TaxTMI 
TaxTMI 
2020 (5) TMI 450
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.... OF 2015, 17 OF 2015, 73 OF 2015, 284 OF 2015, 1715 OF 2015, 1 OF 2015, 76 OF 2015, 285 OF 2015, 1717 OF 2015, 6 OF 2015, 319 OF 2016, 180 OF 2016, 20 OF 2015, 181 OF 2016, 73 OF 2016, 757 OF 2017, 41 OF 2015, 743 OF 2019, 36 OF 2018, 1095 OF 2019, 41 OF 2015, 1718 OF 2015, 11 OF 2015, 1 OF 2017, 28 OF 2017, 33 OF 2017, 482 OF 2017, 121 OF 2017, 800 OF 2018, 41 OF 2015, 1158 OF 2015, 11 OF 2015, 726 OF 2019, 41 OF 2015, 1805 OF 2019, 6 OF 2015, 142 OF 2016, 1215 OF 2019, 65 OF 2015, 2447 OF 2019, 41 OF 2015, 1974 OF 2018, 18 OF 2017, 38 OF 2018, 36 OF 2018, 8 OF 2019, 39 OF 2018 Mr. Prashant Pratap, Senior Advocate - Amicus Curiae/Assisted by Mr. Nishaan Shetty. Mr. V. K. Ramabhadran, Senior Advocate, Amicus Curiae. Dr. Abhinav Chandrachud, Amicus Curiae assisted by Mr. Saurish Shetye and Mr. Shailendra A. Singh. Mr. Rahul Narichania, Senior Advocate a/w. Ms. Pratiksha Avhad i/b. Mulla and Mulla and Craigie Blunt and Caroe for Plaintiff in ADMS/41/2015. Mr. Sharan Jagtiani, Senior Advocate a/w. Ms. Surabhi Agrawal, Advocates for Official Liquidator. Mr. Prasad Shenoy a/w. Mr. Prashant Ashar, Mr. Naishadh Bhatia, Ms. Bulbul SinghRajpurohit and Mr. Niraf Shroff i/b.....
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....bha Cauvery 2018 SCC Online Madras 13, no leave under S. 446 was required to be obtained. As this would be repetitive issue, this Court, therefore, by its Order dated 09 March 2018, was pleased to direct listing of all such suits together, to hear and decide upon the question as to whether leave under S. 446 of the Companies Act was required. This will be relevant in Adm. Suit no. 1 of 2017, Commercial Adm. Suit no. 121 of 2017, Adm. Suit no. 11 of 2015, Adm. Suit no. 20 of 2015, Commercial Adm. Suit no. 73 of 2016, Commercial Adm. Suit no. 142 of 2016, Adm. Suit 28 of 2017, Adm. Suit 33 of 2017, Commercial Adm. Suit no. 319 of 2016, Adm. Suit no. 41 of 2015, Commercial Adm. Suit no. 36 of 2018, Commercial Adm. Suit no. 482 of 2017, Ad. Suit 65 of 2015, Adm. Suit no. 18 of 2017, Adm. Suit no. 38 of 2018, Commercial Adm. Suit no. 8 of 2019, and Commercial Adm. Suit no. 39 of 2018 listed. 3. By an order dated 08 March 2019, in C.P. No. IB-731(PB)/ 2018, the National Company Law Tribunal, New Delhi, in the meanwhile, was pleased to admit a Petition under S. 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as IBC) against Punj Lloyd Ltd., the owner of Defendant....
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....Curiae. So also, all the counsels who addressed the Court rendered distinguished assistance. The endeavour put forth by each counsel has been of immense value in rendering the judgement. 5. Two very interesting but complex questions have arisen in these groups of matters in the context of Admiralty Act and the provisions of the IBC and also the provisions of the Companies Act. These are crystallized as below: Question No. 1 Is there a conflict between actions in rem filed under the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017 and the provisions of Insolvency and Bankruptcy Code, 2016 and if so, how is the conflict to be resolved? Question No. 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? 6. As both questions involve a consideration of the Admiralty Act, the discussions and observations in regard to the said act in general and actions in rem in particular under Question No.1 sha....
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....the viability of credit in the hands of banks and financial institutions. Above all, ultimately, the interests of all stakeholders are looked after as the corporate debtor itself becomes a beneficiary of the resolution scheme - workers are paid, the creditors in the long run will be repaid in full, and shareholders/investors are able to maximize their investment. Timely resolution of a corporate debtor who is in the red, by an effective legal framework, would go a long way to support the development of credit markets. Since more investment can be made with funds that have come back into the economy, business then eases up, which leads, overall, to higher economic growth and development of the Indian economy. What is interesting to note is that the Preamble does not, in any manner, refer to liquidation, which is only availed of as a last resort if there is either no resolution plan or the resolution plans submitted are not up to the mark. Even in liquidation, the liquidator can sell the business of the corporate debtor as a going concern. [See Arcelor Mittal (supra) at paragraph 83, footnote 3]." 28: "It can thus be seen that the primary focus of the legislation is to ensur....
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.... vessels (otherwise called actions in rem), 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 or bail for release of the ship from arrest. If this happens and until this happens, the action continues as an action in rem with the consequences as provided in the act. 9.3 The rules framed by the High Court governing the exercise of admiralty jurisdiction set out the procedure to be followed in the matter of arrest of ships, sale of ships and determination of priority of claims. 9.4 The purpose of the Admiralty Act is to vest certain very valuable rights in respect of identified maritime claims. These are called rights in rem and a mechanism is provided ....
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....rem is against the ship and not the owner 10.1 A ship or a vessel as commonly referred to is a legal entity that can be sued without reference to its owner. The purpose of an action in rem against the vessel is to enforce the maritime claim against the vessel and to recover the amount of the claim from the vessel by an admiralty sale of the vessel and for payment out of the sale proceeds. It is the vessel that is liable to pay the claim. This is the fundamental basis of an action in rem. The Claimant is not concerned with the owner and neither is the owner a necessary or proper party. The presence of the owner is not required for adjudication of Plaintiff's claim. That is why no writ of summons is required to be served on the owner of the vessel. The service of the warrant of arrest on the vessel is considered sufficient. 10.2 For the purpose of an action in rem under the Admiralty Act, the ship is treated as "a separate juridical personality, an almost corporate capacity, having not only rights but liabilities (sometimes distinct from those of the owner)" - (M.V. Elisabeth and Ors. V/s. Harwan Investments and Trading Pvt. Ltd. 1993 Supp (2) SCC 433). 10.3 The Hon'ble Supr....
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....tory right of action in rem is in essence a procedural remedy. The object behind the availability of a statutory right of action in rem is to enable a claimant to found a jurisdiction and to provide the res as security for the claim." [ D.R. Thomas, Maritime Liens in British Shipping Laws, Vol. 14 (Steven & Sons, London 1980) at pp. 7 and 38.] 119. There is a direct nexus between the conferral of a limited legal personality and the adjudicative utility achieved by the conferral. Courts treat the physical property of the ship as a legal person against which certain actions may be taken. Conferring legal personality on the ship allows for actions to be taken independent of the availability or presence of the ship's owners, who in a great many cases may be in other parts of the world. As a ship may only be in port for a brief period, an action in rem allows the claimant to ensure pre-judgement security. Thus, even absent an express personification, actions against the ship as a legal person ensure the effective adjudication of admiralty disputes. 120. In M V Elisabeth v Harwan Investment and Trading Pvt. Ltd., this Court noticed the underlying basis of this ....
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....n registered vessel should be condemned for violating a federal law. The Court held the Brig's condemnation inevitable. Noteworthy is the fact that while the case was styled in the name of the vessel, neither the term 'maritime lien' nor 'in rem, appears, and there is no suggestion that the ship itself, rather than those in charge of it, was the offender ... The practice of naming an action against a vessel did not, however, attest to the idea of vessel personification. The Court treated actions styled against a vessel as including everyone with an interest in her as "a party to the suit". Numerous cases had troubled the federal Courts regarding enforcement of liens when the principals (owners, masters) with interests in a ship had no active role or prior knowledge of the wrongdoing alleged. Traditional law of agency, with the ship as agent, worked against a coherent rule of responsibility and recovery ... Given the peculiar vitalism of the ship in lore, literature, and poetry, it took only a slight conceptual shift in the legal mind for the federal Courts to assume the "mental mode"l of adaptation to [the] reality of the vitalism of the ship. The doctrine ....
