The plaintiff supplied bunkers to the vessel OSV Beas Dolphin (the first defendant). The ship manager and commercial manager of the first defendant (the third defendant) and the registered owner of the first defendant (the fourth defendant) failed to clear the dues under the invoices for the supplied bunker.

The plaintiff also supplied bunkers to the vessels MV Sea Jaguar and MV ATH Sea Melody. The time charterer of these two vessels (the second defendant) failed to clear the dues owed under the invoices for the supplied bunker.

On 21 September 2019, the plaintiff arrested the first defendant. On 16 July 2020, in insolvency proceedings against the second defendant, a moratorium on further proceedings was commenced. By an order dated 24 September 2020, the judicial sale of the first defendant was confirmed and the sale proceeds were deposited into the High Court.

The plaintiff by interim application sought a summary judgment. The second defendant raised a preliminary objection as to the maintainability of this application. The second defendant argued, among other things, that the MV Sea Jaguar and the MV ATH Sea Melody were not sister ships of the first defendant and any alleged claim in respect of supplies made to these vessels could not be recovered by the arrest and sale of the first defendant. The plaintiff argued, among other things, that the second defendant was the beneficial owner of the first defendant when it was arrested and that the plaintiff was entitled to arrest any vessel in the ownership of the second defendant as per the provisions of s 5(2) read with s 5(1)(a) of the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act 2017 (India) (the Act).

Held: Application partially allowed (summary judgment and decree in favour of the plaintiff in respect of supplies made to the first defendant but not in respect of supplies made to the chartered vessels).

Section 5 of the Act provides:

Arrest of vessel in rem.

(1) The High Court may order arrest of any vessel which is within its jurisdiction for the purpose of providing security against a maritime claim which is the subject of an admiralty proceeding, where the court has reason to believe that (a) the person who owned the vessel at the time when the maritime claim arose is liable for the claim and is the owner of the vessel when the arrest is effected; or (b) the demise charterer of the vessel at the time when the maritime claim arose is liable for the claim and is the demise charterer or the owner of the vessel when the arrest is effected; or (c) the claim is based on a mortgage or a charge of the similar nature on the vessel; or (d) the claim relates to the ownership or possession of the vessel; or (e) the claim is against the owner, demise charterer, manager or operator of the vessel and is secured by a maritime lien as provided in section 9.

(2) The High Court may also order arrest of any other vessel for the purpose of providing security against a maritime claim, in lieu of the vessel against which a maritime claim has been made under this Act, subject to the provisions of sub-section (1): Provided that no vessel shall be arrested under this sub-section in respect of a maritime claim under clause (a) of sub-section (1) of section 4.

Section 5(1) provides for the arrest of an offending vessel in rem. To maintain the arrest, the plaintiff must: (i) identify the offending vessel; (ii) establish that the owner of the offending vessel is liable for a maritime claim; and (iii) the owner continues to be the owner when the arrest is effected. Further, s 5(2) permits arrest of any other vessel other than the offending vessel. In order to invoke s 5(2), the plaintiff must: (a) establish a maritime claim under s 4 of the Act; (b) identify the time charterer who is liable for the maritime claim; (c) identify a vessel which is owned by the time charterer; and (d) establish that the vessel is owned by that time charterer when the arrest is effected.

There is nothing in s 5(2) to exclude the arrest of a vessel owned by a time charterer. Prior to the enactment of the Act, arrest of ships was governed by the Arrest Convention 1999. Article 3.2 of the Convention states: 'Arrest is also permissible of any other ship or ships which, when arrest is affected, is or are owned by the person who is liable for the maritime claim and who was, when the claim arose … (b) demise charterer, time charterer or voyage charterer of that ship.' Although under art 3.2 the arrest of a time charterer’s vessel is expressly permitted, and there is no express permission under s 5, s 5 cannot be read in a restrictive manner and must be read in a purposive manner in order to support the objectives and rationale of the Act.

The other issue was whether the word 'owner' in s 5(1)(a) of the Act applies to a registered owner or a beneficial owner. In Universal Marine v MT Hartati, 2014 SCC Online Bom 223, a Single Judge of this Court has construed the expression 'owner' under art 3.2 of the Convention to be a 'registered owner'. The Judge held that the reason for this is that the only person who could be held to be liable for a claim against the ship is the person who owns all the shares in the ship and who would be liable on the claim in an action in personam. If the 'owner' was meant to include the 'beneficial owner', the Convention would have said 'beneficial owner'. By contrast, in Lufeng Shipping Co Ltd v MV Rainbow Ace (2013) (4) ABR 1412, the expression 'owner' was construed as including the 'beneficial owner' under the Convention by a Single Judge of this Court. This was upheld by the Division Bench of this Court.

In order to arrest a ship owned not by the registered owner but by a beneficial owner who is liable for the maritime claim, it would be for the plaintiff to establish that the beneficial owner rather than the registered owner is the real owner. It is not sufficient for the second defendant to merely place reliance on the Lloyd's Report which shows the second defendant to be the beneficial owner of the first defendant. No case of fraud is pleaded or made out for lifting the corporate veil and/or for going after the beneficial owner of the first defendant. In the absence thereof, no claim can lie against the beneficial owner of the first defendant for supplies made to the MV Sea Jaguar and the MV ATH Sea Melody.

An action in rem against the ship and/or sale proceeds thereof is not an action against the owner of the ship, who may be a corporate debtor as defined under the Insolvency and Bankruptcy Code 2016 (IBC 2016). An action in rem continues as an action in rem notwithstanding that the owner may have entered appearance, if security is not furnished. It is settled law that s 14 of the IBC 2016 does not prohibit an action in rem or continuation of in rem proceedings against the maritime vessel.