Interaction between the IBC and the Admiralty

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In a landmark judgment, the Bombay High Court ruled that a shipping company that goes into liquidation under the Insolvency and Bankruptcy Code will not affect an ongoing admiralty lawsuit against his ship, because the two are separate entities. The judgment drafted by Justice BP Colabawalla explains the interplay between the prohibition of other prosecutions and proceedings under Section 33 (5) of the IBC, 2016 and the Admiralty Act and the effect it has on. ‘an insolvency proceeding would have on admiralty claims. The judgment also argues that the criminal birth rental charger is not in the nature of a penalty and that, therefore, damages would not have to be proven as required by section 74 of the Indian contract law.

Facts of the matter

Angre Port Private Ltd has filed a provisional claim under the provisions of Order XIII-A read together with Order XII, rule 6 of the Code of Civil Procedure, 1908 (abbreviated as “CPC”) seeking summary judgment against TAG 15 (IMO. 9705550), the vessel owned by Tag Offshore Ltd. for a sum of Rs. 9,37,19,098 with interest @ 18% pa from December 18, 2020.

The plaintiff, represented by attorney Prathamesh Kamat for Parinam Law Associates, said the vessel was moored at its port on February 13, 2019 and that they issued one-off invoices as mooring fees. The plaintiffs had also paid other expenses to secure the ship during a storm.

During this time, the company owning the vessel was put into liquidation under the IBC and Defendant 2 was appointed liquidator. Ultimately, the plaintiff brought the current Admiralty lawsuit to recover the mooring fees and other costs.

Counsel for the defendants advanced the three main arguments against this action:

  1. That the prosecution was not sustainable in view of the prohibition contained in Article 33 (5) of the IBC, 2016. Article 33 (5) provides that “subject to Article 52, when a liquidation order has been adopted, no prosecution or other legal proceedings shall be instituted by or against the debtor company.
  2. The above prosecution is prohibited by the principles of res judicata. In other words, the plaintiff, having already filed his claim before the defendant n ° 2 (the liquidator of Tag Offshore Ltd), had no right to file and continue the present action because the amounts claimed before the liquidator as well as in this action arise from the same cause of action.
  3. the plaintiff is not entitled to any criminal sleeper rental charges as they were in the nature of a penalty and therefore need to be proven. this “penal berth rental” is nothing more than a “penalty” within the meaning of section 74 of the Contracts Act 1872, and the plaintiff is therefore required to prove the actual loss for which damages are claimed. when a lump sum is declared payable as damages, it can only be payable “if it is a true pre-estimate of the damages fixed by the two parties and noted as such by the tribunal”. T

Bar argument under S.33 (5) of the IBC

The Court observes that the prohibition provided for in Article 33 (5) is applicable only to the debtor company and not to its assets which would constitute a separate entity. The Court noted:

“Said provision prohibits the initiation of legal proceedings or other legal proceedings against the debtor company only. Jurisdiction of this Court. I say this because under the Admiralty Act the Vessel is treated as a separate legal entity which can be sued without including the owner of said Vessel in the proceedings. “(Paragraph 22)

The Court further explained that actions against ships under the Admiralty Act would be actions in rem and that decrees could be sought against the ship in question without suing the owner of that ship (the Debtor in this case .)

“Under the Admiralty Act, a ship or ship, as it is commonly known, is a legal entity which can be sued without reference to its owner. The purpose of an in rem action against the ship is to assert the maritime claim against the Ship and to collect the amount of the claim from the Ship by an admiralty sale of the Ship and for payment from the proceeds of the sale It is the Ship which is liable to pay the claim. This is the fundamental basis of an in rem action. The plaintiff / plaintiff is not concerned with the owner, nor is the owner a necessary or appropriate party. In other words, the presence of the owner is not required to dispose of the plaintiff’s claim. For this same reason, it is not necessary to serve the summons on the shipowner and service of the arrest warrant on the ship is considered as adequate. For the purposes of an in rem action under the L oi on the admiralty, the ship / vessel is treated as a distinct legal person, a quasi-corporate capacity having not only rights but also obligations (sometimes distinct from those of the owner). (Paragraph 22)

The Court relied on the decision of the Bombay High Court in Raj Shipping Agencies v / s Barge Madhwa & Anr 2020 SCC OnLine Bom 651, where the Court dealt with the interaction between the Admiralty Act and IBC, 2016 and held that the prohibition under section 33 (5) of the IBC, 2016 applies to lawsuits against the company debtor and this necessarily means that it is a personal action. An action in rem is not directed against the debtor company but against the ship. The Vessel is a separate legal entity and the action proceeds without reference to the owner who is not a party to the action at the time of filing.

Argument of res judicata

While dealing with Res Judicata’s argument advanced by counsel on the basis that the plaintiff had already filed his claim before Defendant # 2 (the liquidator), the Court rejected the argument on the grounds that the claims against the defendant ship and the debtor company would not be the same according to the reasoning of Raj Shipping Agencies Case. The judgment notes:

“In said decision, this Court made a clear distinction between the claim made against the Vessel which is an action in rem and the claim made against the owner of the Vessel (in this case the Debtor – Tag Offshore Ltd.), and which is an in personam claim. ” (Paragraph 28)

Furthermore, the Court held that the principle of res judicata under Article 11 of the CPC would not apply in the present case because 1) the claim of the plaintiff against the defendant concerned only one of the many invoices which he had issued in the name of the vessel (defendant n ° 1).

“The claim made in the above lawsuit and in the above provisional claim is not against defendant # 2 but only against the 1st defendant vessel. Considering that the claim made in this lawsuit is not due all against defendant n ° 2 but against the proceeds from the sale of the 1st defendant vessel and which continues to be an action in rem, any decision rendered by defendant n ° 2 concerning a claim made by the plaintiff against defendant n ° 2, cannot attract the principles of res judicata as this action, which seeks judgment only against the defendant 1st vessel. So I am clearly of the view that the claim in this action is not prohibited by the principles of res judicata. ”(Paragraph 31)

Argument of proof of damage

The Court noted that the tariff booklet clearly states that the criminal berth rental costs are not of a criminal nature per se, but are only additional costs that the vessel would incur in the event.

“These charges are nothing more than additional charges in the event that the above-mentioned contingencies are triggered. Therefore, I am of the opinion that the charges of Penal Berth Hire are not a penalty which should be proven by the plaintiff before he can seek to recover these charges. ” (Paragraph 37)

Observing thus, the court issued summary judgment and judgment in favor of Angre Port Private Ltd, ordering Rs. 5.51,000,016 to be paid on the sale of the vessel TAG 15 (IMO. 9705550), as rent, for the time it occupied the space in the port.

(Edited by Sneha Rao)

Case title: Angre Port Private Ltd. Vs. TAG 15 (IMO. 9705550) & Anr

Citation: 2022 LiveLaw (Bom) 3

Click here to read / download the judgment


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