Can an admiralty action in rem be maintained against a ship belonging to a company in liquidation? – Remark

Facts
Submissions
Decision

Angre Port Private Limited (the plaintiff) sought summary judgment through an interim application (the interim application) (1) in a commercial admiralty action in the Bombay High Court (the suit) (2) under of Order XIII-A read with Order XII Rule 6 of the Code of Civil Procedure against TAG 15(3) (the defendant vessel). The lawsuit was brought to recover, among other things, port charges and berth rental charges, totaling a sum of 93,719,098 Indian rupees together with 18% interest plus the pound (the amount of the claim). The court issued an order on January 3, 2022 in favor of the plaintiff.

Facts

On February 13, 2019, the defendant vessel entered the port of Angre to occupy the berth space. The plaintiff provided the rate book to the defendant vessel. As a result, the plaintiff issued invoices. On March 4, 2019, the owners of the defendant vessel, Tag Offshore Ltd (Tag Offshore), received a warrant of arrest from a secured creditor. As a result of the boarding, the defendant vessel incurred berthing and harbor fees as it occupied a berth in the port of Angre. On April 24, 2019, the National Company Law Tribunal, Mumbai (NCLT) issued an order to initiate the Corporate Insolvency Resolution Process (CIRP) of Tag Offshore under the Insolvency and Bankruptcy Code 2016 (IBC). Mr. Sudip Bhattacharya has been appointed as resolution professional by Tag Offshore’s Creditors’ Committee.

Around June 16, 2019, due to the strong winds and currents brought by the monsoon, the defendant vessel drifted away, causing serious hazard and danger to life and property. The plaintiff salvaged the defendant vessel to bring it to port and issued an invoice for such action. Subsequently, on September 26, 2019, the NCLT ordered the liquidation of Tag Offshore and appointed Bhattacharya as liquidator. As the plaintiff’s claim remained unpaid, on January 20, 2020, he brought an action claiming Admiralty jurisdiction against the defendant ship for the amount of the claim. On the same day, the court also ordered the boarding of the defendant vessel. On January 28, 2020, Bhattacharya filed a request in the lawsuit to vary and revoke the arrest order. He stated that if the defendant vessel was not sold, its value would decrease and he would incur various charges. In the order dated January 29, 2020, the court joined the owners, Tag Offshore, and authorized Bhattacharya, as liquidator of Tag Offshore, to sell the defendant vessel. However, Bhattacharya was unable to sell the defendant ship.

On March 9, 2020, an order was made where Tag Offshore’s recognizance was registered. He stated that all costs and expenses incurred by the plaintiff should be treated as winding-up or CIRP costs, as provided for in section 53(1)(a) of the IBC 2016. The mooring costs and of postage have been accepted; however, with respect to the salvage fee, Tag Offshore said it should be treated as a liquidation cost or CIRP subject to scrutiny. On July 9, 2020, the court ordered the sale of the defendant vessel. Subsequently, after securing the bids, the court upheld the sale of the defendant vessel for a consideration of Indian Rupees 107,500,000 in favor of JT Marine Services Pvt Ltd, which was the highest bidder. However, even after receiving the funds, Bhattacharya failed to make any payment to the claimant. In light of this, the plaintiff filed an interim claim seeking judgment and decree in favor of the plaintiff and against the proceeds of sale of the defendant vessel in the amount of 93,719,098 Indian rupees and 18% interest from December 18, 2020 until payment and/or completion.

Submissions

Plaintiff’s counsel submitted the following:

  • The plaintiff had issued invoices to the defendant vessel from time to time and, although there was no dispute, no payment had been made by Tag Offshore.
  • Even in the order dated March 9, 2020, Tag Offshore’s statement stated that the plaintiff’s moorage and port charges were undisputed and the salvage value would be treated as a liquidation cost upon review.

Counsel for Tag Offshore opposed the interim application with the following submissions:

  • In light of the prohibition contained in Section 33(5) of the IBC 2016 (i.e. a moratorium during the liquidation process), the suit was not admissible.
  • As the plaintiff had already filed his claim before the liquidator, the plaintiff could not pursue the lawsuit because both arose from the same cause of action and it was therefore prescribed by the principle of res judicata.
  • Under section 74 of the Contracts Act 1872 the plaintiff was required to prove actual loss for which reasonable compensation could be claimed and therefore the plaintiff was not entitled to berth charges penal, which were by nature a penalty.
  • The claim for salvage costs was adjudicated and dismissed by Tag Offshore and therefore could not be contested in the lawsuit without contesting the decision under the IBC 2016.

Decision

The Court relied on the judgment in the case Raj Shipping Agencies v Barge Madhwa & Anr,(4) where the court had held that the moratorium prohibition under Section 33(5) of the IBC 2016 applies to a suit in personam – i.e. against the debtor company herself. In the present case, the suit had been brought against an action in rem, that is to say against the defendant vessel. The Court observed that the defendant ship was a separate legal entity and that the rights in rem granted to a maritime plaintiff under the Admiralty Act would be nullified by not permitting action in rem and boarding of the ship. Furthermore, by seizing the vessel, the plaintiff would become a secured creditor for the value of the defendant vessel and not a secured creditor for the other assets of Tag Offshore. In light of this, the Court rejected the maintainability objection raised by Tag Offshore under Section 33(5) of the 2016 IBC Code.

With regard to the exception raised on the principle of res judicata, the Court observed that Tag Offshore had only ruled on the plaintiff’s request relating to an invoice for the period from April 24, 2019 to April 26, 2019. September 2019. However, the request for other periods has not been submitted or adjudicated by Tag Offshore. Further, the claim made in the suit related only to the proceeds of the sale of the defendant vessel, which continued to be an action in rem. Thus, it should not be hit by the principle of res judicata.

With regard to the criminal charges, the Court observed that the defendant vessel had contractually undertaken to pay the additional charges falling within the scope of the criminal charges for the rental of berths and that these could not be qualified as a sanction because it these were only additional charges in the event that the contingencies as provided for in the contract were triggered. In addition, Tag Offshore had agreed to these amounts on the understanding that there would be no disputes regarding berthing fees, which included criminal charges. Thus, the Court rejected this argument because no distinction could be made between mooring fees and penal berth rental fees.

The Court observed that the salvage claim was not supported by enough documentation to prove it and had no correlation to the salvage report. Thus, the Court dismissed the salvage claim under the provision of Order XIII-A and ordered the plaintiff to prove it at trial.

In light of the foregoing, the Court has rendered judgment and order in favor of the Claimant against the proceeds of sale of the Respondent Vessel in the sum of 55,100,016 Indian Rupees out of the total claim of 93,719,098 Indian Rupees.

For more information on this, please contact Nihal Shaikh or Dev Motta of Clasis Law by phone (+91 11 4213 0000) or email ([email protected] Where [email protected]). The Clasis Law website can be accessed at www.clasislaw.com.

Endnotes

(1) Provisional Application (L) No. 112 of 2021

(2) 2020 No. 4 Commercial Admiralty (L) Suit.

(3) IMO 9705550.

(4) 2020 CSC Online Bom 651.

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