The interplay between Insolvency and Bankruptcy Code, 2016 ("IBC, 2016") and Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017 ("Admiralty Act") once again came to fore in Commercial Admiralty Suit (L) No. 4 of 2020 filed by Angre Port Private Ltd. v/s TAG 15 (IMO. 9705550) & Anr. before the Bombay High Court ("Matter"). The Bombay High Court while passing a summary judgment and decree on 3rd January 2022, in favour of Angre Port Private Ltd., the Plaintiff/Applicant in the Matter, once again succinctly harmonized the provisions of the Admiralty Act viz-a-viz the provisions of IBC, 2016 and resolved that there exist no inconsistencies between the two laws.
The Bombay High Court relying upon its earlier decision in Raj Shipping Agencies v/s Barge Madhwa & Anr. [2020 SCC Online Bom 561] held that the provisions of the IBC, 2016 particularly section 33(5) of the IBC does not in any manner come in the way and/or prohibit institution of Suit or other legal proceedings against a ship/vessel owned by the Corporate Debtor when invoking the Admiralty Jurisdiction. The Bombay High Court in fact moved a step further and ruled on the following two other critical and important issues in the Matter:
- that the claims of the Plaintiff adjudicated by the Resolution Professional against the Corporate Debtor would not operate as res judicata for the Plaintiff to institute a Suit against a ship/vessel owned by the Corporate Debtor;
- that the penal berth hire charges claimed by the Plaintiff are not in the nature of a penalty and therefore damages would not have to be proved as required under Section 74 of the India Contract Act.
Summary of the Matter:
- The Plaintiff/Applicant had supplied necessary berthing charges to the 1st Defendant Vessel, as per the Tariff Booklet, and thereafter raised its invoices upon Tag Offshore Ltd. (Owner of 1st Defendant Vessel) from time to time. The 1st Defendant Vessel was occupying berth at the Plaintiff's port since 13th February 2019.
- On 24th April 2019, insolvency proceedings were initiated against Tag Offshore (owner of the 1stDefendant Vessel) by one R.H. Petroleum Ltd. under section 9 of the IBC, 2016 and one Mr. Pramod Mulgund was appointed as the Interim Resolution Professional ("IRP") for Tag Offshore Ltd.
- On 30thMay 2019, the Committee of Creditors resolved to appoint Sudip Bhattacharya as the Resolution Professional ("RP"), which was confirmed by the NCLT vide its order dated 28th June 2019. On 26th September 2019, the NCLT ordered liquidation of Tag Offshore Ltd. and confirmed Mr. Sudip Bhattacharya as its Liquidator.
- On 20th January 2020, Angre Port Private Ltd. filed Commercial Admiralty Suit (L) No. 4 of 2020 and secured an order of arrest of 1st Defendant Vessel on even date.
- On 28th January 2020, Sudip Bhattacharya filed an Interim Application No. 1 of 2020, inter alia, seeking modifications/ recall of the order of arrest dated 20th January 2020. Bombay High Court by its order dated 29thJanuary 2020, granted limited relief to Mr. Sudip Bhattacharya by allowing him to sell the 1st Defendant Vessel subject to certain terms and conditions. By the said order, Mr. Sudip Bhattacharya was also permitted to intervene in the Suit and the Plaintiff was directed to add Mr. Sudip Bhattacharya as a party Defendant in the proceedings. Pursuant thereto, Mr. Sudip Bhattacharya was impleaded as Defendant No. 2 in the Suit. Despite order of the Court allowing Defendant No.2 to sell the 1st Defendant Vessel, he was unable to do so. Since the Defendant No. 2 failed to sell the 1st Defendant Vessel, the Plaintiff filed Interim Application No. 2 of 2020, inter alia seeking sale of the 1st Defendant Vessel on the ground that there was a severe risk of deterioration of the said vessel which had been lying unmanned for a long period of time due to which the Plaintiff's maritime lien was likely to be prejudiced.
- On 9thMarch 2020, Bombay High Court passed an order in Interim Application No. 2 of 2020 wherein the Court inter alia recorded the undertaking and statements of Defendant No.2 which stated that all costs / expenses incurred by the Plaintiff from 24th April 2019 till the 1st Defendant Vessel leaves the berth, including Berthing and Port charges as well as Salvage charges, shall be treated by the Liquidator as liquidation costs or IRP costs as contemplated under Section 53 (1) (a) of the IBC, 2016. It was further stated by Defendant No.2 that as far as the Berth and Port charges were concerned, there was no dispute. As far as the Salvage charges were concerned, Defendant No.2 stated that the same would be treated as liquidation costs or IRP costs, subject to scrutiny regarding its quantum by Defendant 2. The said statements were accepted by the Court as undertakings given by Defendant No.2.
