SECURITIZATION OF CLAIMS – INDIAN PERSPECTIVE
by S.Bhandari
Crowe Boda, Kolkata
(A) Claims that are not the subject matter of an arbitration
agreement between the parties.
(B) Claims that are governed by an arbitration agreement
Claims that are not governed by an arbitration agreement
between the parties:
Possible Routes:
> An action In Rem
> Attachment before judgement
Action in rem – A remedy under the admiralty law
If a claimant has a maritime claim that either qualifies as a
maritime lien or gives rise to a statutory right in rem, he
may,at the time when either the offending vessel or the vessel
that is in the ownership or beneficial ownership of the person
who would be liable in personam for the claim is found within
the admiralty jurisdiction of an Indian court possessing
admiralty jurisdiction, institute an in rem action and obtain a
warrant of arrest. In most cases, this course of action will
enable him to obtain a security for his claim in the form of a
guarantee by an acceptable bank or a cash deposit which an
Owner will offer, pending the adjudication of the substantive
dispute, as a price of having his vessel released. The security
may also be in the form of a P&I Club’s LOU provided the
Claimant consents to the said mode and form of the security.
Municipal Laws currently in force:
Admiralty Courts Act, 1861
Colonial Courts of Admiralty Act, 1890
Colonial Courts of Admiralty (India) Act, 1891
Merchant Shipping Act, 1958
Originally, the High Courts at Calcutta, Madras and Bombay
exercised admiralty jurisdiction. The law has since evolved
particularly since the days of the Apex court’s decision in the
‘Elisabeth’ in 1993. All superior courts of record now posses
concurrent admiralty jurisdiction.
The Indian courts possessing admiralty jurisdiction have
jurisdiction over an action in rem arising out of the claims as
listed in the attachment.
Any dispute arising out of salvage services rendered within
Indian territorial waters is determinable by the High Court
(where the sum involved in the dispute is in excess of INRS
10,000) within the limits of whose appellate jurisdiction (a) the
port of registry of the vessel is situate; or (b) the vessel is for
the time being in; or (c) the cause of action wholly or in part
arises. Thus, salvage claims have been made the subject
matter of a special jurisdiction.
By their decision in the ‘Elisabeth’, the Supreme Court
materially widened the limits of the courts’ admiralty
jurisdiction and the scope of the maritime claims, and thus
made it comparatively easier for a Claimant to enforce his
objective of at the very least securing his claim.
The apex court did not limit itself to interpreting the Municipal
Laws as they then stood. It proceeded on the following basis:
“India seems to be lagging behind many other countries in
ratifying and adopting the beneficial provisions of various
Conventions intended to facilitate international trade. Although
these conventions have not been adopted by legislation, the
principles incorporated in the conventions are themselves
derived from the common law of nations………and are as such
part of the common law of India…….”.
“There is no reason why the jurisdiction of the Indian High
Courts should have been considered to have frozen and
atrophied on the date of the Colonial Courts of Admiralty Act.
1890…”
The winds of change in the Indian admiralty law had started
blowing since the days of the ‘Elisabeth’ decision. Presently, the
Admiralty Bill 2005 which seeks to amend and consolidate the
law relating to the admiralty jurisdiction of the courts, legal
proceedings in connection with the ships, their arrest, detention
and sale and matters connected therewith or incidental thereto
is under consideration. It seems to me that the intention of the
draftsman was to base the general scheme on the (English)
Supreme Court Act, 1981. The types of claims that will attract
the admiralty jurisdiction of the courts mirror those specified in
the English Act. However, the draft product, in my view, contains
various anomalies which, if not removed, can throw the present
admiralty law in a further state of flux. For instance, one of the
provisions of the proposed amendment states that “the
jurisdiction of the court may be invoked by an action in personam
in cases of maritime lien..”. This provision looks rather odd to
me and does not appear to appreciate the very character of a
maritime lien that attaches to the res irrespective of its ownership
at the time of the institution of the action. In my view, it does not
make sense for the Claimants to get involved with an ‘in
personam’ action when he has a better remedy available in the
form of the res itself regardless of her ownership.
Attachment before judgement – A remedy under Civil
Procedure Code
“Attachment” before judgement of a ship, as of any other
property, is available in all the Indian courts of ordinary civil
jurisdiction having jurisdiction over the subject-matter of the
claim for most kinds of claims, which would include claim for
charter hire or stevedoring services or necessaries supplied,
provided the court is convinced on affidavit or otherwise that the
ship is the only asset of the Defendant within the jurisdiction and
is about to be disposed of or removed out of the limits of the
court’s jurisdiction with intent to defeat, obstruct or delay the
execution of any decree that may be passed against the
Defendant.
This procedure can be adopted only if the cause of action has
arisen within the jurisdiction or the defendant carries on business
within such jurisdiction and therefore the right of a Claimant to
obtain security thus gets somewhat fettered. If the Defendants are
an Indian company, it may be well nigh impossible to show to the
judge the real risk of their dissipating their assets without which
the attachment becomes a non-starter.