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....rpus of the offending ship. It is distinct from an action in personam which is a proceeding inter-partes founded on personal service on Defendant within jurisdiction, leading to a judgment against the person of the Defendant. In an action in rem no direct demand is made against the owner of the res personally (Maritime Liens by D R Thomas, Volume 14, British Shipping Laws). 10.5 The distinction between an action in rem and an action in personam is therefore a matter of substance and not of mere form (Maritime Liens by D R Thomas, Volume 14, British Shipping Laws). 11. Maritime Liens 11.1 The maritime lien came to jurisprudential maturity in the first half of the 19th Century. It has since then been a part of English law and common law and consequently the law in India ever since Admiralty jurisdiction was vested in the three chartered High Courts of Bombay, Calcutta and Madras pursuant to the Colonial Courts of Admiralty Acts, 1890 and 1891. 11.2 The maritime lien represents one of the most striking features of contemporary maritime law and has, in recent times, been described as one of the first principles of the law of the sea. The expression "maritime lien" was proba....
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....such asseamen's wages is a right to a part of property in the res and a privileged claim upon a ship, aircraft or other maritime property and remains attached to the property travelling with it through changes of ownership. It is also acknowledged that it detracts from the absolute title of the "res" owners [see (1) Maritime liens by D.R. Thomas; British Shipping Laws, Vol. 14 at pp. 51-67; (2) Maritime Law by Christopher Hill, 2nd Edn. 1985 at pp. 107-11; and (3) Principles of Maritime Law by Susan Hodges and Christopher Hill, 2001]. 26. The seamen's right to their wages have been put on a high pedestal. Itis said that a seaman had a right to cling to the last plank of the ship in satisfaction of the wages or part of them as could be found in Neptune 166 ER 81: 1 Hagg 227 and also Ruta. (2000) 1 LLR 359 27. Having regard to the universally recognized status of maritime liensand, in particular, the position accorded to seamen's wages, and having due regard to the constitutional and statutory protection of such wages there can be no extinction of loss of such lien owing to the act of confiscation under Section 115 read with Section 126 of the Customs Act, 1962. ....
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.... exercise of maritime lien by the crew members satisfies both these requirements. Thus Section 115 of the Customs Act which talks about confiscation will not operate to disentitle the crew of the lien that they can exercise on the vessel for the recovery of their wages which is an established practice in the law of the seas." 11.6 Thus a maritime lien is a concept which is Sui Generis, can only be enforced by an Admiralty action in rem against the ship, adheres to the ship and continues to bind the ship until discharged, is not defeated by a transfer or sale of the Ship - res (except a judicial sale by an Admiralty Court), has the highest priority amongst all claims and there can be no loss of such lien in the absence of any statutory provision expressly prohibiting the exercise or implementation of such lien. This is an established practice in the law of the seas and is universal in nature. Personal liability of the owner of the ship is not necessary for a maritime lien to attach to the res and it follows the res even in the hands of a bonafide purchaser who may have no notice of the lien. Judicial opinion and textbook writers hold that a maritime lien such as seamen's wages is....
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....the owner of the res. The personal liability of the owner of the res is not an essential characteristic of an action in rem. 12.3 Both maritime liens and statutory rights in rem entail the accrual of security by way of a charge. A charge of a maritime lienee accrues from the moment the maritime lien arises or attaches: It is inchoate from the moment the claim or privilege attaches. In case of a statutory lien the charge accrues upon the arrest of the res. Thus, the crystallization of a statutory lien would occur when the Admiralty jurisdiction in rem is invoked against the res and the warrant of arrest is executed. Under English law the security of a maritime Claimant is inchoate until either the writ in rem was served or the res arrested. Later judicial opinion, however, is in favour of equating the date of the creation of a secured creditor with the date of issue of a writ in rem. However, in the context of Indian law and procedure, this would be the date of service of the warrant of arrest on the res. 12.4 Although maritime liens attach to the vessel the moment the event giving rise to the claim arises and thereby a charge or encumbrance is created on the res, these are pe....
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.... We need to highlight that even port dues are given priority only after crew wages and salvage claims are paid. 14 Action in rem is distinct from an action in personam 14.1 The nature of an action in rem as distinct from an action in personam is set out in several judgments. Notable amongst these is The Nordglimt [1988] 1 Q.B. 183 and the following excerpts are instructive of the nature of an action in rem. "In England, since the Judicature Acts, the means by which the judicial arrest of a ship has been obtained is by the commencing of an action in rem and the issue, by the Court in that action, of a warrant of arrest. Therefore as a matter of English procedure there has to be an action before there can be an arrest and subject not to section 26 of the Civil Jurisdiction and Judgments Act 1982, the arrest has to be in aid of a judgment capable of being obtained in that action. The form of the writ in an Admiralty action in rem is one which describes the action as an action in rem against the ship but which also refers to parties as plaintiffs and defendants. No problem arises about the identity of the plaintiffs which equates with the 'claimant' in the 1952 ....
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....plaintiffs, but that is not part of the essential character of an action in rem as such. Unless and until a person liable in personam chooses to defend an action in rem the action in rem will not give rise to any determination as against such person of any personal liability on his part, nor will it give rise to any judgment which is enforceable in personam against any such person. The consequence of this is that in my judgment on the correct interpretation of article 21 an Admiralty action in rem is not at the time of its inception an action between the same parties as an action in personam. It will only become an action between the same parties when and if a shipowner, liable in personam, chooses to appear in the action and defend it. It is from that moment and not before that the action first acquires the character of an action between the plaintiff and the shipowner; it will also be appreciated that it only acquires that character as the result of an act of the shipowner and that such a consequence does not inevitable follow from the act of the plaintiff in starting the action in rem. A similar conclusion might be arrived at by a slightly different route adopt....
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.... of English procedural law was only finally settled by Mr. Justice Jeune in 1892 in The Dictator, [1892] P. 304 and subsequently by the Court of Appeal in The Gemma, [1899] P. 285. The origins of this rule derive from a medieval doctrine that jurisdiction could be founded and an appearance before the Court compelled by the arrest of the defendant himself or the seizure of his property. This procedure had become obsolete by the end of the 18th Century (see The Beldis, (1935) 53 Ll.L. Rep. 255 at p. 274; [1936] P. 51 at p. 85 per Lord Justice Scott) but nevertheless provided the historical basis for the law as declared in The Dictator. In that case Mr. Justice Jeune, in discussing the various decisions of Dr. Lushington, commented (at p. 319): 'I cannot help thinking that the fallacy lies in considering that to enforce a judgment beyond the value of the res, against owners who have appeared and against whom a personal liability, enforceable by Admiralty process, exists, is the grafting of one form of action on to another. The change, if it be a change, in the action is effected at an earlier stage, namely when the defendant by appearing personally introduces his personal lia....
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....ourt orders the sale of the vessel, it has the inherent power in the exercise of its Admiralty jurisdiction to convey upon the purchaser a valid title to the res that is sold free of all charges and encumbrances. This principle was established in common law as one fundamental to public policy since it would be manifestly contrary to the evolution of maritime law if a Court of competent jurisdiction which effected the sale of a ship were unable to convey a valid title to an innocent purchaser. Consequently, once a vessel has been sold in the exercise of the jurisdiction in rem, all claims against the vessel have to be enforced against the proceeds of the sale and before the Court which exercises jurisdiction to arrest and thereafter sell the vessel. Equally, it is a matter of settled principle that the Court which holds the proceeds of the sale holds them not merely for the benefit of the plaintiff who moves the Court in the jurisdiction in rem but for and on behalf of all persons who may have claims in respect of the property of the vessel and, after the sale, in respect of the sale proceeds......." (Emphasis supplied) 14.5 Reference may also be made to the judgment of a learned....
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....lusive of interest) which is alleged as due from any person by a bank or a financial institution or by a consortium of banks or financial institutions during the course of any business activity undertaken by the bank or the financial institution or the bank or the financial institution or the consortium under law for the time being in force, in cash or otherwise, whether secured or unsecured, or whether payable under a decree or order of the civil Court or otherwise and subsisting on, and legally recoverable on the date of the application." It is clear from the definition of the term 'Debt' that debt means any liability which is claimed as due by Bank or financial institution from any person. The D.R.T. Act does not define the term 'Person' but the term is defined by the General Clauses Act. The definition is to be found in Section 3(42) of the General Clauses Act which reads as under: "3(42) 'person' shall include any company or association or body of individuals, whether incorporated or not." It is thus clear that a person is a living person as also a company or association or body of individuals can also be treated as person. Thus, in my opinion, for t....