- On 9thJuly 2020, Bombay High Court directed sale of the 1st Defendant Vessel. Pursuant thereto, sometime in September 2020, after hearing the advocates for respective parties, the Court confirmed the sale of the 1st Defendant Vessel in favour of one J. T. Marine Services Pvt Ltd, for a consideration of R10,75,00,000/-. The sale proceeds were thereafter deposited by J. T. Marine Services Pvt Ltd with the Prothonotary and Senior Master, Bombay High Court.
Case of the Plaintiff:
- Plaintiff raised various invoices (prior to and during the pendency of the Suit) for the period ranging from; a) 13thFebruary 2019 (the date when the 1st Defendant Vessel first arrived at Plaintiff's port) to 15th January 2020 (the date of filing of the above suit), b) from 16th January, 2020 to 31st August, 2020, c) from 1st September, 2020 to 30th September, 2020 and d) from 1st October, 2020 till 29th October, 2020 (the date when the 1st Defendant Vessel was sold).
- The abovementioned invoices included Berth Hire charges, Penal Berth Hire charges, Port charges and Salvage It was the case of the Plaintiff that none of the invoices were disputed either by the owners of the 1st Defendant Vessel (i.e. Tag Offshore Ltd) or Defendant No.2 (the Liquidator appointed for Tag Offshore Ltd). In fact, Defendant No.2 admitted that Berth and Port charges as well as the Salvage charges were payable to the Plaintiff as recorded by the Bombay High Court in its order dated 9th March, 2020. In the said order, a categorical statement of Defendant No.2 was recorded that Berth and Port charges of the Plaintiff are not disputed by Defendant No.2.
- Even as regards the Salvage charges were concerned, it was the case of the Plaintiff that salvage operations were carried out was not disputed and a statement was made by the Liquidator (Defendant 2) that the same would be treated as liquidation costs or IRP costs subject to scrutiny regarding its quantum. It was the case of the Plaintiff that it was also entitled to be paid for the Salvage operations carried out in relation to the 1stDefendant Vessel.
- In light of the above factual background, the Plaintiff/ Applicant moved an Interim Application (L) No. 112 of 2021 under the provisions of Order XIII-A read with Order XII Rule 6 of the Code of Civil Procedure seeking a summary judgment against the sale proceeds of the 1st Defendant Vessel, TAG 15 in the sum of Rs. 9.37,19,098/- together with interest @ 18% p.a. from 18thDecember 2020 till payment and/or realization on the premise that the Defendants have not only admitted/confirmed the dues of the Plaintiff/Applicant but in any event, the claim of the Plaintiff was really undisputed and the Defendants had no real prospect of successfully defending the claim of the Plaintiff.
Case of the Defendant No. 2:
- The Suit filed by the Plaintiff was not maintainable in light of the bar contained in Section 33(5) of the IBC, 2016. Once Tag Offshore was ordered to be wound up, Section 33 (5) of the IBC, 2016 also came into effect prohibiting the subsequent institution of the suit by the Plaintiff against Tag Offshore Ltd. (the Corporate Debtor). Combined reading of Sections 33, 35, 36, 53, and 238 of the IBC, 2016 make it clear that the bar of jurisdiction was for the purposes of protecting the assets of the Corporate Debtor, including the 1stDefendant Vessel, which belonged to Tag Offshore Ltd. (the Corporate Debtor);
- The Suit was barred by the principles of res judicata. The Plaintiff, having already filed its claim before Defendant 2 (the Liquidator of Tag Offshore Ltd) and the claim being adjudicated by Defendant No. 2, was not entitled to file and prosecute the Suit as the amounts claimed before the Liquidator as well as in the Suit arose from the same cause of action. It was the case of the Defendant No. 2 that the Doctrine of Election would be applicable and the adjudication of the claim by the Liquidator was a quasi-judicial determination which the Plaintiff did not challenge by way of an Appeal under Section 42 of the IBC, 2016 and the adjudication therefore attained finality;
- The Plaintiff was not entitled to any amounts towards Penal Berth Hire as the same were in the nature of a penalty, and in terms of Section 74 of the Contract Act, 1872, the Plaintiff would be required to prove actual loss for which only reasonable compensation can be The Defendant No. 2 therefore argued that this can never form the subject matter of a summary judgment under Order XIII-A of the CPC;
- The claim towards Salvage charges was not payable because the same was rejected by Defendant No.2 and the adjudication done by Defendant 2 in relation thereto being quasi-judicial in nature, the same claim now could not be agitated in the present suit without challenging the said adjudication under the provisions of the IBC, 2016. It was urged by the Defendant No. 2 that no particulars of the Salvage charges were given by the Plaintiff to Defendant No.2, and therefore, the said claim in any event would have to be proved by the Plaintiff and cannot form the subject matter of a summary judgment under Order XIII-A of the CPC.
