Orissa, High Court of Kerala, High Court of Judicature at Hyderabad for the State of Telangana and the State of Andhra Pradesh or any other High Court, as may be notified by the Central Government for the purposes of this Act; Section 3 : Admiralty jurisdiction Subject to the provisions of sections 4 and 5, the jurisdiction in respect of all maritime claims under this Act shall vest in the respective High Courts and be exercisable over the waters up to and including the territorial waters of their respective jurisdictions in accordance with the provisions contained in this Act: Provided that the Central Government may, by notification, extend the jurisdiction of the High Court up to the limit as defined in section 2 of the Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zones Act, 1976 (80 of 1976). 9.6 Therefore, admiralty jurisdiction in respect of maritime claims shall vest in respective High Courts, subject to provisions of section 4 and section 5 of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action in rem under which the ship is directly proceeded against, as a legal person. In 1881, Sir George Jessel MR explained this in The City of Mecca45, where he observed: You may in England and in most countries proceed against the ship. The writ may be issued against the owner of such a ship, and the owner may never appear, and you get your judgement against the ship without a single person being named from beginning to end. That is an action in rem, and it is perfectly well understood that the judgement is against the ship. 118. D.R. Thomas in his book titled Maritime Liens [ D.R. Thomas, Maritime Liens in British Shipping Laws, Vol. 14 (Steven Sons, London 1980).] traces the history of the judicial conferment of legal personality on ships. He speaks of two theories- the personification theory and the procedural theory in explaining the evolution of the concept: The first [theory], commonly coined as the personification theory, traces the historical origin and development of maritime liens to the juristic technique, which has obtained since medieval times, of ascribing personality to a ship. Under this theory a ship is personified and regarded as a dist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the owner) which may be enforced by process and the decree against the vessel, binding upon all interested in her and conclusive upon the world, for admiralty in appropriate cases administers remedies in rem, i.e., against the property, as well as remedies in personam, i.e., against the party personally...‖ (Benedict, The Law of American Admiralty, 6th ed., Vol. I p. 3.) 45. Admiralty Law confers upon the claimant a right in rem toproceed against the ship or cargo as distinguished from a right in personam to proceed against the owner. The arrest of the ship is regarded as a mere procedure to obtain security to satisfy judgment.... (Emphasis supplied) 121. In this view, the conferral of legal personality on a ship sub-servedthe purpose of business certainty and expediency. The decree against the ship binds all interested in her, and despite her nomadic nature, satisfies the requirement of ensuring pre-judgment security. Besides the UK and India, the attribution of legal personality to ships has been used extensively across jurisdictions. Illustrating the approach of American Courts, Professor Douglas Lind traces the evolution of the concept: As the United State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ic.49 (Emphasis supplied) 122. The experience of American Courts was that owners of offendingships regularly avoided the jurisdiction of Courts. The existing law of the day was inadequate to address the situation. The judges of the American Supreme Court therefore utilised the existing non-legal practice of anthropomorphising the ship and gave it legal significance by conferring legal personality on vessels within their jurisdiction. Significantly, the existing law of agency was ill equipped to deal with the unique features of Admiralty Law. Allowing actions against ships then created a vehicle through which the obligations of those with an interest in the ships and her actions, though outside the jurisdiction of Courts, would be fulfilled by the recognition by the law of the personality of the maritime vessel. Perhaps even more so than in the case of English admiralty Courts, the American experience demonstrates that the conferral of legal personality on ships was a result of historical circumstances, shortcomings in the existing law and the need of Courts to practically and effectively adjudicate upon maritime claims. Over the course of several cases, the American Supreme Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principle is that a maritime lien attaches only to the res in respect of which the claim arises. No other property is capable of being charged, not even other property which is in the same ownership as the res in respect of which the claim arises. 11.5 The Supreme Court of India, in O. Konavalov V/s. Commander, Coast Guard Region Ors (2006) 4 SCC 620 has, in paras 22 to 28 and para 43, in great detail discussed the significance of Maritime Liens. It reads as under: 22. The most unique concept of all in admiralty law is the maritime lien. It is a concept which is sui generis, but for practical purposes it may be considered as a charge upon maritime property, arising by operation of law and binding the property even in the hands of a bona fide purchaser for value and without notice, but which can only be enforced by an admiralty claim in rem. 23. A maritime lien: adheres to the ship from the time that the facts happened which gave the maritime lien, and then continues binding on the ship until it is discharged, either by being satisfied or from the laches of the owner, or in any other way which, by law, it may be discharged. It commences and there it continues ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved to extend the scope of such vesting to the point of extinction of maritime liens particularly seamen's wages. It is equally well settled that public undertaking such as the port, dock or a harbour possessing statutory power to detain and sell a ship cannot sell the res free of the liens which have attached prior to the sale [See Corps Corps vs. Queen of South [1968] 1 LLR 182]. The seamen's lien will follow the ship and its proceed in whatsoever hand they may come by title or purchase from the owner and the lien reattaches to the thing after sale and to whatever is substituted for it. [see James Sheppard vs. Lemuel Taylor 8 Led 269. See also Halsbury Laws of England para 1907 Vol.43 (2), 4th Edn. Re-issue] Obtaining jurisdiction to the res in pursuance of statutory powers should be put on the same footing as acquisition of the title following the transfer of res. . 43. There exists a maritime lien on the vessel of its crew as established by judgments and authorities earlier cited. And also as understood maritime lien is a concept that evolved through the ages by way of customs prevailing in the law of the seas, no legislation specifically provides for mari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order of inter se priority, namely: a. Claims for wages and other sums due to the master, officers and other members of the vessel s complement in respect of their employment on the vessel, including costs of repatriation and social insurance contributions payable on their behalf; b. Claims in respect of loss of life or personal injury occurring, whether on land or on water, in direct connection with the operation of the vessel; c. Claims for reward for salvage services including special compensation relating thereto; d. Claims for port, canal, and other waterway dues and pilotage dues and any other statutory dues related to the vessel; e. Claims based on tort arising out of loss or damage caused by the operation of the vessel other than loss or damage to cargo and containers carried on the vessel. 