Analysis Of Overlap Between IBC And Admiralty Laws - A Judicial Approach

Author: LawSphereX

Category: Corporate & Insolvency

Published: 2026-08-23T17:58:43.453825+00:00

Updated: 2026-08-26T17:12:11.296+00:00

ANALYSIS OF OVERLAP BETWEEN IBC AND ADMIRALTY

LAWS: A JUDICIAL APPROACH

Yash More, B.B.A LL.B. (Hons.) University of Mumbai Law Academy

ABSTRACT

The present article discusses the relationship between three acts, namely, the Admiralty (Jurisdiction and Settlement of Claims) Act 2017, the Insolvency and Bankruptcy Code 2016, and the Companies Act 2103, and how each of the acts interacts with the other. It discusses the order passed by the Hon’ble Bombay High Court authored by Hon’ble Justice Shri. K. R Shriram, the approach for finding a harmonious construction between all the laws was unique in a way that it did not infringe the special nature of both Admiralty Act and the IBC. In this article, the nature of in rem proceedings against the vessel and how it is different from proceedings against the owners are discussed in great detail.

This article highlights the interplay between the acts in such a way that it enables the provisions of each act rather than hindering it and takes into consideration the needs of each and every stakeholder, which were left neglected in the confusion that was present before the relation was established. Keywords: Admiralty Act, Insolvency & Bankruptcy Act, Liquidation, in rem action, Companies Act, priority of claim, financial creditor.

BRIEF OVERVIEW OF IBC AND ADMIRALTY LAWS IN INDIA:

The Insolvency and Bankruptcy Code (referred as the Code hereafter) was implemented in the year 2016 with the aim of providing a time-bound process for resolving insolvency keeping in mind the interests of all stakeholders involved1. The Code laid down procedures in instances of non-payment of debt. It states that a suit can be brought against a corporate debtor in an adjudicating authority (the NCLT in this case). The debt can be financial or operational.

Once the suit is brought a Resolution Professional (RP) is appointed who under the observation of the Committee of Creditors (CoC) draws up a resolution plan if such plan is accepted by the CoC all necessary steps are taken to revive the company, the primary focus of the IBC is to ensure revival and continuation of the Corporate Debtor within the framework of the IBC and only if no Resolution Plan is approved for revival of the Corporate Debtor, liquidation would follow. 2 Another important feature of the Code is the ‘Moratorium’ as defined in Section 14 of the Code, it states that on commencement of insolvency, the adjudicating authority by an order declare a moratorium for prohibiting the institution of new suits or continuation of suits including execution of any judgement, decree or order by any court or tribunal.

The corporate debtor is also barred from transferring, encumbering, alienating or disposing off any asset by the corporate debtor and any recovery of property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor. It is also pertinent to note that as opined in the case of Duncans Industries Ltd. V/s. A. J. Agrochem3, the Code is a special statute devoted entirely to resolving the insolvency, liquidation, and bankruptcy of corporate persons, firms, and individuals. On the other hand, the preamble of the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017 reads as “to consolidate the laws relating to Admiralty Jurisdiction, legal proceedings in connection with vessels, their arrest, detention, sale and other matters connected therewith or incidental thereto.

” It is also a special act vesting Admiralty Jurisdiction to specific High Court in India listed in Section 2(1)(e) of the Act and no other High Court has or

1 The Preamble of IBC 2016

2 Swiss Ribbons Pvt. Ltd. V/s. Union of India (2019) 4 SCC 17

3 (2019) 9 SCC 725

is entitled to exercise Admiralty jurisdiction under the Act. This Admiralty Jurisdiction is in respect to ‘Maritime Claim’, Section 4 of the Act provides an exhaustive list of potential claims one can bring against the vessel and Section 5 provides for grounds and procedure for acquiring an arrest order against the vessel. A ship or a Vessel is considered a separate legal entity and when a claim can be brought against the vessel the Claimant is not concerned with the owner who is neither a necessary nor a proper party. A vessel is a separate juridical personality, an almost corporate capacity, having not only rights but liabilities (sometimes distinct from those of the owner)4.

Test for acquiring an arrest of a vessel is relatively simple, there should be a maritime claim under section 4 of the Act, such claim must be against the vessel and the vessel at the time of arrest must be in the territorial waters of India. Along with ‘Maritime Claim’, the concept of ‘Maritime Lien’ is a fundamental concept of admiralty law, this arises by operation of law and without any formal requirement, from the moment the circumstances which gave rise to the claim occur. 5 A maritime lien adheres to the ship from the time that the facts happened which gave the maritime lien, and then continues binding on the ship until it is discharged, either by being satisfied or from the laches of the owner, or in any other way which, by law, it may be discharged. It commences and there it continues binding on the ship until it comes to an end.