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....f the provisions of S. 41 of the Evidence Act, the sale certificate issued by this Court in favour of the purchaser is a conclusive proof of his title to the ship and any person who may have a claim against that vessel cannot make any claim against the purchaser or the vessel in his hand. On the contrary when a vessel would be sold in execution of a certificate issued by the D.R.T. the sale certificate may not confer a clear title on the purchaser. It is further to be seen that in admiralty jurisdiction, the plaintiff can proceed against the vessel itself and can get the vessel arrested in the first instance and the Court can proceed to sell the vessel after its arrest immediately unless within a stipulated time, the owner appears and furnishes security and get the vessel released. Thus, in admiralty jurisdiction, the claim of the plaintiff is secured firstly by arrest of the ship and secondly, when the ship is released from arrest by the security furnished. Thus, the procedure that is followed by this Court in its admiralty jurisdiction is efficacious and effective procedure than the procedure provided by the D.R.T Act. It is clear from the preamble of that Act that that Act has b....
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.... not a proceeding against the corporate debtor within the meaning of the IBC and Section 14(1) (a) to 14(1) (d) does not apply to the Admiralty suits. 16.1 Since the Admiralty Act confers Admiralty jurisdiction on certain High Courts only which are empowered to entertain an action in rem, it impliedly bars the jurisdiction of all other Civil Courts. Dr. Chandrachud relied upon the judgment of the Supreme Court in the case of Damji Valji Shah and in particular paragraph 19 thereof and submitted that a later act which impliedly excluded the jurisdiction of Civil Courts would prevail over an earlier special act which also contained a non-obstante clause and a clause barring the jurisdiction of Civil Courts. He also relied upon a judgment of the Constitution bench of the Apex Court in Ashoka Marketing Ltd. & Anr. V/s. Punjab National Bank & Ors. and submitted that if there are two special acts, then the later act shall prevail as even though the prior act contains a non-obstante clause, the later act impliedly bars the jurisdiction of Civil Courts and vests exclusive jurisdiction in certain High Courts to entertain actions in rem. 17. Mr. Prasad Shenoy, Advocate, appearing for a ....
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....) Section 238 of the IBC does not override the Admiralty Act and an express provision is required to oust the applicability of the Admiralty Act. He also relied upon the judgment of this Court in the case of ICICI Ltd. vs. MFV Shilpa & Ors. wherein it was held that Section 34 of the RDDB Act which contained a non-obstante clause did not override the provisions of Section 51 of Merchant Shipping Act in regard to the sale of a ship by a financial institution to recover a debt due to it which was secured by a mortgage of the vessel. b) Neither Section 14(1)(a) nor Section 14(1)(c) of IBC operates as a bar to the institution of an action in rem and even if they do, at best the action must be stayed until the period of the moratorium. Similarly, Section 33(5) of IBC also does not operate as a bar to an action in rem against the ship but only applies to the corporate debtor. In any event it is subject to Section 52(4) of IBC which permits a secured creditor to enforce and realise his security in accordance with the applicable law which in this case would be the Admiralty Act. c) Can it be argued that a maritime lienee, such as a salvor, who has salvaged a ship and saved....
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....and the proceeds paid into the Court, the interest of the owner is only to the extent of receiving the balance of the proceeds of sale after satisfaction of the claims of all maritime claimants. Mr. Narichania relied on Re: David Lloyd and Company (1877) 6 Ch. D. 339 and the judgment of a single Judge of this Court in the case of Corporation Bank V/s. M.V. Pratibha Indrayani Notice of Motion No. 8 of 2014 in Commercial Suit No.15 of 2014 Order dated 17 April 2017 as also the judgment in Re: Lineas Navieras Bolivianos SAM (1995) B.C.C. 666 (Chancery Division) ( m.v. Bolivia) which holds that once the vessel is arrested and the ship enters the custody of the Admiralty Marshall on behalf of the Admiralty Court, the company's interest in the ship is limited to a right to receive the balance of the proceeds of sale remaining after satisfaction of the various maritime claimants. 19 Per contra Mr. V.K. Ramabhadran, Senior Advocate, Amicus Curiae, submitted that: a. The Apex Court in Swiss Ribbons (P) Ltd. has exhaustively dealt with the objects and the purpose of IBC Code and moratorium under section 14 of IBC. b. In Anand Rao Korada, Resolution Professional V/s. Vars....
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....re, applying the ratio in State Bank of Travancore V/s. Mohammed Mohammed Khan (1981) 4 SCC 82 on the principles of interpretation of statutes, there is a need for purposive interpretation of the words "corporate debtor" to include not only the suits against corporate debtor but also against the assets of the corporate debtor. It is trite law that such interpretation is to be adopted, which advances the object sought to be achieved by the legislation rather than the one which defeats the object. If the suit against the vessel being in rem proceeding is excluded, the whole object of moratorium under Section 14 of the IBC would stand defeated. h. The unsecured creditors who have obtained order of arrest against the vessel prior to moratorium under S. 14 of the IBC would equally stand along with other operational creditors as defined in the IBC. S. 14 (1) (c) of the IBC would apply not only to secured creditor but also to unsecured creditors. If the application of S. 14 (1) (c) of the IBC is restricted to financial creditor as defined in IBC, it would create an anomalous situation, in that, while financial creditor is prohibited from enforcing his security, unsecured creditor....
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....he distribution of assets under Section 53 of the IBC shall ensure payment in respect of the entire claim in the nature of maritime lien and the dues of the Harbour authorities by following the dictum of the Supreme Court in ICICI Bank Ltd. V/s. SIDCO Leathers Ltd. & Ors. 2006 (10) SCC 452. S. 53 of the IBC would stand overridden to that extent. 19.1 The summary of Mr. Ramabhadran's submissions is: i. Admiralty suit filed either against the vessel or against the owner or against both gets interdicted once an order is passed under S. 14 of the IBC by which moratorium come into force. ii. Arrest of a vessel prior to moratorium setting in would not create lien in favour of the Claimant (unsecured creditor) and consequently such Claimant would be treated as operational creditor under the IBC and he is bound by the resolution plan as envisaged under S. 31 of the IBC. However, if the amounts are deposited, in such event, such amount would be to the benefit of that Claimant alone and he would not be bound by the order of the adjudicating authority approving the resolution plan under Sec. 31 of the IBC. iii. Expenses incurred towards the vessel under arrest co....
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....proceedings against the corporate debtor. Therefore, during the period of the moratorium, the Admiralty claimant will not proceed with the suit for sale of the vessel. c) Section 31 of the IBC effectively speaks about the approval of resolution plan. Once the resolution plan is approved the moratorium comes to an end. If the restructuring fails, Section 33 of the IBC automatically provides for liquidation process. This occurs when the process of restructuring of the Corporate Debtor fails. An enforcement of security interest is prohibited by Section 14 of the IBC and there is no provision in the IBC for seeking leave of the National Company Law Tribunal (NCLT) or the Company Court to proceed as available under Section 446 of the Companies Act. However, Section 52 provides a mechanism for realizing the secured creditor's security outside the process of liquidation and under Admiralty law a maritime lien holder acquires security interest by operation of law which falls within the IBC definition of security interest. Thus, in the event of liquidation, a secured creditor under the Admiralty Act can stand outside liquidation and is not subject to Section 53 which provides for d....
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....IRP). 23 Mr. Ajai Fernandes, Advocate appearing for the Board of Trustees for the Port of Mumbai, a contesting party, made the following submissions: a) Admiralty Act is a later act and will prevail over the IBC; b) Non-obstante clause in Section 238 of IBC only applies to existing enactment and not to future enactment. Mr. Fernandes relying upon State of West Bengal and others V/s. Madan Mohan Ghosh and others (2002) 9 SCC 177 submitted that non-obstante clause has overriding effect only on rules which were in existence at the time when the said rule was brought into force and it cannot be construed so as to mean that all future rules and notifications will be subject to such a non-obstante clause; c) Sections 9 and 10 of the Admiralty Act give effect to the provisions of the International Convention on Maritime Liens and Mortgages, 1993 and ought to prevail over the provisions of Section 52 of the IBC when it comes to determining priorities in regard to the sale proceeds of a ship. If it were otherwise then it would be contrary to the position in most countries which have ratified this Convention and which give priority to maritime liens in respect o....