12. Statutory rights in rem (Maritime Claims) 12.1 A right to invoke the Admiralty jurisdiction by an action in rem in respect of a maritime claim, which is not a maritime lien, is also known as a statutory right in rem. Such rights are also described as statutory liens. A closed list of maritime claims is set out in Section 4 of the Admiralty Act. Mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der of priority of maritime claims as follows: Section 10: Order of priority of maritime claims: 1. The order of maritime claims determining the inter se priority in an admiralty proceeding shall be as follows: a. A claim on the vessel where there is a maritime lien; b. Registered mortgages and charges of same nature on the vessel; c. All other claims. 2 .. 13.1 In order of priority, maritime claims (excluding maritime lien and mortgages) fall in the category of All Other Claims appearing in Section 10 (1)(c) and rank below maritime liens and also below mortgages. Thus a financial creditor who has a registered mortgage on the ship would recover in priority over all parties who have maritime claims but not maritime liens. A vast majority of the claims are maritime claims (18 out of 23) which are listed in Section 4 of the Admiralty Act and which will rank below a mortgagee. Only those who have a maritime lien get priority over a registered mortgage. The reason why a maritime lien holder is given priority over a registered mortgage is to accord highest priority to crew wages and thereafter to claims involving loss of life or personal injury in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, if they think proper, in defence of their property, but whether or not they will do so is a matter for them to decide, and if they do not decide to make themselves parties to the suit in order to defend their property, no personal liability can be established against them in that action. It is perfectly true that the action indirectly affects them. So it would if it were an action against a person whom they had indemnified... Unless and until anyone appears to defend an action in rem the action proceeds solely as an action in rem and any judgment given is solely a judgment given against the res. It is determinative and conclusive as against all the world in respect of the rights in the res but does not create any rights that are enforceable in personam. An action in rem may be defended by anyone who has a legitimate interest in resisting the plaintiffs claim on the res. Such a person may be the owner of the res but equally it may be someone who has a different interest in the res which does not amount to ownership, or again it may be imply someone who also has a claim in rem against the res and is competing with the plaintiff for a right to the security of a res of an inad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spect of a cause of action in personam arising from the same facts. However, proceedings in rem to which the shipowner has entered an appearance, although they can continue as proceedings in personam, are not deprived of their character as proceedings in rem and can still give rise to a judgment in rem against the res. (Emphasis Supplied) 14.2 The observations of the English Court of Appeal in the case of The Anna H 1995 (1) LLR 11 are also illustrative: The right being enforced in an action in rem is a right against the res. It may be a proprietary right; it may be a maritime lien to the existence of which the current ownership of the res is wholly irrelevant; or it may be analogous statutory lien where the ownership of the vessel at the time of the issue of the writ (though not at the time of her arrest) is relevant. The problem for the application of the Judgments Convention arises from the historic rule of English procedural law that, if a party who is liable in personam enters an appearance in an action in rem, he is liable to have judgment given against him in personam. Thus, the result of such an appearance will be that, although the action procee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... writ in personam had been issued against him and served upon him within the jurisdiction notwithstanding that the original action did not make any in personam claim against him. 14.3 The observations in the judgment in Republic of India and Anr. V/s. Indian Steamship Co. Ltd. (The Indian Grace No.2) [1997] 3 WLR 818 have been explained in a later judgment of the English Court of Appeal in the case of Stolt Kestrel B.V. Sener Petrel Denizcilik Ticaret AS (Stolt Kestrel) (2015) EWCA Civ 1035 where the observations in respect of actions in rem and actions in personam in the judgment in The Indian Grace No.2 have been held to be of limited effect and only for the purpose of consideration and interpretation of Section 34 of the Civil Jurisdiction and Judgments Act, 1982. It does not change the legal position that prevailed in England for over a century and set out succinctly in The Nordglimt18 and the Anna H. 14.4 The nature of an action in rem has also been explained by a Division Bench of this Court in the case of Sparebanken SOGN OG FJORDANE V/s. M.V. Bos Angler and Others (2013) 3 Mh. L.J. 898, where in paragraph 12 the Court observes: Now before we c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alty law, a vessel or ship itself is treated as a person and a suit can be instituted only against the vessel against which the plaintiff has a claim and its owner who may not be named. Thus, under the admiralty law, the ship or vessel itself can be held liable for a claim and it is a peculiar feature of the admiralty jurisdiction that a vessel or ship is treated as a person against which a civil suit can be filed which is capable of being arrested for satisfying the claim of the plaintiff. When a plaintiff brings an action against a vessel for recovery of his claim, the suit is called as an action in rem and in such a suit, an application is made for arrest of the ship. Thus for the purpose of admiralty jurisdiction, the vessel itself is treated as a person from whom an amount is due to the plaintiff. Perusal of the provisions of S. 17 shows that jurisdiction has been conferred on the Tribunal constituted under the D.R.T. Act to entertain and decide applications from the Banks and financial institutions for recovery of debts due to such Banks. Sub-sec. (1) of Sec. 17 of the D.R.T. Act reads as under:- 17. Jurisdiction, powers and authority of Tribunals (1) A Tribunal shall ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have effect notwithstanding anything inconsistent contained in any other law, the Court held in paragraph 8, that this is a general provision and it is not an express provision made to curtail or exclude the operation of Section 51 of the Merchant Shipping Act, 1958 which empowered a High Court to entertain a claim by a mortgagee for recovery of his dues by sale of the mortgaged ship. The jurisdiction of the High Court to entertain the suit would not be ousted by the provisions of the RDDB Act. 14.7 As regards sale of the vessel, the High Court observed in paragraph 11 that: It is further to be seen here that S.51 of the Merchant Shipping Act makes a specific provision for recovery of the mortgage money by the mortgagee by sale of the vessel, which is mortgaged. Perusal of the provisions in Part II of the Rules and Forms of the high Court of Judicature at Bombay on the Original Side, shows that when a person has a claim against a vessel, he can bring an action in rem and there is a special and effective procedure provided for recovering the claim of the person in such a suit. It is further to be seen here that the rules provide a special procedure for sale of a ship or vess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issions made by the parties. Submissions of the parties: Elaborate submissions were made by the counsels, which are summarized below. 