Can Indian Courts Arrest Ships In Foreign Seated Maritime Arbitrations?

Under Section 9 of the Indian Arbitration and Conciliation Act, 1996 ('Arbitration Act') parties can seek interim measures of protection from courts in aid of arbitration proceeding. Post the 2015 amendment to the Arbitration Act, provisions of Section 9 have been extended to International Commercial Arbitrations seated outside India. Section 45 of the Arbitration Act mandates a Court to refer the parties to arbitration when the dispute is subject matter of a valid arbitration clause having a foreign seat of arbitration.

Under Section 5 of the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017 ('Admiralty Act') the court may, upon institution of an admiralty suit by a party, order arrest of any vessel in rem for the purpose of providing security against certain maritime claims identified in Section 4 of the Admiralty Act. The action in rem signifies that the vessel has a separate juridical personality against whom the maritime claim is enforced as opposed to an action in personam which is against the shipowner.

Judicial Trend

The issues under consideration have arisen due to certain observations made by the Supreme Court of India in the case of Bharat Aluminum Company v. Kaiser Aluminum Technical Services Inc ('BALCO'). The Court inter alia held that as a matter of law, an inter partes suit simply for interim relief pending arbitrations seated outside India, even if it be limited for the purpose of restraining dissipation of assets, would not be maintainable. It was further held that pendency of arbitration proceedings seated outside India would not provide a cause of action for a suit where the main prayer is for injunction, and it would not be open to a party to file a suit touching on the merits of the arbitration. If such a suit were to be filed, it would in all probabilities be stayed in view of Section 45 of the Arbitration Act.

Relying on the aforesaid observations made by the Supreme Court in BALCO, the Bombay High Court in the case of Rushab Ship International LLC v. M.V. African Eagle held that the Court's jurisdiction to arrest a ship in an action in rem should not be exercised for the purpose of providing security of an arbitral award, which may be made in an arbitration seated outside India. The Court concluded that if a party invokes the jurisdiction of the Court to obtain arrest of the ship as a security for an award in an arbitration proceeding, the Court should not issue a warrant of arrest.

The Bombay High Court in JS Ocean Liner v. M.V. Golden Progress ('Golden Progress') held that as Section 9 of the Arbitration Act cannot be construed so as to read into it in rem jurisdiction, an application under Section 9 of Arbitration Act is not maintainable for arrest of the vessel for obtaining security of an arbitration award that may be passed in an arbitration seated outside. However, an action in rem as an admiralty suit for recovery of maritime claim and arrest of vessel in exercise of admiralty jurisdiction can be maintained even when there is an arbitration agreement, and the status of arrested ship would be subject to the final arbitral award. This ruling is significant as it clarifies that the vessel cannot be arrested under the Arbitration Act and the same can only be done within the contours of the Court's admiralty jurisdiction.

A single judge of the Bombay High Court in Siem Offshore v. Altus Uber ('Altus Uber') held that commencement of an in personam arbitration outside India is no bar to commencement of a substantive admiralty action in rem for recovery of maritime claim and arrest of vessel before the Courts in India even though both may arise from the same facts, as the two proceedings are cumulative and not in the alternative. In an appeal against judgment of the single judge in Altus Uber, the Division Bench of the Bombay High Court held that an admiralty suit for enforcement of a maritime claim falling within Section 4 of the Admiralty Act seeking a decree against the vessel is maintainable before the Court in India irrespective of pendency of arbitration seated outside India, and the vessel can be arrested as security for maritime claim sought to be enforced in the suit. The Court observations were restricted to the facts of the Altus Uber case and the Court categorically refused to lay down any general legal principle that a suit simpliciter for arrest of a vessel to merely secure a claim in an arbitration seated outside India would always be maintainable in the admiralty jurisdiction of Courts in India.

Analysis

The position of law that emerges from these judgments is that if on the facts of each case it appears to the Court that the admiralty suit is filed in rem for enforcement of a maritime claim in terms of Section 4 of the Admiralty Act and a substantive relief is claimed therein then the same is maintainable despite the pendency of an arbitration outside India. However, if the Court finds that the suit is filed to arrest a vessel with the sole aim to secure a claim in an arbitration outside India then, despite the obscure legal position on this point, the Court ought not to interfere in view of the aforesaid observations made by the Supreme Court in BALCO which precludes a suit simply for interim relief pending an arbitration seated outside India.

The Courts ought not entertain even an in rem admiralty suit for enforcement of a maritime claim in terms of Section 4 of the Admiralty Act and for arrest of a vessel when there is foreign arbitration clause or a pending foreign arbitration proceeding. This contention is plausible, for these three important reasons:

1. The consequence of an arbitration agreement is that it bars the parties from approaching the Courts for adjudication of their disputes. Both the in rem admiralty suit based on a maritime claim and the claim in an arbitration seated outside India arise from the same cause of action. Since the subject-matter of both these proceedings would be the same, admiralty suit would be barred in view of the plain language of Section 45 of the Arbitration Act which mandates that a Court shall refer the parties to arbitration when the dispute is subject matter of an arbitration clause with foreign seat. Consequently, Courts in India are enjoined not to exercise their admiralty jurisdiction and the parties would have to obtain interim reliefs from the Courts and as per the prevailing law in the foreign seat of arbitration.

2. The Supreme Court in the case of Kandla Export Corporation and Anr v. OCI Corporation and Anr has held that the Arbitration Act is a self-contained code with a negative import that only such acts as mentioned in the Arbitration Act are permissible to be done and acts not mentioned therein are not permissible to be done. Any interim relief, including arrest of a vessel, during pendency of an arbitration seated outside India is principally governed by the Arbitration Act. The Bombay High Court in Golden Progress has held that a vessel cannot be arrested under Section 9 of the Arbitration Act. In such an eventuality, the Courts ought not to indirectly exercise their admiralty jurisdiction to grant an interim relief which they are directly prohibited to grant under the Arbitration Act.

3. The erstwhile admiralty law in India prior to Admiralty Act was the International Convention on Arrest of Ships, 1999. Article 2(3) of the said Convention specifically provided for a situation where an action in rem is maintainable even during pendency of an arbitration seated outside India. However, Admiralty Act has excluded a provision analogous to Article VII of the said Convention by not having a specific provision empowering the Courts to arrest vessels during pendency of an arbitration seated outside India. Hence, impliedly, the Admiralty Act itself does not contemplate such in rem actions.

A conclusive all-encompassing judgment of the Supreme Court which settles the law relating to the interaction of Arbitration Act and Admiralty Act in the context of foreign seated arbitrations would be welcome.