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Navigating Legal Waters: Interplay between the Admiralty Act, Insolvency and Arbitration Regime of India - Part I

Summary: The Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017, brought much needed reform to India’s maritime legal framework. Though its coexistence with the Insolvency and Bankruptcy Code, 2016, and the Arbitration and Conciliation Act, 1996, has given rise to contentious jurisdictional issues that Indian courts continue to navigate. The article discusses judicial efforts to reconcile these legislative frameworks.

Part I of the article addresses the interplay between admiralty and insolvency law, particularly the effect of the IBC moratorium on in rem proceedings against vessels, and the extent to which admiralty actions may proceed without undermining the objectives of the insolvency regime.

Introduction

The development of India’s admiralty jurisdiction has been inextricably linked to its colonial legal heritage. For decades, the jurisdictional framework was anchored in antiquated British enactments, principally the Admiralty Court Act, 1861. This Act was extended to India through the Colonial Courts of Admiralty Act, 1890, which subordinated Indian admiralty jurisdiction to that of the High Court of England. After independence, since the Indian Parliament did not enact new laws on admiralty jurisdiction, courts relied on these colonial era legislations.

In 1993, India’s Supreme Court, in its seminal judgement in M.V. Elisabeth v. Harwan Investment and Trading Pvt. Limited (“M.V. Elisabeth”),[1] acknowledged this lacuna and, while expanding jurisdictional scope by absorbing principles from international conventions, underscored the pressing need for comprehensive domestic legislation. The judgement became the cornerstone for developing India’s admiralty jurisdiction.

The Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017 (“2017 Act”), repealed the colonial statutes to consolidate and codify laws relating to admiralty jurisdiction, legal proceedings concerning vessels, and settlement of maritime claims.

Core Pillars of the New Admiralty Regime: Jurisdiction, Claims and Remedies

Expansion of Jurisdiction

One of the most significant changes brought in by the 2017 Act was the extension of admiralty jurisdiction to the High Courts of Karnataka, Gujarat, Orissa, Kerala, and Hyderabad (for the states of Telangana and Andhra Pradesh), in addition to the High Courts of Calcutta, Bombay and Madras (which previously had exclusive jurisdiction) (“Admiralty Court”). It also empowered the Central Government to vest any other High Court with admiralty jurisdiction by notification, thus providing for expansion of jurisdiction without any further legislative action.

An Admiralty Court exercises jurisdiction over all maritime claims identified under the 2017 Act, within the territorial waters of its respective jurisdiction.[2]

Codification of Maritime Claims and Remedies

The action in rem is the hallmark of admiralty law, allowing a plaintiff to secure their maritime claim against a vessel, which is treated as a distinct legal personality. Section 4(1) of the 2017 Act provides a comprehensive list of maritime claims, including claims arising from insurance, brokerage and charter of the vessel.

The 2017 Act empowers the Admiralty Court to order the arrest of a vessel to secure a maritime claim.[3] Arrest is the principal enforcement mechanism in an in rem action, compelling the owner to furnish security for the release of the vessel, thereby ensuring satisfaction of a potential future judgement.

Further, subject to restrictions under Section 7, the Admiralty Courts may also exercise actions in personam towards maritime claims.[4] Actions in rem and in personam are not mutually exclusive; a plaintiff may pursue either or both if conditions for each are satisfied.[5]

Emerging Frictions in a Multijurisdictional Landscape

While the 2017 Act provided long overdue clarity, its interaction with the Insolvency and Bankruptcy Code, 2016 (“IBC”), and the Arbitration and Conciliation Act, 1996 (“Arbitration Act”), has raised contentious issues. These legislations have been held to be complete codes exclusively governing their respective subject matters.[6]

These legislations do not always align given their distinct objectives. The 2017 Act focuses on in rem enforcement rights against vessels; the IBC prioritises collective resolution over individual enforcement; and the Arbitration Act prioritises party autonomy and minimal judicial interference.

This article examines key areas of conflict between the 2017 Act, the IBC and the Arbitration Act, and discusses judicial efforts to reconcile these legislative frameworks.

Conflict with IBC

The moratorium is further fortified by the non-obstante clause under Section 238 of the IBC, which states that the provisions of the IBC shall have effect, “notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.”

A. 2017 Act v. IBC: What prevails in case of a conflict?

The Bombay High Court explored these conflicts in Raj Shipping Agencies v. Barge Madhwa (“Raj Shipping”).[8] The Court held that it would first examine whether inconsistent provisions exist between the 2017 Act and the IBC. In case of inconsistencies, the Court would attempt a harmonious construction to give effect to both enactments, bearing in mind the purpose and policy underlying them. Only in cases of unresolvable conflict would the IBC prevail, despite the 2017 Act being the later legislation. This is primarily due to the non-obstante clause in the IBC, which is absent in the 2017 Act. The rationale being the presumption that Parliament had knowledge of the non-obstante clause contained in the IBC when it enacted the 2017 Act.[9]

The Court clarified that an action in rem against a vessel is not an action against its owner or assets. The vessel does not fall within the definition of a CD under the IBC, and an action in rem remains maintainable as the vessel is sued in its own name.[10] This position was[11] reaffirmed in Angre Port Private Ltd. v. TAG 15 (IMO 9705550) (“Angre Port”).[12]

B. Effect of Moratorium on Admiralty Proceedings

Applying this harmonious interpretation, the Court in Raj Shipping held that an action in rem against a vessel for its arrest would not amount to institution or continuation of a suit against the CD and remains unaffected by the IBC moratorium. The Court considered three scenarios:

First, when the plaintiff obtains an arrest order prior to insolvency proceedings against the vessel’s owner. If the CD furnishes security for release of the vessel prior to the declaration of moratorium, the suit becomes an action in personam against the CD. Alternatively, if no security is furnished when moratorium is declared, the vessel remains under arrest until the CIRP concludes, though the resolution professional may furnish security for release.[13]