16. Dr. Abhinav Chandrachud, the amicus curiae submitted that the moratorium under the IBC will not apply to Admiralty suits for the following reasons: a) According to the principles laid down in Damji Valji Shah Ors. V/s. Life Insurance Corporation of India Ors. AIR 1966 SC 135, Allahabad Bank V/s. Canara Bank and Anr. (2000) 4 SCC 406, Indorama Synthetics (I) Ltd., Nagpur V/s. State of Maharashtra and Ors. 2016 (4) Mh. L. J. 249, Ashoka Marketing Ltd. Anr. V/s. Punjab National Bank (1990) 4 SCC 406 and Jotun India P. Ltd. V/s. PSL Ltd (2019) 213 Comp Cas 61 Bom, the Admiralty Act will be a special act which deals with Admiralty matters whilst the IBC is a general act which deals with corporate insolvency. Thus, in accordance with the principle of interpretation that the special act overrides the general act, the Admiralty Act will prevail. In the event both are considered special acts, Admiralty Act being the later one, the Admiralty Act will prevail. b) The fact that section 238 of the IBC contains a non-obstante cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Reg. 37 (Realisation of security interest by secured creditor) of the Liquidation Process Regulations, 2016 of the IBC. 17.2 A sale by an Admiralty Court will always fetch a higher price for the vessel than sale under the IBC as the sale by the admiralty Court will be free from encumbrances, as section 8 of the Admiralty Act codifies the traditional position in Admiralty Law that on the sale of a vessel under the Admiralty Act by the High Court in exercise of its admiralty jurisdiction, the vessel shall vest in the purchaser free from all encumbrances, liens, attachments, registered mortgages and charges of the same nature on the vessel. 18 Mr. Rahul Narichania, Senior Advocate, appearing for a contesting party also submitted that the provisions of the Admiralty Act will override and prevail over the IBC where there is a conflict, as the Admiralty Act is a special statute dealing with special claims which are recognized as maritime claims and maritime liens. The Admiralty Act operates in a separate and distinct field to confer Admiralty jurisdiction on High Courts of coastal States for enforcement of a closed list of maritime claims including liens, arrest of vessels for secu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considers the interplay between the two statutes, i.e., the IBC and the Admiralty Act. If the IBC is to prevail, a salvor who has saved property may lose his priority altogether even though he has preserved valuable property of the company which is available for the benefit of several other claimants. He would also be at the mercy of financial creditors who despite having benefitted from the salvage service may claim higher priority over the salvors claim. Therefore, whilst determining priorities, the IBC cannot prevail over the Admiralty Act. It must be borne in mind that prior to the Admiralty Act, in India priorities were determined following common law and precedence. It is for the first time that the Admiralty Act actually specifies the order of priorities of maritime liens and claims. This being a special statute and later in point of time to the IBC, priorities under the Admiralty Act must necessarily prevail vis-a- vis maritime claims/liens in the event of a conflict on the issue of priorities. Therefore, distribution of sale proceeds of the ship and the order of priorities will have to be considered under the Admiralty Act and not in accordance with the priorities to be de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. It is the obligation of the resolution professional to take custody and control of all the assets of the corporate debtor and to preserve and protect the assets of the corporate debtor under S. 25 of the IBC. f. Even though Admiralty Act is a later enactment, even assuming it is a special Act, the question as to which Act shall prevail must be considered with respect to the purpose of enactment as held in KSL Industries Ltd. V/s. Arihant Threads Limited Ors (2015) 1 SCC 166, wherein the Court held that Sick Industrial Companies Act, 1985 (SICA) (though an earlier enactment) would prevail over RDDB Act which is a later enactment. The object and purpose of the IBC is clear in that it is a Code for re-organisation and insolvency resolution of corporate debtors as against which Admiralty Act is like any other Act confined to enforcement of certain restricted claims through a special method. It would therefore be obvious that the IBC is enacted for re-organisation and insolvency resolution of corporate debtors with an emphasis being laid on the recovery of money by the secured creditor. The purposes of two enactments are completely different. It matters not that Admir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (e) of the IBC. j. If a secured creditor (financial creditor as defined in the IBC) has obtained order of arrest of the vessel prior to grant of moratorium and if security in the form of deposit of the amount in Court or bank guarantee is not furnished, his position would be same as other financial creditors and he shall be bound in the event of the resolution plan being approved as envisaged under S. 31 of the IBC. k. However, any expenses incurred towards maintenance of the vessel could be treated as the insolvency resolution process costs in terms of S. 30 (2) (a) of the IBC. l. Therefore, in so for as claims as defined as maritime lien under S. 2 (g) of the Admiralty Act and statutory dues of the Harbour authority in respect of which they have a lien over the vessel, considering the special nature of its claim the resolution plan as envisaged under S. 30 of the IBC could provide for their entire claim and not restrict it to the amount which is otherwise required to be paid to the operational creditor under S. 53 of the IBC. This is so because, in respect of claim in the nature of maritime lien, if they do not make such provision, the vessel is liable to be arre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw and therefore a solution to protect a maritime claimant would have to be found within the umbrella of the IBC and not de-hors the IBC. The IBC as understood by the Hon ble Supreme Court is an all-encompassing and a comprehensive code. Therefore, whilst maintaining that the sanctity of the sui generis nature of the Admiralty Act should be preserved and not be rendered meaningless by the operation of the IBC, it has to be seen as to how an admiralty action can retain its provisions within the scope of the IBC. While interpreting the IBC viz-a-vis the Admiralty law there are provisions in the IBC which permit the secured creditor under the Admiralty law to protect their security and to realize their security. Therefore, the status of an admiralty creditor or a maritime lien holder would have to be found within the umbrella of the IBC and not de hors the IBC. b) Section 14 of the IBC provides for Declaration of moratorium and public announcement. Where at any time during the corporate insolvency resolution process period, if the Adjudicating Authority approves the resolution plan under sub-section (1) of section 31 or passes an order for liquidation of corporate debtor under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be a de facto Defendant in the action. The Claimant is required to establish in personam liability of the owner and therefore the action is really a claim against the owner and his property. Ms. Priya relied upon a judgment of the House of Lords in the case of Republic of India Anr. V/s. India Steamship Co. Ltd. (The Indian Grace No.2), which was primarily concerned with interpretation of section 34 of the Civil Jurisdiction and Judgment Act, 1982 in the context of an Admiralty action in rem. The submissions of Ms. Priya seem to suggest that according to her in the event of a conflict the provisions of the IBC would prevail and the moratorium under Section 14 of the IBC would apply equally to an action in rem as it would to a suit in personam. 