In India, Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017 (“Admiralty Act”) governs maritime disputes, including arrest of ships, maritime claims, judicial sale of ships and determination of priorities. Section 3 of the Admiralty Act specifies that High Courts are vested with admiralty jurisdiction which is exercisable over the waters up to and including the territorial waters of their respective jurisdictions. Section 4 sets out the types of maritime claims, including disputes related to vessel possession or ownership, the employment or earnings arising out of the vessel, etc.

One of such claims is maritime lien, i.e., a claim against the owner, demise charterer, manager or operator of the vessel which continues to exist despite change in ownership or registration of the vessel. Courts vested with admiralty jurisdiction or admiralty courts have identified a vessel as a separate legal entity with rights and liabilities. Hence, the claims arising out of such vessel are action in rem, as remedy is sought against the corpus of the offending vessel and not its owner.

Dichotomy between admiralty and insolvency laws – resolved?

Since both maritime claims and claims filed in the corporate insolvency resolution process (“CIRP”) of a corporate debtor under the Insolvency & Bankruptcy Code, 2016 (“Code”) are action in rem, it was only natural that the conflict pertaining to the co-existence of these special statutes was brought before courts. This conflict was first addressed in Raj Shipping Agencies & Ors. v. Barge Madhwa & Anr.[1], where the Bombay High Court (“Court”) held that the Admiralty Act enables the claimant to crystallise their claim against the vessel, and any person ought to be permitted to enforce the same. Therefore, the Court concluded that an action in rem can be filed against the ship, and it can be arrested before the moratorium under Section 14 of the Code qua the corporate debtor (owner of the vessel) comes into force or during the moratorium period or even when the corporate debtor is ordered to be liquidated.

This finding was reiterated by the Court in Angre Port Private Limited v. TAG 15 (IMO. 9705550) & Anr.[2] Briefly, the facts of the case are that Vessel – Tag-15 (IMO. 9705550) (“Vessel”) had started occupying the berthing space on the port of Angre Port Private Limited (“APPL”) from 13.02.2019, for which APPL started raising invoices to the Vessel from time to time. On 24.04.2019, CIRP commenced qua owner of the Vessel, namely, Tag Offshore Limited (“Owner/Corporate Debtor”) and an interim resolution professional was appointed.

As the crew abandoned the Vessel, APPL incurred additional costs towards deploying a tug to salvage and bring back the Vessel for safety reasons. Subsequently, CIRP failed, and liquidation order was passed on 26.09.2019.

Thereafter, APPL initiated a commercial admiralty suit against the Vessel seeking recovery of Rs. 9,37,19,098/- with interest @ 18% p.a. towards berthing charges, port charges and salvage due on 20.01.2020. In the same suit, the liquidator sought for sale of the Vessel, which was allowed but the liquidator failed to sell the same. Nonetheless, the Vessel was eventually sold on 22.09.2020 at the value of Rs.10,75,00,000/- after the liquidator gave an undertaking to the Court that all costs / expenses incurred by APPL from 24.04.2019 till the date the Vessel would leave APPL’s berthing space, including salvage charges, shall be treated as liquidation costs and only the salvage charges would be subject to scrutiny.

Thus, APPL filed an interim application under Order XII Rule 6 of the Code of Civil Procedure, 1908 for summary judgment for Rs. 9,37,19,098/- along with interest @ 18% p.a. from 18th December 2020 till payment and/or realization which was opposed by the liquidator on the ground that the application was not maintainable as the Owner of the Vessel was facing liquidation and Section 33(5) of the Code prohibits initiation of suit and other legal proceedings after a liquidation order has been passed against a corporate debtor.

Rejecting the challenge, the Court held that Section 33(5) of the Code prohibits initiation of suits and other legal proceedings against the corporate debtor after a liquidation order has been passed and not against the sale proceeds of a vessel owned by such corporate debtor. The Court further observed that although no legal proceedings are maintainable qua the Owner in light of Section 33(5) but the Vessel is an independent juristic entity and the bar under Section 33(5) of the Code cannot be applied to the Vessel. Relying on Raj Shipping (supra), the Court reiterated that maritime claims are enforceable against the vessel and are not dependent upon the owner of such vessel.

