The Court was called upon to decide the effect of the insolvency of various shipowning companies on admiralty actions in rem commenced against their vessels. Two legal questions arose for determination:

1. Is there a conflict between actions in rem filed under the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act 2017 (the Admiralty Act) and the provisions of the Insolvency and Bankruptcy Code 2016 (the IBC) and if so, how is the conflict to be resolved?
2. Is leave under s 446(1) of the Companies Act 1956 (the Companies Act) required for the commencement or continuation of an admiralty action in rem where a winding up order has been made or the official liquidator has been appointed as provisional liquidator of the company that owned the ship?

Held:

1. An action in rem filed under the Admiralty Act for an arrest of the ship does not amount to an institution of a suit against a corporate debtor as defined under the IBC, nor does continuation of an action in rem amount to continuation of a suit against the corporate debtor. Consequently, a declaration of a moratorium under s 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 that a moratorium is declared under s 14 of the IBC, an action in rem, if instituted prior to the declaration of the moratorium, will not be continued during the Corporate Insolvency Resolution Process (CIRP) as this would defeat the very purpose of insolvency resolution under the IBC. Institution of an action in rem even after a moratorium is declared would also be permitted as the action in rem is not against the corporate debtor. However, the action will not be allowed to proceed after the arrest of the ship so as to allow for the CIRP to be effective. The priorities of maritime claims will be decided in accordance with the provisions of the Admiralty Act.
2. No.

The IBC is a special statute devoted entirely to resolution of insolvency, liquidation and bankruptcy of corporate persons and firms and individuals. The Admiralty Act operates in a completely different sphere but is nonetheless a special Act vesting admiralty jurisdiction in certain High Courts. Section 9 of the Admiralty Act lists maritime liens in order of their inter se priority. Section 10 of the Admiralty Act provides for the order of priority of all maritime claims. It was argued that ss 9 and 10 of the Admiralty Act give effect to the provisions of the International Convention on Maritime Liens and Mortgages 1993 (the MLM Convention 1993) and ought to prevail over the provisions of s 52 of the IBC when it comes to determining priorities in regard to the sale proceeds of a ship. If it were otherwise, it would be contrary to the position in most countries which have ratified this Convention and which give priority to maritime liens in respect of a company in liquidation. Otherwise, a person who has a maritime lien against an Indian ship would be disadvantaged as the same person would be better placed if the maritime lien was against a foreign ship.

The IBC has overriding effect only if there is anything inconsistent contained in any other law for the time being in force or any instrument having effect by virtue of any such law. Consequently, if there is no provision in the Admiralty Act which is inconsistent with the IBC, the provisions contained in the IBC cannot override the provisions of the Admiralty Act. 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 intention and objectives of the IBC, which is essentially corporate insolvency resolution, and at the same time to give full play to the rights in rem created and conferred by the Admiralty Act. Only in the event that there is a conflict and the conflict cannot be resolved, due regard will be given to the conflicting provisions to understand the nature of the conflict and which provision must prevail.

The distinction between an action in rem under the Admiralty Act and an action in personam is of vital importance when considering the provisions of the IBC. An action in rem is only against the ship which is considered as having a legal personality independent of that of the corporate owners. This allows an action to be maintained against the ship as a legal person. If a ship is arrested in an action in rem and no appearance is entered by the owner, the action proceeds in rem, the ship is sold and the proceeds are paid out to the successful claimant after determination of priorities if there are multiple claims against the ship. If the owner enters an appearance but no security is furnished, the action will still proceed as an action in rem against the ship. It will also proceed as an action in personam against the owner. Thus, even when the owner is contesting the claim it is still open to the Admiralty Court to sell the vessel if circumstances require it to do so and the action will proceed in rem against the sale proceeds which represent the vessel.

An action in rem against the ship is not an action against the owner of the ship who may be the corporate debtor as defined under the IBC. Neither is the action in rem considered as a proceeding against the asset of the owner/corporate debtor. It is a proceeding against the ship to recover the claim from the ship, not an action against the owner/corporate debtor to recover the claim by attachment of the asset of the owner/corporate debtor. Once these salient features of 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.

Thus, an action in rem filed under the Admiralty Act for arrest of the ship does not amount to an institution of a suit against a corporate debtor as defined under the IBC, nor does continuation of an action in rem amount to continuation of a suit against the corporate debtor. Consequently, a declaration of a moratorium under s 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 that a moratorium is declared under s 14 of the IBC, an action in rem, if instituted prior to the declaration of the moratorium, will not be continued during the CIRP as this would defeat the very purpose of insolvency resolution under the IBC. Institution of an action in rem even after a moratorium is declared will also be permitted as the action in rem is not against the corporate debtor. However, the action will not be allowed to proceed after the arrest of the ship so as to allow for the CIRP to be effective.

In the event that an order for the liquidation of the corporate debtor is made under s 33 of the IBC and a liquidator is appointed, this by itself will not bar institution of an action in rem against the ship as it is not a suit instituted against the corporate debtor which is barred under s 33(5) of the IBC. The liquidator is empowered under s 35(1)(k) of the IBC to defend the proceedings. If the ship is sold, the sale proceeds will be available to satisfy the maritime claims including maritime liens. The priorities of maritime claims will be decided in accordance with the provisions of the Admiralty Act.

The second question needs to be resolved on a consideration of whether the Companies Act is a general Act relating to companies and whether the Admiralty Act is a special Act dealing with admiralty jurisdiction and actions in rem, such that the Admiralty Act, being a special and later Act, prevails over the Companies Act. It also needs to be considered whether a Company Court would be entitled to exercise admiralty jurisdiction in rem and entertain and dispose of a suit in rem by virtue of s 446(2) of the Companies Act.

Section 3 of the Admiralty Act confers Admiralty jurisdiction exclusively on certain High Courts as defined in s 2(1)(e) to the exclusion of all other High Courts and Civil Courts. The Company Court therefore does not have jurisdiction to entertain and adjudicate upon any matter which the High Court vested with admiralty jurisdiction is empowered to decide or determine under the Admiralty Act. It must follow that s 446(1) of the Companies Act will not operate on admiralty proceedings which are pending before the High Court or which may be sought to be commenced before it.