22 Mr. Prathamesh Kamat, Advocate appearing for one of the parties submitted that if a Plaintiff in an action in rem has arrested the vessel and obtained security prior to the order of liquidation, that Plaintiff is a secured creditor and stands outside liquidation and is entitled to continue the suit under the provisions of the Admiralty Act, in view of section 52(4) of the IBC. 22.1 Even if liquidation is ordered there is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Courts to the exclusion of all others. It is also a consolidating act in connection with vessels, their arrests, detention, sale and other matter connected therewith or incidental thereto. Once the jurisdiction of the Admiralty Court under the Admiralty Act is invoked, the machinery prescribed under the said act applies and once the ship is arrested all other consequences flow as provided in the said act. ii. Where there are two special enactments, one of which contain a non-obstante provision and bars the jurisdiction of Civil Court and the other which does not contain a non-obstante provision, the legal position is that in the event of conflict the former act will prevail. However, an attempt should be made to achieve a harmonious construction in the case of conflict or inconsistency between the provisions of two enactments. The Constitution Bench of the Supreme Court in the case of Ashoka Marketing Ltd. Anr. V/s. Punjab National Bank , after reviewing the law on the subject of conflict between the provisions of two enactments both of which can be regarded as special in nature, held that the conflict has to be resolved by reference to the purpose and policy underlying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debtor who is defined as a corporate person meaning a company or any other person incorporated with limited liability. A ship against whom a maritime claimant can proceed in an action in rem does not fall within the definition of a corporate debtor under the IBC and neither is the ship being proceeded against as an asset of the corporate debtor. It is the ship itself which is liable as an independent juridical entity de-hors the status of its owner and without reference to its owner. The ship is arrested for perfecting the maritime claim which is in respect of the ship. Thus, an action in rem filed under the Admiralty Act for arrest of a ship would not amount to an institution of a suit against a corporate debtor as defined under the IBC nor would continuation of an action in rem amount to continuation of a suit against the corporate debtor. Consequently, the declaration of a moratorium under section 14 of the IBC will not prohibit the institution of an action in rem or continuation of a pending action in rem. However, in the event a moratorium is declared under section 14 of the IBC then an action in rem if instituted prior to or after the declaration of the moratorium, cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty has not been furnished at the time when the moratorium is declared, the Admiralty Court will not proceed further with the suit. The vessel will remain arrested until the end of the corporate insolvency resolution process period. Plaintiff s maritime lien or maritime claim which is a perfected claim against the vessel by virtue of the arrest will operate as a charge on the vessel and Plaintiff will be considered as a secured creditor qua the vessel. b) If a resolution plan is approved then all parties who have arrested the ship would be considered as secured creditors who will be accorded priority in respect of the value ascribed to the vessel in the resolution plan and paid on a proportionate basis in accordance with the priorities qua the value of the vessel as per the provisions of section 10 of the Admiralty Act. Such parties will, however, count as unsecured creditors to the extent of the unrealized portion of their claim. c) On the other hand, if the company is liquidated, the suit in rem will proceed and the vessel will be sold by way of an admiralty sale to maximize its realisation value. Since the sale proceeds will represent the res, the Admiralty Court will b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncial creditor who has a registered mortgage on a ship will get priority even under the Admiralty Act. xii. Only a judicial sale by an Admiralty Court is recognized the world over as extinguishing all maritime liens against the res thereby giving a clear title to the buyer. A sale by the Liquidator will not extinguish maritime liens and therefore the vessel will not attract a bidder or will fetch a lower value as it would not be free of all liens and encumbrances. Thus, in the event of liquidation, it is in the interest of the Liquidator that the vessel is sold by the Admiralty Court. It is also in the interest of any financial creditor who has a mortgage registered on the ship to have the vessel sold by the Admiralty Court. 25 Mr. Ashwini Sinha, Advocate, for one of the contesting parties adopted the submissions of Dr. Chandrachud, Mr. Rahul Narichania, Mr. Pratap, Mr. Shenoy and Mr. Fernandes. Relevant provisions of IBC 26 I would now turn to the provisions of the IBC and the nature of conflict if any, with the provisions of the Admiralty Act and the manner in which it can be resolved. 27 Some of the provisions of the IBC that are required to be noted are as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debtor any of its assets or any legal right or beneficial interest therein; (c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002); (d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor. (2) The supply of essential goods or services to the corporate debtor as may be specified shall not be terminated or suspended or interrupted during moratorium period. (3) The provisions of sub-section (1) shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator. (4) The order of moratorium shall have effect from the date of such order till the completion of the corporate insolvency resolution process: Provided that where at any time during the corporate insolvency resolution process period, if the Adjudicating Authority approves the resolution plan under sub-section (1) of section 31 or passes an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n (1), it may, by an order, reject the resolution plan. (3) After the order of approval under sub-section (1),- (a) the moratorium order passed by the Adjudicating Authority under section 14 shall cease to have effect; and (b) the resolution professional shall forward all records relating to the conduct of the corporate insolvency resolution process and the resolution plan to the Board to be recorded on its database. Section 33 : Initiation of liquidation (1) Where the Adjudicating Authority (a) before the expiry of the insolvency resolution process period