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....rrest and sale of the vessel. These rights are enforced by actions in rem against the vessel. A maritime claim is crystallized and perfected by arrest of the vessel. Certain categories of maritime claims which are given the status of maritime liens, are sui generis and attach to the vessel at the time when the incident giving rise to the claim arises. iv. A claimant having a maritime claim becomes a secured creditor when he causes the ship to be arrested and the vessel is effectively encumbered with the claim. His security, however, is limited to the value of the res and subject to other competing maritime claims. v. The distinction between an action in rem under the Admiralty Act and an action in personam is of considerable significance when considering the provisions of the IBC. An action in rem operates only against the res, which is considered to be a legal person and having a personality independent from that of the corporate owner. In this manner, an action in rem is not against the owner of or the company that owns the ship. 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 t....
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....f 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 Section 33(5) of the IBC. The Liquidator is empowered under Section 35(1)(k) of the IBC to defend the proceedings. If the ship is sold by the Admiralty Court then the sale proceeds will be available to satisfy the maritime claims in respect of that ship. The priorities of maritime claims will be decided in accordance with the provisions of the Admiralty Act. Any surplus will be paid over to the liquidator. viii. Section 33(5) of the IBC is subject to Section 52 of the IBC. Section 52(1)(b)of the IBC permits a secured creditor to realise its security interest in the manner specified in this section and Section 52(4) of the IBC permits a secured creditor to 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. Thus, even on this score a secured creditor by virtue of having obtained an order of arrest w....
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....dmiralty Act. In short, the machinery of the Admiralty Act will apply and section 53 of the IBC which refers to distribution of assets of the corporate debtor will not apply. All those maritime claimants who are unable to recover their claim from the sale proceeds will have to pursue their claim in liquidation as unsecured creditors. d) In a case where a moratorium has been declared under section 14 of the IBC before any Admiralty suit in rem is filed for enforcement of a maritime lien or a maritime claim then also the action in rem would be permissible as it is for arrest of a vessel and is not against the corporate debtor. However, once an order of arrest is made and the warrant of arrest executed, the suit will not proceed in rem so as not to defeat the objective of the IBC which is for insolvency resolution of the corporate debtor. The action in rem will be stayed till such time as the insolvency resolution process is completed or a liquidator appointed. Plaintiff will be considered as a secured creditor and the submissions in paragraphs (b) and (c) above will apply in the event the corporate insolvency resolution process is successful or a Liquidator is appointed. If ....
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....ction 2 of the Companies Act, 2013 (18 of 2013), a limited liability partnership, as defined in clause (n) of sub-section (1) of section 2 of the Limited Liability Partnership Act, 2008 (6 of 2009), or any other person incorporated with limited liability under any law for the time being in force but shall not include any financial service provider;" Section 3(30) : "'secured creditor' means a creditor in favour of whom security interest is created;" Section 3(31) : "'security interest' means right, title or interest or a claim to property, created in favour of, or provided for a secured creditor by a transaction which secures payment or performance of an obligation and includes mortgage, charge, hypothecation, assignment and encumbrance or any other agreement or arrangement securing payment or performance of any obligation of any person: Provided that security interest shall not include a performance guarantee;" Section 13 : "Declaration of moratorium and public announcement - (1) The Adjudicating Authority, after admission of the application under section 7 or section 9 or section 10, shall, by an order- (a) declare a moratorium for the....
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....as the case may be." Section 25: "Duties of resolution professional - (1) It shall be the duty of the resolution professional to preserve and protect the assets of the corporate debtor, including the continued business operations of the corporate debtor. (2) For the purposes of sub-section (1), the resolution professional shall undertake the following actions, namely: (a) take immediate custody and control of all the assets of the corporate debtor, including the business records of the corporate debtor; (b) represent and act on behalf of the corporate debtor with third parties, exercise rights for the benefit of the corporate debtor in judicial, quasi-judicial or arbitration proceedings; (c) raise interim finances subject to the approval of the committee of creditors under section 28; (d) appoint accountants, legal or other professionals in the manner as specified by Board; (e) maintain an updated list of claims; (f) convene and attend all meetings of the committee of creditors. (g) prepare the information memorandum in accordance with section 29; (h) invite prospective resolution applicants, ....
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....th which the corporate debtor is registered. (2) Where the resolution professional, at any time during the corporate insolvency resolution process but before confirmation of resolution plan, intimates the Adjudicating Authority of the decision of the committee of creditors to liquidate the corporate debtor, the Adjudicating Authority shall pass a liquidation order as referred to in sub-clauses (i), (ii) and 9iii) if clause (b) of sub-section (1). (3) Where the resolution plan approved by the Adjudicating Authority is contravened by the concerned corporate debtor, any person other than the corporate debtor, whose interests are prejudicially affected by such contravention, may make an application to the Adjudicating Authority for a liquidation order as referred to in sub-clauses (i), (ii) and (iii) of clause (b) of sub-section (1). (4) On receipt of an application under sub-section (3), if the Adjudicating Authority determines that the corporate debtor has contravened the provisions of the resolution plan, it shall pass a liquidation order as referred to in sub-clauses (i), (ii) and (iii) of clause (b) of sub-section (1). (5) Subject to section 52,....
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....half of the corporate debtor in the ordinary course of its business; (h) to take out, in his official name, letter of administration to any deceased contributory and to do in his official name any other act necessary for obtaining payment of any money due and payable from a contributory or his estate which cannot be ordinarily done in the name of the corporate debtor, and in all such cases, the money due and payable shall, for the purpose of enabling the liquidator to take out the letter of administration or recover the money, be deemed to be due to the liquidator himself; (i) to obtain any professional assistance from any person or appoint any professional, in discharge of his duties, obligations and responsibilities; (j) to invite and settle claims of creditors and claimants and distribute proceeds in accordance with the provisions of this Code; (k) to institute or defend any suit, prosecution or other legal proceedings, civil or criminal, in the name of on behalf of the corporate debtor; (l) to investigate the financial affairs of the corporate debtor to determine undervalued or preferential transactions; (m) to take all such....
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....ising a secured asset, any secured creditor faces resistance from the corporate debtor or any other person connected therewith in taking possession of, selling or otherwise disposing off the security, the secured creditor may make an application to the Adjudicating Authority to facilitate the secured creditor to realise such security interest in accordance with law for the time being in force. (6) The Adjudicating Authority, on receipt of an application from a secured creditor under sub-section (5) may pass such order as may be necessary to permit a secured creditor to realise security interest in according with law for the time being in force. (7) Where the enforcement of the security interest under sub-section (4) yields an amount by way of proceeds which is in excess of the debts due to the secured creditor, the secured creditor shall - (a) account to the liquidator for such surplus; and (b) tender to the liquidator any surplus funds received from the enforcement of such secured assets. (8) The amount of insolvency resolution process costs, due from secured creditors who realise their security interests in the manner provided in this ....
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....e liquidator shall be deducted proportionately from the proceeds payable to each class of recipients under sub-section (1), and the proceeds to the relevant recipient shall be distributed after such deduction. Explanation - For the purpose of this section- (i) it is hereby clarified that at each stage of the distribution of proceeds in respect of a class of recipients the rank equally, each of the debts will either be paid in full, or will be paid in equal proportion within the same class of recipients, if the proceeds are insufficient to meet the debts in full; and (ii) the term 'workmen's dues' shall have the same meaning as assigned to it in section 326 of the Companies Act, 2013 (18 of 2013)." Section 54 : Dissolution of corporate debtor - (1) Where the assets of the corporate debtor have been completed liquidated, the liquidator shall make an application to the Adjudicating Authority for the dissolution of such corporate debtor. (2) The Adjudicating Authority shall on application filed by the liquidator under sub-section (1) order that the corporate debtor shall be dissolved from the date of that order and the corporate debtor shall....