Findings of the Bombay High Court:
On the issue of maintainability of the Suit raised by the Defendant No. 2:
- It was held that Section 33(5) is ex-facie clear and the said provision prohibits the institution of a suit or other legal proceeding against the Corporate Debtor 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 the Court. 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. The action against the Vessel under the Admiralty Act, is an action in rem and a decree can be sought against the Vessel without suing the owner of the said Vessel.
- The fundamental legal nature of an action in rem, as distinct from its eventual object, is that it is a proceeding against the Thus, when a Vessel represents such res as is frequently the case, the action in rem is an action against the Vessel itself. The action is a remedy against the corpus of the offending Vessel. It is distinct from an action in personam which is a proceeding inter-parties founded on personal service on the Defendant within jurisdiction of the Court, leading to a judgment against the person of the Defendant. In this regard placing reliance upon its earlier decision in Raj Shipping Agencies v/s Barge Madhwa & Anr. (Supra), the Bombay High Court rejected the submission of the Defendant No. 2 regarding the maintainability of the Suit.
On the issue of Suit being barred by the principles of Res Judicata raised by the Defendant No. 2:
- for the subsequent suit to be barred by the principles of
res judicata, the matter directly and substantially in
issue in the subsequent suit (i) has been directly and
substantially in issue in the former suit; (ii) must be between the
same parties, or between the parties under whom they or any of them
claim, litigating under the same title; and (iii) the former suit
has been heard and finally decided on merits. What follows
therefrom is that the principles of res judicata would not
apply if (a) there is no decision on merits; or (b) if it is
between different parties.
- a limited adjudication done by Defendant No.2 would have no impact on the present Admiralty Suit. The claim of the Plaintiff adjudicated by Defendant 2 was only pertaining to one invoice for the period 24thApril 2019 to 26th September 2019. Invoices raised for the period from 13th February 2019 to 23rd April 2019 and 27th September 2019 to 29th October 2020 were not the subject matter of adjudication by Defendant No.2 at all. In view thereof, the Bombay High Court did not accept the argument that the entire claim of the Plaintiff was barred by the principles of res judicata or constructive res judicata.
- claim for Salvage charges was not rejected by Defendant No.2 on merits. The claim was rejected on the basis that not enough supporting documentation was provided by the Plaintiff to substantiate its claim under the heading "Salvage charges". If, Defendant No.2 was of the opinion that the claim for Salvage charges was barred by the principles of res judicata, Defendant No.2 would not have made a statement on 9th March 2020 before the Court that Salvage charges "would be treated as a liquidation costs or IRP costs subject to scrutiny regarding its quantum by the Liquidator", as the said statement was made by the Defendant No. 2 after its adjudication.
- Defendant No.2 would have no jurisdiction to adjudicate any claim against the 1stDefendant Vessel under the provisions of the IBC, 2016. As the claim made by the Plaintiff in the Admiralty suit was not against Defendant No.2 at all but against the sale proceeds of the 1st Defendant Vessel and which continued to be an action in rem, it was held by the Court that any adjudication that was done by Defendant No.2 regarding a claim made by the Plaintiff against Defendant No.2, could not attract the principles of res judicata qua the Plaintiff's Admiralty suit, which sought a decree only against the 1st Defendant Vessel.
On the issue that "Penal Berth Hire charges" are in the nature of penalty raised by the Defendant No. 2:
- Penal Berth Hire charges that the 1stDefendant Vessel would incur were set out in the Tariff Booklet of the Plaintiff. It was not in dispute that once Tag Offshore Ltd., engaged the services of the Plaintiff for the 1st Defendant Vessel, it would be contractually obligated to pay for those services as per the Tariff Booklet of the Plaintiff.