or the maximum period permitted for completion of the corporate insolvency resolution process under section 12 or the fast track corporate insolvency resolution process under section 56, as the case may be, does not received a resolution plan under sub-section (6) of section 30; (b) rejects the resolution plan under section 31 for the non-compliance of the requirements specified therein, it shall (i) pass an order requiring the corporate debtor to be liquidated in the manner as laid down in the Chapter; (ii) issue a public announcement stated that the corporate debtor is in liquid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor; (c) to evaluate the assets and property of the corporate debtor in the manner as may be specified by the Board and prepare a report; (d) to take such measures to protect and preserve the assets and properties of the corporate debtor as he considers necessary; (e) to carry on the business of the corporate debtor for its beneficial liquidation as he considers necessary; (f) subject to section 52, to sell the immovable and movable property and actionable claims of the corporate debtor in liquidation by public auction or private contract, with power to transfer such property to any person or body corporate, or to sell the same in parcels in such manner as may be specified: [Provided that the liquidator shall not sell the immovable and movable property or actionable claims of the corporate debtor in liquidation to any person who is not eligible to be a resolution applicant;] (g) to draw, accept, make and endorse any negotiable instruments including bill of exchange, hundi or promissory note in the name and on behalf of the corporate debtor, with the same effect with respect to the liability as if such instruments were drawn, accepted, made or endorsed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation estate and receive proceeds from the sale of assets by the liquidator in the manner specified in section 53; or (b) realise its interest in the manner specified in this section. (2) Where the secured creditor realises security interest under clause (b) of sub-section (1), he shall inform the liquidator of such security interest and identify the asset subject to such security interest to be realised. (3) Before any security interest is realised by the secured creditor under this section, the liquidator shall verify such security interest and permit the secured creditor to realise only such security interest, the existence of which may be proved either (a) by the records of such security interest maintained by an information utility; or (b) by such other means as may be specified by the Board. (4) A secured creditor may enforce, realise, settle, compromise or deal with the secured assets in accordance with such law as applicable to the security interest being realised and to the secured creditor and apply the proceeds to recover the debts due to it. (5) If in the course of realising a secured asset, any secured creditor faces resistance from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... npaid dues owed to employees other than workmen for the period of twelve months preceding the liquidation commencement date; (d) financial debts owed to unsecured creditors; (e) the following dues shall rank equally between and among the following: (i) any amount due to the Central government and the State Government including the amount to be received on account of the Consolidated Fund of India and the Consolidated Fund of a State, if any, in respect of the whole or any part of the period of two years preceding the liquidation commencement date; (ii) debts owed to a secured creditor for any amount unpaid following the enforcement of security interest; (f) any remaining debts and dues; (g) preference shareholders, if any; and (h) equity shareholders or partners, as the case may be. (2) Any contractual arrangements between recipients under sub-section (1) with equal ranking, if disrupting the order of priority under the sub-section shall disregarded by the liquidator. (3) The fees payable to the liquidator shall be deducted proportionately from the proceeds payable to each class of recipients under sub-section (1), and the proceeds to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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, the Admiralty Act does not contain a non-obstante clause. 29 Thus, where there are two special enactments, one of which contains a non-obstante provision and bars the jurisdiction of the Civil Court and the other which does not contain a non-obstante provision, the clear legal position is that in the event of conflict the former Act will prevail. The principal of interpretation that the later Act overrides the earlier Act is not applicable in such a situation. It applies only where both special acts contain non-obstante provision and there is a conflict. In Solidaire India Ltd. V/s. Fairgrowth Financial Services Ltd. (2001) 3 SCC 71, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s contained in Section 34(1) of the DRT Act and Section 35 of the Securitisation Act gives overriding effect to the provisions of those Acts only if there is anything inconsistent contained in any other law or instrument having effect by virtue of any other law. In other words, if there is no provision in the other enactments which are inconsistent with the DRT Act or the Securitisation Act, the provisions contained in those Acts cannot override other legislations. 33 In other words what is required is to first attempt a harmonious construction which is intended to give effect to both statutes bearing in mind the purpose and policy underlying them. Only in the event there is a conflict and the conflict cannot be resolved, the IBC will prevail because even though the Admiralty Act is a later Act, it does not contain a non-obstante clause and the Parliament is presumed to have had knowledge of the non-obstante clause contained in the IBC when it enacted the later Act. Harmonious Construction 34 With this principle in mind an attempt should be made to resolve the traditional conflict between Admiralty and Insolvency so as not to defeat the intendment and objectives of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 admiralty practice is that the proceeds of sale of the ship and her appurtenance including bunkers become the res. All claims against the ship, upon the sale of the res, are transferred to the fund in Court being the proceeds of sale of the ship. (See McGuffie on Admiralty Practice (1964) para 6; Halsbury s Laws of Hong Kong, volume 18(1), para 250.145; The Queen of the South [1968] 1 Lloyd s Rep 182, 191-192; The Leoborg (No 2) [1963] 2 Lloyd s Rep 441; The Silia [1981] 2 Lloyd s Rep 534, 538.) 63: The Leoborg (No 2) is particularly revealing as it shows how the adm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if in a given case the claim of the plaintiff were to fail, that would not obviate the fundamental duty and obligation of the Court in the exercise of the admiralty jurisdiction to ensure that the monies which it holds are properly distributed to persons whose claims have been adjudicated upon for realization. Upon the process of adjudication, the issue of determining priorities would arise. The issue of determining priorities comes up before the Court in a situation where the amount representing the aggregate of the claims against the vessel exceeds the amount which has been realized upon the sale of the vessel. Obviously in a situation where the aggregate of the claims is equal to or less than the amount which lies deposited with the Court every one of the claims can be paid in full and it is in a situation where the aggregate of the claims represents a value in excess of what is realized upon the sale of the vessel that the determination of priorities assumes importance. These principles of law have been consistently followed and reiterated in the exercise of the admiralty jurisdiction in common law countries. Thus, the Court is duty bound to invite claim against the sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d inviting claims against the sale proceeds as per established Admiralty rules or procedure. Thus, whilst the judicial sale by the Admiralty Court extinguishes all maritime liens and the claims, thus giving a free and clear title to the purchasers, all those who have maritime liens and claims can still enforce them by filing an action against the sale proceeds. 