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Admiralty jurisdiction assists insolvency resolution; action in rem can be filed before/during moratorium

May 21, 2020[2020] 116 taxmann.com 707 (Bombay)
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IBC : Exercise of Admiralty jurisdiction will be beneficial and assist rather than hinder insolvency resolution; thus, an action in rem can be filed and ship arrested under Admiralty Act before moratorium under IBC comes into force or during moratorium period or even when corporate debtor is ordered to be liquidated

• No leave is required under Section 446 of Companies Act, 1956 for commencement or continuation of an Admiralty Suit in rem where a winding up order has been passed or Official Liquidator has been appointed.

• Action in rem will not proceed till moratorium is in place; such action will proceed in accordance with Admiralty Act and priorities for payment out of sale proceeds will also be determined in accordance with said Act; section 53 of IBC will not apply.

• Exercise of Admiralty jurisdiction will be beneficial and assist rather than hinder insolvency resolution. It would protect ship and in turn security of a mortgagee who is a financial creditor. At same time this would also indicate to mortgagee that must take steps to protect and preserve their security and if they do not then Admiralty Court will step in.

• Admiralty Act which is a special act prevails over Companies Act which is a general act; section 10 of Admiralty Act will prevail over Sections 529 and 529A of Companies Act in matter of determination of priorities.

• Winding up Court has no jurisdiction to dispose of an action in rem against a ship; High Court has been conferred with Admiralty jurisdiction under Admiralty Act. A suit in rem is not against company and can only be entertained by High Court under provisions of special Act, viz., Admiralty Act.

• True nature of an action in rem against a ship is that it is not an action against Owner (company) or asset of Owner (company).

• Sale of vessel by Admiralty Court cannot be treated as void.

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