- As per the Tariff Booklet, Penal Berth Hire charges, in addition to the Berth Hire charges were payable "(i) when the Vessel is unable to commence cargo operations within 2 hours of all fast time (i.e. the time after which the Vessel is completely moored and secured at the port); or (ii) when the Vessel is not ready to sail after two hours from the time of completion of cargo operations; or (iii) when the Vessel discontinues cargo operations for its own reasons".
- It was not in dispute that the 1stDefendant Vessel was berthed in the Plaintiff's Port from 13th February 2019 till the same was sold on 28th October It was also not in dispute that at least one of the contingencies contemplated in the Tariff Booklet (as stated above) for levying Penal Berth Hire charges triggered on 13th February 2019 itself.
- Upon reading of the Tariff Booklet, it was clear that the charges of Penal Berth Hire were not per-se penal in nature but were only additional charges that the Vessel would incur in the eventualities mentioned above. It was held that once the 1st Defendant Vessel contractually agreed to pay these additional charges, Defendant No.2, could not resile from this contractual obligation on the false ground that Penal Berth Hire charges were in fact penalty and would therefore have to be
- In addition to the above finding, the Court also noted that even Defendant No. 2 in fact also understood Penal Berth Hire charges as additional charges and not as a penalty while adjudicating the invoice of the Plaintiff dated 17thOctober 2019. When the said invoice was adjudicated by Defendant 2, he accepted all the charges save and except the Salvage costs/operations. The Court held that once Defendant no. 2 accepted that these amounts were payable to the Plaintiff, he, could not argue that the Plaintiff was not entitled to any Penal Berth Hire Charges and the same were penal in nature. This coupled with the fact that the Defendant No.2 made a statement before the Court on 9th March 2020 that as far as Berth charges and Port charges were concerned, there was no dispute also was held against the Defendant No. 2 by the Bombay High Court while deciding this issue.
Relief granted to the Plaintiff:
The Bombay High Court allowed majority of the claims of the Plaintiff save and except the claim towards Salvage costs/operations under the provisions of Order XIII-A, as it held that this claim of the Plaintiff will have to be proved at the trial of the suit. The Bombay High Court passed a summary judgement and a decree in favour of the Plaintiff against the sale proceeds of the 1st Defendant Vessel in the sum of Rs.5,51,00,016/-.
The Bombay High Court has not only held that a shipping company slipping into insolvency / liquidation (under IBC, 2016) has no impact on an admiralty action in rem against its vessel, but went a step further on the point and held that the adjudication of claims by the liquidator under IBC, 2016 cannot operate as res judicata qua the admiralty suit filed by a creditor against the vessel. While deciding the issue of res judicata the Court also held that the Doctrine of Election does not apply to the facts and circumstances of the present case. In effect, the Bombay High Court concluded that there exists no scrimmage between the Admiralty Act and IBC, 2016, as in the facts of the present case, the proceedings under IBC,2016 were against Tag Offshore Ltd. (the Corporate Debtor) and the proceedings in the Commercial Admiralty Suit (L) No. 4 of 2020 were against the vessel, TAG 15 (IMO. 9705550).
The Judgment and decree passed by the Bombay High Court also assumes significance as it also dealt with and decided an important issue that the "penal berth hire charges" (claimed by the Plaintiff) are only additional charges contractually agreed between the parties, which cannot be classified in the nature of a penalty and therefore a party claiming such charges would not have to prove the said charges as damages under Section 74 of the India Contract Act.
1. Raj Shipping Agencies v/s Barge Madhwa & Anr. [2020 SCC Online Bom 561]
2. Swiss Ribbons Private Limited
Union of India [(2019) 4
3. Smt Ujjam Bai State of Uttar Pradesh [AIR 1962 SC 1621]
4. Transcore v. Union of India [(2008) 1 SCC 125]
5. Union of India v. Murugesan [(2021) SCC Online SC 895]
6. Erach Boman Khavar v/s Tukaram Shridhar Bhat & Anr [(2013) 15 SCC 655]
7. Oil & Natural Gas Corporation Ltd Saw Pipes Ltd [(2003) 5 SCC 705]
8. Kailash Nath Associates v. Delhi Development Authority [(2015) 4 SCC 136]
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