Furthermore, vis-à-vis the interplay of the Admiralty Act and the Code, the Court opined that when a corporate debtor is under liquidation, the ownership of the vessel remains unaffected, and the liquidator merely acted as a custodian. The arrest of the vessel only designates a maritime claimant as a secured creditor, but the scope of this status is limited to the Vessel itsel and does not extend to other assets. Thus, the interest and rights of other secured creditors remain unaffected. Therefore, settling a maritime claim during CIRP or liquidation does not disturb the rights of other secured creditors, however, by not permitting the maritime claims and arrest of the Vessel, the rights in rem available to a maritime claimant would surely be defeated and denied.

Apart from the fact that permitting maritime claimants to avail the fruits of the sale proceeds of a vessel, which should form part of the asset pool of the corporate debtor, in full while other creditors suffer haircuts in their outstanding, the Court has neglected that such vessels are often part of cross-border disputes which requires giving attention to foreign jurisdiction as well.  Further, this position is also in direct contravention with Article 20 of the UNCITRAL Model Law on Cross Border Insolvency (“Model Law”) which like Section 14 of the Code, imposes a mandatory suspension of rights against the debtor’s assets upon the recognition of the foreign main proceeding[3], including maritime claims. Therefore, a vessel which is a subject matter of dispute by virtue of being an asset of the debtor, cannot be sold by admiralty courts leaving the question of harmonious co-existence of admiralty and insolvency laws unresolved.

Cross-border insolvency – a possible solution

The Model Law is based on mutual recognition of foreign proceedings and precedents. To give effect to the same, the Ministry of Corporate Affairs has proposed a model framework for cross border insolvency called Draft Part Z[4] to govern all applications seeking recognition of foreign insolvency proceedings as well as applications seeking co-operation in such proceedings before the Adjudicating Authority under the Code. Draft Part Z consists of four essential elements, viz., access, recognition, cooperation, and coordination.

The key feature of Draft Part Z is legislative reciprocity which means that a domestic court will recognize and enforce a foreign court’s judgments or orders only if the country in which the foreign court is located has adopted the same or similar legislation to that governing the domestic court. Such proceedings may be recognized as foreign main or foreign non-main proceeding[5] and accordingly, reliefs may be granted by the court. Upon recognition of a main proceeding, certain reliefs, such as a moratorium on sale or transfer of assets, are required to be granted whereas these may be at the discretion of the court for non-main proceedings. Further, direct cooperation between (1) the insolvency courts (domestic or foreign), (2) between courts and insolvency professionals or foreign representatives, and (3) between domestic and foreign insolvency representatives, will also aid in managing the debtor’s assets located in various states as well as coordination of concurrent proceedings.

Implementation of Draft Part Z would grant the right of refusal of recognition of foreign proceedings if it were manifestly contrary to the domestic public policy and public interest would continue to remain at a higher pedestal. Further, it would empower the Adjudicating Authority to have complete discretion to disregard the order of a foreign court and proceed on as is basis and at the same time, would not make foreign courts subservient to the Adjudicating Authority. Any country arresting or attaching the debtor’s asset (vessel) must recognize the primacy of insolvency proceedings in the domestic jurisdiction subject to insolvency commencement date. Simultaneously, the insolvency forum is also required to recognize and respect the legitimacy of the security granted by the admiralty procedures in the country of arrest or attachment. Therefore, the collective adoption of Model Law by major shipping companies appears to be a universal and efficacious resolution mechanism for all while preserving the rights of maritime claimants.

Author: Srishti Gupta, Senior Associate

[1] 2020 SCC OnLine Bom 651

[2] 2022 SCC OnLine Bom 56

[3] Article 2 (b) - “Foreign main proceeding” means a foreign proceeding taking place in the State where the debtor has the centre of its main interests;

[4] Annexure – II of the Report of Insolvency Law Committee on Cross Board Insolvency

[5] Article 2 (c) - “Foreign non-main proceeding” means a foreign proceeding, other than a foreign main proceeding, taking place in a State where the debtor has an establishment within the meaning of subparagraph (f) of this article;