IBC & Admiralty Act Interplay - Insolvency Proceedings Against Shipping Company Won't Bar Suit Against Vessel : Bombay High Court

In a significant judgment, the Bombay High Court has held that a Shipping Company slipping into liquidation under the Insolvency and Bankruptcy Code will not impact an ongoing Admiralty Suit against its Vessel as the two are separate entities. The judgement authored by Justice BP Colabawalla explains the interplay between the bar against further suits and proceedings under S.33 (5) of the IBC, 2016 and the Admiralty Act and the effect that insolvency proceedings would have on admiralty claims. The judgement also holds that Penal Birth Hire charger are not in the nature of a penalty and therefore damages would not have to be proved as required under Section 74 of the Indian Contract Act. Facts of the Case Angre Port Private Ltd filed an interim application under the provisions of Order XIII-A read with Order XII Rule 6 of the Code of Civil Procedure, 1908 (for short the "CPC") seeking a summary judgment against TAG 15 (IMO. 9705550), the ship owned by Tag Offshore Ltd. for a sum of Rs Rs.9,37,19,098 together with interest @ 18% p.a. from 18th December, 2020. The plaintiff, represented by Advocate Prathamesh Kamat for Parinam Law Associates, said that the vessel was docked at its port on 13th February 2019 and they had raised timely bills as berthing charges. The plaintiffs had also paid other expenses to secure the ship during a storm. Meanwhile, the company that owned the ship went into liquidation under the IBC and Defendant No.2 was appointed as the Liquidator. Eventually, the plaintiff instituted the present Admiralty suit to recover berthing charges and other costs. Counsel for the defendants advanced the three main arguments against the present suit: That the suit was not maintainable considering the bar contained in Section 33 (5) of IBC, 2016. S.33 (5) provides that "subject to Section 52, when a liquidation order has been passed, no suit or other legal proceeding shall be instituted by or against the corporate debtor."The above suit is barred by the principles of res judicata. In other words, the Plaintiff, having already filed its claim before Defendant No.2 (the Liquidator of Tag Offshore Ltd), was not entitled to file and prosecute the present suit as the amounts claimed before the Liquidator as well as in the present suit arose from the same cause of action. the Plaintiff is not entitled to any Penal Berth Hire charges as they were in the nature of a penalty and therefore have to be proved. this "Penal Berth Hire" is nothing but a "penalty" in terms of Section 74 of the Contract Act, 1872, and therefore the Plaintiff is required to prove the actual loss for which damages are claimed. where a liquidated amount is stated to be payable by way of damages, the same can only be payable "if it is a genuine pre-estimate of damages fixed by both parties and found to be such by the court". TArgument of bar under S.33 (5) of IBCThe Court observes that the bar under Section 33 (5) is applicable only against the Corporate Debtor and not his property which would be a separate entity. The Court notes: "The said provision prohibits the institution of a suit or other legal proceeding against the Corporate Debtor only. It does not in any way prohibit the institution of a suit or other legal proceeding against a ship/Vessel owned by the Corporate Debtor when invoking the Admiralty Jurisdiction of this Court. I say this because under the Admiralty Act, the Vessel is treated as a separate juristic entity which can be sued without joining the owner of the said Vessel to the proceeding." (Para 22) The Court further explained that actions against vessels under the Admiralty Act would be actions in rem and decrees could be sought against the Vessel in question without suing the owner of the said Vessel (the Corporate Debtor in this case.) "Under the Admiralty Act, 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/Plaintiff is not concerned with the owner, and neither is the owner a necessary or a proper party. In other words, the presence of the owner is not required for adjudication of the Plaintiff's claim. It is for this very reason that there is no requirement to serve the writ of summons on the owner of the Vessel and the service of the warrant of arrest on the Vessel is considered adequate. For the purposes of an action in rem under the Admiralty Act, the ship/Vessel is treated as a separate juridical personality, an almost corporate capacity having not only rights but also liabilities (sometimes...

IBC & Admiralty Act Interplay - Insolvency Proceedings Against Shipping Company Won't Bar Suit Against Vessel : Bombay High Court

Sneha Rao

Tags