6 Here the claim is bound to the vessel and is not extinguished with the sale or transfer of the vessel and Section 9 of the Act lists specific claims which are ‘Maritime Liens’. When it comes to priority of claims, Section 10(1) of the Act prescribes it in following order: • 1st claim on the vessel where there is a maritime lien, • 2nd Registered mortgages and charges of same nature on the vessel, • 3rd All other claims.

SCOPE OF CONFLICT:

The conflict lies on the priority of claims, as stated above, the topmost priority is conferred to maritime liens which includes, in order of precedence: claims for wages of crew, death or injury

4 M.V. Elisabeth and Ors. V/s. Harwan Investments and Trading Pvt. Ltd 1993 Supp (2) SCC 433

5 Bombay High Court CHAMBER SUMMONS NO.66 OF 2018 IN ADMIRALTY SUIT NO.6 OF 2015

6 O. Konavalov V/s. Commander, Coast Guard Region & Ors (2006) 4 SCC 620

of crew, salvage reward, port dues and tortious7, followed by registered mortgages against the vessel. On the other hand, in case of a suit brought under IBC, after cost for insolvency process is paid in full, the debt owed to workmen and secured creditors are given equal priority, and the charges owed to central or state government takes lower priority8. This conflict was on full display when the Hon’ble Bombay High Court collectively heard multiple cases in Admiralty Suit and Commercial Admiralty Suit in Chamber Summons No.

66 of 2018, the judgment was authored by Hon’ble Justice Shri. K.R Shriram, where claims

were against multiple ship owners and their vessels. The relevant facts are as follows: An Admiralty Suit was filed and order for arrest of vessel owned by GOL Offshore Ltd was obtained, meanwhile the Court was also pleased to order the company to be wound up. Later, when the suit was listed and taken up for directions/orders, the Official Liquidator of the company objected to the proceedings stating leave under Section

446 of the Companies Act was not obtained. Responding to this, the Petitioners relied on the

decision in Shanmugam Rajashekhar V/s. Owners and parties interested in the vessel M. T. Pratibha Cauvery9 as their reasoning for not requiring leave under Section 446 of the Companies Act. And in other set of admiralty Suits, the NCLT Delhi was pleased to admit a Petition under Section 7 of IBC against Punj Lloyd Ltd. , the owner of Defendant Vessels and subsequently a Moratorium under S. 14 of the IBC was also declared. The Court questioned the effect of moratorium on the Admiralty Suit, the plaintiff submitted that it has no bearing whatsoever upon admiralty proceedings. As these are repetitive issues, the Court was pleased to direct listing together these suits to hear and decide upon the applicability, effect, and consequences of the proceedings under IBC and Companies Act on the Admiralty Suits before this Court.

With this background, a very interesting question arose: • Question No. 1: Is there a conflict between actions in rem filed under the Admiralty Act and the

7 Section 9(1) of The Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017

8 Section 53 of IBC 2016

9 2018 SCC Online Madras 13

provisions of IBC, 2016, and if so, how is the conflict to be resolved? • Question No. 2: Whether leave under Section 446(1) of the Companies Act 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?

RESOLUTION OF CONFLICT:

The Court observed that Section 238 of IBC contains a non-obstante provision giving the Code overriding effect over any other law. While on the other hand, civil Courts do not have jurisdiction to entertain an action in rem, that has only been vested specifically in certain High Courts only. Also, the Admiralty Act itself does not contain a non-obstante clause. The Court taking reference to cases of Ram Narain V/s. Simla Banking and Industrial Company Ltd. 10,Employees Provident Fund Commissioner V/s. Official Liquidator of Esskay Pharmaceuticals Ltd. 11, Central Bank of India V/s. State of Kerala12 opined, when there are two special enactments, i. e.

the IBC and the Admiralty Act first ant attempt for harmonious construction which is intended to give effect to both statutes bearing in mind the purpose and policy underlying them must be achieved, in event of an unresolved conflict the IBC will prevail as the Admiralty Act being a later enactment and not containing any non-obstante clause, it is presumed that the Parliament had knowledge of the non-obstante clause included in the IBC. The Court at this stage, while clarifying the difference between an action in rem and an action in personam, referred to a judgement of the Singapore High Court in the case of ‘The Engedi’13 which states that “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® 793 at [23], the Court of Appeal specifically rejected the proposition of the