41 Another feature of an action in rem is that once a ship is arrested, it is custodia legis and if it is sold by the Admiralty Marshall / Sheriff under the orders of the Admiralty Court, the interest of the owner is limited to the extent of receiving the balance of the sale proceeds after satisfaction of all maritime claims in the order of priorities provided in Section 10 of the Admiralty Act. The Chancery Division in England in the case of m.v. Bolivia held: In my judgment, a critical feature of this case was that on 18 March 1994 Tramp Oil obtained an order for the sale of the ship. Once that happened, the proceeds of sale were held by the Admiralty Court to be applied in accordance with its procedures The effect of the order for sale made by the Admiralty Court on the assets of the company must, it seems to me, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 purpose of answering a demand which is made. That is exactly what the arrest of a ship is ...... . 45 Once these salient features of the Admiralty law and jurisdiction are appreciated, it will be seen from a reading of the IBC that there is little conflict between them. The provisions of the two acts can be read and construed harmoniously so as to give effect to both. 46 The IBC defines a corporate debtor in Section 3(8) to mean corporate person who owes a debt to any person . Corporate person is defined in S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Section 52. It may be seen that Section 52(1)(b) of the IBC permits a secured creditor to realise its security interest in the manner specified in that section and Section 52(4) permits a secured creditor to enforce, realise, settle, compromise or deal with the secured assets in accordance with such law as applicable to the security interest being realised and to the secured creditor and apply the proceeds to recover the debts due to it. Thus, even on this score the suit will proceed in accordance with the Admiralty Act as that is the applicable law. Consequently, determination of priorities will also be in accordance with the Admiralty Act. This will be the position in case the action in rem is instituted before or after the order of liquidation. 50 Considering the above features of Admiralty law in general and the Admiralty Act in particular and the definition of corporate debtor under the IBC, various possible scenarios are now considered where the provisions of both statutes get involved and will play out. 51 Scenario I If a Plaintiff has commenced Admiralty proceedings in rem and obtained an order of arrest of a ship from an Admiralty Court, subsequent to wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 vessel will remain under arrest, it would be up to the Resolution Professional to decide whether security ought to be furnished for release of the vessel. If no security is furnished, the vessel will remain under arrest until the end of the CIRP period. In that event, Plaintiff s maritime lien or claim which is a perfected claim against the vessel by virtue of the arrest, will operate as a charge on the vessel and Plaintiff will be considered as a secured creditor. 51.5 If the company i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the amounts made available to secured creditors by the successful Resolution applicant. As guidance, the claim of Plaintiff and all other maritime Claimants who have arrested the vessel before a moratorium was declared shall be accorded priority in respect of the value ascribed to the vessel in the Resolution Plan. The principle to be applied would be as if, but for the Resolution Plan, the assets would have been liquidated and the vessel would have been sold by the Admiralty Court and the priorities would have been determined in accordance with the Admiralty Act. Consequently, the same priority as per Section 10 of Admiralty Act will be applied inter se amongst all secured creditors including any registered mortgagee who has a charge on the vessel. However, the ship value for the purpose of ascertaining the proportionate and priority entitlements of the maritime claimants will be the liquidation value assigned to that particular vessel. 51.9 Since the ship was arrested before the declaration of moratorium under section 14 of the IBC, the Admiralty Court will protect the interests of Plaintiff and release the ship from arrest only upon being satisfied that the claim of Plaint ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id down in the preceding paragraphs 51.5, 51.6 and 51.8 will apply as regards distribution of the sale proceeds and priorities. 51.14 All expenses incurred for preservation and maintenance of the vessel during the period of arrest with the permission of the admiralty Court will be treated as sheriff s expenses in Admiralty and Resolution Process costs under the IBC and paid out in priority from the sale proceeds of the ship if the company is liquidated or be accorded priority in the resolution plan as resolution process costs. 52 Scenario II If a moratorium has been declared under Section 14 of the IBC before any Admiralty Suit in rem is filed for enforcement of a maritime lien or maritime claim. 52.1 An action in rem for arrest of a vessel is not against the corporate debtor. Consequently, there is no bar to filing such an action and it is not hit by the moratorium provisions of Section 14(1)(a) of the IBC. If an order of arrest is made, the warrant of arrest will be executed against the vessel. Upon the Resolution Professional entering appearance on behalf of the owner/corporate debtor, the Suit will not proceed in rem so as not to defeat the objective of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accorded priority in the resolution plan as resolution process costs. 53 The above interpretation would harmonize the provisions of the IBC vis- -vis the Admiralty Act in the matter of protecting the right in rem given to maritime claimants and at the same time giving effect to the moratorium provisions of the IBC which have been enacted to facilitate the CIRP. The purpose of the moratorium would be served and this takes care of the apprehensions expressed that the object of the moratorium would stand defeated if actions in rem against ships are permitted. This would also ensure that the assets of the corporate debtor are made available for the CIRP. At the same time, the rights available to a person who has a maritime lien or maritime claim are protected and preserved such that during the CIRP and / or liquidation he will be able to maintain his position as a secured creditor and as a maritime claimant who has a right in rem against the ship and is entitled to recover his claim from the ship and / or its sale proceeds. 