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SECURITIZATION OF CLAIMS – INDIAN PERSPECTIVE by S.Bhandari Crowe Boda, Kolkata (A)Claims that are not the subject matter of an arbitration agreement between.

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Presentation on theme: "SECURITIZATION OF CLAIMS – INDIAN PERSPECTIVE by S.Bhandari Crowe Boda, Kolkata (A)Claims that are not the subject matter of an arbitration agreement between."— Presentation transcript:

1 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

2 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.

3 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.

4 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:

5 “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

6 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.

7 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.

8 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.

9 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.

10 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.

11 “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.

12 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.

13 "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);

14 (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;

15 (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;

16 (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.

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