The MV Neamonitisa, registered in Panama and flying the Panamanian flag, and said to be owned by Trinity Shipping Corp, Piraeus, Greece, was arrested at the port of Visakhapatnam in respect of three categories of claims:

1. claims for supply of necessaries;
2. a claim for payment of wages due, made by the master of the ship; and
3. a claim made by the Royal Bank of Scotland, on the ground that the vessel was hypothecated, charged and mortgaged to it.

A dispute arose as to the priority of the claims. The issues for the Court were as follows:

1. Whether the suppliers of necessaries and persons to whom wages are payable have a maritime lien or just a maritime claim ?
2. Does a maritime lien, if it exists, override the claim of a registered mortgagee?
3. Whether the failure of the Royal Bank of Scotland to obtain a decree on the mortgage (instead of a simple decree for money as they have obtained now) and to obtain an order of arrest of the vessel, has a bearing upon their claim as a registered mortgagee?

Held: 1. The master's claim for wages attracts a maritime lien, but suppliers of necessaries only enjoy a maritime claim against the ship. 2. The wages claim, but not the suppliers' claims, take priority over the Royal Bank of Scotland's registered mortgage. 3. The Bank's rights under its mortgage are unaffected.

On the first issue, after reviewing the history of India's admiralty jurisdiction, the Judge noted that the International Convention for Unification of Certain Rules relating to Maritime Liens and Mortgages 1967 (the MLM Convention 1967) reiterated that the wages claims of seafarers and masters constitute maritime liens.

The General Assembly of the United Nations, by a Resolution 46/213 dated 20 December 1991, decided that a United Nations/International Maritime Organisation Conference of Plenipotentiaries on a Convention on Maritime Liens and Mortgages should be convened in order to consider a draft Convention and to embody the results of its work in a Convention on maritime liens and mortgages. The Conference was accordingly convened in May 1993. On the basis of its deliberations, the Conference established the text of the International Convention on Maritime Liens and Mortgages 1993 (the MLM Convention 1993), which was adopted by many countries, including India. As seen from its preamble, the purpose of the Convention was to ensure international uniformity in the field of maritime liens and mortgages and to have an international legal instrument governing maritime liens and mortgages.

Article 4 of the Convention lists the claims that shall be secured by a maritime lien on the vessel. Article 5 declares that the maritime liens set out in art 4 shall take priority over registered mortgages. Article 6 entitles each State party to the Convention to make laws granting maritime liens in respect of claims other than those enlisted in art 4, subject to certain conditions. Article 8 declares that the maritime liens would follow the vessel notwithstanding the change of ownership or of registration or of flag. Article 9 provides for the extinction of maritime liens by effluxion of time. Article 12.2 of the Convention prescribes the method of distribution of the sale proceeds of a vessel, whenever a forced sale of the vessel takes place. It reads as follows:

The costs and expenses arising out of the arrest or seizure and subsequent sale of the vessel shall be paid first out of the proceeds of sale. Such costs and expenses include, inter alia, the costs for the upkeep of the vessel and the crew as well as wages, other sums and costs referred to in Article 4, paragraph 1(a), incurred from the time of arrest or seizure. The balance of the proceeds shall be distributed in accordance with the provisions of this Convention, to the extent necessary to satisfy the respective claims. Upon satisfaction of all claimants the residue of the proceeds, if any, shall be paid to the owner and it shall be freely transferable.

India is a signatory to the Convention. There is no municipal law in conflict with the Convention. On the contrary, s 148(1) of the Merchant Shipping Act 1958 makes it clear that the master of a ship has the same rights, liens and remedies for the recovery of his or her wages as a seafarer has under this Act or by any law or custom. It is clear that by custom, seafarers and the master have a maritime lien over the vessel in respect of wages due to them. Such a customary right has been preserved by s 148(1) of the Merchant Shipping Act 1958 and reiterated by India signing the MLM Convention 1993.

Therefore, the claim made by Captain Papaspamatiou, the master of the vessel, for the wages remaining unpaid, is not a mere maritime claim but a claim giving a right of maritime lien. The lien cannot even get extinguished, by virtue of a confiscation by the Government under the provisions of the Customs Act 1962. Therefore, Captain Papaspamatiou's claim has priority over the mortgage claim made by the Royal Bank of Scotland in terms of art 5.1 of the MLM Convention 1993.

As to the suppliers' claims, the International Convention on Arrest of Ships 1999 (the Arrest Convention 1999) lists 22 claims under art 1 as amounting to a maritime claim. Article 2.2 of the Convention provides that a ship may only be arrested in respect of a maritime claim and not in respect of any other claim. However, art 9 of the Convention makes it clear that nothing in that Convention shall be construed as creating a maritime lien. A claim arising out of goods, materials, provisions, bunkers or equipment supplied or services rendered to the ship for its operation, management, preservation or maintenance, is included as a maritime claim in art 1.1.l of the Convention. Therefore, the fact that the suppliers were able to file suits in the Andhra Pradesh High Court and secure orders of arrest of the vessel on the strength of a maritime claim arising out of supply of necessaries is actually in tune with the Convention. But that by itself would not create a maritime lien, as spelled out by art 9 of the Convention. An action in rem and the order of arrest need not necessarily indicate the presence of a maritime lien, since the right to proceed in rem now stands extended to many claims which do not constitute a maritime lien. In other words, every maritime lien gives a right to initiate an action in rem and to seek an order of arrest of the vessel. But every action in rem and every order of arrest does not presuppose the existence of a maritime lien. Therefore, the claims for supply of necessaries do not constitute maritime liens, though they certainly constitute maritime claims, giving a right of action in rem with a right to seek an order of arrest of the vessel.

On the second issue, the judge noted that a mortgage shall normally prevail over all other claims except those of prior encumbrances. But the maritime lien is an universally recognised exception to this normal rule. Article 5.1 of the MLM Convention 1993, to which India is a signatory, declares that maritime liens set out in art 4 shall take priority over registered mortgages, hypotheques and charges and that no other claim shall take priority either over such maritime liens or over such mortgages. The provisions of the Merchant Shipping Act 1958, or any other municipal law, are not in conflict with the above Convention. Therefore, the obligations arising out of the above Convention are enforceable. Hence there is no difficulty in holding that a maritime lien takes precedence over a registered mortgage, despite the fact that in the USA, a maritime lien is made subordinate to the preferred ship mortgage. This view is also fortified by the decision in Konavalov v Commander, Coast Guard Region 2006 (3) SCALE 398, (2006) 4 SCC 620 (CMI885), where the Supreme Court held that unpaid wages would take precedence even over a claim by the State and the confiscation made by the Customs Department. Therefore, the claim for wages shall take priority over the mortgage claim made by the Royal Bank of Scotland.

On the third issue, the Judge held that a mortgage is not extinguished by the mere absence of an order of arrest. A right is conferred statutorily upon a registered mortgagee of a ship, to realise the amount due under the mortgage, by selling the ship even without approaching the High Court. The right conferred upon the registered mortgagee under s 51(1) of the Merchant Shipping Act 1958 is akin to the right conferred under s 69(1) of the Transfer of Property Act. Therefore, the fact that the Royal Bank of Scotland came to Court after an order for the sale of the ship was passed, and the fact that they did not secure an order of arrest of the ship, did not really matter and did not actually extinguish their rights as mortgagees.