GROWTH OF ADMIRALTY LAW IN INDIA AND ITS IMPLICATIONS

Admiralty law refers to the domestic maritime law. Hence, it can be called as a set of rules and regulations which governs the subjects of sea and ships. Maritime trade has gained tremendous importance in the last few decades with increasing globalization. However, India despite being one of the key players was still struggling with its archaic laws on the matter until 2017 when it passed the Admiralty (jurisdiction and Settlement of Maritime Claims) Act (“Admiralty Act”). It came into force on 1st April 2018. India has vast coastline which spreads over more than 7000 kms. Additionally, Majority of India’s trade is carried out through maritime route and hence ports and shipping industry play a substantial role in sustaining growth.

The new Act seeks to consolidate the laws on the subject of admiralty jurisdiction i.e. of maritime claims, legal proceedings with regard to vessels, their arrest, detention, sale, etc.[1]

It has in turn repealed and replaced a number of outdated laws relating to the admiralty jurisdiction of the Indian High Courts that were passed by the British back in the 1800s and which became applicable to India. These Acts included the Admiralty Courts Act, 1840 and 1841; the Colonial Courts of Admiralty Act 1890, Colonial Court of Admiralty (India) Act, 1891 and provisions of the Letters Patent, 1965 pertaining to the Admiralty Jurisdiction of the Calcutta, Madras and Bombay High Courts.

Applicability

The Act is applicable to all boats, ships and other vessels in Indian territorial waters, except inland vessels, vessels under construction that have not been launched and naval or other non-commercial government vessels. Further, it extends its application to vessels that that have sunk or are stranded or abandoned and the remains of such vessels.

However, its jurisdiction does not extend to foreign vessels which are used for any non-commercial purpose as may be notified by the government. Thus, it includes in its frame - all kinds of commercial ships, including cargo ships, bulk carriers, container ships, roll-on/roll-off vessels, oil and liquefied gas carriers, chemical carriers, product carriers, livestock vessel, tug vessels and even commercial passenger ships.

Jurisdiction Extension

Before the enactment of the Admiralty Act, the old laws peculiarly vested admiralty jurisdiction only in the Bombay, Madras and Calcutta High Courts (these were the major cities back then). However, over time there were decisions which suggested that this jurisdiction has been extended to other High Courts as well but the same was never penned down in any law in place.[2]

While on the other hand, the new Act vested jurisdiction for maritime claims in the High Courts of all coastal states in India in Kolkata, Mumbai, Chennai, Karnataka, Gujarat, Orissa, Kerala as well as Hyderabad. Here, each Court has jurisdiction over waters up to and including its territorial sea waters.

Highlights

• Under this law, the highest priority will be given to maritime claims, followed by mortgages and other claims. Under maritime claims also, the highest priority has been given to claims related to wages, which would be followed by loss of life or injury related claims.[3]

• The Central government will appoint a list of assessors qualified and experienced in admiralty and maritime matters.[4]

• Courts may exercise admiralty jurisdiction against a person with regard to maritime claims. However, the court will not entertain certain complaints against a person. Such as. – (i) damage, or loss of life, or personal injury arising out of collision between vessels that was caused in India or (ii) non-compliance with the collision regulations of the Merchant Shipping Act, 1958 by a person who does not reside or carry out business in India.

• Courts will not entertain action against a person until any case against them w.r.t. the same incident in any court outside India has ended.

• Arrest of Vessel – The courts may order for the arrest of any vessel within their jurisdiction for providing security against a maritime claim which is the subject of a proceeding. They may do so under various reasons such as (i) owner of the vessel is liable for the claim, (ii) the claim is based on mortgage of the vessel, and (iii) the claim relates to ownership of the vessel, etc.

• Dues in connection with any port, harbour, canal, dock or light tolls, other tolls, waterway or any charges of similar kind chargeable under any law for the time being in force will be a maritime claim.[5]

Ship arrest

Arrest can be defined as the detention or restriction for removal of a vessel by order of a High Court to secure a maritime claim including seizure of a vessel in execution or satisfaction of a judgment or order.[6] A ship arrest is exercise under the authority of a court which has admiralty jurisdiction in cases of loss of life, loss of property, salvage, collision, execution of a decree, violations of customs, usages, regulations or norms.

Right in rem and Right in personam in Admiralty law

Statutory rights in rem are peculiar to English Admiralty Law. ‘Action in rem’ is a type of lawsuit that is brought against a piece of property itself instead of its owner. In maritime law, it involves a lien placed against a vessel or cargo in a ship. Herein, the ship is personified as the “guilty thing”. While an action in personam is brought against the owner of the property.