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....both special acts contain non-obstante provision and there is a conflict. In Solidaire India Ltd. V/s. Fairgrowth Financial Services Ltd. (2001) 3 SCC 71, the Apex Court noted that Sick Industrial Companies (Special Provisions) Act, 1985 contained in Section 32 a non-obstante clause. A similar non-obstante provision was also contained in Section 13 of the Special Court Act, 1992. The Apex Court then held in paragraph 9 that "It is clear that both these Acts are special Acts. This Court has laid down in no uncertain terms that in such an event it is the later Act which must prevail." 30 In a case where each enactment is a special Act the Apex Court in the case of Ram Narain V/s. Simla Banking and Industrial Company Ltd. AIR 1956 SC 614, observed as follows: "7. ...Each enactment being a special Act, the ordinary principle that a special law overrides a general law does not afford any clear solution in this case. ... It is, therefore, desirable to determine the overriding effect of one or the other of the relevant provisions in these two Acts, in a given case, on much broader considerations of the purpose and policy underlying the two Acts and the clear intendment conveye....
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....ttempt should be made to resolve the traditional conflict between Admiralty and Insolvency so as not to defeat the intendment and objectives of the IBC which is essentially corporate insolvency resolution and at the same time give full play to the rights in rem created and conferred by the Admiralty Act. Only in the event there is a conflict and the conflict cannot be resolved then due regard will be given to the conflicting provision to understand the nature of the conflict and which provision must prevail bearing in mind the above principles. 35 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 th....
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.... Leoborg (No 2) [1963] 2 Lloyd's Rep 441; The Silia [1981] 2 Lloyd's Rep 534, 538.) 63: "The Leoborg (No 2) is particularly revealing as it shows how the admiralty judge, Hewson J. regarded as accepted law and practice in admiralty that writs can be issued subsequent to the sale of the ship by the Court. The unspoken but universal assumption underlying such acceptance by Hewson J is that such writ (so issued after the sale) will be directed against the proceeds of sale of the ship which stands in for the ship sold." It was also observed in paragraph 64 that "Maritime claims are brought by different claimants at different times against a ship, both before as well as after sale and that the proceeds of sale has always been regarded in Admiralty as standing in for the ship." 36 So also, the Privy Council in The August 8 held at 456: "By the law of England, once a defendant in an Admiralty action in rem has entered an appearance in such action, he has submitted himself personally to the jurisdiction of the English Admiralty Court, and the result of that is that, from then on, the action continues against him not only as an action in rem but also as an action in per....
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....nsistently followed and reiterated in the exercise of the admiralty jurisdiction in common law countries." Thus, the Court is duty bound to invite claim against the sale proceeds in accordance with the Admiralty rules framed in this regard. 38 Speaking of the difference between an action in rem and an action in personam, the Singapore High Court in the case of "The Engedi"55 stated in paragraph 17 that: "The action in rem operates only against the res, but once the defendant enters an appearance, he submits to the jurisdiction of the Court and from then onwards the action continues as an action in rem against the res and in personam against the shipowner defendant (see The Damavand [1963] 2 SLR(r) 136 at [18]; The Fierbinti [1993] SGHC 319; The August 8 [1983] 2 AC 450). While an action in personam and an action in rem may involve the same cause of action, it must be stressed that the defendants of the respective actions are regarded as different parties. In Kuo Fen Ching v Dauphin Offshore Engineering & Trading pte Ltd [1999] 2 SLR(r) 793 at [23], the Court of Appeal specifically rejected the proposition of the house of Lord in Republic of India v India Steamship Co....
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....d by the Admiralty Court to be applied in accordance with its procedures...The effect of the order for sale made by the Admiralty Court on the assets of the company must, it seems to me, have been to convert the company's interest in the ship into a right to receive the balance of the proceeds of sale remaining after satisfaction of the prior claimants. As a result of conversion it would appear that the present applicants do not in fact require leave under s. 130(2) because they are not proceeding against either the company or the company's property. Furthermore, if it is necessary so to hold to avoid the effect of s. 129(2), I hold that such conversion must, in the event of an order for sale, be deemed in law to have taken effect from the execution of the warrant for arrest, when the ship entered the custody of the Admiralty Marshal on behalf of the Admiralty Court . (Emphasis supplied) 42 The authorities also are unanimous in stating that once a ship is arrested in respect of a maritime lien or a maritime claim, the Claimant becomes a secured creditor qua that arrested vessel and the vessel is effectively encumbered with the Plaintiff's claim. In In re ARO Company Ltd.....
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....ive effect to both. 46 The IBC defines a corporate debtor in Section 3(8) to mean "corporate person who owes a debt to any person". Corporate person is defined in Section 3(7) to mean "a company .... a limited liability partnership .... or any other person incorporated with limited liability under any law for the time being in force". A ship against whom a maritime Claimant can proceed in an action in rem does not fall within the definition of a corporate debtor under the IBC. Neither is the ship being proceeded against as an asset of the corporate debtor. It is the ship itself which is liable and which is arrested for crystallizing the maritime claim which is in respect of the ship. The ship is an independent juridical entity which is sued in its own name dehors the status of its owner (who may be the corporate debtor) and without reference to its owner. 47 Thus, an action in rem filed under the Admiralty Act for arrest of the ship would not amount to an institution of a suit against a Corporate Debtor as defined under the IBC nor would continuation of an action in rem amount to continuation of a suit against the Corporate Debtor. Consequently, declaration of moratorium unde....
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....ut. 51 Scenario I If a Plaintiff has commenced Admiralty proceedings in rem and obtained an order of arrest of a ship from an Admiralty Court, subsequent to which insolvency proceedings are filed against the owner of the vessel and the adjudicating authority declares a moratorium under Section 14 of the IBC. 51.1 If in such a situation security has been provided to the Admiralty Court for release of the vessel prior to the declaration of moratorium then the Suit is no longer an action in rem. It is in personam against the corporate debtor who has furnished security. The Suit will not proceed against the corporate debtor in the light of Section 14(1)(a) of the IBC. However, Plaintiff will be considered to be a secured creditor having obtained security in respect of his claim. That security will be exclusively for Plaintiff's claim. 51.2 If the CIRP is successful and a Resolution Plan is approved, then the claim of Plaintiff for which he has obtained security, will be determined in accordance with the resolution plan approved by the COC and the adjudicating authority. Plaintiff's status as a secured creditor who is entitled exclusively to the security provided for release....
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....ainst the vessel by virtue of the arrest, will operate as a charge on the vessel and Plaintiff will be considered as a secured creditor. 51.5 If the company is liquidated then Plaintiff's action being an action in rem will proceed and the vessel will be sold by way of an Admiralty sale to maximize its realisation value. Section 33(5) of the IBC does not prohibit the continuation of pending suits and the liquidator will be entitled to defend it as this power is expressly provided in Section 35(1)(k) of the IBC. Viewed at from another angle, Plaintiff and any other claimant who has a maritime claim or a maritime lien and has obtained an order of arrest before liquidation, will be considered a secured creditor and will be entitled to enforce and realize his security interest in accordance with the applicable law, viz., Admiralty Act, as provided in Section 52(4) of the IBC. 51.6 Since the sale proceeds represent the res, the Admiralty Court will be entitled to invite claims against the sale proceeds by following the Admiralty procedure prescribed in the Rules. In admiralty law there is no difference between an action in rem against a ship and an action in rem against the proceed....
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....on 14 of the IBC, the Admiralty Court will protect the interests of Plaintiff and release the ship from arrest only upon being satisfied that the claim of Plaintiff has been accorded priority as required under the Admiralty Act in respect of the value ascribed to the ship and paid accordingly. 51.10 All those claimants who had arrested the vessel but are unable to recover their claim under the Resolution Plan in part or in full because the value ascribed to the ship is not sufficient to pay all claims against the vessel in full, will rank as operational creditors of the corporate debtor as regards their unrecovered claim and may recover depending on what payment is offered to operational creditors in the resolution plan. They are not secured creditors of the corporate debtor's other assets. 51.11 If security has not been furnished and the vessel remains under arrest, the Admiralty Court will not order the sale of the vessel during the moratorium period in order to allow the insolvency resolution process to fructify, unless an application for sale is made by the Resolution Professional or if the vessel is not being manned, equipped and maintained by the Resolution Professional....