10 AIR 1956 SC 614

11 (2011) 10 SCC 727

12 (2009) 4 SCC 94

13 [2010] SGHC 95

house of Lord in Republic of India v India Steamship Co Ltd (No 2) [1998] 1 AC 878 that in substance the owner of the res, and not the res itself, was the defendant to an action in rem. ” And observing the findings in re ARO Company Ltd14 which states that once security is provided for release of vessel, the Plaintiff is to be treated as secured creditor. The holder of a maritime lien is also a secured creditor from the moment the maritime lien arises which is simultaneously with the claim. 15 In order to find a harmonious construction between the two laws and relying on the above reasoning, the Court concluded that 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 and the vessel in question will not be classified as an asset for the purpose of settlement of debt.

Hence, the moratorium under Section 14 of IBC will not affect the institution of new admiralty suit or continuation of existing admiralty suits in the High Court but if an action in rem instituted prior to the declaration of the moratorium it will be stayed for the period of CIRP to either be approved or the company to go under liquidation. On commenting on the procedure of liquidation, the Court observed that, when an order for liquidation is given under Section 33 of IBC and a liquidator is appointed, this alone will not bar institution of suit for arrest against the vessel as it is against the vessel and not against the corporate debtor.

Also, a secured creditor is permitted to realise its security interest in accordance to Section 52, the secured creditor can also enforce, realise, settle, compromise or deal with the secured assets in accordance to any law applicable to that security interest, in this case, the applicable law will be the Admiralty Act, therefore, the priority of payment will be according to the Act. Considering the above relation established between IBC and Admiralty Act, the Court formulated few possible scenarios where the provisions of both statutes get involved and will play out: 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

14 (1980) 1 Ch 196 (C.A.)

15 Admiralty Jurisdiction and Practice by Nigel Meeson and John A. Kimbell, (5th Edition)

are filed against the owner of the vessel and the adjudicating authority declares a moratorium under Section 14 of the IBC. The Court laid down the answer to this question in the following way:

1. When an order of arrest is obtained, the owner of the vessel provides security in the

Admiralty court and the vessel is allowed to continue its voyage, after declaration of moratorium, the suit will not be allowed to continue but the Plaintiff will be considered as secured creditor, that security will be exclusively for Plaintiff’s claim.

2. Effect of CIRP: If the CIRP is successful and the CoC and Adjudicating Authority

approves the resolution plan, here the plaintiff is exclusively entitled to the security provided during the release of the vessel. If the CIRP is not successful and an order for liquidation is passed, the security provided by the Plaintiff will be used to satisfy the Plaintiff’s debt alone, and as a secured creditor, and provisions of Section 52(4) will be applicable and the relevant law as mentioned in the section will be Admiralty Act, and the suit in this situation will proceed in personam against the owner of the vessel.

3. When Security is Not Provided: If in the event where vessel is arrested but no security

is provided and moratorium is declared by the adjudicating authority. Here, if the suit is continued, it will defeat the reconstruction and insolvency process. Therefore, in rem proceedings against the vessel will be stayed. Here, it is up to the Resolution Professional to decide what action to take vis-a vis whether a security is to be provided or not. If security is not provided the vessel will remain under arrest until the end of the CIRP period. The suit against the vessel i.e. in rem proceedings against the vessel will continue and it will be considered as a charge on the vessel.

4. When the company is already under liquidation: As Section 33(5) allows

continuation of pending suits, the vessel will be sold to maximize its value and the sale proceeds will be used to satisfy the claim. Here, the procedure will be exactly same as any ordinary Admiralty Suit. The list of priority will be according to Section 10 of the Act, and those who were not able to recover their claim through the sale proceeds will be able to recover their claim as unsecured creditors.

5. When the vessel is sold: if the resolution plan is approved, all creditors, including the

Plaintiff, will be paid accordingly as secured creditors. But, the Plaintiff will get more priority and in turn among the Plaintiff and other maritime claimants, the priority will be according to Section 10 of the Act. The logic being, even if the resolution plan was to fail, the Admiralty Court would sell the vessel and the proceeds would have been distributed according to the Admiralty Act. Since the arrest was acquired before the declaration of moratorium, the Admiralty Court would not vacate the arrest unless it is satisfied that the Plaintiff and other maritime claimants have been accorded priority as required under the Admiralty Act. All claimants who are not able to satisfy their debt in full or in part by way of sale of the vessel, still have option to continue in the suit but now they will rank as operational creditor as the security provided no longer exists.

in all cases of sale of vessel, the Admiralty Court will retain the sale proceeds during the CIRP awaiting the outcome vis-à-vis the approval of the plan or liquidation, and accordingly the priority of claims will be set as already discussed above.