Claims that are governed by an arbitration agreement
► An action in rem - A remedy under the admiralty law
►
Application
under
Sec.9
of
the
Arbitration
and
Conciliation Act, 1996 (As attached) - A remedy under
the Arbitration Act read with the Civil Procedure Code.
Indian law in this area is still somewhat unsettled. It reminds one
of the state of English law prior to the enactment of the Civil
Jurisdiction and Judgements Act 1982.
Different courts in India have ruled differently on the question
whether the court in its admiralty jurisdiction has power to
arrest a ship to secure a claim in future or pending arbitration.
Courts in Kolkata have consistently held, albeit possibly on a
discretionary basis, in favour of the Claimant. I have also
seen a similar ruling in the Ahmedabad court. Courts in
Mumbai are still divided on this issue which, as far as I know,
is now before a larger bench.
Thus it cannot be presently be said with any degree of
certainty that a Claimant can successfully go down this route
to secure his claim in arbitration.
The alternative route is to file an application under Sec.9 of the
Arbitration and Conciliation Act, 1996 which states, inter alia, as
follows:
A party may, before or during arbitral proceedings or at any time
after the making of arbitral award but before it becomes decree
of a court, apply to a court for an interim measure of protection
in respect of any of the following matters, namely:
►
Securing the amount in dispute in the arbitration;
►
Such other interim measure of protection as may appear to
the court to be just and convenient.
“Court” means the principal civil court of original jurisdiction in a
district, and includes the High Court in exercise of its ordinary
original civil jurisdiction, having jurisdiction to decide the
questions forming the subject-matter of the arbitration if the
same had been the subject-matter of a suit, but does not include
any civil court of a grade inferior to such principal civil court, or
any court of small causes.
It will be clear from the above provisions that unlike in the case
of an action in rem, where the presence of the res within the
court’s jurisdiction is sufficient to invoke the court’s admiralty
jurisdiction, a Sec.9 application can only lie in those cases
where the court can exercise its ordinary original civil jurisdiction
i.e. in only those cases where the cause of action has arisen
within or the defendant carries on business within the
jurisdiction of the court.
Obviously, therefore, a Sec.9
application has its limitations when compared with a pure action
in rem.
In the context of an action in rem, a Claimant also usually
considers from the point of view of securing his claim the
possibility of arresting /attaching the Charterers’ bunkers. The
general view, and probably the better view, is that the present
Indian law does not permit the arrest/attachment of bunkers. In
most of the limited few cases in which an attempt was made, the
Claimants failed. To the best of my knowledge, in only two
cases, both in Kolkata, did the court issue arrest orders. As both
cases were subsequently settled out of court, the orders were
not appealed but had they been the appeal court may well have
set the orders aside. Therefore, these decisions should not be
seen as setting the trend for the future.
"Maritime Claim" means a claim arising out of one or more of the
following:
(a) loss or damage caused by the operation of the ship;
(b) loss of life or personal injury occurring, whether on land or on
water, in direct connection with the operation of the ship;
(c) salvage operations or any salvage agreement, including, if
applicable, special compensation relating to salvage operations
in respect of a ship which by itself or its cargo threatened
damage to the environment;
(d) damage or threat of damage caused by the ship to the
environment, coastline or related interests; measures taken to
prevent, minimize, or remove such damage; compensation for
such damage; costs of reasonable measures of reinstatement of
the environment actually undertaken or to be undertaken; loss
incurred or likely to be incurred by third parties in connection with
such damage; and damage, costs, or loss of a similar nature to
those identified in this subparagraph (d);
(e) costs or expenses relating to the raising, removal, recovery,
destruction or the rendering harmless of a ship which is sunk,
wrecked, stranded or abandoned, including anything that is or
has been on board such ship, and costs or expenses relating to
the preservation of an abandoned ship and maintenance of its
crew;
(f) any agreement relating to the use or hire of the ship, whether
contained in a charter party or otherwise;
(g) any agreement relating to the carriage of goods or passengers
on board the ship, whether contained in a charter party or
otherwise;
(h) loss of or damage to or in connection with goods (including
luggage) carried on board the ship;
(i) general average;
(j) towage;
(k) pilotage;
(l) goods, materials, provisions, bunkers, equipment (including
containers) supplied or services rendered to the ship for its
operation, management, preservation or maintenance;
(m) construction, reconstruction, repair, converting or equipping of
the ship;
(n) port, canal, dock, harbour and other waterway dues and charges;
(o) wages and other sums due to the master, officers and other
members of the ship's complement in respect of their employment
on the ship, including costs of repatriation and social insurance
contributions payable on their behalf;
(p) disbursements incurred on behalf of the ship or its owners;
(q) insurance premiums (including mutual insurance calls) in respect
of the ship, payable by or on behalf of the shipowner or demise
charterer;
(r) any commissions, brokerages or agency fees payable in
respect of the ship by or on behalf of the shipowner or demise
charterer;
(s) any dispute as to ownership or possession of the ship;
(t) any dispute between co-owners of the ship as to the
employment or earnings of the ship;
(u) a mortgage or a "hypothèque" or a charge of the same nature
on the ship;
(v) any dispute arising out of a contract for the sale of the ship.