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....tion Professional entering appearance on behalf of the owner/corporate debtor, the Suit will not proceed in rem so as not to defeat the objective of the insolvency resolution of the corporate debtor and the objective sought to be achieved by the IBC. Hence in view of the conflict which would occur and frustrate the objectives of the IBC if the Suit in rem were to proceed, the Admiralty action in rem will have to be stayed and not proceeded with after the vessel has been arrested, till such time as the insolvency resolution process is completed or a Liquidator is appointed. 52.2 If the vessel is trading during the moratorium period the vessel will be permitted to trade under arrest once the Resolution Professional enters appearance on behalf of the corporate debtor and appropriate undertakings are provided in respect of the vessel. This will ensure that trading of the vessel is not impaired or affected, if this is in the interest of the corporate debtor or the CIRP. 52.3 The Claimant will be considered as a secured creditor and the observations set out above in paragraphs 51.5, 51.6 and 51.8 will apply if the insolvency resolution process is successful and a resolution plan is....
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.... 54 It was submitted by Mr. Narichania that the moratorium under section 14 of the IBC would come in the way of any suit that a mortgagee would file in regard to a registered mortgage of a ship and such a suit would fall under section 14(1)(c) of the IBC. This, in my view, is not so. 54.1 Section 14(1) (c) of the IBC is as follows: "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)" 54.2 Sub-section (c) refers to "any action" and thereafter refers to "including any action under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002". Sub-section (c) uses the word "action" in contradistinction to the word "suits" which appears in sub-section (a) of section 14(1) of the IBC. Thus, sub-section (c) refers to any action other than by way of a suit and this is made clear by reference to an action under the Securitization Act, 2002 which does not involve filing of a suit. Similarly, a mortgagee of a ship....
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....debtor and this necessarily means a Suit in personam. An action in rem is not against the corporate debtor for reasons already explained. The vessel is a distinct juridical entity and the action proceeds without reference to the owner who is not a party to the Suit when filed. Liquidation of the corporate debtor does not affect the ownership of the res so as to defeat a maritime claim in respect of the ship. The res continues to be in the ownership of the corporate debtor and the Liquidator merely acts as a Custodian. The status of the res does not change (Rikhabchand Mohanlal Surana V/s. The Sholapur Spinning and Weaving Company Ltd. (1978) 76 Born. L.R. 748). 55.2 Thus, an action in rem can be entertained even at the stage of liquidation of the corporate debtor as the claim is against the res and not against the corporate debtor. By arrest of the ship, Plaintiff would become a secured creditor to the extent of the value of the res only but not a secured creditor of the corporate debtor's other assets. Hence, this will not affect other secured creditors of the corporate debtor. However, by not permitting the action in rem and arrest of the vessel, the rights in rem given to a m....
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....o 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. 57 Instances have been seen in cases involving a fleet of vessels owned by Varun Resources Ltd. and GOL Offshore Ltd. where the Resolution Professional took no steps to man, preserve and maintain the ships during the CIRP. Some of the ships of Varun Resources Ltd. were arrested before declaration of moratorium under Section 14 of the IBC. The crew members were left stranded on the ships and without adequ....
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....ll costs and expenses incurred by the new managers in respect of the crew and for essential supplies made to the vessel during this period pursuant to contracts entered into by the Resolution Professional, were not paid despite these obviously forming a part of the insolvency resolution process costs and liquidation costs and considered as Sheriff's expenses in the Admiralty proceedings. Payment was opposed by the various banks and this led to more litigation. 58 The above is a stark example as to how banks which are secured creditors function once it is clear to them that the corporate debtor is insolvent. They do not wish to spend any money in protecting their own mortgaged ships and leave the crew on board these ships to fend for themselves without even providing for essential supplies to be made to the vessels for the crew to stay on board and look after the ships, let alone pay their wages. This has been noticed in a few matters where ships have been arrested before and during insolvency proceedings and even in cases involving appointment of the Official Liquidator as Provisional Liquidator under the Companies Act, 1956. In these situations the Admiralty Court must have the....
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....6 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? 61 This question needs to be resolved on a consideration of whether the Companies Act, 1956 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 Section 446(2) of the Companies Act. 62 Section 446 of the Companies Act, 1956 provides as follows: Section 446 : "Suits stayed on winding up order - (1) When a winding up order has been made or the Official Liquidator has been appointed as provisional liquidator, no suit or other legal proceeding shall be commenced, or if pending at the date of the winding up order, shall be proceeded with, against the company, except by leave of the Court and su....
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....on against the Company but a suit against the vessel and recovery of the claim from the sale proceeds of the vessel. It is not a recovery action against the Company nor is an arrest of a ship an attachment of the asset of the Company. The distinctive features of the Admiralty Act and an action in rem are referred to and explained in the preceding paragraphs pertaining to the IBC. 66 Since an action in rem is against the ship and not against the company which may be the corporate debtor, the same considerations apply as under the IBC when it comes to considering the provisions of Section 446(1) of the Companies Act. The said section refers to suit or other legal proceeding against the company. An Admiralty action in rem is not a suit against the company. It is a suit against a ship which is a legal personality independent of the owner and is proceeded against not as an asset of the owner who may be a company but as an independent juridical entity. 67 An action in rem can only be filed in certain specified High Courts that have been vested with Admiralty jurisdiction pursuant to Section 3 of the Admiralty Act. The corollary to this is that no other High Court and no Civil Court....
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....et aside a transaction by which the life insurance business of a company was transferred to another department within that company. While answering this question in the negative, the Court held that no leave of the company Court was required for two reasons: (i) Section 41 of the LIC Act barred the jurisdiction of civil Courts which indicated that the tribunal constituted under the LIC Act had exclusive jurisdiction to hear and decide the applications in question; and (ii) the LIC Act was a special act which overrode the provisions of the Companies Act which was a general act. 70.2 Dr. Chandrachud further submitted that the Court's reasoning in Damji Valji Shah applies in the instant case as well, for the reason, though there is no specific bar of jurisdiction clause in the Admiralty Act, akin to Section 41 of the LIC Act, the jurisdiction of civil Courts is impliedly barred under the Admiralty Act. An ordinary civil Court in, say, Pune or Daman, does not have the power to exercise jurisdiction in rem under the Admiralty Act over disputes involving maritime claims. 70.3 In Allahabad Bank V/s. Canara Bank, where the question before the Supreme Court was : ....
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....h Court was considering whether leave of the Company Court would be required under Section 446 of the Companies Act to institute or proceed with a case under Section 138 of the Negotiable Instruments Act, 1881 ("NI Act"). Answering this question in the negative, the Court held the predominant purpose of the provisions empowering the Court to stay actions against the Companies in liquidation or to seek permission of the Company Court before proceeding with any action launched against the Company, which is already wound-up, is to ensure that the ultimate distribution of the assets of an insolvent company is pari passu among its creditors. 70.5 However, while dealing with the above question in Indorama Synthetics, the Court also referred to (i) S.V. Kondaskar, Official Liquidator and Liquidator of the Colaba Land and Mills Co. Ltd. (In Liquidation) V/s. V.M. Deshpande, Income Tax Officer, Companies Circle I (8), Bombay (1972) 1 SCC 438; (ii) Joshi Trading Co. (P.) Ltd. V/s. Essa Ismail Sait (1980) 50 Kerala 801; and (iii) B.V. John V/s. Coir Yam and Textiles Ltd. [1960] 30 Comp Cas 162 (Ker). Relying on these and other judgments, the Court, in In....
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....edings before the Small Causes Court, Dr. Chandrachud submitted and rightly so that the said view taken by this Hon'ble Court was based on a concession made by counsel appearing on behalf of the parties, and can therefore not be considered. 70.8 As regards the judgment of a Single Judge of the Madras High Court in Shanmugam Rajasekar V/s. Owners and Parties interested in the vessel M.T. Pratibha Cauvery A. nos 2997/2013 in C.S. No. 89 of 2013- (2018) 1 High Court Cases (Mad) 133, Dr. Chandrachud submitted that though the Court was correct in holding that the provisions of a special enactment will prevail over the provisions of a general enactment, the said judgement does not lay down the correct position in law because the Court wrongly identified the Merchant Shipping Act, 1958 as the special enactment instead of the Admiralty Act. He also submitted that the finding of the Court that even when an owner enters appearance the proceedings continue to be in rem is incorrect. 70.9 However, according to Dr. Chandrachud, the judgment of the Division Bench of the Madras High Court in Pratibha Shipping Company Ltd. V/s. Praxis Energy Agents SA (Unreported) Dt. 9.8.2019 in OSA Nos. 20....