6. Cost: Expenses incurred for preservation and maintenance ofvessel for duration under

arrest will be treated as Sheriff’s expenses and that will be paid out in priority from the sale proceeds of the ship if the company is liquidated or be accorded priority in the resolution plan as resolution process costs. Scenario II If 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 maritime claim. As already discussed, the action in rem is against the vessel not against the corporate debtor therefore the moratorium declared will have no effect on obtaining arrest order and the vessel will not be allowed to continue sailing.

Now since the moratorium is already declared and a Resolution Professional (RP) has been appointed, it is up to the RP whether or not to appear before the Admiralty Court and whether or not security to be deposited and whatever the case may be the procedure discussed above in all the subheadings will be accordingly be followed.

Scenario III If the owner of the vessel (corporate debtor) is in liquidation at the time the Plaintiff commences Admiralty proceedings in rem for arrest of the vessel. Section 33(5) of IBC states that no suit shall be instituted against the corporate debtor, this provides a complete bar on suits unlike the Companies Act where a leave from the court can be obtained for initiating any suit, but the provision of IBC can not bar the arrest of vessel as the Admiralty Suit is against the vessel not the company, the liquidation has no effect on the status of ownership of the vessel, the Court cited the judgement in the case of Rikhabchand Mohanlal Surana V/s. The Sholapur Spinning and Weaving Company Ltd16 where it was observed that the res does not change ownership during liquidation, the liquidator merely act as custodian of the vessel.

In conclusion, the above arrangement of the IBC and Admiralty provides a balanced view of both the statutes so as to not to undermine any of the laws. Such arrangements find a holistic approach to not undermine any stakeholders’ rights. In this case, the Court observed that owners have practically abandoned the ship and the crew members were left on their own without adequate supplies and proper wages.

The Court’s aim in coming up with this interpretation was to find a way so as to the Admiralty Act would benefit and assist the insolvency process rather than hindering it, in the Court’s opinion, this approach would enable the creditors to protect the ship and crew members, in the present case despite the banks having registered mortgagee of the vessel and part of the Committee of Creditors (CoC), they failed to take proper care of the vessel and protect the asset although it being a expressed provision of the IBC17. This also helps the vessel to not get into other incidents which may involve further damage or oil pollution. Overall, this interpretation makes sure the Admiralty Court are not rendered powerless and provides steps for securing the asset and takes care of all stakeholders.

The Court in this case was tasked to find the relation between the Companies Act and the Admiralty Act also, as the Official Liquidators were opposing the suit stating that no leave under Section 446(1) of Companies Act was obtained and hence the suit must not proceed further. In light of this, the Court formulated the second question:

16 (1978) 76 Born. L.R. 748

17 Section 25(1) of the IBC

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? For answering this question, first the nature of both acts were analysed vis-à-vis wheather the acts are general act or a special act, for the Companies Act, the judgement in case of Damji Valji Shah & Ors. V/s. Life Insurance Corporation of India & Ors. 18 and International Coach Builders Ltd. V/s. Karnataka State Financial Corporation19 The Supreme Court took the view that the Companies Act is general law and as already discussed the nature of the Admiralty Act in great detail, the Admiralty Act is a special Act.

Also, discussed in great detail is how the action in rem is not against the vessel not the owner. Section 446 of the Companies Act talks about legal proceedings against the company only. A subject-specific provision relating to a specific, defined and descriptable subject is regarded

as an exception to and would prevail over a general provision relating to a broad subject.20 The Court applied the ratio set in the case of Damji Valji Shah21 which dealt with LIC Act, the Supreme Court held that the provisions of special act will override general act. The nature of subject matter in both the laws are also different as the Companies Act deals with companies and Admiralty act with ships which is a separate legal entity; therefore, court dealing with liquidation would not have jurisdiction over admiralty court. In conclusion, the Court made it very clear with its reasoning that Section 446 is no bar in commencing or continuing 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.

CONCLUSION:

This order clarified many important questions of law and that to in such manner that a

18 AIR 1966 SC 135

19 (2003) 10 SCC 482

20 Commercial Tax Officer, Rajasthan V/s. Binani Cements Ltd. & Anr (2014) 8 SCC 319

21 Supra

harmonious balance was achieved with respect to nature of both the laws. Ultimately, this interpretation strengthens the legal framework by balancing insolvency objectives with the unique nature of admiralty claims, providing a structured approach that benefits all stakeholders involved.