[Admiralty Act] Intervention Application Permissible If Party Has An Interest In Ship Or Sale Proceeds: Bombay High Court

While dealing with a Commercial Admiralty Suit, the Bombay High Court observed that if a party has an 'interest' in a ship/vessel or proceeds of its sale, then it can file an interim application for intervention in the suit.

The Court stated that Admiralty Rules, 2018 made under the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017 permit such intervention in the context of an action in rem, where a vessel is sold and the sale proceeds is held for the benefit of all creditors

Background of case

The plaintiff, Kroll Trustee Services Ltd., is pursuing a claim against the defendant-vessel, 'M. V. AEON', which is owned by Samnium Maritime Limited. A Term Loan Facility agreement in 2017 between two lenders and three borrowers including Samnium, under which US$ 34,025,000 was disbursed in two advances.

Samnium executed two mortgage deeds on the defendant-vessel in favour of Wilmington Trust as a Security and Facility Agent. Later, Kroll replaced Wilmington as the security and facility agent. The two mortgages stood transferred to Kroll.

After the borrowers. including Samnium defaulted on repayment, Kroll instituted a Commercial Admiralty Suit for enforcement of the mortgages including for recovery of US$ 23,132,644 plus interest, and the arrest and sale of the defendant-vessel. The defendant-vessel was arrested and subsequently sold for Rs.103,67,06,200. The sale proceeds are now deposited with the High Court.

The present interim applications have been filed by the applicants, Global Radiance Ltd. and Termoil Ltd. to intervene in the suit. They claim that they had arranged some supplies to the defendant-vessel and thus have a maritime claim under Section 4(1)(l) of the Admiralty Act, 2017.

'Interest' in a maritime claim

Justice N.J. Jamadar noted that the claim of Global Radiance and Termoil is that they have a maritime claim against the defendant-vessel under Section 4(1) of Admiralty Act.

Under Section 4(1), a maritime claim can arise out of goods, equipments or services rendered to vessel (clause l) and disbursements incurred on behalf of the vessel or its owner (clause p).

Kroll argued that even if the applicants' claims under Section 4(1)(l) and (p) of Admiralty Act are accepted, they would have lower priority. Therefore, Kroll contended that they should not be allowed to intervene at this stage.

In view of this contention, the Court referred to Rule 1086 of the Admiralty Rules, 2018, which provides that a party having interest in the ship against which suit in rem is instituted or proceeds of sale, can file for an intervention in the suit. Further, Rule 1087 provides that a party who has obtained a decree against a ship or proceeds of sale can file an application for determining the order of priority of claims against the proceeds of sale of such ship.

The Court stated that under Rule 1086, the qualification for intervention is 'to have interest' in the vessel or sale proceeds. This interest can be examined by seeing whether the claim falls within the purview of a 'maritime claim'.

It stated that when dealing with an action in rem, where a vessel is sold and the sale proceeds is held for the benefit of all creditors, the test is to assess whether the party claiming intervention has any 'interest' in the vessel or the sale proceeds.

“...the entitlement to intervene cannot be adjudged only on the basis of the nature of the possible defences which the proposed intervener may take (depending upon contest or no contest by the original defendant). The true test to be applied is, to assess whether the party claiming intervention has any 'interest' in the vessel or the sale proceeds.”

Referring to Section 10(1) of Admiralty Act, it observed that the order of determining priority is in the nature of a waterfall mechanism. It stated “Maritime lien has the first priority. Registered mortgages and charges of same nature on the vessel stand second. Thereafter follow all other claims.”

Section 10(2)(a) provides that if there are multiple claims within the same priority category, these claims will be treated equally. The Court observed that the order of priorities in the provision implies that the if the sale proceeds fall short of the claim of a claimant higher in rank, then the claimant lower in rank would get nothing.

“...if a claimant standing higher in priority gets a decree for a sum in excess of its lawful entitlement and is paid out, nothing would remain for distribution to a decree-holder who ranks lower in priority.”

The Court remarked that the following position emerges in the case: “First, actions in rem have been brought against the vessel by a number of claimants including the plaintiff and the applicants. Second, the defendant – Vessel has been sold, post arrest, and this Court holds seisin over the sale proceeds of the vessel. Third, the applicants being the maritime claimants have prima faice interest in the sale proceeds of the defendant – Vessel.”

It stated that Global Radiance and Termoil prima facie rank lower in priority than Kroll. However, it examined the peculiar facts of the case. It stated that Kroll obtained a consent order and initiated proceedings in various jurisdictions to recover the same amount, which is the subject-matter of the suit.

It noted “...the erstwhile registered owner has fully conceded the claim of the plaintiff rendering the suit virtually uncontested, the applicants – maritime claimants can be said to have such interest as to permit them to intervene in the suit to demonstrate that the plaintiff is entitled to a decree to the extent its claim is genuine and sustainable…”

The Court thus allowed the intervention applications.

Case title: Global Radiance Ship Management PTE Ltd. & Termoil Ltd. in the matter between Kroll Trustee Services Ltd. vs. M. V. Aeon (INTERIM APPLICATION (L) NO. 38845 OF 2022 and INTERIM APPLICATION NO. 1262 OF 2023 IN COMM ADMIRALTY SUIT NO. 41 OF 2022)

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