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....1 SCC 438 in support of these submissions. Mr. Jagtiani also submitted as to why Corona Ltd. V/s. Sumangal Holdings 2007 (4) Mh. L.J. 551; Bangur Brothers Ltd. (in liquidation) V/s. Official Liquidator (2013) SCC Online 1175 and K.R. Steel Union Ltd. V/s. Poysha Industrial Company Ltd. 2007(4) Mh. L.J 280 relied upon by Dr. Chandrachud, won't be applicable in the facts and circumstances of the case. 71.4 Meeson has, upon consideration of statutory provisions of the English law in Insolvency Act, 1986 and the Admiralty laws, stated that the commencement of an insolvency proceeding itself prevents legal proceedings from being continued against the vessel of the company in liquidation. Moreover, when a claim gives rise to a statutory action in rem, the effect of this action results in encumbering the res against which the claim is brought amounting to creation of security interest in the ship. This appears to be 'disposition of company's assets' and would be void under Section 536 of the Companies Act unless otherwise ordered. From the reading of Meeson it also becomes clear that the Admiralty claimant's claim being secured creditor will rank pari passu, with the claim of the workm....
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....de any reasoning as to why the Admiralty Act is to be treated as a special law in a situation of winding up. Therefore, the law laid down in these judgments ought not to be relied upon whilst deciding the present case. 71.7 Relying upon Principal Commissioner of Income Tax, Central V/s. Income Tax Settlement Commission R/Special Civil Application No. 9883 of 2019; Decided on 22.10.2019 Mr. Jagtiani submitted that in a situation where the later or special legislation does not provide for a specific non-obstante clause, it would not be for the Court to read within the act any such provision only to provide for an overriding effect. Clear provision must specifically exist in the later legislation as held by the Supreme Court in Kerala State Financial Enterprises Ltd. V/s. Official Liquidator, High Court of Kerala (2006) 10 SCC 709. 71.8 There is no inconsistency when the Company Court under Section 446(2) transfers the proceeding to itself. Transferring the proceeding to itself only means that that Court which hears the Winding up matter will now adjudicate the lis as opposed to the Courts identified in Section 3 of the Admiralty Act. It is, however, very important to note that,....
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.... seized of a winding up of a company that owns any vessel which is the subject matter of an Admiralty action may exercise powers under Section 446(2). However, in deciding the suit, the Court that is winding up the company will continue to apply the body of substantive law that would otherwise apply to such suit or proceeding. 72 Mr. V. K. Ramabhadran, Senior Advocate, Amicus Curiae, supported the submissions of Mr. Jagtiani. In addition, Mr. Ramabhadran submitted that: a. A bare reading of S. 446 of the Companies Act would reveal that "when a winding up order has been made or official Liquidator has been appointed as Provisional Liquidator, "leave of the Company Court is mandatorily required to be obtained either for instituting the suit or proceedings with the suit where the company Court is empowered to deal with such proceedings, unless the company Court's jurisdiction is ousted as was held S. V. Kandeakar V/s V. M. Desphande & Anr., Damji Valji Shah and Allahabad Bank V/s. Canara Bank. b. Leave of the Company Court would be required as even though the subject-matter is dealt with under a Special Act namely the Admiralty Act, the jurisdiction of the Civil C....
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....miralty Act confers admiralty jurisdiction only on the High Court of Calcutta, Bombay, Madras, Karnataka, Gujarat, Orissa, Kerala, Hyderabad and the State of Andhra Pradesh or any other High Court, as may be notified by the Central Government. Therefore, no other Courts will have admiralty jurisdiction and No Civil Court will have jurisdiction. (ii) Only specific claims are recognised as maritime claims under Section 4 of the Admiralty Act. Maritime claims are thus of a special character and special rights are conferred on maritime claimants. (iii) Priorities of Claims are stipulated under the Admiralty Act. Section 9 of the Admiralty Act for the first time under Indian law stipulates the order of priority of competing maritime claims and liens. Prior to this, priorities of rival claims were decided under common law and precedents. (iv) The Jurisdiction of the Admiralty Court is special unlike the Civil jurisdiction of a Court. Admiralty jurisdiction is not dependent on the presence of the Defendant within the jurisdiction of the Court or the cause of action arising within the jurisdiction of the Court. The Admiralty jurisdiction is dependent only on the ....
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....will prevail over the Companies Act. 73.4 In Rikhabchand Mohanlal Surana V/s. The Sholapur Spinning and Weaving Company Ltd. the Bombay High Court held that the property of a company does not vest in the Official Liquidator on winding up. The property if at all continues to remain as the property of the company and the Official Liquidator is only given custody thereof (under Section 456). Once property or money comes into the possession of the Court at the instance of a Plaintiff then it would follow that they are constructively held by the Court for the judgment creditor. The Official Liquidator cannot just take away the money from the Court. The Plaintiff, on monies coming into Court becomes a secured creditor. The same principle applies when a ship owner furnishes security in the Admiralty Court. The Official Liquidator cannot touch these monies if the company goes into winding up subsequently. This may also apply to a situation where a ship has been sold and the sale proceeds are lying in Court. As held in Chidambaram Chettiar V/s. The Tinnevelly Sarangapani Sugar Mills ILR (1908) 31 Mad 123 = 1907 SCC OnLine Mad 49, a lien holder does not lose his right of lien on making....
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.... being instituted against a vessel belonging to a public authority after the expiration of six months from the default complained of. The Court of Appeal upheld the decision of the Court below that an action in rem is not an action in personam against the owners. The observations of Fletcher Moulton L.J. therein, "..... and that the action in rem is an action against the ship itself. It is an action in which the owners may take part, if they think proper, in defence of their property, but whether or not they will do so is a matter for them to decide, and if they do not decide to make themselves parties to the suit in order to defend their property, no personal liability can be established against them in that action. It is perfectly true that the action indirectly affects them." have now long been considered as a precise articulation of the nature of an action in rem This proposition has been affirmed and reiterated by the Court of Appeal in The Nordglimt , The Anna H Supra. The Hon'ble Hobhouse LJ's analysis of "the relationship between the Admiralty jurisdictions in rem and in personam" shows that an exclusion of jurisdiction generally is to be interpreted as an exclu....
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....at the action becomes an action in personam. The clause for arbitration is not between Plaintiff and the vessel but between Plaintiff and the owner of the vessel. This clause for arbitration will be given effect to after the Court exercises its jurisdiction to arrest a ship. It is from that stage that the provisions pertaining to arbitration have to be considered. The Court added a right in rem is a valuable right that a party has for the purpose of obtaining security in respect of a maritime claim. To debar a party from approaching the Court on the ground that the party has agreed to arbitration would tantamount to depriving a party of his vested right to file an action in rem under the Admiralty Act. This right cannot be taken away unless there is a statutory bar or an express provision denying such a right to a Claimant. There is no such bar or prohibition under existing law. Neither is there any bar to the exercise of this right merely because in personam proceedings have been commenced by way of arbitration or in Court. On the contrary considering the distinction between in rem and in personam proceedings, it is manifestly clear that a right in rem is available to a Claimant n....
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....ompanies Act before commencing an action in rem or to proceed with the action already commenced if the Official Liquidator has been appointed as Provisional Liquidator of the company. In order to assert an action in rem and liability on the res, the claimant is required to establish in personam liability of the owner as set out in Section 5(1) of the Admiralty Act. Thus, even though it is only the vessel which is the Defendant in the proceedings, the owner is also included as a Defendant in the suit even though not expressly named and joined. 76 Mr. Prathamesh Kamath, Advocate, supported the submissions of Mr. Sharan Jagtiani and in addition submitted as follows: a) Obtaining leave under section 446 of the Companies Act is mandatory when the suit or legal proceedings are filed against the assets of the company. The main purpose or object behind section 446 is to ensure that the assets of the company are not recklessly given away or frittered but are utilized to meet the debts of the company's secured or unsecured creditors as also to its shareholders irrespective of whether the suit is an action in rem or in personam. The assets are deemed to be in the custody of the co....