It becomes difficult sometimes to decide whether to bring a case against the owner or the property. In some cases, it is brought against both. Or in fewer cases, an action against personam is converted in an action in rem eventually with the help of an amendment. It is important to note that a breach of maritime contract creates a lien and the most effective solution for enforcing this lien is using the action in rem. An action in rem suit should be initiated at the same location as the property in question.

The High Court may exercise admiralty jurisdiction by action in personam in respect of maritime claim except in case of a damage or loss of life or personal injury arising out of - collision between vessels, the carrying out of or omission to carry out, a maneuver in the case of one or more vessels, non-compliance on the part of one or more vessels with the collision regulations made in pursuance of section 285 of the Merchant Shipping Act, 1958.[7]

M.V. Elizabeth Case[8]

In this landmark case, the Supreme Court had before itself the question of power of the High Court in matters concerning order of arrest of a ship under the earlier British legislations which were followed in India at the time. The apex Court laid down that the jurisdiction of the High Courts is not restricted as in the aforementioned Acts and it made the principles of International Conventions on Maritime Laws applicable in the country as part of country’s common law. Earlier, the jurisdiction was only with the three High Courts as mentioned earlier, however, this judgment sought to change that.

This case highlighted the need of uniform sphere of laws to facilitate the settlement of disputes between shipowners and the users of ships; settlement of various maritime claims and other such issues. Thus, there was definitely a need for a dedicated law to administer matters related to maritime activities such as maritime trade, navigation, shipping, salvaging, issues related to sailors and passengers and goods.

The subject of Admiralty Jurisdiction was studied by the Law Commission in an in-depth manner in 1994[9] after the Supreme Court’s landmark decision in MV Elizabeth case. At the time, India did not have an admiralty law of its own and instead the courts continued to administer the admiralty jurisdiction in accordance with the statutes enacted by the British Parliament and followed in India.

The new Act in its Statement of Object and Reasons of this Act itself refers to the desirability of the codifying and clarifying the admiralty view of the observations in MV Elisabeth.

Maritime Law before the 2017-repeal

One of the major issues that the earlier laws set out by the British and being followed in India until recently was the jurisdictional restriction. As stated above, only three Courts in India were eligible to hear matters related to maritime. Further, they were not developed to tackle issues such as that of wages of workers working in the maritime domain, liability due to collision of ships, charter ships and others. Priorities were different earlier and hence, maritime claims and mortgages of vessels did not get as much importance as they do now.

Conflict between the Admiralty Act and the IBC

On May 19, 2020, The High Court of Judicature at Bombay listed cases of Admiralty Act and Insolvency and Bankruptcy Code (IBC), 2016 together to decide upon the effect of the insolvency of various ship-owning companies on admiralty actions in rem commenced against their vessels.[10] From this, there emerged two pertinent questions, decision upon which has been dealt with below.

Question 1 – Is there a conflict between actions in rem filed under the Admiralty (Jurisdiction and Settlement of Maritime Claims) Acts, 2017 and the provisions of IBC, 2016 and is so, how is the conflict to be solved?

For this purpose, the court considered the objective of the two statutes:

The Insolvency and Bankruptcy Code, 2016

- It is an exhaustive Code on the subject matter of insolvency in relation to corporate entities.[11] It is a special statute devoted entirely to resolution of insolvency, liquidation and bankruptcy of corporate persons and firms and individuals.[12]

- The primary focus is to ensure revival and continuation of the corporate debtor by protecting the corporate debtor from its own management and from a corporate death by liquidation. It is thus a beneficial legislation which puts the corporate debtor back on its feet, not being a mere recovery legislation for creditors. Thus, the resolution process is not adversarial to the corporate debtor but, in fact, protective of its interests.

Admiralty Act, 2017

- It is a complete Code in itself as regards legal proceedings in connection with vessels, their arrest, detention, sale and determination of priorities in respect of the sale proceeds of the vessels that were ordered to be arrested.

- Once the jurisdiction under the Admiralty Act is invoked by an action in rem, the machinery of the act is set in motion.

- The arrest of the vessel leads to a sale of the vessel which leads to determination of priorities in respect of sale proceeds and payment to the successful Claimants from out of sale proceeds in the order of priorities as determined.

- This process is only halted by the appearance of the owner and provision of security oe bail for release of the shop from arrest, if and until this happens, the action continues as an action in rem with the consequence as per the act.

- The purpose of the Act is to vest certain valuable rights in respect of identified maritime claims. These are called rights in rem and a mechanism is provided in the Admiralty Act as to the manner of enforcement of such rights by arrest of a ship.

- Under the Act, jurisdiction is conferred on certain specified High Courts and impliedly, no other High Court has or is entitled to exercise Admiralty jurisdiction under the Admiralty Act.