54 It was submitted by Mr. Narichania that the moratorium under section 14 of the IBC would come in the way of any suit that a mortgagee would file in regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orate 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 instituted by or against the corporate debtor. Unlike the Companies Act, there is no provision in the IBC for obtaining leave to institute a Suit against the Company in liquidation. Hence there is a complete bar. This bar, however, applies to Suits against the corporate debtor and this necessarily means a Suit in personam. An action in rem is not against the corporate debtor for reasons already explained. The vessel is a di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. Conclusion 56 Thus, an action in rem can be filed and the ship arrested before the moratorium under Section 14 of the IBC comes into force or during the moratorium period or even when the corporate debtor is ordered to be liquidated. A maritime claimant ought to be permitted to enforce his right in rem and obtain an order of arrest of the ship in question. This will enable him to perfect and / or cry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not take any steps to maintain the ships despite the fact that all of these ships were mortgaged to various banks which formed a part of the COC and it was their duty to protect their own security. It was also the duty of the Resolution Professional to preserve and protect the assets of the corporate debtor as expressly provided in Section 25(1) of the IBC. Eventually the crew on board the various ships refused to stay any longer and left the vessels. The Resolution Professional entered into fresh agreement with another manager to employ new crew on board and provide essential supplies for the maintenance of the ships and crew. Eventually after six months the banks requested the Admiralty Court to sell all the ships and gave their No Objection. By this time a huge amount of expenses had been incurred in maintenance of the ships and the value of the ships had also considerably eroded. The ships were eventually sold at scrap value by the Admiralty Court. The sale proceeds were deposited in Court. The corporate debtor was ordered to be liquidated. All costs and expenses incurred by the new managers in respect of the crew and for essential supplies made to the vessel during this period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itor. 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, would have to abide by the provisions of section 14 of the IBC in the event a moratorium is declared by the NCLT or a liquidator is appointed under section 33 of the IBC. Question No.2 Whether leave under Section 446(1) of the Companies Act, 1956 is required for the commencement or continuation of an Admiralty action in rem where a winding up order has been made or the Offici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eding 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 type of proceedings, viz., an action in rem against a ship which is treated as a separate juridical entity, distinct from its owner. An action in rem is not an action against the Company but a suit against the vessel and recovery of the claim from the sale proceeds of the vessel. It is not a recovery action against t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alty 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 to the Life Insurance Corporation of India ( LIC ). Under Section 15 of the LIC Act, LIC could apply to the tribunal to set aside a transaction by which the life insurance business of a company was transferred to another department within that company. While answering this question in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ains 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. 70.4 In Indorama Synthetics, a Division Bench of the Bombay High Court was considering whether leave of the Company Court would be required under Section 446 of the Companies Act to institute or proceed with a case under Section 138 of the Negotiable Inst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 such proceedings before the Small Causes Court, Dr. Chandrachud submitted and rightly so that the said view taken by this Hon ble Court was based on a concession made by counsel appearing on behalf of the parties, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly 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 SCC 438 in support of these submissions. Mr. Jagtiani also submitted as to why Corona Ltd. V/s. Sumangal Holdings 2007 (4) Mh. L.J. 551; Bangur Brothers Ltd. (in liquidation) V/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ani 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 reasoning as to why the Admiralty Act is to be treated as a special law in a situation of winding up. Therefore, the law laid down in these judgments ought not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch 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 a company that owns any vessel which is the subject matter of an Admiralty action may exercise powers under Section 446(2). However, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts 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 Calcutta, Bombay, Madras, Karnataka, Gujarat, Orissa, Kerala, Hyderabad and the State of Andhra Pradesh o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 held that the property of a company does not vest in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisional 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 below that an action in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot in the alternative. It is only after the owner enters appearance and submits to jurisdiction and furnishes security that the action in rem gets converted into an action in personam. Until such time as the owner has entered appearance and submitted to jurisdiction and furnished security, the action in rem remains an action in rem and the vessel is available to Plaintiff as security in respect of its maritime claim which is the subject matter of in personam proceedings against the owner or the party liable in personam. Furnishing of security is also essential for the action in rem to be converted to an action in personam because until such time security is furnished, the vessel remains under arrest and the action against the vessel continues in rem. The Court also observed that the admiralty jurisdiction of the Court is invoked by 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iff limits its claim to the value of the res and does not claim any amount against the owner in personam, leave under Section 446 would not be required. c) In all cases if the owner deposits security in order to obtain release of the ship, then leave under Section 446 would be required for continuing such an action which would be an action in personam. d) In the event an action in rem is instituted before the presentation of a winding up Petition under the Companies Act and the vessel is arrested, the vessel ceases to be a property of the owner and the owner s only surviving right, as held in m.v. 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 actio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt of Appeal. 76.1 A learned single judge of this 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nies Act. .. 