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.... to consider the absence of any non-obstante clause which is present in the Companies Act; iii. It does not take into consideration the Judgments of Supreme Court in Elmot Engg. Ltd., Hari Har Nath and the Judgments on Section 446 which hold that leave is necessary if the Suit or Legal proceedings is against the asset of the company (in Liquidation); iv. It fails to appreciate that the exclusion of Jurisdiction of any Court has to be express and cannot be implied. There cannot be an implied exclusion of Courts unless the statute so specifically mentions; v. It does not consider that there is no repugnancy between the Admiralty Act and the Companies Act, as the Admiralty Act, does not contemplate a situation of winding up of a company. 77 Mr. Ajai Fernandes, Advocate, appearing for the Board of Trustees for the Port of Mumbai submitted that as far as the statutory claim of the Port Trust towards their rates and penalties is concerned, there is no question of the Port having to obtain leave under Section 446 of the Companies Act. Section 64 of the Major Port Trusts Act, 1963 gives the power to the Board to distraint or arrest the vessel and detain the sa....
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....rity should be distributed as per the priorities prescribed under the Admiralty Courts Act. 79 The submissions of Mr. Prashant S. Pratap, Senior Advocate, Amicus Curiae, could be summarized as under: i. The Companies Act is an act relating to companies in general as held by the Apex Court in Damji Valji Shah. The Companies Act is general law as held in International Coach Builders Ltd. vs. Karnataka State Financial Corporation. ii. The Admiralty Act is a consolidating act and a complete Code as regards the matters dealt with by it. It is a special law as regards Admiralty jurisdiction, legal proceedings in connection with vessels, their arrest, detention, sale and other matters connected therewith and incidental thereto. Determination of priorities is a matter connected to and / or incidental to the sale of ships. iii. The Companies Act is a general act relating to companies and refers to suit sagainst the company in general. The Admiralty Act is a special act concerning suits in rem against a ship and vests Admiralty jurisdiction exclusively in certain High Courts only to entertain such actions in rem. Applying the principle of interpretation that spe....
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....9A which is general law in regard to priorities over the general assets of the company. Consequently, the special law must prevail in the matter of priorities of claimants to the sale proceeds of a ship. vii. Even applying the principles of what is just and fair, crew members who workon a ship are workmen in every sense and their wages get the highest priority under the Admiralty Act. This is consistent with the objectives of section 529 and section 529A of the Companies Act which is to give priority to dues of workmen. Crew wages rank higher than the dues of all other creditors including secured creditors. Conflict, Interpretation and Analysis 80 It is clear from the submissions of the parties that the first question to be examined is whether the provisions of the Admiralty Act have an overriding effect and prevail over the provisions of the Companies Act such that no leave under Section 446(1) would be required for the commencement of an action in rem against a ship or continuation of the action once commenced, where a winding up order has been made or if the Official Liquidator is appointed as Provisional Liquidator of the company which owns the ship. 81 The ca....
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....6 of the Companies Act confers on the company Court to entertain or dispose of any suit or proceeding by or against a company or any claim made by or against it that the restriction referred to in subsection (1) has been imposed on the commencement of the proceedings or proceeding with such proceedings against a 'company after a winding-up order has been made. In view of Section 41 of the LIC Act the company Court has no jurisdiction to entertain and adjudicate upon any matter which the Tribunal is empowered to decide or determine under that Act. It is not disputed that the Tribunal has jurisdiction under the Act to entertain and decide matters raised in the petition filed by the Corporation under Section 15 of the LIC Act. It must follow that the consequential provision of sub-section (1) of Section 446 of the Companies Act will not operate on the proceedings which be pending before the Tribunal or which may be sought to be commenced before it." 19: "Further, the provisions of the special Act, i.e., the LIC Act, will override the provisions of the general Act viz., the Companies Act which is an Act relating to companies in general. (Emphasis Supplied) 82 A....
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....actions in rem, it is quite clear that applying the principle of interpretation that special overrides the general, the Admiralty Act will prevail over the Companies Act. This also accords with the observations of the Apex Court in the case of Damji Valji wherein the provisions of the special Act, i.e., the LIC Act were held to override the provisions of the general Act. Even if the Companies Act is considered as a special act in relation to Companies as contended by some of the appearing parties, the Admiralty Act being a later special Act will prevail over the Companies Act. Company Court's jurisdiction under Section 446 86 The historical evolution as well as the present setting of Section 446(2) has been traced by a three Judge Bench of the Apex Court in Sudarsan Chits (I) Ltd. V/s. O. Sukumaran Pillai. The need for S. 446(2) was felt because the predecessor Act had provided only for stay of suits and proceedings pending at the commencement of winding up proceeding, along with the embargo against the commencement of any suit or other legal proceedings against the company except by the leave of the Court. There was no specific provision conferring jurisdiction on the windin....
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....hen was, held that a suit or proceeding for which leave is necessary under Section 446 (1) must be a suit or proceeding capable of being withdrawn and disposed of by the winding-up Court. 88 It is apparent from the above that a suit or proceeding for which leave is necessary under Section 446(1) of the Companies Act must be a suit or proceeding capable of being withdrawn and disposed of by the winding up Court. The object is no doubt to avoid expensive litigation and ensure that all assets of the company are brought under the control of the winding up Court so as to ensure fair and equitable treatment of all secured creditors. 89 The question therefore is - whether the winding up Court has jurisdiction to entertain or dispose of an action in rem filed in a Court vested with Admiralty jurisdiction under the Admiralty Act? An action in rem is against the ship which is an independent legal entity and distinct from the company owing it. It is not a suit against the company. Consequently, the Court which is winding up the company will not have jurisdiction to entertain or dispose of a suit in rem against a ship under the Admiralty Act by taking recourse to the provisions of Sectio....
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....Company Court can consider grant of leave or deny the same depending on the facts of each case. The position is completely different when it comes to proceedings under the Admiralty Act. A maritime claimant who may have filed proceedings in rem and obtained an order of arrest thereby becoming a secured creditor who has a charge on the ship would not be stealing a march over other similarly placed creditors. The integrity of both types of creditors would be preserved because the Admiralty Court seized of the matter would invite claims from all such claimants who will then also become secured creditors in respect of the sale proceeds of the vessel. Maritime lien holders being a special class of maritime claimants have been given priority under the Admiralty Act and within these maritime lien holders, the crew have been given highest priority in respect of their wages. Other secured creditors of the company who do not have a specific charge in the form of a maritime claim over any vessel would nonetheless be secured creditors of the other assets of the Company. The differentiation is between a class of claimants who have a maritime claim and thereby become secured creditors and other ....
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....ecial machinery for recovery of their wages. In fact, they rank higher than other secured creditors under the Admiralty Act as against a mere pari passu change given to them under Section 529 of the Companies Act. The workmen's priority in the matter of payment from the general non-maritime assets of the Company is not affected. The Madras High Court judgment 96 I also refer to the judgment of the Division Bench of the Madras High Court in Pratibha Shipping Co. Ltd. (in liquidation) V/s. Praxis Energy Agencies S.A. and others where the Court framed a question of law as follows: "Whether in Admiralty suits filed in the original jurisdiction of this Court, the leave of the High Court / Tribunal under Section 446 of the Companies Act, 1956 (now Section 279 of new Companies Act, 2013) to file or proceed with such a suit is required to be obtained by the plaintiffs or not, after the Winding Up Order is passed by the Court and an Official Liquidator or Provisional Liquidator is appointed by that Court / Tribunal?". 97 After considering the provisions of the Admiralty Act and the Companies Act and rival submissions the Court held that: (a) "The Admiralty Act 201....
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.... had not come into force when the matter was reserved for judgment on 21 February 2018. The act came into force on 1 April 2018. Consequently, the observations made in paragraph 26 of the said judgment can no longer apply when considering the position in the light of the coming into force of the Admiralty Act with effect from 1 April 2018. This Court is now required to examine the issue afresh on the touchstone of the new act which is a special act that vests Admiralty jurisdiction in certain High Courts and codifies the law in respect of arrest and sale of ships and maritime claims and determination of priorities. This is precisely what this Court has done and articulated its views in the light of the position that emerges on a consideration of actions in rem and the new Admiralty Act which consolidates and codifies the law on the subject. Conclusion 100 In this view of the matter on a macro basis the 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....