After submissions by the two Amicus Curiae and the contesting parties, the Court came to the following conclusion:

- An action in rem can be filed and the ship arrested before the moratorium under Section 14 of the IBC comes into force or during the moratorium period or even when the corporate debtor is ordered to be liquidated. A maritime claimant ought to be permitted to enforce his right in rem and obtain an order of arrest of the ship in question. This will enable him to perfect and / or crystallize his maritime lien or maritime claim as available to him under the Admiralty Act.

- The action in rem will not proceed till the moratorium is in place. This will ensure that the rights under the Admiralty Act are not defeated and at the same time this does not create any conflict with the provisions of the IBC.

- The action in rem will proceed if the corporate debtor is ordered to be liquidated. As the action in rem will proceed in accordance with the applicable law namely the Admiralty Act, the priorities for payment out of the sale proceeds will also be determined in accordance with the said Act. Section 53 of the IBC will not apply.

- Exercise of Admiralty jurisdiction would in such cases will be beneficial and assist rather than hinder insolvency resolution. It would protect the ship and in turn the security of a mortgagee who is a financial creditor. At the same time this would also indicate to the mortgagee that they must take steps to protect and preserve their security and if they do not then the Admiralty Court will step in.

Question 2 – Whether leave under Section 446(1) of the Companies Act, 1956 is 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?

The Court held the following –

- Admiralty Act which is a special act, prevails over the Companies act which is a general act and no leave is required under section 446(1) of the Companies Act for commencing a suit under the Admiralty Act or proceeding with a pending suit against the company under the admiralty act when a winding up order has been made or the official liquidator has been appointed as Provisional Liquidator. Further, section 10 of the Admiralty Act will prevail over Sections 529 and 529A of the Companies Act in the matter of determination of priorities.

- The Court which is winding up the Company would not have jurisdiction to entertain or dispose of an action in rem against a ship filed in a High Court which has been conferred with Admiralty jurisdiction under the Admiralty Act. Such a suit in rem is not against the company and can only be entertained by the High Court under the provisions of the special Act viz. the Admiralty Act.

- Likewise, the true nature of an action in rem against a ship us that it is not an action against the Owner (company) or asset of the Owner (company).

- Similarly, the powers of the Court to stay or restrain proceedings against the company as provided under Section 442 of the Companies Act, do not affect the question of leave under Section 446 of the Companies Act.

- Therefore, the Court answered the second question in the negative and held that no leave is required under Section 446 of the Companies Act, 1956 for the commencement or continuation of an admiralty suit in rem where a winding up order has been made or the Official Liquidator has been appointed as Provisional Liquidator of the company.

Advantages and Conclusion

Apart from the inclusion of other coastal states to decide upon maritime matters, the jurisdiction of these courts is extendable up to the territorial waters. It is further extended to the point od exclusive economic zones or any other maritime zone of India or islands constituting part of the territory of India. It is flexible in the sense that even though inland vessels and those under construction have been excluded from its jurisdiction, the same can be made applicable by a Central Government notification authorizing it to do so. The set of claims under the Act are wide enough to include matters that could arise in the maritime setup and there’s scope for more inclusion. One of the advantages is that if a substantive suit is filed in the admiralty court in India in relation with a vessel that is within the territorial waters of India, and a prima facie case is made then an arrest can be made immediately without a long-drawn-out process.

The new Act has been worked out for more than twenty-five years right from the Elizabeth case itself in 1991 and found ground in 2017. This long-drawn process has some benefits as, the legislation has tried inculcating most of the incapacities in the previous maritime laws. It has focused on the development of maritime infrastructure. This far-sightedness of establishing a wide legal framework for the growth of maritime trade has become essential with globalization.

[1] Section 1, The Admiralty Act. [2] Held in case of M.V. Elizabeth v. Harwan Investment Co., 1993 Supp (2) SCC 433. [3] Section 9, The Admiralty Act. [4] Section 13, The Admiralty Act. [5] Section 4(1)(n); State of Goa through Captain of Ports Government of Goa v. Sale Proceeds of the Vessel M.T. Pratibha Bheema Currently lying deposited with the Registry and Custody of the Hon'ble High Court of Judicature at Bombay & Pratibha Shipping Company Limited (In liquidation), Admiralty Suit no. 72 of 2014. [6] Section 2 (c), The Admiralty Act. [7] Section 6 & 7, The Admiralty Act. [8] M.V. Elizabeth v. Harwan Investment Co., 1993 Supp (2) SCC 433. [9] 151st Law Commission Report, 1994. [10] Chamber Summons no. 66 of 2018 in Admiralty Suit no. 6 of 2015; 2020 SCC OnLine Bom 651. [11] Innoventive Industries Ltd. V/s. ICICI Bank & Anr (2018) 1 SCC 407. [12] Duncans Industries Ltd. V/s. A.J. Agrochem (2019) 9 SCC 725.