19: The appellant shall be entitled to realise its statutory dues as per law from the sale proceeds of the said vessel and the balance, if any, of the sale proceeds shall be deposited by the appellant with the Official Liquidator in winding up. The appellant shall also file an account of its dues and the realisation of the same from the sale proceeds of the vessel in the winding up proceedings before the Official Liquidator. The appellant has no objection to doing so. In respect of any shortfall in the realisation of dues, the appellant may file its claim for the balance in winding-up proceedings in accordance with law. 78 Mr. Shrikant Hathi, Advocate, did not make any oral submissions but with the leave of the Court tendered written submissions. In short, Mr. Hathi also supported the view that no leave under S. 446 of the Companies Act was required. Mr. Hathi also submitted that the sale proceeds or security should be distributed as per the priorities prescribed under the Admiralty Courts Act. 79 The submissions of Mr. Prashant S. Pratap, Senior Advocate, Amicus Curiae, could be summarized as under: i. The Companies Act is an act relating to compani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 10 of the Admiralty Act which deals with priorities in the matter of distribution of sale proceeds of a ship sold by the Admiralty Court will prevail over the priorities as regards to payments under section 529A 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- -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 wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceeding by or against the company which is pending in any Court other than that in which the winding-up is proceeding may, notwithstanding anything contained in any other law for the time being in force, be transferred to and disposed of by that Court. The question is whether these provisions would affect the proceedings of the Tribunal. 17. In this connection, reference may be made to Section 41 of the LIC Act which provides that no civil Court shall have jurisdiction to entertain or adjudicate upon any matter which a Tribunal is empowered to decide or determine under that Act. It is not disputed that the Tribunal had jurisdiction to entertain the application of the Corporation and adjudicate on the matters raised thereby. The Tribunal is given the exclusive jurisdiction over this matter. 18. It is in view of the exclusive jurisdiction which sub-section. (2) of Section 446 of the Companies Act confers on the company Court to entertain or dispose of any suit or proceeding by or against a company or any claim made by or against it that the restriction referred to in subsection (1) has been imposed on the commencement of the proceedings or proceeding with such proceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... escriptable subject is regarded as an exception to and would prevail over a general provision relating to a broad subject. 84 In the Admiralty Act, the Parliament has enacted a comprehensive Code in relation to the Admiralty jurisdiction of High Court, arrest of ships, maritime claims and determination of priorities. Hence, it is a subject specific provision relating to specific, defined and descriptable subject and is therefore regarded as an exception to and would prevail over a general provision relating to a broad subject as found in the Companies Act. 85 Having noted that the Companies Act is a general Act relating to companies and refers to suits against the company in general and having also noted that the Admiralty Act is a special act concerning suits in rem against a ship and vests Admiralty jurisdiction exclusively in certain High Courts only to entertain such actions in rem, it is quite clear that applying the principle of interpretation that special overrides the general, the Admiralty Act will prevail over the Companies Act. This also accords with the observations of the Apex Court in the case of Damji Valji wherein the provisions of the special Act, i.e., the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h other statutory bodies, leave of the company Court should be obtained. Matters where collection or distribution of assets are not involved, those which are outside the purview of the winding up Court and other Courts of law and those which are within the exclusive jurisdiction of other statutory bodies may not come under the purview of Section 446. A proceeding for eviction not being a proceeding which can be appropriately dealt with by the winding up Court, does not come under the category of other legal proceeding in Section 446(1) and, therefore, leave of the winding up Court is not necessary for proceeding with a petition filed against a company in liquidation. A similar reasoning was adopted in B.V. John Vs. Coir Yarn and Textiles Ltd., [1960] 30 Comp Cas 162 (Ker), which related to proceedings under the Industrial Disputes Act. Raman Nayar J., as he then was, held that a suit or proceeding for which leave is necessary under Section 446 (1) must be a suit or proceeding 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er assets of the company in liquidation. This principle of payment to a maritime creditor in the order of priorities set out in the Admiralty Act is just and equitable and does not give preference to one creditor over another. Maritime claimants stand on a completely different footing as far as the ship and its sale proceeds are concerned vis- vis the general secured creditors of the company. 92 It was observed by the apex Court in Industrial Credit and Investment Corporation of India Ltd. V/s. Srinivas Agencies Ors(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 ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ets 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- vis Sections 529 and 529A which is general law in regard to priorities over the general assets of the company. Consequently, even on this basis applying the principle that a general provision should yield to a specific provision, the priorities in Section 10 of the Admiralty Act will prevail over Section 529 and Section 529 A of the Companies Act. 95 In any event, this interpretation does not produce an unjust result as regards dues of workmen. Crew members are also considered to be workmen in a broader sense and their claims indeed get topmost priority and rank the highest in the order of priorities under Section 10 of the Admiralty Act which provides for a special right given to this category of workmen and special machinery for recovery of their wages. In fact, they rank higher than other secured creditors under the Admiralty Act as against a mere pari passu change given to them under Section 529 of the Companies Act. The workmen s priority in the matter of payment from the general non-maritime assets of the Company is not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iction of this Court. (c) We, therefore, answer the aforesaid question of law in negative and hold that the leave of the Company Court / Tribunal under the provisions of Section 446 of the Companies Act, 1956 or Section 279 of the new Companies Act, 2013, is not required to institute or proceed with the suit / trial under the Special Law like under Admiralty Jurisdiction of this Court. 98 I agree with the conclusion reached by the Division Bench of the Madras High Court though my reasons are different. In my view, however, notice must be given to the Official Liquidator prior to the sale of the ship in an action in rem under the Admiralty Act, unless the Official Liquidator has already entered appearance. 99 In the case of Praxis Energy Agents SA V/s. Pratibha Neera143 the Court had no occasion to consider the Admiralty Act as the said act had not come into force when the matter was reserved for judgment on 21 February 2018. The act came into force on 1 April 2018. Consequently, the observations made in paragraph 26 of the said judgment can no longer apply when considering the position in the light of the coming into force of the Admiralty Act with effect from 1 Apri ..... X X X X Extracts X X X X X X X X Extracts X X X X
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