Second, when moratorium is already in effect before any admiralty suit in rem is filed. Since an action in rem is not against the CD, the moratorium does not bar such proceedings.[14]

Third, when the CD/ owner is already in liquidation, the Court held that even at this juncture, an action in rem can be entertained.[15]

The Court concluded that an admiralty action in rem can be filed at any time, and the vessel can be arrested “before the moratorium under the IBC comes into force or during the moratorium period or even when the CD is ordered to be liquidated.”[16]

C. Sale of Vessel in Admiralty Proceedings during Moratorium

While the vessel can be arrested during moratorium, the Admiralty Court will not proceed with the admiralty suit beyond arrest to ensure effective CIRP.[17]

In exceptional circumstances, the Admiralty Court may exercise discretion to sell the vessel and retain proceeds until the outcome of insolvency process or liquidation.[18] These circumstances include: (i) instances where the vessel is not adequately manned, equipped or maintained by the resolution professional, (ii) situations involving unpaid charges, including port charges, or (iii) cases where the vessel poses a navigational hazard.[19] Before any such sale, notice must be given to the owner.[20]

D. The Priority Paradox: Admiralty Priorities v. the IBC Waterfall

A plaintiff who secures an arrest order becomes a secured creditor to the extent of the arrested vessel’s value.[21] Even if no security is furnished, a maritime lien or claim is treated as a charge on the arrested vessel, effectively making the plaintiff a secured creditor.[22]

For CIRP purposes, a plaintiff’s entitlement is determined by the committee of creditors/ adjudicating authority based on its secured creditor status. If CIRP is successful and a resolution plan is approved, a plaintiff’s claim (for which the vessel has been arrested) will be dealt with as per the approved resolution plan. Ordinarily, a plaintiff would be allowed to fully recover its dues from the secured assets.[23]

If CIRP fails and the CD enters liquidation, the plaintiff retains its status as a secured creditor. In such circumstances, the plaintiff is entitled to enforce, realise, settle, compromise, or otherwise deal with the secured assets in accordance with the law governing the security interest, and to apply the proceeds towards recovery of the debts due to it[24] (i.e., under the 2017 Act).[25]

Thus, if CIRP is unsuccessful and the Admiralty Court sells the vessel under its in rem jurisdiction, the 2017 Act’s mechanism applies, not the waterfall mechanism under Section 53 of IBC.[26]

Conclusion

The Indian courts have harmonised the 2017 Act and the IBC by recognising that an action in rem is directed against the vessel itself, not the CD, and is therefore unaffected by moratorium. Consequently, a vessel may be arrested at any stage of insolvency proceedings, and in exceptional circumstances, sold, but thereafter the admiralty suit would not proceed till the outcome of insolvency process or liquidation. Where CIRP ultimately fails, the 2017 Act will govern the distribution of sale proceeds rather than the waterfall mechanism under the IBC.

Part II of this article will analyse the interplay between admiralty jurisdiction and the Arbitration Act, exploring whether a vessel may be arrested notwithstanding an arbitration agreement and the mechanisms devised by courts to reconcile these competing regimes.

[1] 1993 Supp (2) SCC 433.

[2] Section 2(1)(k) of the 2017 Act reads as: ““territorial waters” shall have the same meaning as assigned to it in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zones Act, 1976 (80 of 1976);”.

Section 3(2) of the Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zones Act, 1976 specifies that the limit of territorial waters is “the line every point of which is at a distance of twelve nautical miles from the nearest point of the appropriate baseline.”

[3] Section 5 of the 2017 Act.

[4] Sections 6 and 7 of the 2017 Act.

[5] Samareshwar Mahanty, Maritime Jurisdiction and Admiralty Law in India (2018, Universal Law Publishing, 2nd edn.), pg. 69.

[6] Fuerst Day Lawson Limited v. Jindal Exports Limited, (2011) 8 SCC 333; In Re: Interplay between Arbitration Agreements under Arbitration and Conciliation Act, 1996 and Stamp Act, 1899, (2024) 6 SCC 1; M/s Innoventive Industries Limited v. ICICI Bank & Anr., (2018) 1 SCC 407; Ghanashyam Mishra & Sons Private Limited v. Edelweiss Asset Reconstruction Co. Limited, (2021) 9 SCC 657; Raj Shipping Agencies v. Barge Madhwa & Anr., 2020 SCC OnLine Bom 651.

[7] Section 14, IBC: “14. Moratorium.—(1) Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely:— (a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority; (b) transferring, encumbering, alienating or disposing of by the corporate 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 Securitisation 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. […]”

[8] 2020 SCC OnLine Bom 651. This judgement is presently under appeal before the Supreme Court (SLP(C) No. 009384 / 2020).

[9] Raj Shipping, ¶77.

[10] Raj Shipping, ¶91.

[11] Raj Shipping, ¶90.

[12] 2022 SCC OnLine Bom 56; ¶23. This judgement is presently under appeal before the Supreme Court (SLP(C) No. 007747 / 2022).

[13] Raj Shipping, ¶100.

[14] Raj Shipping, ¶112.

[15] Raj Shipping, ¶124.

[16] Raj Shipping, ¶128.

[17] Raj Shipping, ¶92.

[18] Raj Shipping, ¶109.

[19] Raj Shipping, ¶107.

[20] Raj Shipping, ¶108.

[21] Raj Shipping, ¶87.

[22] Raj Shipping, ¶100.

[23] Raj Shipping, ¶98.

[24] Section 52(4) provides that “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.”

[25] Raj Shipping, ¶99.

[26] Raj Shipping, ¶102, 128.